Does Failure to Assert Graev 6751(b) Issue in Claim for Refund Foreclose Asserting in Refund Suit? (9/13/19)

For some reasons, although I had this case in my database, I had not reported on it.  Ginsburg v. United States, 123 A.F.T.R.2d 2019-553 (M.D. Fla. 3/11/2019), here, on appeal to the Eleventh Circuit (No. 19-11836-J).  The Procedurally Taxing Blog has a good write up, so I won't re-do the ground covered there.  See Keith Fogg, Variance Doctrine Trumps IRS Failure to Obtain Administrative Approval of Penalty (Procedurally Taxing Blog 5/6/19).  I do, however, offer some musings.

The issue relates to the requirement that the IRS meet a production burden under § 7491(c) with respect to the written manager approval under § 6751(b).  The issue is sometimes referred to as the Graev issue because of the cases that first prominently raised the issue is a very public way in the first opinion in Graev v. Commissioner, 147 T.C. 460 (2016).  Although the issue was rejected in that opinion, it was later reversed in Graev . Commissioner, 149 T.C. 485 (2017) (reviewed opinion), based on Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017). There has been a lot of litigation about the Graev issue, usually in the Tax Court.  Sometimes, where the IRS can show the proper written approval but had not, consistent with prior Tax Court precedent, introduced the evidence at trial, the Tax Court will permit the IRS to open the record to introduce the approval, and that ends that.  Sometimes the Tax Court will not open the record and, because the IRS had the production burden it did not meet, that ends that as well.

The setting here for the issue is a refund claim.  We all know the general rule that the taxpayer must state the grounds for entitlement to a refund in the refund claim and failure to do so precludes the taxpayer from asserting the grounds in an ensuing refund suit.  Ginsburg did not include the Graev issue in his claim for refund.  The timing of the claim for refund with respect to the Graev issue timeline is not clear from the district court opinion, but I infer that the claim for refund was made and denied before the Chai decision which started the taxpayer wins on the Graev issue.  It might be helpful to look at the time line:

11/30/16	Graev v. Commissioner, 147 T.C. 460 (2016) (holding that the relevant § 6751(b) date is the assessment date not the assertion of the penalties in the notice of deficiency or some predicate act)
1/20/17	IRS denies Ginsburg claim for refund which did not raise the Graev issue.
3/20/17	Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017) (holding that the Tax Court was wrong in Graev and that the written approval must exist prior to the notice of deficiency or even some predicate action)
12/20/17	Graev . Commissioner, 149 T.C. 485 (2017) (Supplemental Opinion, reviewed, adopting Chai).