Attorney-at-Law

THE SUM OF ITS PARTS – PART DEUX

In Uncategorized on 11/06/2020 at 17:01

Judge Morrison seems to anticipate the sinking of the designated hitter in Dawson’s Creek, because he failed to designate Neil L. Whitesell & Tracy L. Whitesell, Docket No. 26230-15, filed 11/5/20. And while components of apartment buildings aren’t on the menu, the components of the Section 6662 panoply of chops are.

Judge Morrison unpacks the Section 6662 chops.

” Section 6662(a) imposes a20% penalty on the portion of an underpayment that is attributable to any of the following seven causes: (1) negligence or disregard of rules or regulations, (2) substantial understatement of income tax, (3) substantial valuation misstatement under chapter 1, (4) substantial overstatement of pension liabilities, (5) substantial estate or gift tax valuation understatement, (6) disallowance of tax benefits by reason of a transaction lacking economic substance, or  (7) any undisclosed foreign financial asset understatement. Sec. 6662(b). A substantial valuation misstatement generally exists if the value of property reported on a return is150% or more than the actual value. Sec. 6662(e)(1)(A). A substantial overstatement of pension liabilities exists if certain pension liabilities reported on the return are 200% or more than the correct amount of the liabilities. Sec. 6662(f)(1). A substantial estate or gift tax valuation understatement exists if the value of any property reported on a return is 65% or less than the amount determined to be the correct amount of such value. Sec. 6662(g)(1). Section 6662(h)(1) provides that there will be a 40% penalty on any portion of an underpayment attributable to a gross valuation misstatement. A gross valuation misstatement is defined as a substantial valuation misstatement (substituting 200% for 150% in the definition of a substantial valuation misstatement), a substantial overstatement of pension liabilities (substituting 400% for 200% in the definition of a substantial overstatement of pension liabilities), or a substantial estate or gift tax valuation understatement (substituting 40% for 65% in the definition of a substantial estate or gift tax valuation understatement). Sec. 6662(h). Section 6662(i)(1) provides that there will be a 40% penalty on any portion of an underpayment attributable to disallowance of tax benefits by reason of a transaction lacking economic substance that is not disclosed on the return.” Order, at pp. 2-3.

The Whitesells were here before (twice, in fact; see my blogposts “The Law of Return,” 5/18/17, and “Point of No Return,” 8/24/18). Today, the Whitesells want a vacation of the stip they signed back two years ago yesterday, and also want partial summary J.

The Whitesells assert that Palmolive, Ronning, and Campbell changed the Section 6751(b) Boss Hoss landscape, so that the requisite sign-off has to specify which subsection of Section 6662 relates to which chop. The stip did agree that IRS met BProd on Section 6662(h) gross valuation misstatement, Section 6662(c) negligence, Section 6662(d) substantial understatement of income tax, and Section 6662(e) substantial valuation misstatement.

Well, the specific language of the stip does speak of each separate penalty having gotten the Boss Hoss signoff, although Judge Morrison doesn’t give us the precise verbiage. And Ronning, which I didn’t blog (see, I’m not omniscient), allows negligence but not substantial understatement, so the Whitesells could have anticipated separation.

Palmolive, which I’ve blogged in extenso (but see my blogpost “Chop Early, Chop Often,” 2/28/19 for the scoop on chops), involved a couple different Boss Hoss sign-offs, but the right one got Boss Hossed before the taxpayer saw any mention of penalty.

Finally, Campbell (see my blogpost “I Can Get It For You Wholesale,” 4/7/20) went off on a CPAF that was so vague that it couldn’t be tied to any specific penalty.

So Palmolive changed nothing, as far as the stip is concerned, as the stip separately numbered and stated each chop.

And the IRS would be prejudiced in case there has to be a trial on who signed what when if the stip is set aside. The IRS attorney who prepared the first amendment to the answer is also the trial attorney, and could be disqualified per ABA Model Rule 3.7(a). Of course, Judge Morrison ignores subsection (a)(3): “disqualification of the lawyer would work substantial hardship on the client.” Besides, there’s no jury here to be misled, and Tax Court Judges have heard it all.

The Whitesells claim IRS hasn’t met BProd, but they’ve stiped that away. As for burden of persuasion, the cases the Whitesells cite don’t persuade Judge Morrison. Howbeit, there still remains the Boss Hoss issue. But that may not be a question of fact (nudge nudge, wink wink).

“Therefore, the parties should discuss a stipulation of facts regarding the supervisory-approval issue. They should also discuss an agreement not to present further evidence at trial regarding supervisory approval. If the parties can make such a stipulation and execute such an agreement, then it will not be necessary to have a trial on the supervisory-approval issue.” Order, at p. 8.

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