150 T.C. No. 10
Tax Ct.2018Background
- Beekman Vista, Inc. (a Delaware corporation) and Dynamo Holdings L.P. (a partnership, with Dynamo GP as tax matters partner) share common ultimate owners; transfers of property among related entities occurred in 2005–2007 and were examined by the IRS.
- IRS issued a notice of deficiency to Beekman Vista (asserting withholding liability, additions under I.R.C. §6651(a)(1), and penalties under §6656) and an FPAA to Dynamo (asserting partnership-item adjustments and accuracy-related penalties under §6662).
- After trial and submission, this Court decided Graev III (holding that when the Commissioner bears the burden of production under §7491(c) he must produce written supervisory approval under §6751(b)(1)). The Court directed the parties to address Graev III’s effect and any supervisory-approval evidence in the record.
- The Commissioner moved to reopen the record to add testimony/evidence of supervisory approval; petitioners moved to dismiss penalty claims under §7491(c) for lack of supervisory-approval proof.
- The Commissioner pointed to documents signed by Team Managers (penalty worksheets and transmittal letters) as evidence of supervisory approval; petitioners challenged whether those signatories were the immediate supervisors and thus whether §6751(b) approval was shown.
- The Tax Court limited its inquiry to whether the Commissioner bears the burden of production under §7491(c) in partnership-level (and corporate) proceedings and whether reopening the record would affect the outcome.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Commissioner bears the burden of production under §7491(c) for penalties in a partnership-level proceeding | Petitioners: §7491(c) applies and thus Commissioner must produce supervisory-approval proof for penalties | Commissioner: §7491(c) does not apply because partnership-level proceedings are not "with respect to the liability of any individual"; Commissioner alternatively has produced approval | Held: §7491(c) does not apply in partnership-level proceedings; Commissioner does not bear burden of production for penalties at partnership level |
| Whether Commissioner bears burden of production under §7491(c) for penalties asserted against a corporation (Beekman Vista) | Petitioners: §7491(c) applies so Commissioner must show supervisory approval for corporate penalty | Commissioner: §7491(c) does not apply to corporations; NT, Inc. supports that §7491(c) only applies to individuals | Held: Commissioner does not bear burden of production for penalties asserted against a corporation |
| Whether lack of §6751(b) supervisory approval may be raised as a defense when Commissioner does not bear burden of production | Petitioners: lack of approval is a defense that should bar penalties if Commissioner cannot produce approval | Commissioner: if burden does not apply, petitioners must plead/raise defense | Held: Lack of supervisory approval can be raised as a defense, but petitioners waived that defense by not timely raising it (petition/at trial/brief) for Dynamo |
| Whether the record should be reopened to allow the Commissioner to supplement proof of supervisory approval (including for increased penalties in amendment to answer) | Commissioner: reopening is timely and will not prejudice petitioners; it may produce approval evidence | Petitioners: reopening unnecessary if Commissioner lacks burden; also contest sufficiency of current supervisory-evidence | Held: Motion to reopen denied — reopening would not affect outcome as Commissioner had no burden for existing partnership/corporate penalties; and Commissioner did not proffer supervisory-approval evidence for increased penalty in amendment to answer, so no basis to reopen |
Key Cases Cited
- NT, Inc. v. Commissioner, 126 T.C. 191 (2006) (§7491(c) applies only to individuals; Commissioner has no burden of production for penalties asserted against a corporation)
- Desmet v. Commissioner, 581 F.3d 297 (6th Cir. 2009) (partnership-level determinations affect partner liability only at partner-level proceedings)
- United States v. Byrd, 403 F.3d 1278 (11th Cir. 2005) (framework for evaluating motions to reopen the record)
- Butler v. Commissioner, 114 T.C. 276 (2000) (reopening the record is discretionary; court should deny when reopening would not affect outcome)
- Petzoldt v. Commissioner, 92 T.C. 661 (1989) (issues not timely raised at trial are waived)
- Shea v. Commissioner, 112 T.C. 183 (1999) (Commissioner bears burden of proof on new matters/affirmative defenses pleaded in answer)
- Rader v. Commissioner, 143 T.C. 376 (2014) (Commissioner bears the burden of proof when asserting increased deficiencies in amendment to answer)