Attorney-at-Law

THE BOSS HOSS RULE

In Uncategorized on 12/07/2015 at 16:13

An Alternative is an OK Initial Determination

The Boss Hoss Rule, embodied in Section 6751(b), states that “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”

The gambit, as you may remember from my blogpost “Penalty Kick,” 7/17/14, is to object that the initial determination of the assessed penalty, here a 40% substantial overvaluation chop per Section 6662(h), wasn’t properly signed off by the right Boss Hoss.

But Judge Kerrigan decides the undervaluing conservation donors, Brett E. Legg and Cindy L. Legg, 145 T. C. 13, filed 12/7/15, don’t have a leg to stand on. (Sorry guys).

Here’s the back story: “Respondent’s [IRS’s] examiner determined that petitioners were liable for the 20% accuracy-related penalty under section 6662(a) or, alternatively, that petitioners were liable for the 40% accuracy-related penalty for a gross valuation misstatement under section 6662(h). The examination report concludes that petitioners are ‘subject to the Accuracy Related Penalty-Gross Valuation Misstatement pursuant to IRC Section 6662 for the tax year 2007′. The examination report, however, calculated the proposed penalties using the 20% rate.” 145 T. C. 13, at p. 5.

And the letter transmitting the report the report was signed by the examiner’s immediate supervisor, the director of Western Area Examination.

Brett and Cindy rush to Appeals, but get no joy. Appeals “…explained that imposing 40% gross valuation misstatement penalties should be respondent’s primary position because the value of the conservation easement reported on petitioners’ tax returns exceeded more than 200% of the correct value (zero) and the case is unagreed. The report further explained that imposing 20% accuracy-related penalties should be respondent’s alternative position.

“… the Appeals Officer’s immediate supervisor—the Appeals Team Manager–approved the report.” 145 T. C. 13, at p. 6.

Judge Kerrigan cuts to the cliché. “Petitioners believe that section 6751(b) must apply to the first notice that the IRS sends the taxpayer. Thus, petitioners argue that respondent’s examiner was the only person qualified to make an ‘initial determination’ of the appropriate penalties and the examiner determined a penalty of 20% pursuant to section 6662(a). Respondent contends that section 6751(b) applies only before the assessment of penalties, not before the determination of penalties in a notice of deficiency. We find it unnecessary to decide whether section 6751(b) applies only before the assessment of penalties or before the determination of penalties in a notice of deficiency since we conclude that respondent’s examiner made an ‘initial determination’ regarding the section 6662(h) 40% penalties.” 145 T. C. 13, at p. 8.

Now for the alternative. “Respondent’s examination report included the 40% gross valuation misstatement penalties analysis as an alternative position because of uncertainty as to whether such penalties could be imposed where an underpayment was the consequence of an adjustment not based on valuation. Specifically, respondent was uncertain whether he could impose gross valuation misstatement penalties on the theory that petitioners’ donation of the conservation easement did not meet the charitable contribution deduction requirements of section 170, an adjustment not based on valuation. This uncertainty has since been resolved. In the notice of deficiency respondent contended that petitioners failed to meet the legal requirements for a conservation easement charitable contribution deduction. We find that even though the gross valuation misstatement penalties were posed as an alternative position, the report made an ‘initial determination’ that petitioners were liable for the 40% penalties.” 145 T. C. 13, at pp. 10-11.

Congress wanted taxpayers to know the basis for each penalty. The examiner made it clear. The examiner’s boss signed off on it.

Note that Brett and Cindy, and IRS, stipped away a lot of issues. I thank them, and I’m sure my readers will as well, since this blogpost is much shorter therefor.

“After the issuance of the notice of deficiency, petitioner and respondent stipulated and agreed that the value of the conservation easement was $80,000 at the time of petitioners’ donation. The parties agreed that mathematically petitioners’ reported value of $1,418,500 was a gross valuation misstatement per section 6662(h)(2)(A)(i). The parties also agreed that petitioners cannot invoke a reasonable cause defense against the gross valuation misstatement penalties under section 6662(h) but that petitioners have satisfied the reasonable cause defense requirements for substantial valuation
misstatement penalties under section 6662(a) and (b)(3)..” 145 T. C. 13, at pp. 6-7.

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