Opinion
17784-19
12-30-2022
THE HARBINGER S BRAR FLP VIII N.K.A. KSB LP, BRAR PROPERTY MANAGEMENT, INC., TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland, Judge
Currently pending before this Division of the Court are 27 related cases. The docket numbers, captions, and tax years at issue for these cases, including the present case, are listed in the Appendix to this Order. None of the cases is consolidated with any other for purposes of briefing, trial, or opinion.
On September 9, 2021, respondent filed in each of these 27 cases the following:
1. a Motion for Summary Judgment, with attachments;
2. the Declaration of Kathleen A. Dombrowski in Support of the Motion for Summary Judgment;
3. Exhibits to the Declaration of Kathleen A. Dombrowski; and
4. a Memorandum in Support of the Motion for Summary Judgment.
At the time of the filings, Kathleen Dombrowski was one of respondent's counsels of record.
In all 27 cases the filings are the same, i.e., respondent filed the same summary judgment motion, declaration, exhibits, and supporting memorandum in each case. The motions are based on the legal consequences of a taxpayer pleading the Fifth Amendment in an Internal Revenue Service civil tax return examination. We have reviewed respondent's motions and find them to be deficient and premature; the issues presented in these cases cannot appropriately be decided on summary judgment at this time. As such, we will deny the motions, and we will not order petitioners to respond to them. See Rule 121(b), (d). For the sake of efficiency and to conserve judicial resources, we will address all of the motions by issuing this Order in each of the 27 cases.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Background
Petitioners in these cases are Harbinder and Barbara Brar and eight family limited partnerships (FLPs) that they directly and indirectly control, and the Petitions relate to tax years ranging from 2012 to 2015 (the years at issue). All eight FLPs are classified as partnerships subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). See I.R.C. §§ 6221-34 (as in effect for years before 2018). In the years at issue, the FLPs were primarily engaged in the farming of almonds, pistachios, and grapes in the Central Valley of California, and the Brars were medical doctors.
The Internal Revenue Service (IRS) examined the FLPs' returns and the Brars' joint individual income tax returns for the years at issue. At the conclusion of the examinations the IRS issued 24 notices of final partnership administrative adjustment (FPAA) and 3 notices of deficiency. In those FPAAs and notices of deficiency the IRS proposed a large number of adjustments to both the FLPs' and the Brars' returns. For the FLPs, it proposed disallowing farming expense deductions, including but not limited to microcaptive insurance premiums; and it determined that two FLPs had unreported income. For the Brars, the IRS determined that their medical practices had unreported income and proposed disallowing expense deductions related to the medical practices, including but not limited to microcaptive insurance premiums. Finally, the IRS determined a fraud penalty under section 6663 for all FLPs and the Brars. In total, the IRS determined deficiencies of $39,156,148.27 and fraud penalties of $29,023,052.45, for a total of $68,179,200.72.
The IRS issued an FPAA to each of the 8 FLPs for the years at issue (2012 and 2013 (combined), 2014, and 2015), yielding a total of 24 FPAAs. The IRS also issued three notices of deficiency for the years at issue. Petitioners timely filed Petitions with this Court contesting all 24 FPAAs and all 3 notices of deficiency, yielding 27 cases.
In the years at issue, Harbinder Brar and Barbara Brar each owned S corporations through which they operated their respective medical practices. Harbinder Brar owned Harbinder S. Brar, M.D., Inc. (HBMD), and Barbara Brar owned Barbara P. Brar, M.D., Inc. (BBMD).
Important here is what occurred during the examinations. The revenue agent summoned Mr. Brar for an interview. At that interview Mr. Brar invoked his Fifth Amendment right against self-incrimination to virtually every question the revenue agent asked. The revenue agent also summoned Mrs. Brar for an interview, but she declined to attend and offered to respond to written questions instead. The revenue agent sent Mrs. Brar written questions and she responded by invoking her Fifth Amendment right against self-incrimination in her written answer to every question.
