Opinion
12601-19
09-27-2022
GENNADY GRINSHPUN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda, Judge.
This case is before the Court on two motions for partial summary judgment filed by petitioner, Gennady Grinshpun. Mr. Grinshpun first argues that he is entitled to summary judgment as to the deficiencies determined for his 2010, 2012, 2013, and 2014 tax years, asserting that he paid more than the deficiency amounts nearly two years before the IRS issued the relevant deficiency notices. Concluding that we lack jurisdiction over the deficiencies determined for these years, we will dismiss the portion of the case that relates to those deficiencies (but leave the civil fraud penalties still at issue).
Mr. Grinshpun further contends that the IRS failed to secure timely written supervisory approval under section 6751(b)(1) of the asserted section 6663(a) fraud penalty and alternative section 6662(a) accuracy-related penalty for his 2010 through 2014 tax years. We will deny summary judgment on this issue.
Unless otherwise noted, all section references are to the Internal Revenue Code in effect for the relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. Any monetary amounts are rounded to the nearest dollar.
Background
The following facts are drawn from the parties' motion papers and the attached declarations and exhibits. They are stated solely for the purpose of deciding the pending motions and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). Mr. Grinshpun lived in New Jersey when he timely filed his petition. [Doc. 1.]
I. Tax Reporting and Payments for Years at Issue
Mr. Grinshpun worked as the comptroller of Magnolia Beef Company, a company based in Elizabeth, New Jersey. [Doc. 4 at 4-5.] During 2010 through 2014, he received a salary from Magnolia, as well as additional, regular cash payments. [Doc. 15 ¶¶ 10-13.] Although Mr. Grinshpun reported his salary on the Forms 1040, U.S. Individual Income Tax Return, he filed for these years, he did not report the cash payments and thus understated his income. [Doc. 45 at 8-17.]
In January 2017, Mr. Grinshpun requested to participate in the IRS's Voluntary Disclosure Program (VDP). [Doc. 47 at 5.] As part of the approval determination process [Doc. 31 at 45], he submitted a domestic voluntary disclosure package, which included Forms 1040X, Amended U.S. Individual Income Tax Return, for each of the years at issue [Doc. 31 at 46-105; Doc. 45 at 18-50]. These amended returns increased his reported income amounts to reflect the additional cash payments received. [Doc. 31 at 46-105; Doc. 45 at 18-50.]
"The IRS Criminal Investigation Division (CID) maintains a longstanding practice of voluntary disclosure whereby taxpayers can generally avoid criminal prosecution by disclosing their tax noncompliance to CID timely and completely." Awad v. Commissioner, T.C. Memo. 2017-108, at *5 n.3.
With his amended returns, Mr. Grinshpun submitted checks for additional tax stemming from the increased income amounts as follows: (i) $4,876 for 2010; (ii) $3,530 for 2011; (iii) $6,765 for 2012; (iv) $7,318 for 2013; and (v) $4,225 for 2014. [Doc. 28 at 50, 59, 68, 77, 86, 95.] IRS transcripts reflect that these amounts were applied as payments to the respective years on June 7, 2017. [Doc. 28 at 108, 111, 114, 118, 121.]
The IRS apparently issued refunds for each of the years at issue after receipt of these payments. [Doc. 42 ¶ 11.] The IRS believes these refunds to have been issued in error and has requested their return, which had not occurred as of the filing of the Commissioner's response and supporting affidavits. [Id. ¶¶ 13, 14.] The IRS has not argued that the alleged error in the issuance of the refunds has any effect on this Court's jurisdiction or our resolution of the pending motions.
II. Penalty Matters
The case was assigned to a revenue agent to examine the amended return as part of the VDP [Doc. 45 ¶ 6], with the agent starting discussions with Mr. Grinshpun's counsel in late 2018 [Doc. 31 at 123-32, 139]. The revenue agent's notes from December 11, 2018, reflect that she informed Mr. Grinshpun's counsel that "she expect[ed] to know the adjustments early next [year] and w[ould] contact counsel if she ha[d] any questions." [Id. at 139.]
A. Form 4549-A
On February 6, 2019, the revenue agent talked to Mr. Grinshpun's counsel about "proposed adjustments to [Mr. Grinshpun's] returns and a civil fraud penalty for tax year 2013." [Doc. 45 ¶16.] Specifically, the revenue agent explained that a civil fraud penalty could be imposed on the "highest year" under a new program, and Mr. Grinshpun's counsel indicated that he would "look into this and get back" to the revenue agent. [Doc. 31 at 183.] She concluded the call by stating that she would fax opposing counsel a Form 4549-A, Report of Income Tax Examination Changes, and that she would "work on getting . . . to him" a Form 906, Closing Agreement on Final Determination Covering Specific Matters. [Id.]
