                            T.C. Memo. 2020-2



                     UNITED STATES TAX COURT



      TRIBUNE MEDIA COMPANY f.k.a. TRIBUNE COMPANY
                 & AFFILIATES, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent

CHICAGO BASEBALL HOLDINGS, LLC, NORTHSIDE ENTERTAINMENT
 HOLDINGS, LLC, f.k.a. RICKETTS ACQUISITION, LLC, TAX MATTERS
                        PARTNER, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket Nos. 20940-16, 20941-16.             Filed January 6, 2020.



         R examined returns filed by Ps. During the examination,
   discussions were held regarding the potential assertion of penalties.
   Some of those discussions were within the IRS, and others included
   Ps. R provided documents to Ps proposing, but not determining,
   penalties. Penalties were determined in a notice of deficiency (NOD)
   and a notice of final partnership administrative adjustment (FPAA).

         The parties filed cross-motions for partial summary judgment
   regarding whether the determination of penalties was properly
   approved under I.R.C. sec. 6751(b)(1). Ps argue that supervisory
   approval must occur before penalties are first proposed. R argues that
   approval in fact occurred when penalties were first set forth in a
   notice of proposed adjustment. R further argues that approval was
                                        -2-

[*2] timely because it occurred before the NOD and the FPAA were
     issued.

             In Graev v. Commissioner, 149 T.C. 485 (2017), supplement-
      ing and overruling in part 147 T.C. 460 (2016), we followed the
      holding in Chai v. Commissioner, 851 F.3d 190, 221 (2d Cir. 2017),
      aff’g in part, rev’g in part T.C. Memo. 2015-42, that I.R.C. sec.
      6751(b)(1) requires supervisory approval of a penalty “no later than
      the date the IRS issues the notice of deficiency (or files an answer or
      amended answer) asserting such penalty.” In Clay v. Commissioner,
      152 T.C. 223, 249 (2019), we held that supervisory approval must
      occur no later than the first “communication that advises the taxpayer
      that penalties will be proposed and giving the taxpayer the right to
      appeal”.

             Held: I.R.C. sec. 6751(b)(1) does not require written super-
      visory approval of penalties until the first formal communication to
      the taxpayer that the Commissioner has determined a penalty.

            Held, further, on the facts of these cases, the first formal
      communications in which the Commissioner communicated his
      determination of penalties with regard to Ps were the NOD and the
      FPAA that concluded the examinations.

            Held, further, R’s motion for partial summary judgment will be
      granted in part.

            Held, further, Ps’ motion for partial summary judgment will be
      denied.



      Joel V. Williamson, Thomas Lee Kittle-Kamp, Peter M. Price, Anthony D.

Pastore, and Daniel S. Emas, for petitioners.

      Justin Scheid, for respondent.
                                         -3-

[*3]                        MEMORANDUM OPINION


       BUCH, Judge: In 2009 Tribune Media Co. (Tribune) engaged in a

transaction that resulted in the formation of Chicago Baseball Holdings, LLC

(CBH). The Commissioner characterizes the transaction as a disguised sale and

determined a deficiency for Tribune and adjustments for CBH. Additionally, the

Commissioner determined that a 40% gross valuation misstatement penalty applies

under section 6662(a), (b)(3), (e), and (h), or in the alternative that one of the 20%

penalties applies for negligence, disregard of rules or regulations, a substantial

understatement of income tax, or a substantial valuation misstatement under

section 6662(a), (b)(1), (2), or (3), (c), (d), or (e) (20% penalties).1 Each party has

moved for partial summary judgment in each case on the question of whether the

Commissioner complied with the section 6751(b)(1) requirement to obtain written

supervisory approval of the initial determinations of the penalties and, more

specifically, whether that approval was timely. For the reasons set forth below, we

will grant the Commissioner’s motion as to the 40% gross valuation misstatement




       1
       All section references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure, unless otherwise indicated. All amounts are rounded to the nearest
whole dollar.
                                         -4-

[*4] penalties and deny it as to the various 20% penalties. We will deny Tribune

and CBH’s motion in full.

