T.C. Memo. 2009-289
UNITED STATES TAX COURT
JEFFREY K. AND KRISTINE K. BERGMANN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20894-05. Filed December 16, 2009.
Ronald B. Schrotenboer and Brad Bauer, for petitioners.
Gerald A. Thorpe, for respondent.
MEMORANDUM OPINION
KROUPA, Judge: This matter is before the Court on
petitioners’ motion for summary judgment filed pursuant to Rule
121.1 Respondent determined deficiencies in petitioners’ Federal
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income taxes and accuracy-related penalties under section 6662
for 2001 and 2002. This motion solely concerns the return for
2001 with respect to which respondent determined a $10,521
deficiency and a $79,334 gross valuation misstatement penalty
under section 6662(h).
Petitioners ask this Court to grant them summary judgment on
two issues. The first is whether, as a matter of law,
petitioners filed a “qualified amended return” for 2001 and are
therefore not liable for a valuation misstatement penalty under
section 6662. The second issue is whether petitioners are not
liable for the valuation misstatement penalty as a matter of law
on the ground that they may have conceded the deficiency. We
will deny petitioners’ summary judgment motion for both issues as
we do not have enough facts to make a proper determination.
Background
The following facts have been assumed solely for resolving
the pending motion. Petitioner Jeffrey K. Bergmann, a partner at
KPMG, engaged in a series of currency options transactions
commonly known as Son of BOSS tax shelter transactions2 in 2000
1
All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the year at issue, unless otherwise
indicated.
2
Son of BOSS transactions purport to allow a taxpayer to
reduce or eliminate capital gains by creating artificial losses
through the transfer of assets laden with significant liabilities
(continued...)
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and 2001. Petitioners claimed $346,609 of ordinary losses and
$295,500 of capital losses attributable to these transactions on
their return for 2001 (original return).
Respondent began investigating KPMG to determine whether the
firm promoted tax shelters to its private clients and partners
during the tax year at issue. Respondent served summonses on
KPMG in 2002 requesting documents and testimony relevant to
determining KPMG’s liability for penalties for promoting abusive
tax shelters under section 6700. The summonses issued to KPMG
covered Son of BOSS transactions, but respondent did not then
contact petitioners about their claimed losses.
Petitioners subsequently filed an amended Federal tax return
for 2001 in March 2004 (amended return). Petitioners removed the
losses attributable to the Son of BOSS transactions on the
amended return and reported $205,979 of additional tax.
Petitioners specifically stated in the amended return, however,
that they are not conceding the correctness of the positions
asserted in Notice 2000-44, 2000-2 C.B. 255 and Notice 2002-21,
2002-1 C.B. 7303 or foreclosing the possibility that they might
file another amended return reflecting a different filing
2
(...continued)
to a partnership. See Kligfeld Holdings v. Commissioner, 128
T.C. 192 (2007).
3
These notices alert taxpayers that losses generated from
certain transactions that lack actual economic consequences are
not allowable for Federal tax purposes.
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position. Respondent credited the additional tax payment to
petitioners’ account.
Respondent sent petitioners a letter a year after receiving
the amended return, informing petitioners that their return for
2001 was being examined. Respondent thereafter issued the
deficiency notice for 2001 determining the deficiency and the
gross valuation misstatement penalty under section 6662(h) with
respect to the Son of BOSS transactions they had claimed on their
original return. Respondent did not consider the amended return
when determining the penalty amount. Petitioners timely filed a
petition and thereafter filed the motion for summary judgment at
issue.
Discussion
We are asked to decide whether summary judgment is
appropriate. Summary judgment is intended to expedite litigation
and avoid unnecessary and expensive trials. See, e.g., FPL
Group, Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). A
motion for summary judgment will be granted if the pleadings,
answers to interrogatories, depositions, admissions, and other
acceptable materials, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that a
decision may be rendered as a matter of law. See Rule 121(b);
Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). The
moving party has the burden of proving that no genuine issue of
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material fact exists and that it is entitled to judgment as a
matter of law. See, e.g., Rauenhorst v. Commissioner, 119 T.C.
157, 162 (2002). We grant summary judgment cautiously and
sparingly, and only after carefully ascertaining that the moving
party has met all requirements for summary adjudication. See
Associated Press v. United States, 326 U.S. 1, 6 (1945).
Underpayment of Tax Penalty Under Section 6662
Petitioners move for summary judgment on the issue that they
are not liable for an accuracy-related penalty under section 6662
for having an “underpayment.”4 A taxpayer may correct an earlier
underpayment by filing a “qualified amended return,” which may
have the effect of preventing or reducing liability for the
accuracy-related penalty by substituting the tax shown on the
amended return for the tax shown on the return as originally
filed. Sec. 1.6664-2(c)(2), Income Tax Regs. Accordingly, if
the amended return for 2001 is a “qualified amended return,” then
there would be no underpayment of petitioners’ tax to which the
penalty would apply. Respondent argues that the amended return
does not qualify as a “qualified amended return.”
A “qualified amended return” is an amended return filed
after the due date of the return for the taxable year and before
4
An “underpayment” is the difference between (i) the correct
tax, and (ii) the tax shown on the return plus any amount not so
shown that was previously assessed (less any rebates). Sec.
6664(a).
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the earlier of certain events. See sec. 1.6664-2(c)(3), Income
Tax Regs. At issue here is whether petitioners filed the amended
return before respondent contacted “any person described in
section 6700(a)” concerning examination of a section 6700(a)
activity from which petitioners directly or indirectly claimed a
benefit on the original return. See sec. 1.6664-2(c)(3)(ii),
Income Tax Regs. If respondent contacted such a person
concerning such an activity before petitioners submitted the
amended return, then the return would not be a “qualified amended
return,” and the accuracy-related penalty may still apply. The
parties disagree whether KPMG is a “person described in section
6700(a).”5 We now turn to that issue.
