Attorney-at-Law

PENALTY KICK

In Uncategorized on 07/17/2014 at 01:14

Yes, I know the World Cup is over. And so, I presume, does that Obliging Judge David Gustafson. But Judge Gustafson has a penalty kick anyway, and he gives it in favor of one who made a guest appearance on this blog, Lawrence G. Graev & Lorna Graev, Docket No. 30638-08, filed 7/16/14.

And yes, this is another order that should have been a designated hitter, but wasn’t. This is what keeps me up at night, digging this stuff out.

On background, check out my blogpost “Money Back Guarantee”, 6/24/13. Briefly, Larry and Lorna had a high-priced Manhattan MacMansion, whereupon they placed a façade easement, which blew up to the extent of a 40% overvaluation chop.

It’s who does the chopping that causes Judge Gustafson to kick.

“Petitioners assert that respondent [IRS] failed to comply with the requirement of section 6751(b)(1) that ‘the initial determination of such [penalty] assessment [must be] * * * personally approved (in writing) by the immediate supervisor of the individual making such determination’.” Order, at p. 1.

Responses and counter-responses flew back and forth, but Judge Gustafson still isn’t satisfied.

“The statutory notice of deficiency (“SNOD”) that underlies this case … was signed by a ‘Territory Manager’ in the IRS’s “Small Business and Self-Employed” (‘SBSE’) division. In that SNOD respondent determined gross valuation misstatement penalties pursuant to section 6662(h) and asserted, in the alternative, that petitioners are liable for section 6662(a) accuracy-related penalties. It appears that respondent’s position is that, for purposes of section 6751(b)(1), ‘the individual’ who made ‘the initial determination’ of the alternative section 6662(a) accuracy-related penalties is attorney X, of the Office of Chief Counsel–and not the Revenue Agent originally assigned to this case, Mr. Y (or any another individual in Exam or the Technical Services Unit)–and that X’s immediate supervisor approved his determination in compliance with section 6751(b). We understand respondent’s contention to be not that X simply advised or recommended the penalty to IRS examination personnel who then made the determination (since advising and recommending are evidently not subject to section 6751(b)), but rather that X was ‘the individual’ who made ‘the initial determination’. However, the document asserting that penalty determination is not a pleading filed in this suit by Chief Counsel (e.g., an answer or amended answer that newly pleads an alternative penalty), but is instead the original SNOD issued by SBSE.” Order, at pp. 1-2. (Names omitted).

Now Delegation Order 4-8 (Internal Revenue Manual pt. 1.2.43.9 (Sept. 4, 2012) lets SBSE Territory Managers sign SNODs, but Office of Chief Counsel is not among the blessed communion, fellowship divine, so empowered.

So Judge Gustafson wonders “If, in fact, it was X who made ‘the initial determination of such [sec. 6662(a) penalty] assessment’, then it would seem that there must be some delegation of authority to Chief Counsel to make such a determination. The undersigned judge is unaware of any other delegation to Chief Counsel of the authority to determine a penalty liability in an [sic] SNOD; and respondent has not yet identified a relevant delegation of authority that would enable a Chief Counsel attorney to be ‘the individual’ who makes such a determination.” Order, at p. 2. (Name omitted).

So Judge Gustafson wants IRS to find the delegation.

Note this is not the old tax protester dodge that the SNOD wasn’t signed by the Secretary or his delegate. The SNOD isn’t at issue here, it’s who determined, rather than advised or recommended, to assert the penalty set forth in the SNOD. And there’s a specific statutory provision on that point.

A Taishoff “good job” to petitioners’ counsel.

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