                                    Background

      These cases arise from the Commissioner’s examinations of the returns filed

by Tribune and CBH for tax year 2009. Tribune filed a petition challenging the

Commissioner’s notice determining a deficiency of $181,661,831 and a gross

valuation misstatement penalty of $72,664,732. The tax matters partner of CBH

filed a timely petition challenging the Commissioner’s notice of final partnership

administrative adjustment (FPAA) regarding CBH, which also determined the

applicability of a 40% gross valuation misstatement penalty. Both notices

determined that the 20% penalties for negligence, disregard of rules or regulations,

substantial understatement of income tax, or substantial valuation misstatement

applied in the alternative. We consolidated the cases.

      The Commissioner moved for partial summary judgment, asking the Court

to determine that he had complied with the supervisory approval requirement of

section 6751(b)(1). Tribune and CBH likewise filed a motion for partial summary

judgment, asking us to determine that the Commissioner did not comply with

section 6751(b)(1). The parties have stipulated many of the relevant facts, and

each argues that no material facts are in dispute.
                                        -5-

[*5] Various Internal Revenue Service (IRS) or IRS Office of Chief Counsel

employees were involved in the examination. The parties focused on four.

Revenue Agent H. Paul Unger was the examination team coordinator. His

immediate supervisor was Lisa Valdez, a supervisory revenue agent. They were

advised by Daniel Trevino, an attorney with the IRS Office of Chief Counsel, and

his immediate supervisor was Associate Area Counsel Naseem Khan.

I.    Tribune

      During the examination of Tribune’s return, Mr. Unger first recommended

determining a 20% penalty against Tribune alternatively for negligence, disregard

of rules or regulations, a substantial understatement of income tax, or a substantial

valuation misstatement. He made this recommendation orally to Ms. Valdez in

December 2014.

      Tribune first became aware that the Commissioner was considering

imposing penalties during a meeting in January 2016. At this meeting the parties

discussed adjustments to Tribune’s return, and Mr. Trevino informed

representatives of Tribune that the Commissioner would apply a penalty to any

underpayment determined for 2009. Mr. Trevino’s notes about topics discussed at

the meeting state: “Applying penalties. Have not ruled any out.”
                                        -6-

[*6] Penalties were first proposed in writing in a draft Form 5701, Notice of

Proposed Adjustment (NOPA). In early 2016 Mr. Unger drafted a NOPA for

Tribune asserting in the alternative the various 20% penalties. He sent the draft to

IRS Counsel for review and advice. Upon reviewing the draft NOPA, Mr. Trevino

recommended also asserting as an additional alternative the gross valuation

misstatement penalty. He made this recommendation orally to his immediate

supervisor, Ms. Khan, in February 2016. Mr. Unger ultimately adopted this

recommendation when he prepared the final NOPA that was sent to Tribune.

      The NOPA identifies the taxpayer, tax year, and date; contains the typed

text “Valdez, Liza F” in the box for Team Manager; and states: “See attached

886/Amount to be finalized on RAR after all adjustments.” Ms. Valdez’s name is

typewritten on the bottom of the Tribune NOPA. The NOPA states:

      Based on the information we now have available and our discussions
      with you, we believe the proposed adjustment listed below should be
      included in the revenue agent’s report. However, if you have
      additional information that would alter or reverse this proposal,
      please furnish this information as soon as possible.

      On March 31, 2016, the Commissioner sent that NOPA with an attached

Form 886-A, Explanations of Items, to Tribune proposing the 40% gross valuation

misstatement penalty or, alternatively, the various 20% penalties. The
                                        -7-

[*7] Commissioner did not send a 30-day letter granting Tribune the opportunity

to appeal the determinations in the NOPA.

      Ms. Valdez signed a Form 3198, Special Handling Notice for Examination

Case Processing, on April 21, 2016, showing a section 6662(h) penalty (the 40%

gross valuation misstatement penalty). The form did not show any alternative

penalties but was accompanied by the case file. Ms. Valdez testified at deposition

that Mr. Unger prepared the Tribune Form 3198 and that she reviewed and signed

it.

      The notice of deficiency was sent to IRS Counsel for review. On June 28,

2016, Ms. Khan electronically signed a memorandum approving the proposed

notice of deficiency for Tribune. The notice included the 40% penalty and,

alternatively, the various 20% penalties. The Commissioner sent the final notice

of deficiency to Tribune on June 28, 2016, the same day as Ms. Khan’s approval.

