Couple Liable for Gross Valuation Misstatement Penalties; Penalty Notice Was Adequate (Legg, TC)

The IRS’s determination that a married couple was liable for gross valuation misstatement penalties under Code Sec. 6662(h) was proper. Contrary to the taxpayers’ argument, the IRS made the “initial determination” required by Code Sec. 6751(b) that the couple was liable for the 40-percent gross valuation misstatement penalty. The examiner’s report included a detailed discussion of the applicability of Code Sec. 6662(h), including that the reported value of the conservation easement was more than 200 percent of the amount determined to be correct, and the report was signed by the examiner’s supervisor. The gross valuation misstatement penalty analysis was included as an alternative position because the examiner was uncertain whether the penalty could be imposed when the underpayment resulted from the determination that the deduction did not meet the requirements of Code Sec. 170, which was not a valuation adjustment. Moreover, the fact that the examiner calculated the penalties at a lower rate did not nullify the initial determination that the taxpayers were liable for the gross valuation misstatement penalties. The examiner calculated the penalties at the lower rate to be consistent with the primary position in the report. Therefore, the report complied with the intent behind Code Sec. 6751(b) by explaining why the taxpayers were liable for the gross valuation misstatement penalty.

B.E. Legg, 145 TC —, No. 13, Dec. 60,464

Other References:

Code Sec. 6662

CCH Reference – 2015FED ¶39,651G.24

CCH Reference – 2015FED ¶39,652.28

CCH Reference – 2015FED ¶39,654.60

Code Sec. 6751

CCH Reference – 2015FED ¶40,295.01

Tax Research Consultant

CCH Reference – TRC PENALTY: 3,110.25

CCH Reference – TRC PENALTY: 3,350




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