HANCOCK COUNTY LAND ACQUISITIONS, LLC, SOUTHEASTERN ARGIVE INVESTMENTS, LLC, TAX MATTERS PARTNER v. COMMISSIONER OF INTERNAL REVENUE
Docket No. 12385-20.
United States Tax Court
May 20, 2025
T.C. Memo. 2025-50
LAUBER, Judge
Cеnk A. Erkal, Victor M. Fox, Cassandra S. Bradford, Hale E. Sheppard, Sean R. Gannon, and Kevin M. Johnson, for petitioner.
Shannon C. Bambery, Olivia R. Blauert, Tess deLiefde, Rebecca J. Krystosek, Ashley M. Van Fleet, and Tracie M. Knapp, for respondent.
MEMORANDUM OPINION
LAUBER, Judge: This case involves a charitable contribution deduction claimed for 2016 by Hancock County Land Acquisitions, LLC (Hancock), for the donation of a conservation easement. The Internal Revenue Service (IRS or respondent) issued a Notice of Final Partnership Administrative Adjustment (FPAA) disallowing this and other deductions and determining penalties. Petitioner timely petitioned this Court for readjustment of partnership items.
Currently before the Court are two Motions for Partial Summary Judgment filed by respondent. In the first Motion respondent contends that the IRS complied with the requirements of
Background
The following facts are derived from the pleadings, the parties’ Motion papers, and the Declarations and Exhibits attached thereto. These facts are stated solely for the purpose of deciding respondent‘s Motions and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff‘d, 17 F.3d 965 (7th Cir. 1994).
Hancock is a Mississippi limited liability company organized in April 2016. It is treated as a TEFRA partnership for Federal income tax purposеs.2 Hancock and its tax matters partner, petitioner Southeastern Argive Investments, LLC, both had their principal places of business in Georgia when the Petition was timely filed. Absent stipulation to the contrary, appeal of this case would lie to the U.S. Court of Appeals for the Eleventh Circuit. See
In June 2016 Hancock acquired 236 acres of land in Hancock County, Mississippi, and shortly thereafter granted a conservation easement over the property. On a timely filed 2016 Form 1065, U.S. Return of Partnership Income, it claimed a charitable contribution deduction of $180,177,000 for this gift. Hancock also reported “other deductions” of $6,128,493, allegedly attributable to expenses incurred in connection with the easement transaction.
The IRS selected Hancock‘s 2016 return for examination. It assigned the case to Revenue Agent (RA) Pamela Stafford, a member of Team 1021 in the IRS Large Business & International Division. Howard Kanter and Steven T. Holzer, senior in-house appraisers emрloyed by the IRS, prepared an “appraisal review report” that evaluated the appraisal submitted with Hancock‘s return. As the examination neared
RA Stafford‘s recommendations to this effect were set forth in two civil penalty approval forms. The first, addressing the charitable contribution deduction, recommended all the penalties listed above. The second, addressing the “other deductions,” recommended only a 20% penalty for negligence or a substantial understatement. RA Stafford has submitted a declaration under penalties of perjury averring that she “performed the examination оf [Hancock] for its 2016 taxable year and made the initial determination to assert [these] penalties.” Copies of both penalty approval forms are included with her Declaration.
RA Stafford‘s immediate supervisor at the time was Benjamin Brantley, her acting team manager. Respondent has submitted Form 10247, Designation to Act, executed by Catherine Brooks on January 30, 2020. It states that Mr. Brantley was designated to act as Acting Team Manager of Team 1021 from February 2 through May 23, 2020. Ms. Brooks nоtified the team of this appointment in a February 3, 2020, email, which stated that “Ben Brantley is [now] designated to act as Team Manager for ECPA Team 1021.” RA Stafford has averred under penalty of perjury that Mr. Brantley was her “immediate supervisor” at all relevant times.
On April 9, 2020, Mr. Brantley approved assertion of the 20% penalty determined with respect to disallowance of the “other deductions.” He indicated his approval by affixing his digital signature to that penalty approval form at 7:07 р.m. that evening. On April 20, 2020, Mr. Brantley approved assertion of the 40% and 20% penalties determined with respect to disallowance of the charitable contribution deduction. He indicated his approval by affixing his digital signature to that penalty approval form at 11:26 a.m. that morning. On this form Mr. Brantley verified that he was the “immediate supervisor” of RA Stafford, that she “made the initial determination of the penalties,” and that he
On July 23, 2020, the IRS issued petitioner an FPAA, including a Form 886-A, Explanation of Items, disallowing in toto the $180,177,000 deduction Hancock had claimed for the conservation easement. The FPAA likewise disallowed the $6,128,493 deduction for “other expenses” on the ground that Hancock had not substantiated that they qualified for deduction under
Petitioner timely petitioned this Court for readjustment of partnership items. On November 1, 2024, respondent filed the first Motion for Partial Summary Judgment, seeking a ruling that the IRS complied with the
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is tо expedite litigation and avoid costly, unnecessary, and time-consuming trials. FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment regarding an issue as to which there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. See Rule 121(a); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. However, where the moving party properly makes and supports a motion for summary judgment, “the nonmovant may not rest on the allegations or denials in that party‘s pleading” but must set forth specific facts, by affidavit or otherwise, showing that there is a genuine dispute for trial. Rule 121(d).