As promised, the revenue agent faxed the Form 4549-A on February 6, 2019. [Doc. 31 at 144-81; Doc. 45 at 51-88.] The fax cover sheet indicated that the Form 4549-A was enclosed and stated that Mr. Grinshpun's counsel could call with any questions. [Doc. 31 at 144; Doc. 45 at 51.] Neither the cover sheet nor the Form h4549-A displayed any designation that it was for discussion or informational purposes only.
The Form 4549-A reflected deficiencies in Mr. Grinshpun's taxes for each year from 2010-14. [Doc. 45 at 52-55.] It further showed a civil fraud penalty of $4,295 with respect to his 2013 tax year. [Id. at 55, 81.] The "Summary of Taxes, Penalties and Interest" included "penalties" on line 19(b) as one of its components for 2013, and the penalty amount was included in the "Amount due or refund" for 2013 on line 19(e), which totaled $12,062. [Id. at 55.] The Form 4549-A included Forms 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment, which allowed Mr. Grinshpun to consent (by signature) to immediate assessment of certain employment tax liabilities for each year. [Id. at 59, 67, 74, 78, 83.] The Form 4549-A did not contain an analogous form with respect to the 2013 fraud penalty.
The Form 4549-A also included a page entitled "How to Pay Your Taxes," which provided "If you agree with the adjustments and balance due on Form 4549 . . . please return a signed copy including pages 1 and 2." [Doc. 45 at 86.] The Form 4549-A did not include a signature block for the taxpayer (but page 2 did have a block for the "Examiner's Signature" and a large blank space above it that had ample room for the taxpayer's signature). The "How to Pay Your Taxes" page stated that the "enclosed report does not reflect any balance currently due." [Id.]
B. Approvals and Notice of Deficiency
The revenue agent also discussed this case with her immediate supervisor, a supervisory revenue agent. [Doc. 45 ¶ 15.] As is particularly relevant here, the revenue agent submitted to her supervisor a February 2019 "Workload Review," which addressed, inter alia, Mr. Grinshpun's pending examination. [Id. at 89-90.] In a section entitled "Case Status and Summary" the revenue agent reported that she was "working with counsel on 906, and waiting for [Mr. Grinshpun's counsel] to advise position on penalty." [Id. at 90.] Under "Action Items" the revenue agent stated the following:
Close case after [Mr. Grinshpun's counsel] advises their position on the penalty. Right now . . . not agreeing with any penalty. We are trying to find out procedure to take [Mr. Grinshpun] out of program and then close case. Assert Civil fraud all years.[Id.] The Workload Review reflects that the supervisory revenue agent signed the document on February 22, 2019 [id.], by which he "intended . . . to approve [the] determination to assert such 6663 civil fraud penalty for tax years 2010, 2011, 2012, 2013,and 2014" [Doc. 46 ¶ 7].
On May 6, 2019, the revenue agent sent to Mr. Grinshpun's counsel a Form 906, which was accompanied by Form 4549-A. [Doc. 45 at 92-101; Doc. 31 at 227-57.] Both forms reflected the imposition of a civil fraud penalty for 2013. [Docs. 31 at 232, 240; 45 at 96.] With respect to the other years, the Form 906 stated that "[n]otwithstanding the lack of imposition of penalties . . ., [Mr. Grinshpun's] underpayments of tax as determined under this agreement for tax years 2010, 2011, 2012, 2013, and 2014 are with respect to fraudulent returns or the willful attempt to evade tax or defeat taxes." [Doc. 31 at 232.] The Form 906 provided that it was a "final and conclusive" agreement and contained signature blocks for Mr. Grinshpun and his wife to sign, indicating their assent to collection and assessment of the tax and penalties. [Doc. 45 at 97.] Mr. Grinshpun and his wife did not do so within the time requested by the revenue agent.
On May 13, 2019, the supervisory revenue agent signed a Civil Penalty Approval Form. [Doc. 31 at 193; Doc. 4 at 50; Doc. 45 at 91.] On this form, the supervisory revenue agent approved the imposition of civil fraud penalties for all of the tax years, as well as an accuracy-related penalty in the alternative for tax year 2014. [Id.]
