IRS Met Penalty Approval Requirement for Multiple Penalties

IRS Met Penalty Approval Requirement for Multiple Penalties

U.S. Tax Court

The Tax Court, granting partial summary judgment to the IRS regarding penalties stemming from a partnership’s disallowed charitable contribution deduction, held that the IRS met the <a href="/research/federal/usc26/6751#cpjf-0000004" resolve="/lr/resolve/section-6751b1/cpjf#cpjf-0000004" title="section 6751(b)(1)">section 6751(b)(1)</a> penalty approval requirement because a supervisor approved the penalty determinations in writing before the penalties were communicated to the partnership.  Palmolive Building Investors LLC donated a facade easement on a building to the Landmarks Preservation Council of Illinois and claimed a $33.4 million charitable contribution deduction for the donation for its 2004 tax year. The IRS disallowed the deduction, finding that the deed didn't meet the perpetuity requirements of section 170 because neither mortgage on the property was fully subordinated to the easement. The IRS also determined four accuracy-related penalties against the partnership. According to the Tax Court, the IRS agent who initially examined Palmolive’s return proposed the imposition of a gross valuation misstatement penalty on Form 5701 and attached Form 886A proposing an alternative negligence penalty. The agent’s supervisor signed the Form 5701. Palmolive was sent both a 30-day letter and a 60-day letter and sought a conference with IRS Appeals. During the appeals process, the IRS Appeals officer determined that two additional penalties for substantial valuation misstatement and substantial understatement should be imposed and obtained written supervisor approval on a Form 5402-c that he prepared. All four penalties were communicated in the notice of final partnership administrative adjustment issued to Palmolive in 2014. Palmolive's tax matters partner petitioned the Tax Court for review. In a <a href="/lr/resolve//1wg4j" target="_blank">prior opinion</a>, the Tax Court held that Palmolive wasn’t entitled to the charitable contribution deduction. However, the partnership’s liability for penalties remained at issue. Palmolive and the IRS filed cross-motions for summary judgment on whether the IRS obtained supervisory approval of the penalties under <a href="/research/federal/usc26/6751#cpjf-0000004" resolve="/lr/resolve/section-6751b1/cpjf#cpjf-0000004" title="section 6751(b)(1)">section 6751(b)(1)</a>. Judge David Gustafson, writing for the Tax Court, explained that <a href="/research/federal/usc26/6751#cpjf-0000004" resolve="/lr/resolve/section-6751b/cpjf#cpjf-0000004" title="section 6751(b)">section 6751(b)(1)</a> provides that no penalty shall be assessed unless the assessment is personally approved in writing by the immediate supervisor of the individual making the determination. Gustafson found that each of the penalties proposed was initially approved by the supervisor of the individual who determined them before they were communicated to Palmolive. The court held that section 6751(b) doesn’t require that the initial determination of all penalties be made at the same time or by the same individual and it doesn’t require approval on a particular form. The court, finding no merit to the contentions made by Palmolive, concluded that <a href="/research/federal/usc26/6751#cpjf-0000004" resolve="/lr/resolve/section-6751b/cpjf#cpjf-0000004" title="section 6751(b)">section 6751(b)</a> requirements were met, and the IRS was entitled to partial summary judgment.

The Tax Court, granting partial summary judgment to the IRS regarding penalties stemming from a partnership’s disallowed charitable contribution deduction, held that the IRS met the section 6751(b)(1) penalty approval requirement because a supervisor approved the penalty determinations in writing before the penalties were communicated to the partnership.

The Tax Court, granting partial summary judgment to the IRS regarding penalties stemming from a partnership’s disallowed charitable contribution deduction, held that the IRS met the section 6751(b)(1) penalty approval requirement because a supervisor approved the penalty determinations in writing before the penalties were communicated to the partnership.  Palmolive Building Investors LLC donated a facade easement on a building to the Landmarks Preservation Council of Illinois and claimed a $33.4 million charitable contribution deduction for the donation for its 2004 tax year. The IRS disallowed the deduction, finding that the deed didn't meet the perpetuity requirements of section 170 because neither mortgage on the property was fully subordinated to the easement. The IRS also determined four accuracy-related penalties against the partnership. According to the Tax Court, the IRS agent who initially examined Palmolive’s return proposed the imposition of a gross valuation misstatement penalty on Form 5701 and attached Form 886A proposing an alternative negligence penalty. The agent’s supervisor signed the Form 5701. Palmolive was sent both a 30-day letter and a 60-day letter and sought a conference with IRS Appeals. During the appeals process, the IRS Appeals officer determined that two additional penalties for substantial valuation misstatement and substantial understatement should be imposed and obtained written supervisor approval on a Form 5402-c that he prepared. All four penalties were communicated in the notice of final partnership administrative adjustment issued to Palmolive in 2014. Palmolive's tax matters partner petitioned the Tax Court for review. In a prior opinion, the Tax Court held that Palmolive wasn’t entitled to the charitable contribution deduction. However, the partnership’s liability for penalties remained at issue. Palmolive and the IRS filed cross-motions for summary judgment on whether the IRS obtained supervisory approval of the penalties under section 6751(b)(1). Judge David Gustafson, writing for the Tax Court, explained that section 6751(b)(1) provides that no penalty shall be assessed unless the assessment is personally approved in writing by the immediate supervisor of the individual making the determination. Gustafson found that each of the penalties proposed was initially approved by the supervisor of the individual who determined them before they were communicated to Palmolive. The court held that section 6751(b) doesn’t require that the initial determination of all penalties be made at the same time or by the same individual and it doesn’t require approval on a particular form. The court, finding no merit to the contentions made by Palmolive, concluded that section 6751(b) requirements were met, and the IRS was entitled to partial summary judgment.

Sec. 6751 Procedural requirements

Sec. 6662 Imposition of accuracy-related penalty on underpayments

Sec. 170 Charitable, etc., contributions and gifts

United States

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IRS Met Penalty Approval Requirement for Multiple Penalties