In Uncategorized on 12/28/2017 at 18:24

Remember that Little League truism? When you’re the catcher,  lying in the dust at home plate, tag the baserunner, the batter, the umpire and yourself. That way you got ’em all.

IRS took that route in John L. Roth and Deanne M. Roth, 2017 T. C. Memo. 248, filed 12/28/17. Especially is that wise when IRS messes up the SNOD and its answer to the petition by leaving out the 40% substantial undervaluation chop, and has to do a flying line change in an amended answer.

The flying line change should shift the burden of proof per Section 7491(a) and Rule 142(a), but Judge Wherry falls back on preponderance of the evidence.

John’s and Deanne’s beef is the Boss Hoss sign-off on the amended answer’s assertion of the 40% chop, when they and IRS had stiped away the 20% negligence version. Y’all remember that Section 6664(c)(3) bars reasonable cause as an out from the 40% chop.

John and Deanne had another busted conservation easement; they stiped down to $30K from their claimed $970K. Exam recommended the 40% substantial undervaluation, and in the alternative the 20% negligence chop, and the RO got the Boss Hoss’ signoff. John and Deanne went to Appeals, and the AO approved both the chops, and the AO’s Boss Hoss approved the AO.

“The notice of deficiency issued by the Appeals Office omitted the 40% penalty and included only the 20% section 6662(a) accuracy-related penalty. Petitioners timely petitioned this Court for redetermination of the deficiencies and penalties. Respondent affirmatively asserted in his answer that the section 6662 penalty should be calculated at a rate of 40% under section 6662(h)….” 2017 T. C. Memo. 248, at p. 5.

And the amended answer was signed by senior counsel and her immediate supervisor.

Now, obeisance must be paid to Graev. “Compliance with section 6751(b)(1) is appropriately considered in this deficiency proceeding, and showing such compliance is part of respondent’s burden of production under section 7491(c). See Graev v. Commissioner, 149 T.C. __ (Dec. 20, 2017), supplementing 147 T.C. __ (Nov. 30, 2016).” 2017 T. C. Memo. 248, at p. 8.

Burden of production, be it noted. The “burden of proof” addition from 2 Cir is off the table.

John and Deanne want to lay the blame on the AO, but that falls flat.

“In all three of the instances in which respondent sought to assert penalties in this case, the individual proposing the penalties received personal approval from his or her immediate supervisor. The examiner who proposed the 40% gross valuation misstatement penalty the first time (and the 20% accuracy-related penalty in the alternative) received personal, written approval from her group manager. Likewise, the Appeals officer received personal, written approval from his team manager for the 40% gross valuation misstatement penalty (and for the 20% penalty that was shown on the notice of deficiency). And the senior counsel who pleaded affirmatively in respondent’s answer to the petition that petitioners are liable for the 40% gross valuation misstatement penalty received her associate area counsel’s personal, written approval, as evidenced by the latter’s signature on the answer filed in this Court. In sum, no matter which of these three instances was the initial determination of the 40% penalty, section 6751(b) was satisfied because each instance was approved in writing by an immediate supervisor.” 2017 T. C. Memo. 248, at pp. 9-10.

The 40% chop sticks.

John and Deanne sold some CO State tax credits from a different deal years ago, but had to repay them later as a result of subsequent litigation. They want to take Section 1341 treatment and deduct the repayment back in the year when they paid the tax.

Nope, says Judge Wherry. Maybe they can deduct the repayment for some other year, but as cash basis taxpayers they can’t go back.



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