Based on the Brars' invocation of their Fifth Amendment rights, respondent filed the motions for summary judgment currently before us. We are asked to draw a negative inference as to all issues in these 27 cases and to preclude the introduction of any evidence relating to the matters for which the Fifth Amendment has been invoked. Respondent contends that if we act accordingly, petitioners will not be able to meet their burden of proving the IRS's determinations erroneous, and we can therefore dispose of all 27 cases on summary judgment.
Discussion
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(a), either party may move for summary judgment regarding any legal issue in controversy. We may grant summary judgment if the pleadings and other materials submitted to the Court show that there is no genuine dispute of material fact. Rule 121(b); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving party bears the burden of demonstrating that there is no genuine dispute of material fact. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992). In deciding whether to grant summary judgment, we draw factual inferences and resolve reasonable doubt in favor of the nonmoving party. FPL Grp., Inc. v. Commissioner, 115 T.C. 554, 559 (2000); Espinoza v. Commissioner, 78 T.C. 412, 416 (1982). We also decide "whether there are any factual issues to be tried." Espinoza, 78 T.C. at 416 (citing Hoeme v. Commissioner, 63 T.C. 18 (1974)). Here, respondent, as the moving party, must demonstrate that no genuine dispute exists as to any material fact. And we draw factual inferences in favor of petitioners, as the nonmoving parties.
Respondent focuses the bulk of his motions on the Brars' conduct during the examinations, urging us to adopt a negative inference against them as a result of their assertions of the Fifth Amendment privilege against self-incrimination. We find these arguments unpersuasive. Petitioners invoked our jurisdiction to redetermine their deficiencies, and deficiency cases are de novo proceedings. See Porter v. Commissioner, 130 T.C. 115, 119 (2008). We have no knowledge at this stage whether petitioners will continue to plead the Fifth Amendment; and because we review deficiency cases de novo, the cases should proceed to trial.
With respect to all of respondent's motions, we further note that none of petitioners' tax returns or return transcripts were included in the supporting materials. Thus, at the outset, we do not even have the basic foundation we need to summarily adjudicate the issues in these cases (even assuming that the issues are ripe for summary judgment). For example, the IRS disallowed the FLPs' and the Brars' expenses; but without the tax returns or return transcripts, we cannot determine what the FLPs and the Brars initially reported to the IRS. Respondent's failure to produce the FLPs' and the Brars' tax returns or return transcripts automatically creates genuine disputes of material fact because we must determine what was initially reported to the IRS. Furthermore, the IRS disallowed the FLPs' and the Brars' deductions for microcaptive insurance premiums. Microcaptive insurance issues require a factually intensive analysis. See, e.g., Syzygy Ins. Co. v. Commissioner, T.C. Memo. 2019-34. Thus, we are unconvinced that the microcaptive insurance issues present here can be resolved on summary judgment.
With respect to the IRS's unreported income determinations, we note that determinations in a FPAA or notice of deficiency generally are entitled to the presumption of correctness, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Republic Plaza Props. P'ship v. Commissioner, 107 T.C. 94, 104 (1996). However, unreported income determinations are not initially entitled to the presumption of correctness. See Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th Cir. 1979), rev'g 67 T.C. 672 (1977). Before the IRS's unreported income determinations enjoy any presumption, respondent must first provide "some evidentiary foundation linking the taxpayer to the alleged income-producing activity." Id. at 362. Respondent asserts that he has met this initial burden, but we disagree. The supporting materials contain sparse summaries of the revenue agent's bank deposit analysis and some (but not all) of the check registers that she examined. We do not have a detailed explanation of how the revenue agent arrived at her determinations or even the source documents (e.g., bank statements) underlying the bank deposit analysis. Moreover, respondent has not provided information connecting these deposits with an income-producing activity. In short, respondent has not presented sufficient evidence to support the unreported income determinations. Thus, there remain glaring genuine disputes of material fact as to those determinations.
