Background

• In 2007 petitioners Brett and Cindy Legg donated an 80‑acre conservation easement and reported a charitable deduction based on a $1,418,500 valuation; they claimed carryovers for 2008–2010.
• The IRS examined 2007–2010 returns, and the examiner's report concluded petitioners either failed to meet the legal requirements for the deduction or, alternatively, that the easement’s value was zero.
• The examiner recommended accuracy‑related penalties: primarily 20% under I.R.C. §6662(a) and alternatively 40% gross valuation misstatement penalties under §6662(h); the examiner’s immediate supervisor signed the report.
• IRS Appeals agreed with the examiner’s valuation determination and recommended the 40% §6662(h) penalty as the primary position; the Appeals Team Manager approved the report.
• The IRS issued a notice of deficiency asserting 40% §6662(h) penalties. After the notice, the parties stipulated the easement’s value was $80,000 and that the reported valuation constituted a gross valuation misstatement.
• Petitioners conceded they could not carry a reasonable‑cause defense to the §6662(h) penalty but maintained the penalties were procedurally invalid because §6751(b) required written supervisory approval of the examiner’s initial penalty determination, which they say was only for 20%.

Issues

Key Cases Cited

• Legg v. Commissioner, 145 T.C. 344 (2015) (Tax Court holds examiner’s report constituted an initial written determination of §6662(h) penalties, satisfying §6751(b))