The notice of deficiency bears an unidentifiable signature with the notation that it

was made for Brian Atkinson. It attaches a Form 4549-A, Income Tax

Examination Changes (Unagreed and Excepted Agreed). That Form 4549-A

identifies the examiner as Keith Muldrow.
                                        -8-

[*8] II.     CBH

       Mr. Unger first recommended that a 20% penalty for negligence, disregard

of rules or regulations, a substantial understatement of income tax, or a substantial

valuation misstatement be applied to the adjustments for CBH. He made that

recommendation in writing in December 2015 to his immediate supervisor, Ms.

Valdez. CBH first became aware that the Commissioner intended to impose a

penalty during a conference call held in February 2016.

       As with Tribune, Mr. Unger sent a draft NOPA asserting in the alternative

the various 20% penalties for CBH to Mr. Trevino for review in February of 2016.

Mr. Trevino recommended that a 40% gross valuation misstatement penalty also

be applied in the alternative to the CBH adjustments. He made that

recommendation orally to Ms. Khan.

       Mr. Unger did not adopt Mr. Trevino’s suggestion when he prepared the

NOPA that would be provided to CBH. The Commissioner sent a NOPA to CBH

in March 2016. That notice proposed, in the alternative, a 20% penalty for

negligence, disregard of rules or regulations, a substantial understatement of

income tax, or a substantial valuation misstatement but did not mention the 40%

gross valuation misstatement penalty. As with the NOPA issued to Tribune, the

CBH NOPA stated:
                                        -9-

[*9] Based on the information we now have available and our discussions
     with you, we believe the proposed adjustment listed below should be
     included in the revenue agent’s report. However, if you have
     additional information that would alter or reverse this proposal,
     please furnish this information as soon as possible.

The Commissioner did not send CBH a letter granting the opportunity to appeal

the determinations in the NOPA.

      Two NOPAs dated March 31, 2016, regarding CBH appear in the record.

On one, the handwritten notation “F5701 for Penalty” appears. On the other, it

does not. The version CBH received did not have the handwritten note. Both

versions of the NOPA were prepared by Mr. Unger and included Ms. Valdez’s

name in the box labeled “Team Manager”. In her deposition, Ms. Valdez testified

that this shows her approval. However, Ms. Valdez also testified that Mr. Unger

may have typed her name in that box and that it was not her electronic signature.

      The FPAA was then prepared for issuance. Ms. Valdez signed a Form 3198

in June 2016 closing the case out to technical services. The form did not list any

penalties but was accompanied by the case file. Before the FPAA was issued to

CBH, a draft FPAA that included all of the alternative penalties at issue was

forwarded to the IRS Office of Chief Counsel for review. In a memorandum dated

June 28, 2016, Ms. Khan stated her approval of the proposed FPAA, which
                                         - 10 -

[*10] included the 40% gross valuation misstatement penalty in addition to the

various 20% penalties in the alternative.

      Finally, the Letter 1830-F, TMP Notice of Final Partnership Administrative

Adjustment, also dated June 28, 2016, informed CBH that the Commissioner had

determined that a 40% gross valuation misstatement penalty applied to the

adjustments. The notice also determined the various 20% penalties in the

alternative. That notice purports to have been signed by Emil Pikul for Heather

Yocum. It attaches a Form 4605-A, Examination Changes - Partnerships,

Fiduciaries, S Corporations, and Interest Charge Domestic International Sales

Corporations (Unagreed and Excepted Agreed). That Form 4605-A is unsigned

and does not identify who prepared it.

                                    Discussion

      The question before the Court is whether the Commissioner’s penalty

determinations complied with section 6751(b)(1). That question requires us to

decide whether the initial determination of each penalty in each case was timely

approved in writing by the immediate supervisor of the person making the

determination. The parties agree as to who the immediate supervisors were. Who

made the initial determinations, when they were made, and whether certain
                                       - 11 -

[*11] documents are sufficient evidence of written approval are questions of fact.

When written approval was required is a question of law.

I.    Jurisdiction and Burden of Proof

      We have jurisdiction to redetermine a deficiency if a taxpayer files a timely

petition challenging a notice of deficiency. Sec. 6213(a). Our jurisdiction

includes the authority to redetermine any penalties or additions to tax. Sec.

6214(a). Similarly, we have jurisdiction to readjust the adjustments made in an

FPAA if a timely petition is filed. Sec. 6226(a). This jurisdiction includes the

authority to determine all partnership items and “the applicability of any penalty,

addition to tax, or additional amount which relates to an adjustment to a

partnership item.” Sec. 6226(f).

