Is the failure to get the Boss Hoss Section 6751(b) sign-off fatal to a 20% substantial understatement penalty added to a revised SNOD? Tax Court spends 106 pages on this angelic tapdance, and ex-Ch J Michael B (“Iron Mike”) Thornton, writing for the majority, says it isn’t; Tax Court can fix it on the trial.
Negatory, says that Obliging Jurist Judge David Gustafson, the majority just gutted Section 6751(b).
Not heeding USCADC’s throw of the dictionary at Judge Lauber (see my blogpost “Revenez, Enfants de la Patrie,” 9/21/16), ex-Ch J Iron Mike belabors the word “making” in a two-page, three-paragraph footnote to show that the Boss Hoss can sign off even after Tax Court’s opinion, because assessment is barred prior thereto.
Read all about it (if you suffer from terminal insomnia) in Lawrence G. Graev and Lorna Graev. 147 T. C. 16, filed 11/30/16.
And if you’re a total grammar-polizei type, try this for size: “(‘The present participle, infinitive, and gerund are not confined to reference to present time.’); Sidney Greenbaum, The Oxford English Grammar 277 (1996) (‘The time reference of the participle clause is inferred from the host clause’). In sec. 6751(b)(1), ‘making’ functions without specific tense, much as it does in this statement: ‘We should respect the individual making such an argument’. This statement obviously does not mean, as the dissent’s analysis would suggest, that we should respect this type of individual only while such an argument is being made. Rather, in this example, as in the statute, ‘making’ is part of a reduced adjectival clause modifying ‘individual’–it tells which ‘individual’ without indicating when exactly the ‘making’ occurred, occurs, or will occur.
“Furthermore, in sec. 6751(b)(1) the ‘making’ clause is itself part of a larger adjectival prepositional phrase, ‘of the individual making such determination’ modifying ‘supervisor’–it tells which supervisor, without indicating when the supervisor’s action of approving the initial determination occurs or will occur (although from the context we know that the supervisor’s approval must follow the subordinate’s determination, as explained in the text above). At most, the verb form ‘making’ might suggest that the immediate supervisor giving the approval should be the same immediate supervisor who held that position at the time of the making of the initial determination, as opposed to someone who might have held that position at some other time. And although the dissent initially refers to ‘making’ as an adjective, ultimately the dissent finds it necessary to assign it an adverbial function, paraphrasing the statute by using an adverbial ‘when’ clause not found in the statute and then for good measure inserting into the statute an extra word, so as to state: ‘[T]he statute indicates that the supervisor must act when ‘the individual [is] making such determination.’ See dissenting op. p. 80. But that is not what the statute says, and that is not what it means.” 147 T. C. 16, at pp. 30-31, footnote 15 (in part only; there’s more, but you get the idea).
Judge Gustafson has the better argument. Before imposing a penalty, a RO has to get a sign-off from the Boss Hoss. It is not “harmless error” if s/he doesn’t. It doesn’t matter if the petitioner isn’t ambushed. Before the hammer falls the shadow, ex-Ch J Iron Mike, and it’s the shadow Congress put there. And to wait until after the trial to get the sign-off makes the sign-off meaningless. A statute is not to be construed to create an absurd result.
Incidentally, I doubt one Senator or Representative in the whole 538, whether in 1998 or any time since, had or has the slightest idea what that footnote means, or even thought about it when this statute was enacted. They wanted to rein in the examination types by having someone with bars on their shoulders sign off before launching missiles.
The well-known firm of Tax Court practitioners sometimes herein and elsewhere referred to as The Jersey Boys lost this one, and they shouldn’t have. Does the client have enough left to appeal?
Of course, the Graevs went down on their historic façade easement with a money-back guarantee, with which the majority tosses their reasonable reliance and substantial authority arguments in sustaining the 20% substantial understatement chop, which is all that is at issue here.