Stanley Battat & Zmira Battat

• Court: United States Tax Court
• Decided: May 11, 2021
• Docket: 17784-12
• Status: Unpublished

Opinion

T.C. Memo. 2021-57

UNITED STATES TAX COURT

STANLEY BATTAT AND ZMIRA BATTAT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17784-12. Filed May 11, 2021.

Joseph A. DiRuzzo III and Daniel M. Lader, for petitioners.

W. Robert Abramitis and Daniel C. Munce, for respondent.

MEMORANDUM OPINION

COLVIN, Judge: This case is before the Court on petitioners’ motion for

partial summary judgment. The issue for decision is whether the Form 4549,

Served 05/11/21 -2-

[*2] Income Tax Examination Changes, also known as a revenue agent report

(RAR),1 sent with a Letter 4121, Agreed Examination Report Transmittal, was the

“initial determination” by an “individual” to impose a penalty for purposes of

section 6751(b).2 For the reasons stated below we conclude that the Form 4549

sent with the Letter 4121 was the initial determination, and we will grant

petitioners’ motion.

Background

The audit in this case commenced on May 19, 2011. On November 28,

2011, an IRS examining agent (EA) sent petitioners an RAR attached to a Letter

4121 regarding petitioners’ 2008 taxable year. The EA’s name appears in the

signature box provided for the IRS agent who prepared the RAR. The RAR states

1 The Internal Revenue Service (IRS) uses Forms 4549 and 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed), to state what it has concluded is the amount of a taxpayer’s income tax liability. See Deutsch v. Commissioner, T.C. Memo. 2006-27, 2006 WL 345848, at *5, aff’d, 478 F.3d 450 (2d Cir. 2007); Internal Revenue Manual pt. 4.10.8.11.1 (June 10, 2005). Form 4549-A is also known as an examination report. See, e.g., Clay v. Commissioner, 152 T.C. 223, 232 (2019), aff’d, 990 F.3d 1296 (11th Cir. 2021); Bourekis v. Commissioner, 110 T.C. 20, 22 (1998); Goldberg v. Commissioner, T.C. Memo. 2020-38, at *138; see also Branerton Corp. v. Commissioner, 64 T.C. 191, 194- 195 (1975). 2 Section references are to the Internal Revenue Code, Title 26 U.S.C., in effect for all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. -3-

[*3] the amount of petitioners’ “corrected” tax due and that petitioners are liable

for a section 6662 penalty of $345,143 for 2008. The RAR also includes a

signature box that, if signed by petitioners, provides their “consent to the

immediate assessment and collection of any increase in tax and penalties * * *

shown” on the RAR.

Enclosed with the RAR was a copy of Publication 3498, The Examination

Process, which states:

If you do not agree with the proposed changes, the examiner will explain your appeals rights. * * * [Y]ou may request an immediate meeting with the examiner’s supervisor to explain your situation.* * *

If you cannot reach an agreement with the supervisor at this meeting, * * * the examiner will prepare a report explaining your position and ours. The examiner will forward your case to the Area office for processing.

You will receive:

• A letter (known as a 30-day letter) notifying you of your rights to appeal the proposed changes within 30 days * * *

In this case the EA’s immediate supervisor did not sign or otherwise

approve in writing the Letter 4121, the RAR, or the penalty liability stated therein.

On December 8, 2011, the EA issued a Form 4549-A attached to a Letter

950, 30-day letter, for the 2008 tax year. Also on that day the EA received written

supervisory approval for the section 6662 penalty from her acting supervisor. -4-

[*4] Discussion

A. Summary Judgment

Summary judgment is designed to expedite litigation and avoid unnecessary

and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).

Summary judgment may be granted with respect to all or part of the legal issues

presented if “there is no genuine dispute as to any material fact and * * * a

decision may be rendered as a matter of law.” Rule 121(a) and (b); see Sundstrand

Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir.

1994). Petitioners, as the party moving for partial summary judgment, bear the

burden of showing that there is no genuine dispute as to any material fact, and all

factual inferences will be drawn in a manner most favorable to respondent. See

Sundstrand Corp v. Commissioner, 98 T.C. at 520. The facts needed to decide

petitioners’ motion are not in dispute.

Section 6751(b)(1) provides that “[n]o penalty * * * shall be assessed unless

the initial determination of such assessment is personally approved (in writing) by

the immediate supervisor of the individual making such determination”.

Petitioners are entitled to partial summary judgment if the initial determination

was included in the RAR because supervisory approval was not provided before

the RAR was issued. -5-

[*5] B. Initial Determination Included in the RAR

The EA sent the RAR bearing her electronic signature to petitioners on

November 28, 2011, attached to the Letter 4121. The RAR states that it shows the

corrected amount of petitioners’ tax liability and section 6662 penalty. The

attached Publication 3498 states that petitioners could appeal the RAR if they did

not agree with the amount of tax and penalty liability stated therein.

Section 6751(b)(1) requires approval for the “initial determination” of a

penalty assessment. A signed, completed RAR sent with a Letter 4121 includes an

“initial determination” for purposes of section 6751(b)(1). See Beland v.

Commissioner, 156 T.C. __, __ (slip op. at 9-12) (Mar. 1, 2021); see also Oropeza

v. Commissioner, 155 T.C. __, __ (slip op. at 17) (Oct. 13, 2020).

“[The] term [‘determination’] has an established meaning in the tax context

and denotes a communication with a high degree of concreteness and formality”,

Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020), and denotes a

“consequential moment” of IRS action, Chai v. Commissioner, 851 F.3d 190, 220-

221 (2d Cir. 2017), aff’g in part, rev’g in part T.C. Memo. 2015-42. The RAR

states that it shows the “corrected” amount of petitioners’ tax and penalty liability.

The RAR also includes a signature box for petitioners to consent to the assessment

of those tax and penalty amounts. -6-

[*6] Providing the opportunity to consent to assessment of tax and penalty is a

“consequential moment” to a taxpayer and the Commissioner. See Beland v.

Commissioner, 156 T.C. at __ (slip op. at 10); Belair Woods v. Commissioner,

154 T.C. at 15. A signed, completed RAR sent with a Letter 4121 provides the

requisite definiteness and formality to constitute an “initial determination” for

purposes of section 6751(b)(1). See Beland v. Commissioner, 156 T.C. at __ (slip

op. at 13); Oropeza v. Commissioner, 155 T.C. at __ (slip op. at 17). The RAR

includes the EA’s initial determination and, because no supervisor approval was

provided before the RAR was issued to petitioners, the penalty did not meet the

requirements of section 6751(b).

To reflect the foregoing,

An appropriate order granting

petitioners’ motion will be issued.