Opinion
272-18
08-26-2024
LONTRAC ENTERPRISES, LLC, LONTRAC INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda Judge.
This case is scheduled for the Court's special trial session in Atlanta, Georgia, beginning September 23, 2024, and involves a charitable contribution deduction claimed by Lontrac Enterprises, LLC (Lontrac) for the donation of a conservation easement. The Internal Revenue Service (IRS) issued a notice of final partnership administrative adjustment (FPAA) to Lontrac Investors, LLC (Lontrac Investors), Lontrac's tax matter partner and petitioner in this case, disallowing this deduction and determining penalties for Lontrac's 2014 tax year.
Lontrac Investors filed a motion for summary judgment [Doc. 116, along with a brief in support [Doc. 117], arguing that the FPAA should be "set aside" on two independent grounds. Lontrac Investors contends that the FPAA failed to satisfy the strictures of the Administrative Procedure Act (APA). It also asserts that the IRS had disavowed an appraisal review that was prepared in advance of the FPAA, which, according to Lontrac Investors, rendered the FPAA invalid. Neither argument is persuasive.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times and Rule references are to the Tax Court Rules of Practice and Procedure. "Doc." references are to the documents in the record as compiled by the Clerk of this Court.
Turning first to the APA argument, when "the APA was enacted," certain "statutes creating administrative agencies defined the specific procedures to be followed in reviewing a particular agency's action," including procedures for specific courts to conduct review. Bowen v. Mass., 487 U.S. 879, 903 (1988). "When Congress enacted the APA to provide a general authorization for review of agency action in the district courts, it did not intend that general grant of jurisdiction to duplicate the previously established special statutory procedures relating to specific agencies." Id. The APA "grandfathered" existing statutory schemes providing specific procedures for judicial review, as well as common-law standards of review clearly "recognized by law." Dickinson v. Zurko, 527 U.S. 150, 154-55 (1999); see also Porter v. Commissioner, 130 T.C. 115, 118 (2008) ("[T]he APA does not supersede specific statutory provisions for judicial review."); Wilson v. Commissioner, 705 F.3d 980, 990 (9th Cir. 2013) ("Where Congress has enacted a special statutory review process for administrative action, that process applies to the exclusion of the APA."), aff'g T.C. Memo 2010-134.
The Tax Court's de novo deficiency procedures are a prime example of a preexisting statutory scheme that the APA "left undisturbed." Ax v. Commissioner, 146 T.C. 153, 162 (2016); see also Bratcher v. Commissioner, 116 F.3d 1482 (7th Cir. 1997) (unpublished disposition) ("The APA is irrelevant" in a deficiency proceeding "because IRS's issuance of a notice of tax deficiency and the Tax Court's review of it are governed by the Internal Revenue Code."); Humphreys v. United States, 62 F.3d 667, 672-73 (5th Cir. 1995) (the Code and not the APA provides a basis for review of a taxpayer's tax liability); Clapp v. Commissioner, 875 F.2d 1396, 1403 (9th Cir. 1989). Although the instant case involves a de novo review in the TEFRA partnership context, this is part and parcel of the broader deficiency regime Congress entrusted to this Court. See Green Gas DE Statutory Trust v. Commissioner, T.C. Memo. 2015-168, at *12 ("An FPAA is the partnership equivalent of a notice of deficiency, and we therefore analyze an FPAA the same way we would analyze a notice of deficiency."); cf. Commissioner v. Neal, 557 F.3d 1262, 1273-75 (11th Cir. 2009) (later-enacted "equitable" innocent spouse provisions of section 6015 were part and parcel of the statutory framework for review in the deficiency context, which is exempt from the APA) (quotation omitted), aff'g T.C. Memo 2005-201. Lontrac Investors fails to convince us that we should reconsider our well-established precedent that the APA does not apply to de novo redetermination proceedings, as here. See Ax, 146 T.C. at 162; see also QinetiQ U.S. Holdings Inc. v. Commissioner, 845 F.3d 555, 561 (4th Cir. 2017) ("[W]e conclude that the APA's general procedures for judicial review . . . were not intended by Congress to be superimposed on the Internal Revenue Code's specific procedures for de novo judicial review of the merits of a Notice of Deficiency.").
Before its repeal, TEFRA (Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324, 648-71) governed the tax treatment and audit procedures for many partnerships.
Lontrac Investors' argument that the FPAA had been fatally undermined by the IRS's withdrawal of the appraisal review fares no better. The IRS first argues that it has not withdrawn the appraisal review but is simply not planning to rely on it at trial. Summary judgment is inappropriate given this factual dispute alone. We further struggle to see how the withdrawal of an appraisal review would have any effect on the FPAA's validity, given that an FPAA, like a notice of deficiency, simply "must . . . indicate . . . that a deficiency exists for a particular year and specify the amount of the deficiency." Benzvi v. Commissioner, 787 F.2d 1541, 1542 (11th Cir. 1986); accord U.S. Auto Sales, Inc. v. Commissioner, 153 T.C. 94, 98 (2019); see also Green Gas, T.C. Memo. 2015-168, at *12 (We "analyze an FPAA the same way we would analyze a notice of deficiency."). Our reservations on this point remain even if we were to credit Lontrac Investors' interpretation of the purported requirements for a valid FPAA. Given the factual disputes and our skepticism about Lontrac Investors' legal grounds, summary judgment is inappropriate.
ORDERED that Lontrac Investors' motion for summary judgment filed May 3, 2024, is denied.