Roth v. C.I.R., 922 F.3d 1126

In 2007 John and Deanne Roth donated a conservation easement on 40 acres in Colorado and claimed a $970,000 charitable deduction; IRS audit later stipulated the easement value at $40,000.
IRS Revenue Agent Denise Soss proposed a 40% gross valuation misstatement penalty under I.R.C. § 6662(h); her group manager signed a Civil Penalty Approval Form.
The IRS Appeals Officer produced a memo that, while stating penalties would be sustained, calculated and the notice of deficiency mailed to the Roths reflected only a 20% accuracy-related penalty under § 6662(a).
The Roths petitioned Tax Court; the IRS answered asserting a 40% § 6662(h) penalty (signed by IRS counsel and supervisor).
The Tax Court held § 6751(b)’s written supervisory-approval requirement was satisfied (so a 40% penalty could be imposed) and denied the Roths’ request to deduct 2013–2014 repayments on 2006 tax-credit proceeds on their 2007 return under § 1341.
The Tenth Circuit affirmed, holding (1) the IRS’s “initial determination” under § 6751(b) is not limited to the penalty stated in the notice of deficiency and (2) § 1341 does not allow a deduction in the year of receipt for repayments made in later years.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a notice of deficiency containing a 20% penalty is the IRS’s § 6751(b) “initial determination,” barring later assertion of a 40% § 6662(h) penalty	Roth: the statutory notice is the IRS’s initial determination; because the notice listed only 20%, IRS cannot seek 40%	IRS: § 6751(b) is satisfied by earlier written supervisory approvals (examiner or counsel); Tax Court jurisdiction permits asserting new penalties in an answer	Held for IRS: § 6751(b) does not restrict the initial-determination to the penalty in the notice; a 40% penalty may be imposed where prior written supervisory approval exists and IRS counsel asserted it in the answer
Whether Roths may deduct in 2007 repayments (2013–2014) of proceeds from sale of 2006 tax credits (claim-of-right/§ 1341 issue)	Roth: repayment of amounts previously reported entitles them to a 2007 deduction or adjustment	IRS: § 1341 relief, if any, applies in the year of repayment, not retroactively to the year of receipt	Held for IRS: § 1341 does not permit a deduction in the year of receipt; any relief is in the year of repayment or via the § 1341 mechanism in that year

Esgar Corp. v. Commissioner, 744 F.3d 648 (10th Cir. 2014) (background on conservation-easement disputes)
Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) (interpreting § 6751(b) and treating its language as ambiguous)
Keller Tank Servs. II, Inc. v. Commissioner, 854 F.3d 1178 (10th Cir. 2017) (definitions of assessment and deficiency)
Graev v. Commissioner, 149 T.C. 485 (Tax Ct. 2017) (Tax Court treatment of § 6751(b) and initial-determination issues)
United States v. Galletti, 541 U.S. 114 (2004) (definition of assessment)
Skelly Oil Co. v. United States, 394 U.S. 678 (1969) (claim-of-right doctrine context)
Dobson v. Commissioner, 320 U.S. 489 (1943) (persuasive value of Tax Court rulings for uniform administration)