The IRS thereafter issued a notice of deficiency determining deficiencies for 2010 through 2014 of $4,644, $4,652, $5,589, $5,726, and $2,611, respectively. [Doc. 45 at 107-108.] These deficiency amounts did not take into account either the additional tax reported on the amended returns that Mr. Grinshpun had filed in 2017, or the payments that he had included with the amended returns. The notice further determined civil fraud penalties of $3,483, $3,489, $4,192, $4,295, and $1,958, for the years at issue (respectively), as well as an accuracy-related penalty in the alternative for 2014. [Doc. 45 at 107-108.]
Discussion
I. Jurisdiction over Purported Income Tax Deficiencies for 2010 and 2012-14
We begin with Mr. Grinshpun's motion for partial summary judgment with respect to the income tax deficiencies for 2010 and 2012-14, which implicates this Court's jurisdiction. We are a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent provided by Congress. As relevant here, a notice of deficiency "is a jurisdictional prerequisite to a taxpayer's suit . . . for redetermination of his tax liability." Laing v. United States, 423 U.S. 161, 165 n.4 (1976); see also Walsh v. Commissioner, 21 T.C. 1063, 1067 (1954); Peacock v. Commissioner, T.C. Memo. 2020-63 at *6 ("We have jurisdiction to redetermine a deficiency if a valid notice of deficiency is issued by the Commissioner and if a timely petition is filed by the taxpayer.").
Generally, a deficiency is defined as "the correct tax, minus the tax shown on the return, minus prior assessments (or collections without assessment), plus rebates." Hillenbrand v. Commissioner, T.C. Memo. 2002-303, 2002 WL 31779972, at *5; see also Paccon, Inc. v. Commissioner, 45 T.C. 392, 396 (1966); § 6211(a). "If a deficiency is paid in full by the taxpayer before a notice of deficiency is issued, this Court and others have held that there is no deficiency, such that the notice of deficiency is invalid and the Tax Court lacks jurisdiction." Peacock, T.C. Memo. 2020-63, at *7; see also, e.g., Walsh, 21 T.C. at 1067; Bedrosian v. Commissioner, T.C. Memo. 2007-376, 2007 WL 4526479, at *3, affd 358 Fed.Appx. 868 (9th Cir. 2009).
In the relevant notices of deficiency issued in 2019, the Commissioner asserted deficiencies of $4,644 for 2010, $5,589 for 2012, $5,726 for 2013, and $2,611 for 2014. [Doc. 45 at 107-08.] It is undisputed that Mr. Grinshpun had already paid these amounts (and more) in 2017, nearly two years before the issuance of the notices of deficiency. "Since the tax[es] involved had already been paid when the purported notice[s] of deficiency [were] mailed, the notice[s] of deficiency [were] not valid [and] this Court has no jurisdiction" over the purported deficiencies for these years. Brennan v. Commissioner, T.C. Memo. 1977-244, 1977 WL 3536; see also Walsh, 21 T.C. at 1067; Bedrosian v. Commissioner, 2007 WL 4526479, at *3. We will therefore dismiss this case in part insofar as it seeks a redetermination of income tax deficiencies.
Our conclusion does not disturb our jurisdiction over the civil fraud penalties asserted for the years at issue. See Stewart v. Commissioner, 66 T.C. 54 (1976); cf. Lamprecht v. Commissioner, T.C. Memo. 2022-91, *12 (Under section 6665(a), "the Commissioner's determination that [taxpayers] are liable for the section 6662 accuracy-related penalties for 2006 and 2007 is equivalent to his determining a deficiency in federal income tax for those years; and upon the timely filing of their petition, we have jurisdiction to redetermine that deficiency.").
II. Timeliness of Penalty Approval
A. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant a motion for summary judgment, or partial summary judgment regarding an issue, when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. Rule 121(b); Elec. Arts, Inc. & Subs. v. Commissioner, 118 T.C. 226, 238 (2002). Furthermore, we construe the facts and draw all inferences in the light most favorable to the nonmoving party to decide whether summary judgment is appropriate. Sundstrand, 98 T.C. at 520.
