Belair Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Commissioner, 154 T.C. No. 1

Belair Woods, LLC claimed a $4,778,000 charitable deduction (2009) for a conservation easement; an IRS engineer concluded the easement was substantially overvalued.
On Dec. 18, 2012 the revenue agent sent a Letter 1807 with an attached summary report proposing disallowance and alternative penalties (I.R.C. §6662(h) primary; §§6662(c),(d) alternatives) and invited a closing conference.
Two conferences occurred (Feb 2013, May 2014) with no agreement; the agent prepared a Civil Penalty Approval Form recommending three penalties and forwarded it to Group Manager Cheryl Mixon.
Mixon signed the Civil Penalty Approval Form on Sept. 2, 2014 approving the three penalties; no written approval for a §6662(e) valuation-misstatement penalty was obtained.
On Mar. 9, 2015 the IRS issued a TMP 60‑day letter formally communicating the Examination Division’s decision to assert the three penalties (and inviting Appeals); Appeals later issued an FPAA adding a §6662(e) penalty.
Dispute presented: whether §6751(b)(1) required written supervisory approval before the Letter 1807/summary report (petitioner’s view) or only before the formal notice (respondent’s view), and whether the supervisor’s signature on the Civil Penalty Approval Form satisfied §6751(b)(1).

Issue	Belair (Petitioner) Argument	Commissioner (Respondent) Argument	Held
Whether the Letter 1807/summary report constituted the “initial determination” under §6751(b)(1) requiring prior written supervisory approval	Letter 1807 + summary report were the first written IRS report proposing penalties and thus triggered §6751(b)(1) approval	The Letter 1807 merely set out tentative proposals and invited further fact‑gathering; the “initial determination” occurred when the 60‑day letter formally communicated the definite decision	Court: Letter 1807 was not the initial determination; the 60‑day letter (Mar. 9, 2015) embodied the initial determination for §6751(b)(1) purposes
Whether the supervisor’s written approval on the Civil Penalty Approval Form satisfied §6751(b)(1) and whether approval must be by a particular person or reflect depth of review	Petitioner argued earlier supervisor or more substantive review was required to make the approval meaningful	Respondent showed Group Manager Mixon (the agent’s immediate supervisor at time of approval) signed the form before the 60‑day letter; §6751(b)(1) requires written approval by the immediate supervisor but not proof of substantive quality of review	Court: Mixon’s timely written signature satisfied §6751(b)(1) for the three penalties she approved; respondent conceded lack of timely approval for the §6662(e) penalty, so that penalty fails

Chai v. Commissioner, 851 F.3d 190 (2d Cir.) (managerial approval must be meaningful and obtained by notice-of-deficiency stage)
Clay v. Commissioner, 152 T.C. 223 (Tax Ct.) (initial determination occurs no later than issuance of formal written communication that gives taxpayer right to protest)
Palmolive Bldg. Inv’rs, LLC v. Commissioner, 152 T.C. 75 (Tax Ct.) (treats supervisor signature on penalty form as meeting §6751(b)(1) when obtained before notice)
Graev v. Commissioner, 149 T.C. 485 (Tax Ct.) (discusses ambiguity of “initial determination” language)
Bedrosian v. Commissioner, 143 T.C. 83 (Tax Ct.) (treats FPAA as the IRS’ formal determination for certain TEFRA timing questions)
Pietz v. Commissioner, 59 T.C. 207 (Tax Ct.) (describing notice-of-deficiency as a formal determination)
United States v. Boyle, 469 U.S. 241 (U.S. Sup. Ct.) (advocates drawing as bright a line as feasible when construing time‑sensitive tax rules)