A. Penalty Approval
Absent stipulation to the contrary this case is appealable to the Eleventh Circuit, and we thus follow its precedent. See Golsen v. Commissioner, 54 T.C. 742, 756–57 (1970), aff‘d, 445 F.2d 985 (10th Cir. 1971). The Eleventh Circuit has interpreted the term “assessment” to refer to the “ministerial” process by which the IRS formally records the tax debt. Kroner v. Commissioner, 48 F.4th 1272, 1278 (11th Cir. 2022), rev‘g in part T.C. Memo. 2020-73. The IRS thus satisfies
Under a literal application of the standard enunciated by the Eleventh Circuit in Kroner, supervisory approval could seemingly be secured at any moment before actual assessment of the tax, which has not yet occurred. But the Eleventh Circuit left open the possibility that supervisory approval in some cases might need to be secured sooner, i.e., before the supervisor “has lost the discretion to disapprove” assertion of the penalty. See id. at 1279 n.1; cf. Laidlaw‘s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1074 (9th Cir. 2022) (treating supervisory approval as timely if secured before the penalty is assessed or “before the relevant supervisor loses discretion whether to approve the
The record establishes that RA Stafford, who conducted the Hancock examination, made the “initial determination” to assert the penalties. She did so by preparing separate penalty approval forms, the first for penalties attributable to the disallowance of the charitable contribution deduction and the second for penalties attributable to disallowance of the “other deductions.” Respondent has supplied copies of the two penalty approval forms and a declaration from RA Stafford averring that she “performed the examination of [Hancock] . . . and made the initial determination to assert [these] penalties.”
The record establishes that Mr. Brantley was RA Stafford‘s “immediate supervisor” at the relevant times. Respondent has supplied a copy of a properly executed Form 10247 stating that Mr. Brantley was “Acting Team Manager” for Team 1021 from February 2 through May 23, 2020. RA Stafford has averred under penalty of perjury that Mr. Brantley was her immediate supervisor during that period. We conclude that Mr. Brantley was her “immediate supervisor” within the meaning of
The record further establishes that Mr. Brantley timely approved the penalties by affixing his electronic signature using Adobe software. On April 9, 2020, he digitally signed the penalty approval form relating to disallowance of the “other deductions,” identifying himself as “Team Manager” for Team 1021. On April 20, 2020, he digitally signed the penalty approval form relating to disallowance of the charitable contribution deduction. On that form he confirmed that he was “the immediate supervisor or acting immediate supervisor of [RA Stafford],” that RA Stafford “made the initial determination [of the penalties],” and that he “approve[d] that initial determination.”
Petitioner struggles in vain to gin up a dispute of material fact. Petitioner first challenges the status of RA Stafford as the IRS officer who made the “initial determination” to assert the penalties. She avers in her Declaration: “As part of my duties as a Revenue Agent, I performed the examination of [Hancock] for its 2016 taxable year and made the initial determination to assert [the] penalties [at issue].” Petitioner dismisses this averment as “self-serving” and “uncorroborated.”
Petitioner concedes that “Revenue Agent Pamela V. Stafford . . . conducted the examination of Hancоck‘s 2016 Form 1065.” Petitioner does not dispute that making recommendations about appropriate penalties is among the normal duties of an examining agent. Petitioner offers nothing but speculation to support its hypothesis that someone other than RA Stafford discharged that duty here.
The averments in RA Stafford‘s Declaration, moreover, are corroborated by Mr. Brantley. On the penalty approval form for the 40% and 20% penalties, he verified that he was the “immediate supervisor” of RA Stafford, that she “made the initial determination of the penalties,” and that he “approve[d] that initial determination.” As the Acting
Petitioner‘s speculation that someone other than RA Stafford may have made the “initial determination” to assert penalties against Hancock—notwithstanding her conceded status as the examining agent for the Hancock audit—is not enough to establish a genuine dispute of material fact. See Rule 121(d). Respondent has supplied documentary evidence confirming that RA Stafford was the examining agent and that Mr. Brantley approved her penalty recommendation in his capacity as her Team Manager. Respondent has submitted a Declaration under penalties of perjury averring that these are genuine documents included within the IRS administrative file.6
We have repeatedly held that a manager‘s signature on a penalty approval form, without more, is sufficient to satisfy the statutory requirements. See Sparta Pink Prop., 124 T.C.M. (CCH) at 124 (citing Belair Woods, 154 T.C. at 17); see also, e.g., Thompson v. Commissioner, 155 T.C. 87, 93–94 (2020); Goddard v. Commissioner, T.C. Memo. 2022-96, 124 T.C.M. (CCH) 187, 197; Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2021-125, 122 T.C.M. (CCH) 292, 294. And we have regularly decided
Petitioner asks that we defer decision on this question pending further discovery “to verify the accuracy of the Stafford Declaration and the facts contained therein, [including] information pertaining to Agent Stafford‘s purported recommendation of her initial determination to assert the Penalties to GM Brantley.” We are mindful that “summary judgment should not be granted until the party opposing the motion has had an adequate opportunity for discovery.” Snook v. Tr. Co. of Ga. Bank of Savannah, N.A., 859 F.2d 865, 870 (11th Cir. 1988). But discovery must be relevant to “the subject matter involved in the pending
The discovery petitioner seeks is irrelevant to the resolution of the question presented by respondent‘s Motion. See Rule 121(e); Caney, 99 T.C.M. (CCH) at 1368 (considering whether “further discovery would likеly yield any fact essential to [the nonmoving party‘s] opposition to the [summary judgment] motion“).