      As part of our jurisdiction to redetermine whether a penalty applies, we have

jurisdiction to review whether the Commissioner complied with the supervisory

approval requirement of section 6751(b)(1). In Graev v. Commissioner (Graev

III), 149 T.C. 485 (2017), supplementing and overruling in part 147 T.C. 460

(2016), we held that section 6751(b)(1) compliance is properly in issue in a

deficiency proceeding. We applied the same reasoning to a TEFRA partnership

proceeding and held that when penalties are asserted in an FPAA, section

6751(b)(1) compliance may be properly in issue in that proceeding. Endeavor
                                        - 12 -

[*12] Partners Fund, LLC v. Commissioner, T.C. Memo. 2018-96, at *63, aff’d,

943 F.3d 464 (D.C. Cir. 2019).

      Generally, the Commissioner’s determinations in a notice of deficiency or in

an FPAA are afforded a presumption of correctness and the taxpayer bears the

burden of proving the determinations incorrect. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). In a proceeding regarding the liability of an individual

for a penalty, the Commissioner has the burden of production as to the penalty.

Sec. 7491(c). The Commissioner generally bears the burden of production as to

any penalty or addition to tax imposed on an individual but not as to one imposed

on a corporation. Sec. 7491(c); NT, Inc. v. Commissioner, 126 T.C. 191 (2006).

This burden of production requires the Commissioner to “come forward with

sufficient evidence indicating that it is appropriate to impose the relevant penalty.”

Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

      But because the Commissioner does not bear the burden of production

under section 7491(c) as to penalties imposed on a corporation, he also does not

usually bear the burden of production as to section 6751(b)(1) approval for a

penalty determined against a corporation. Dynamo Holdings Ltd. P’ship v.

Commissioner, 150 T.C. 224, 231-232 (2018). Likewise, the Commissioner does

not usually bear the burden of production as to penalties, including as to section
                                        - 13 -

[*13] 6751(b)(1) approval, in a partnership-level proceeding. Dynamo Holdings

Ltd. P’ship v. Commissioner, 150 T.C. at 236.

II.    Summary Judgment

       Either party may move for summary judgment on any or all of the legal

issues in controversy. Rule 121(a). We may grant summary judgment only if

there is no genuine dispute as to any material fact. Rule 121(b); Naftel v.

Commissioner, 85 T.C. 527, 528-529 (1985). The moving party bears the burden

of proving that there is no genuine dispute and that it is entitled to judgment as a

matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d,

17 F.3d 965 (7th Cir. 1994). When deciding whether to grant summary judgment,

we consider the facts and the inferences drawn from them in the light most

favorable to the nonmoving party. FPL Grp., Inc. v. Commissioner, 115 T.C. 554,

559 (2000); Bond v. Commissioner, 100 T.C. 32, 36 (1993); Naftel v.

Commissioner, 85 T.C. at 529. However, the nonmoving party may not rest on

mere allegations or denials but must set forth specific facts showing that there is a

genuine dispute for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986);

Sundstrand Corp. v. Commissioner, 98 T.C. at 520; see also Rule 121(d).

III.   Section 6751(b)(1)

       Section 6751(b)(1) provides:
                                       - 14 -

[*14] No 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 or such higher level official as the Secretary may
      designate.

Congress enacted section 6751(b)(1) because of concerns that the IRS used

penalties as mere leverage in negotiations. A Senate Finance Committee Report

explains Congress’ rationale in enacting this provision. “The Committee believes

that penalties should only be imposed where appropriate and not as a bargaining

chip.” S. Rept. No. 105-174, at 65 (1998), 1998-3 C.B. 537, 601. It was further

explained: “In order to prevent IRS employees from arbitrarily using penalties as

leverage against taxpayers, our legislation requires non-computer determined

penalties to be approved by management.” 144 Cong. Rec. 7627, 7873 (1998).

      In Graev III we decided when the Commissioner must obtain approval of

the initial determination to impose a penalty. The Commissioner argued that

approval could occur at any time, even after a proceeding in this Court, and as a

result, it would be premature for us to consider section 6751(b)(1) in a deficiency

proceeding. We held that we have jurisdiction in a deficiency proceeding to

consider compliance with section 6751(b)(1). Graev III, 149 T.C. 485.