“Person Described in Section 6700(a)”
Respondent claims to have contacted a “person described in
section 6700(a)” by serving summonses on KPMG. Petitioners urge
this Court to find that KPMG is not a “person” under this
section, and thus, the summonses sent to KPMG would not bar their
amended return from being a “qualified amended return.”
A “person” for section 6700 purposes is one who is involved
in promoting tax shelters or similar investment plans or
5
Respondent also argues that even if this Court finds that
KPMG is not a “person,” it could be proven at trial that Mr.
Bergmann and David Greenberg, a former KPMG partner, were
constructively contacted when respondent served summonses on
KPMG, thereby satisfying the “person described in sec. 6700(a)”
requirement.
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arrangements and who, in connection with such promotions,
knowingly makes or furnishes (or causes others to make or
furnish) false or fraudulent statements as to the potential tax
benefits or a gross valuation overstatement. See sec.
6700(a)(2)(A) and (B). The flush language of section 6700(a)
provides that such a person must pay a $1,000 penalty for each
described activity. Petitioners urge this Court to find that
KPMG is not a “person described in section 6700(a)” because
respondent failed to produce evidence that a penalty was assessed
against KPMG with respect to petitioners’ Son of BOSS
transactions. Respondent asserts that we should not make a
negative inference from his inability to provide evidence on
whether KPMG is a “person described in section 6700(a).”
Respondent is unable to confirm whether KPMG was assessed a
penalty because that information constitutes KPMG’s “return
information,” which respondent is prohibited from disclosing
under section 6103. Nor have petitioners requested this Court to
issue an order compelling such information to be disclosed, which
is a limited exception to the non-disclosure rule.6
We have carefully considered the materials the parties
submitted in connection with petitioners’ motion for summary
6
We further find that petitioners, not respondent, have the
burden to show that no penalty has been assessed against KPMG for
the type of transaction petitioners claimed on the original
return.
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judgment. We are unable to conclude, on the facts presented to
the Court at this juncture, whether KPMG qualifies as a “person”
under section 6700(a) and thus, whether petitioners’ amended
return is a “qualified amended return.” We find genuine issues
of material fact remain concerning this issue. See Sala v.
United States, 552 F. Supp. 2d 1167, 1204 (D. Colo. 2008) (the
relevant inquiry is whether the third party was contacted
regarding the taxpayers’ particular transactions). These
material facts include those respondent noted in his response to
petitioners’ reply memorandum. Specifically, factual disputes
exist whether KPMG is a “person described in section 6700(a),”
and if it is, whether and when respondent first contacted KPMG
concerning promotion of tax shelter transactions with respect to
which petitioners directly or indirectly claimed tax benefits on
the original return. These material facts need to be further
developed before the Court can determine whether the amended
return is a “qualified amended return.” Accordingly, petitioners
are not entitled to summary judgment on this issue.7
7
Petitioners also argue that they did not take a false or
fraudulent position on their return to support their claim of
filing a “qualified amended return.” We find, however, a trial
is necessary to fully consider whether petitioners filed a
“qualified amended return.” We therefore need not address this
issue at this time.
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The Valuation Misstatement Penalty of Section 6662
Petitioners also move for a summary judgment that no
valuation misstatement penalty applies to them as a matter of
law. A taxpayer is liable for an accuracy-related penalty in the
amount of 20 percent of any part of an underpayment attributable
to a substantial valuation misstatement.8 See sec. 6662(a) and
(b)(3). The Commissioner may increase the penalty to 40 percent
where the tax underpayment is attributable to one or more gross
valuation misstatements.9
Petitioners argue they are entitled to summary judgment and
that respondent may not impose the valuation misstatement penalty
when the deductions giving rise to the penalty are disallowed in
toto. See Keller v. Commissioner, 556 F.3d 1056 (9th Cir.
2009).10 Petitioners claim that they have conceded the
deductions, which are the basis of respondent’s determination of
a penalty, by filing the amended return. This Court has
8
A “substantial valuation misstatement” occurs if, among
other things, the reported value or adjusted basis of property is
200 percent or more of its correct value or adjusted basis. Sec.
6662(e).
9
A “gross valuation misstatement” occurs if the reported
value or adjusted basis of property is 400 percent or more of its
correct value or adjusted basis. Sec. 6662(h)
10
Petitioners were residents of California. We therefore
follow precedent from the Court of Appeals for the Ninth Circuit
to the extent such precedent is on point. See sec.
7482(b)(1)(A); Golsen v. Commissioner, 54 T.C. 742 (1970), affd.
445 F.2d 985 (10th Cir. 1971).
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determined that it will not conduct a trial solely to address the
valuation misstatement issue where the taxpayer has conceded the
deficiency on other grounds. See McCrary v. Commissioner, 92
T.C. 827, 854-855 (1989); Schachter v. Commissioner, T.C. Memo.
1994-273. Accordingly, petitioners assert that a valuation
misstatement penalty may not be imposed and that this Court
should dispose of the issue on summary judgment.
Respondent counters that petitioners have yet to concede
that they are not entitled to the loss deductions attributable to
the Son of BOSS transactions. As noted above, petitioners stated
in the amended return that they are not conceding the correctness
of the positions taken in the amended return. We cannot find,
therefore, that petitioners have conceded that the transactions
lacked economic substance and that no deductions are allowable.
Accordingly, we find it premature to rule at this time that the
valuation misstatement penalty under section 6662(h) does not
apply.
We have considered all arguments the parties made in
reaching our holdings, and, to the extent not mentioned, we find
them irrelevant or without merit.
To reflect the foregoing,
An appropriate order will
be issued.