With respect to the IRS's section 6663 fraud penalty determinations, we note that the respondent bears the burden of proving fraud with the intent to evade tax by clear and convincing evidence. See I.R.C. § 7454(a); Rule 142(b); Hebrank v. Commissioner, 81 T.C. 640, 642 (1983). The presence of fraud is a factual question to be determined by examining the entire record. Richman v. Commissioner, T.C. Memo. 1993-32, 65 T.C.M. (CCH) 1808, 1810; Brunswick Hosp. Ctr., Inc. v. Commissioner, T.C. Memo. 1987-253, 53 T.C.M. (CCH) 850, 853. Respondent must show that the taxpayer acted with specific intent to evade taxes known to be owing through conduct intended to conceal, mislead, or otherwise prevent collection. Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968); Parks v. Commissioner, 94 T.C. 654, 661 (1990). Because direct evidence of a taxpayer's subjective intent is rare, we may infer fraudulent intent from circumstantial evidence, and we consider the taxpayer's entire course of conduct. Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983); Richman, 65 T.C.M. (CCH) at 1810. The record before us, with its many gaps, is not a sufficient basis for evaluating whether petitioners had the requisite fraudulent intent for purposes of section 6663. As such, there are genuine disputes of material fact as to the fraud penalty determinations.
In addition, pursuant to the Court's review of this case, as well as the Court's knowledge of the related cases before this Division of the Court, it appears that petitioner's name has been misspelled in the caption. Therefore, the Court is ordering an amendment of the caption to be consistent with the Petition filed herein.
Upon due consideration, it is
ORDERED that respondent's Motion for Summary Judgment, filed on September 9, 2021, is denied without prejudice. It is further
ORDERED that the caption of this case be amended to read "The Harbinder S Brar FLP VIII n.k.a. KSB LP, Brar Property Management, Inc., Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent."
APPENDIX
Individual Cases Currently Before This Division of the Court
Docket No. (Tax Year(s) at Issue)
Caption
18325-17 (2012 & 2013) 19657-18 (2014) 21908-19 (2015)
Harbinder S. Brar & Barbara P. Brar
Family Limited Partnership (TEFRA) Cases Currently Before This Division of the Court
Docket No. (Tax Year(s) at Issue) Caption 14695-17 (2012 & 2013) 12022-18 (2014) 17776-19 (2015) The Harbinder S Brar FLP I, a.k.a. Harbinder S Brar Family Limited Partnership I, Brar Property Management, Inc., Tax Matters Partner 14800-17 (2012 & 2013) 12024-18 (2014) 17763-19 (2015) The Harbinder S Brar FLP, II n.k.a. Bosh, LP, Brar Property Management, Inc., Tax Matters Partner 14700-17 (2012 & 2013) 12027-18 (2014) 17766-19 (2015) The Harbinder S Brar FLP, III a.k.a. Brar Family Limited Partnership, III, Brar Property Management, Inc., Tax Matters Person 14688-17 (2012 & 2013) 12038-18 (2014) 17765-19 (2015) The Harbinder S Brar FLP IV, a.k.a. Brar Family Limited Partnership IV, Brar Property Management Inc., Tax Matters Partner 14812-17 (2012 & 2013) 12040-18 (2014) 17767-19 (2015) The Harbinder S Brar FLP, V, Brar Property Management, Inc., Tax Matters Partner 14703-17 (2012 & 2013) 12039-18 (2014) 17806-19 (2015) The Harbinder S Brar FLP, VI a.k.a. Harbinder S Brar FLP, VI, LP, Brar Property Management, Inc., Tax Matters Person 14678-17 (2012 & 2013) 12023-18 (2014) 17790-19 (2015) The Harbinder S Brar FLP VII a.k.a. Harbinder S Brar FLP VII, LP, Brar Property Management Inc., Tax Matters Partner 14664-17 (2012 & 2013) 11930-18 (2014) 17784-19 (2015) The Harbinder S Brar FLP VIII n.k.a. KSB LP, Brar Property Management, Inc., Tax Matters Partner 6