      In deciding Graev III, we relied heavily on the Court of Appeals for the

Second Circuit’s opinion in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017),
                                         - 15 -

[*15] aff’g in part, rev’g in part T.C. Memo. 2015-42. In that case, the Court of

Appeals held that section 6751(b)(1) “requires written approval of the initial

penalty determination no later than the date the IRS issues the notice of deficiency

(or files an answer or amended answer) asserting such penalty.” Chai v.

Commissioner, 851 F.3d at 221 (emphasis added); see also Endeavor Partners

Fund, LLC v. Commissioner, T.C. Memo. 2018-96, at *63 (applying the same

rationale to an FPAA). In reaching its conclusion, the Court of Appeals

considered the practicality of providing written approval. Approval is meaningful

only if obtained when the supervisor has the discretion to give or withhold it. See

Chai v. Commissioner, 851 F.3d at 220. The court identified the last moment

when approval might be required. In these cases, we are asked whether approval

might be required earlier.

      A.     Initial Determinations

      On April 24, 2019, we issued our Opinion in Clay v. Commissioner, 152

T.C. 223 (2019). In Clay, we addressed the issue of whether section 6751(b)(1)

might require approval at a time before the Commissioner issues a notice of

deficiency. We held that it could: Section 6751(b)(1) requires written supervisory

approval of the initial determination no later than the earlier of (1) when it is

communicated to the taxpayer in the form of a notice of deficiency or (2) when
                                       - 16 -

[*16] another form of formal communication is sent to the taxpayer that both

advises it that penalties were determined and gives the taxpayer the opportunity to

appeal that determination. Clay v. Commissioner, 152 T.C. at 249. In Clay, the

Commissioner issued a notice of proposed adjustment including penalties along

with a 30-day letter granting the opportunity to appeal that determination with the

IRS Office of Appeals (Appeals). We held that the Commissioner made the initial

determination for purposes of section 6751(b)(1) no later than when he issued the

30-day letter and that written supervisory approval was therefore required before

the 30-day letter was sent to the taxpayer. Clay v. Commissioner, 152 T.C. at 249.

      On April 25, 2019, we ordered the parties in these cases to address the effect

of Clay on the pending motions for partial summary judgment. Tribune and CBH

responded that under Clay written approval was required “before the first time the

Service communicates the penalties to the taxpayers.” Tribune and CBH argue

that the NOPA, the January 2016 meeting, and the February 2016 call were

communications of penalty determinations before which approval was required.

The Commissioner argues that “formal communication offering the opportunity

for administrative appeal with respect to the [penalties]” was not included with the

NOPAs and that therefore, under Clay, the notice of deficiency and the FPAA
                                       - 17 -

[*17] were the first formal communications of the penalty determinations to which

section 6751(b)(1) applied.

      On the facts of these cases, we agree with the Commissioner. The first

formal communications of the initial determinations of the penalties to which

section 6751(b)(1) applied were the notice of deficiency (Tribune) and the FPAA

(CBH). The Commissioner did not send Tribune or CBH any document that

conferred the opportunity for an administrative appeal, which can be one of the

important indicia of formality. Nor did the Commissioner send any other written

communication purporting to determine a penalty with any sense of finality. As a

result, the notice of deficiency and the FPAA were the Commissioner’s first

formal written communications to Tribune and CBH, respectively, informing them

that the Commissioner had determined to assert penalties.

      Tribune and CBH argue that supervisory approval is required by “the first

time an IRS official introduces the penalty into the conversation”. See Graev III,

149 T.C. at 501 (Lauber, J., concurring). They argue that section 6751(b)(1) and

Clay require that written approval occur “before communicating the initial

determination of a penalty to the taxpayer.” Then, building on that phrase, they

argue that the approval requirement “arises the moment when the employee first

proposes the imposition of penalties to the taxpayer.” Tribune and CBH argue that
                                         - 18 -

[*18] approval of the various 20% penalties is required to have occurred before

those were first mentioned in a January 2016 meeting during which Mr. Trevino

described the adjustments that might be forthcoming. They further argue that

approval of the gross valuation misstatement penalty is required to have occurred

before it was first suggested in the NOPA that was issued to Tribune on March 31,

2016.

        Although the statute looks for approval of the “initial determination”,

Tribune and CBH look for approval of the “first propos[al]”. This approach

ignores the sense of formality implied by Congress’ use of the word

“determination” and would render the examination of penalty issues unworkable.

