I write again on another “Hail Mary” attempt by a taxpayer to get out of penalty to avoid the consequences of their own conduct/misconduct. The setting is the ubiquitous issue in penalty cases as to whether the IRS foot-faulted in the written supervisor approval requirement in § 6751(b). Not surprisingly, the setting is a conservation easement case with what appears to have been an excessive valuation claim—$44,937,000. (It is not clear from the Order whether it is a syndicated conservation easement, but that makes no difference for excessive valuation claims.) Usually, in those cases, a fair inference is that the promoters and those reporting the claim knew the valuation was excessive and thereby intended to report fraudulently within the meaning of § 6663 civil fraud penalty.
In Palmwood Holdings, LLC v. Commissioner (T.C. No. 17489-23, here, Order at # 54 dated 2/3/26), the IRS asserted the civil fraud penalty, § 6663, in the Answer to the Petition. Judge Urda briskly goes through the relevant facts that compel rejection of the petitioner’s Hail Mary pass. Judge Urda rejects petitioner’s wild speculations about some of the proffered summary judgment record. Judge Urda concludes (Slip Op. 4-5) with this cautionary advice directed to the tax matters partner's (Investment's) Counsel):
We have time and again rejected the argument that penalties in fact [*5] recommended by the relevant IRS official were in substance determined by someone else. See, e.g., Sand Valley Holdings, LLC v. Commissioner, T.C. Memo. 2025-74, at *7–8; Cattail Holdings, LLC v. Commissioner, T.C. Memo. 2023-17, at *9–11. The “‘initial determination’ of a penalty assessment” is a formal action directed to a particular taxpayer. See Frost v. Commissioner, 154 T.C. 23, 32 (2020) (quoting Belair Woods, 154 T.C. at 15). The word “determination” has “an established meaning in the tax context” and denotes an action “with a high degree of concreteness and formality.” Nassau River Stone, LLC v. Commissioner, T.C. Memo. 2023-36, at *6 (quoting Belair Woods, 154 T.C. at 15). The record before us conclusively establishes that Mr. Wooldridge made the “initial determination” to assert the fraud penalty set forth in that pleading. Communications three years prior, even if they involved this case, would be neither here nor there.
