The Tax Court’s recent opinion in Roth v. Commissioner, T.C. Memo. 2017-248, raises interesting issues about the need for supervisor approval when the IRS asserts penalties. In 2007, the petitioners in Roth donated a conservation easement encumbering 40 acres of land in Colorado to a charitable organization. The petitioners claimed a charitable contribution deduction of $970,000, but the IRS disallowed the deduction.
On examination, the IRS determined that the petitioners improperly valued the conservation easement and that the easement was actually worthless. The examiner also determined that the petitioners were liable for a 40% gross valuation misstatement penalty under section 6662, and his determination was approved in writing by his immediate supervisor. The examiner determined that the petitioners were alternatively liable for a 20% accuracy-related penalty.
The petitioners submitted a protest letter to IRS Appeals. The parties did not reach an agreement, however, and Appeals ultimately issued a notice of deficiency. In a closing memorandum, the Appeals officer informed the petitioners that “[t]he proposed penalties are fully sustained for the government.” The closing memorandum was signed by the Appeals officer’s immediate supervisor.
The notice of deficiency omitted the 40% penalty and included only the 20% accuracy-related penalty. The petitioners then filed a petition in Tax Court. In its answer – which was signed by an IRS senior counsel and her immediate supervisor – the IRS asserted the 40% penalty.
The parties eventually settled the case...