               To make a determination is to establish something conclusive-
        ly. When ascertaining the plain meaning of words, it is appropriate to
        consult dictionaries. See Nat’l Muffler Dealers Ass’n, Inc. v. United
        States, 440 U.S. 472, 480 n.10 (1979); Rome I, Ltd. v. Commissioner,
        96 T.C. 697, 704 (1991). Webster’s Collegiate Dictionary 315 (10th
        ed. 1996) defines “determine” as “to fix conclusively or authorita-
        tively”. The Random House College Dictionary 362 (rev. ed. 1980)
        defines it as “to settle or decide (a dispute, question, etc.) by an
        authoritative or conclusive decision”. These definitions are
        consistent; a determination is authoritative or conclusive.

Graev III, 149 T.C. at 533 (Buch, J., concurring as to Parts I and III and dissenting

as to Part II). A “‘determination’ is embodied in a written communication to the

taxpayer that notifies him of a final IRS decision”. Belair Woods, LLC v.
                                        - 19 -

[*19] Commissioner, 154 T.C. __, __ (slip op. at 15) (Jan. 6, 2020). Clearly

“determination” is not a synonym for a mere suggestion, proposal, or initial

informal mention of the possibility of the assertion of a penalty.

      A background on basic IRS examination and appeal procedures is

instructive. In an IRS examination, the examination personnel are charged with

gathering information and determining a liability if appropriate. See secs. 7601-

7613. In doing so, they may request information by various means including the

issuance of Information Document Requests. Internal Revenue Manual pt.

4.46.4.2 (Dec. 13, 2018). If developing a penalty issue, the IRS may need to

request information related to whether imposing a particular penalty is justified.

This would necessarily involve communicating the possibility that a penalty is

being considered long before the Commissioner actually determines whether to

impose a penalty, let alone communicates that determination to the taxpayer. The

mere possibility that a penalty might be asserted is not a determination.

      In their response to our April 25, 2019, order, Tribune and CBH argue that a

NOPA grants appeal rights. But they ignore the wording of the NOPA itself. The

heading of the form notes that it is a “proposed adjustment”, falling short of a

“determination” requiring approval. Moreover, the form states:
                                       - 20 -

[*20] Based on the information we now have available and our discussions
      with you, we believe the proposed adjustment listed below should be
      included in the revenue agent’s report. However, if you have
      additional information that would alter or reverse this proposal,
      please furnish this information as soon as possible.

This text makes clear that a NOPA, standing alone, is not a determination.

      As for appeal rights, a NOPA, standing alone, grants no such thing. Tribune

and CBH cite the Appeals fast track settlement and early referral procedures as

examples of when a NOPA grants the opportunity for an appeal. It is true that a

taxpayer may request that any developed, unagreed issue under audit be referred to

Appeals, even while the remaining issues remain under audit. Rev. Proc. 99-28,

sec. 2.01, 1999-2 C.B. 109, 109. However, such a request to appeal an issue is not

a right. The request may be denied, and there is no right to appeal such a denial.

Id. sec. 2.09, 1999-2 C.B. at 110. We need not reach the question of whether

approval would be required if fast track settlement or early referral were granted,

because those facts are not before us. What is before us is a NOPA, standing

alone. And a NOPA standing alone is not a determination.

      B.     Approval in Writing

      To satisfy the section 6751(b)(1) requirement of penalty approval in writing

by the immediate supervisor, the writing must manifest the supervisor’s intent to

approve the penalty. Although the IRS has various forms that can be used for
                                       - 21 -

[*21] approving penalties,2 courts have not restricted the Commissioner to using

only those forms in order to comply with the written approval requirement. See

Palmolive Bldg. Inv’rs v. Commissioner, 152 T.C. 75, 85-86 (2019).