Taking a different tack, petitioner next argues that RA Stafford and Mr. Brantley lacked “discretion to make independent decisions regarding the Penalties.” That is assertedly so because other employees of the IRS—unnamed higher level officials or the in-house appraisers assigned to value the easement—had supposedly dictated that penalties be asserted.
First, petitioner contends that it was not RA Stafford but “higher-level officials within the IRS” who made the “initial determination of [the penalty] assessment.” See
We are not persuaded. Neither of these pronouncements determined any penalties against any taxpayer within the meaning of
We have previоusly ruled that IRS announcements to the public at large, including Notice 2017-10 and related news releases, cannot constitute “the initial determination of [a penalty] assessment” because such announcements are not directed to a specific taxpayer whose return is under IRS examination. See Pickens Decorative Stone, 123 T.C.M. (CCH) at 1129–30 (citing Frost, 154 T.C. at 32). The “initial determination of [a penalty] assessment” occurs when the IRS makes “an unequivocal decision to assert penalties.” See Belair Woods, 154 T.C. at 15. The IRS could not have made an unequivocal decision to assert penalties against Hancock before reviewing its return to determine whether an “understatement” existed. See Thompson, 155 T.C. at 92. Because the IRS did not conclude its examination of Hancock‘s return until July 2020, an unequivocal determination to assert penalties against Hancock could not possibly have been made in 2017.
Alternatively, at least with respect to the valuation misstatement penalties, petitioner asserts that Howard Kanter and Steven T. Holzer made the “initiаl determination of the penalty assessment.” See
“Once [an easement‘s] value is determined,” petitioner says, “the application of section 6662(h) is simple arithmetic.” If Messrs. Kanter and Holzer made the “initial determination of [the penalty] assessment,” see
Again we disagree. Nowhere in their report do Messrs. Kanter and Holzer recommend the assertion of penalties against Hancock, for valuation misstatement or otherwise. Their limited role was to review Hancock‘s appraisal and provide their evaluation of it to RA Stafford for
In-house IRS appraisers do not have the authority to “determine” penalties; thеy simply offer an opinion as to value. During an IRS examination it is the duty of the revenue agent to determine penalties, taking into account (among other things) the value of the property contributed and possible defenses the taxpayer may have. The word “determination” has “an established meaning in the tax context and denotes a communication with a high degree of concreteness and formality.” Belair Woods, 154 T.C. at 15. An “initial determination” signifies a “consequential moment” of IRS action. Ibid. (quoting Chai v. Commissioner, 851 F.3d at 221).
A рreliminary analysis of property value offered to an RA by an appraiser is simply not a “determination” within the meaning of
B. Section 162 Deductions
On January 6, 2025, respondent filed a Motion for Partial Summary Judgment contending that at least $3,540,348 of the reported section 162 deductions should be disallowed. Respondent contends that these expenses were incurred by other entities and thus were not properly deductible by Hancock as ordinary and necessary expenses of its trade or business. Alternatively, respondent contends that $2.5 million of those expenses were required to be capitalized.
Most of these expenses appear related in some way to the easement transaction or the cost of marketing it to investors. The expenses apparently included management fees, consulting expenses, appraisal fees, and reimbursements. Respondent contends these expenses “were incurred by and belonged to” Webb Creek Management Group, LLC (Webb Creek), or another entity involved in the easement transaction. Alternatively, respondent contends that the management fee reflected nondeductible syndication costs. See
Petitioner contends that Hancock in fact paid some of the expenses itself, that all the expenses were incurred for its benefit, that the expenses discharged by Webb Creek were paid on Hancock‘s behalf under an agency arrangement, and that a letter of intent upon which respondent relies was not an enforceable contract. Substantiation questions by their nature are intensely factual. Resolving doubts in petitioner‘s favor as we must do at this stage of the proceedings, we conclude that genuine disputes of material fact exist regarding the allowability of these deductions and that summary adjudication is inappropriate. We believe that we will be in a better position to decide these questions after a full exposition of the facts at trial.
To reflect the foregoing,
An order will be issued granting respondent‘s Motion for Partial Summary Judgment at docket entry No. 68 and denying respondent‘s Motion for Pаrtial Summary Judgment at docket entry No. 78.