B. Analysis
Mr. Grinshpun asserts that he is entitled to partial summary judgment on the issue of penalty approval. Section 6751(b)(1) provides that "[n]o penalty under this title 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." The "initial determination" of a penalty assessment "is embodied in the document by which the [IRS] Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties." Belair Woods, LLC v. Commissioner, 154 .C. 1, 15 (2020); but see Kroner v. Commissioner, __ F.4th __, 2022 WL 4140340 (11th Cir. Sept. 13, 2022), rev'g T.C. Memo. 2020-73; Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1074 (9th Cir. 2022) ("§ 6751(b)(1) requires written supervisory approval before the assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment"), rev'g 154 T.C. 68 (2020). The term "initial determination" of a penalty assessment "denotes a communication with a high degree of concreteness and formality" and represents a "'consequential moment' of IRS action." Belair Woods, 154 T.C. at 15 (quoting Chai v. Commissioner, 851 F.3d 190, 220-21 (2d Cir. 2017)).
We will deny Mr. Grinshpun's motion for partial summary judgment with respect to all years. As an initial matter, the facts (viewed in the light most favorable to the Commissioner as the nonmoving party) plainly do not support summary judgment with respect to the penalties for 2010-12 and 2014. Although the Form 906 referenced that the underpayments for each year "are with respect to fraudulent returns or the willful attempt to evade tax or defeat taxes," the form asserted a fraud penalty only for 2013. [Doc. 31 at 232.] The first clear reference to the penalties for 2010-12 and 2014 comes in the notice of deficiency, which was issued after the revenue agent's immediate supervisor had affixed his signature to a Civil Penalty Approval form setting forth these penalties. [Doc. 45 at 91, 107.] Summary judgment in Mr. Grinshpun's favor thus is not appropriate with respect to these penalties.
We likewise conclude that summary judgment is not warranted with respect to the 2013 civil fraud penalty. Again, viewing the facts in the light most favorable to the Commissioner, the earliest possible penalty approval came on February 22, 2019, when the supervisory revenue agent signed the revenue agent's Workload Review, which referenced the assertion of the fraud penalty for 2013. See Tribune Media Co. v. Commissioner, T.C. Memo. 2020-2, at *20-21; Raifman v. Commissioner, T.C. Memo. 2018-101, at *61 (holding that supervisory approval need not take any particular form).
The question then becomes whether the Form 4549-A sent on February 6, 2019, embodied the "initial determination" of this penalty for purposes of section 6751. "[T]he Court's focus is on the document and the events surrounding its delivery that formally communicate to the taxpayer the IRS'[s] decision to definitively assert penalties." Beland v. Commissioner, 156 T.C. 80, 87 (2021); see also Belair Woods, 154 T.C. at 15. The record before us indicates that the parties had a conversation about civil fraud penalties directly before the transmission of the Form 4549-A. According to the revenue agent's notes and Workload Review, Mr. Grinshpun's counsel planned to look into the IRS's general practices regarding the assertion of such penalties, but he disagreed with the applicability of the penalties. [Doc. 31 at 183; Doc. 45 at 90.] Viewed in the light most favorable to the Commissioner, we cannot say under our binding precedent that the fax of the Form 4549-A under these circumstances conclusively established that the Examination Division had "completed its work and . . . had made a definite decision to assert penalties." Belair Woods, 154 T.C. at 14-15. We will therefore deny summary judgment in this regard as well.
We recognize that both the Court of Appeals for the Ninth Circuit and the Court of Appeals for the Eleventh Circuit have concluded that the requirement of § 6751 is satisfied so long as supervisory approval is obtained before the act of assessment and thus rejected the formulation we adopted in Belair Woods. See Kroner v Commissioner, 2022 WL 4140340, at *3-5; Laidlaw's, 29 F.4th at 1074. As this case is appealable to the Third Circuit, however, we follow our precedent.
It is therefore
ORDERED that, on the Court's own motion, so much of this case as relates to the tax deficiencies determined for taxable years 2010, 2012, 2013, and 2014 is dismissed for lack of jurisdiction. References to the deficiencies determined for tax years 2010, 2012, 2013, and 2014 in the petition are deemed stricken. The tax deficiency relating to taxable year 2011 remains before the Court. It is further
ORDERED that petitioner's motion for partial summary judgment as to the income tax deficiencies for 2010, 2012, 2013, and 2014, filed January 21, 2021, is DENIED AS MOOT. It is further
ORDERED that petitioner's motion for partial summary judgment with regard to penalties due to the Commissioner's failure to timely obtain supervisorial approval, filed January 21, 2021, is DENIED. It is further
ORDERED that the parties shall contact the Chambers of the undersigned at (202) 521-0800 on or before October 7, 2022, for the purpose of scheduling a conference call to discuss next steps in this case.