      Any written manifestation of the supervisor’s intent to approve the penalty

is sufficient. For example, in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d

193, 213 (5th Cir. 2018), aff’g T.C. Dkt. No. 26096-14 (Oct. 7, 2016) (bench

opinion), we had found that a signed 30-day letter sent by the supervisor of the

examining agent satisfied the requirement for written approval.3 But these cases

are not as straightforward as PBBM-Rose Hill. The notice of deficiency and the

FPAA in the cases before us were not signed by the immediate supervisor of the

examining agent. These cases are also not as straightforward as the many cases in

which we have accepted supervisory approval set forth in a Civil Penalty Approval



      2
       Recent guidance from Office of Chief Counsel provides a nonexclusive list
of approval forms: “Form 300 (Civil Penalty Approval Form (Lead Sheet)); Form
8278 (Assessment and Abatement of Miscellaneous Civil Penalties); Form 4700
(for W&I/SBSE campus cases); Form 5772 (for TEGE cases); Form 5809 (for
preparer penalty cases).” CC-2018-006 (June 6, 2018).
      3
       The Court of Appeals for the Fifth Circuit referred to “the cover letter of a
summary report”. PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 213
(5th Cir. 2018). Our bench opinion, see sec. 7459(b); Rule 152, made clear that
the cover letter was a 30-day letter that transmitted the examination report, PBBM-
Rose Hill, Ltd. v. Commissioner, T.C. Dkt. No. 26096-14 (Oct. 7, 2016) (bench
opinion at 25).
                                        - 22 -

[*22] Form. See, e.g., Brumbaugh v. Commissioner, T.C. Memo. 2018-140,

at *21. We have no such form here.

      Although these are not straightforward cases, we are not without approvals.

The last step in the examinations of Tribune and CBH was to close the cases out to

technical services for preparation of the notices. To do that, Ms. Valdez signed

Forms 3198 transmitting the case files and all of the adjustments for inclusion in

the notices. Those Forms 3198 manifest her intent to approve the adjustments

included with those forms. But the papers included with the summary judgment

motions do not clearly indicate what was included with the Forms 3198. As a

result, there is a question of fact as to what Ms. Valdez approved.

      Under our precedent in Graev III, however, we can conclude that the 40%

gross valuation misstatement penalties were approved. In Graev III we were also

confronted with a penalty determination made by a revenue agent followed by an

additional alternative penalty determination made by an attorney with the IRS

Office of Chief Counsel. We held that the attorney’s recommendation was the

initial determination of that penalty. In Graev III, the taxpayers argued that the

attorney served only in an advisory capacity and did not have authority to make an

initial determination of penalties. The Court was divided on this issue, with

several Judges dissenting as to the issue of whether counsel has authority to make
                                        - 23 -

[*23] penalty determinations such that approval of their determinations would be

relevant. Graev III, 149 T.C. at 529-532 (Buch, J., concurring as to Parts I and III

and dissenting as to Part II). In these cases the question of whether the initial

determination of penalties can be made by an attorney, Mr. Trevino, could affect

the outcome on the question of whether the Commissioner complied with section

6751(b)(1) as to the 40% gross valuation misstatement penalty. Both the facts of

these cases and the parties’ stipulations confirm that Mr. Trevino made the initial

determinations of the 40% gross valuation misstatement penalties. Ms. Kahn was

Mr. Trevino’s immediate supervisor. Under the holding of Graev III, Ms. Khan

satisfied section 6751(b)(1) when she approved in writing Mr. Trevino’s initial

determinations to assert the 40% gross valuation misstatement penalties by

electronically signing the June 28, 2018, memoranda approving the proposed

notice of deficiency for Tribune and the proposed FPAA for CBH. The notices

included the 40% penalty and, alternatively, the various 20% penalties. Ms. Khan

therefore also approved the various 20% penalties. However, her approval does

not satisfy section 6751(b)(1) because she was not the immediate supervisor of

Mr. Unger, the individual who made the initial determination to impose the

various 20% penalties.
                                          - 24 -

[*24]                                 Conclusion

        In these cases the initial determinations as to penalties were first

communicated in the notice of deficiency issued to Tribune and the FPAA issued

with respect to CBH. We must decide in the context of these cross-motions for

partial summary judgment whether the penalty determinations were approved in

writing before the Commissioner issued those notices. The Commissioner has

shown that Ms. Kahn approved Mr. Trevino’s initial determination of the 40%

gross valuation misstatement penalties as to each of Tribune and CBH.

Accordingly, we will grant the Commissioner’s motion in part, as to those

penalties. However, there is a question of fact as to whether Ms. Valdez approved

Mr. Unger’s initial determinations of the various 20% penalties before those

penalties were communicated to Tribune and CBH in the notice of deficiency and

the FPAA. As a result, we will deny both parties’ motions for partial summary

judgment as to the various 20% penalties.


                                                   An appropriate order will be issued.
