On January 13, 2022, the Tax Court issued a Memorandum Opinion in the case of Long Branch Land LLC v. Commissioner (T.C. Memo. 2022-2). The primary issues presented in Long Branch Land LLC v. Commissioner were whether the supervisory agent possessed the authority to supervise the examination of the taxpayer and to approve the penalties imposed by revenue agent, and whether the taxpayer failed to offer clear evidence to overcome presumption of regularity of actions of IRS officers.
Background to Long Branch Land LLC
This case involves a charitable contribution deduction claimed by the petitioner, Long Branch Land, LLC (Long Branch), for a conservation easement. The IRS disallowed the deduction and determined penalties. The IRS moved for partial summary judgment as to the question whether the IRS complied with the prior written supervisory approval requirements of IRC § 6751(b)(1) with respect to these penalties.
The Prior Approval Requirement
IRC § 6751(b)(1) requires that the “initial determination” of a penalty assessment be personally approved (in writing) by the immediate supervisor of the person making that determination. The “initial determination” of the penalties was communicated to Long Branch on February 6, 2019. Because the examining agent secured his immediate supervisor’s approval before that date, the IRS urges that approval was timely.
The petitioner conceded that the supervisor timely approved the penalties; however, the petitioner asserted that the supervisor lacked authority to supply approval. The crux of the argument was that the revenue agent’s supervisor was only an “acting team manager” due to the carousel of managers to go through the team’s particular office.
The petitioner does not allege that the IRS formally communicated its decision to assert penalties to Long Branch before July 31, 2018. The petitioner’s position, however, is that the signatory on the penalty approval form lacked authority to supervise the examination and that her approval of the penalties on that date was meaningless.
This is so, the petitioner contends, because the designation of the signatory as acting team manager expired on July 7, 2018 (24 days before the penalty approval form was signed and the initial determination was made).
Unfortunately for the petitioner, the territory manager had extended the acting supervisor’s appointment until September 2018.
Consequently, the Tax Court found that there was no evidence that the acting team manager lacked authority to approve the penalties prior to the initial determination.
The Presumption of Regularity
The presumption of regularity supports the official acts of public officers and, in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties. It is the general rule that all necessary prerequisites to the validity of official action are presumed to have been complied with.
The petitioner offered no “clear evidence” to overcome this presumption. Indeed, if the acting team manager had lacked the authority to serve as acting team manager, then the team of wayward revenue agents would have had no manager for at least a month.
That’s just what this world needs, a team of vagabond revenue agents roaming about stapling and collating whatever they can get their pasty white hands on. The horror.
On the petitioner’s theory, without the acting team manager at the helm, all members of the team would have been compelled to assert penalties on their own—thereby violating IRC § 6751(b)(1) and their respective personal safety bubbles. This is not what Congress intended.
In any event, under IRC § 6751(b)(1), the revenue agent was required to secure timely approval of the penalties from his “immediate supervisor.” Although the Internal Revenue Code does not define the term, we have held that the immediate supervisor is “the person who supervises the agent’s substantive work on an examination.”
The petitioner in Long Branch Land LLC did not dispute that Ms. Moore, who signed the Supplemental Civil Penalty Approval Form as the “examiner’s immediate supervisor,” in fact oversaw RA Lorient’s substantive work during the examination. Thus, even if Ms. Moore somehow lacked authority to serve as RA Lorient’s “acting team manager,” she properly approved the penalty determinations as his “immediate supervisor.”
(T.C. Memo. 2022-2) Long Branch Land, LLC v. Commissioner
- Pietanza v. Commissioner, 92 T.C. 729, 739 (1989), aff’d, 935 F.2d 1282 (3d Cir. 1991). ↑
- Lewis v. United States, 279 U.S. 63, 73 (1929); see Mecom v. Commissioner, 101 T.C. 374, 388 (1993) (holding that IRS officials “are presumed to have properly discharged their official duties”), aff’d, 40 F.3d 385 (5th Cir. 1994). ↑
- See, e.g., S. Rep. No. 105-174, at 65 (1998) (stating that proper supervision would ensure that IRS agents assert penalties “where appropriate”). ↑
- Sand Inv. Co., LLC v. Commissioner, 157 T.C. No. 11, slip op. at *11 (Nov. 23, 2021). ↑
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