Hancock County Land Acquisitions, LLC, Southeastern Argive Investments, LLC, Tax Matters Partner, 2025 TC Memo 50

Hancock County Land Acquisitions, LLC (Hancock) claimed a $180,177,000 tax deduction in 2016 for donating a conservation easement, along with $6,128,493 in other deductions related to the transaction.
The IRS audited Hancock’s 2016 return and disallowed both the charitable contribution deduction and the other deductions, while proposing penalties for gross and substantial valuation misstatement.
Revenue Agent Pamela Stafford conducted the audit and recommended penalties, which were then approved in writing by her immediate supervisor, Benjamin Brantley, before the issuance of the Final Partnership Administrative Adjustment (FPAA).
Hancock challenged the IRS’s determinations in Tax Court, and the IRS moved for partial summary judgment on two issues: compliance with statutory penalty approval requirements and the deductibility of certain claimed expenses.
The court granted summary judgment in favor of the IRS on the penalty approval issue, but denied summary judgment on the deductibility of the “other expenses,” finding factual disputes that warranted trial.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Timely Written Supervisory Approval of Penalties (6751(b)(1))	The agent and supervisor did not have discretionary authority; approval process may have been tainted or improperly delegated.	IRS secured timely, valid written approval by the proper supervisor before the FPAA; documentation supports IRS's position.	For IRS: Requirements of Section 6751(b)(1) were met.
Identity of Initial Penalty Decisionmaker	IRS announcements or in-house appraisers made the initial determination, not the revenue agent.	Revenue agent made the initial determination; penalty recommendations and approvals reflected proper process.	For IRS: Revenue agent and supervisor were proper actors.
Discovery into Supervisory Approval Facts	More discovery is needed to verify what actually occurred.	Documentary evidence is sufficient; discovery would not change outcome.	For IRS: No further discovery needed on this issue.
Allowability of Section 162 Deductions	Hancock paid or had expenses paid on its behalf by an agent; all claimed expenses were ordinary and necessary.	Expenses incurred by other entities or were syndication costs; not deductible under Section 162 and may be capitalized.	For Petitioner: Factual disputes preclude summary judgment.

Sundstrand Corp. v. Commissioner, 98 T.C. 518 (1992) (describes summary judgment standard in Tax Court)
Kroner v. Commissioner, 48 F.4th 1272 (11th Cir. 2022) (interprets timing of penalty approval under §6751(b)(1))
Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) (approves requirement that supervisor retain discretion at time of approval)
Interstate Transit Lines v. Commissioner, 319 U.S. 590 (1943) (addresses when a business may deduct another party’s expenses under Section 162)