Partnership Urges Reconsideration of Penalty Approval Decision

LAKEPOINT LAND II, LLC, LAKEPOINT LAND GROUP, LLC
TAX MATTERS PARTNER,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT

Judge Weiler

PETITIONER'S MOTION FOR RECONSIDERATION OF THE COURT'S ORDER GRANTING RESPONDENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

LakePoint Land II, LLC, LakePoint Land Group, LLC, Tax Matters Partner (“Petitioner”), respectfully moves for reconsideration of the Court's March 24, 2023 Order Granting Respondent's Motion for Partial Summary Judgment. As more fully set forth in the accompanying Memorandum in Support of Petitioner's Motion for Reconsideration of the Court's Order Granting Respondent's Motion for Partial Summary Judgment and Petitioner's Motion for Sanctions, this motion should be granted because Respondent submitted a false declaration and a backdated document upon which the Court relied in granting Respondent's motion.

The penalty consideration lead sheet upon which the Court relied was backdated by the supervisor who purportedly approved Respondent's assertion of penalties in this case. Respondent's declarations and pleadings supporting his motion asserted that the penalty consideration lead sheet was signed on the backdated date. When Petitioner propounded discovery intended to elicit the truth, Respondent's counsel avoided answering the questions and then failed to promptly inform the Court when counsel knew or should have known that his position depended on a backdated document. Because the remaining evidence does not clearly and unambiguously show that timely supervisory approval was obtained as required under section 6751(b) and the Court's precedents, genuine issues of material fact preclude granting summary judgment to Respondent on this issue. Accordingly, the Court should either determine that Respondent has not complied with section 6751(b) or defer judgment until any evidence and testimony supporting Respondent's position can be tested through cross-examination at trial.

Pursuant to Tax Court Rule 50(a), Petitioner states that it has given prior notice of this motion to Respondent's counsel. Respondent objects to the motion.

For the reasons set forth above and in the accompanying memorandum, Petitioner respectfully requests that its Motion for Reconsideration be granted.

Dated: April 18, 2023

Respectfully submitted,

MICHAEL TODD WELTY
Todd Welty, P.C.
4279 Roswell Rd NE
Suite 208, #352
Atlanta, GA 30342
Tax Court Bar No. WM0494
Telephone: (214) 289-9693
E-mail: todd@toddweltypc.com

ARMANDO GOMEZ
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Tax Court Bar No. GA0514
Telephone: (202) 371-7868
E-mail: armando.gomez@skadden.com

ROLAND BARRAL
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, NY 10001
Tax Court Bar No. BR0140
Telephone: (212) 735-3708
E-mail: roland.barral@skadden.com

Counsel for Petitioner

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MEMORANDUM IN SUPPORT OF PETITIONER'S MOTION FOR RECONSIDERATION OF THE COURT'S ORDER GRANTING RESPONDENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND PETITIONER'S MOTION FOR SANCTIONS

Respondent submitted a false declaration and a backdated document to this Court. Relying entirely on Respondent's false evidence, this Court granted Respondent's motion for partial summary judgment on the section 6751(b)(1) penalty approval issue.¹ In its order on Respondent's motion, this Court determined that “Respondent supplied a copy of the July Lead Sheet, which was digitally signed by RA Brooks, as RA Stafford's manager,” thereby establishing that “[a]ll of the penalties at issue in this case were then approved by RA Brooks on July 16, 2016.” Order (“PSJ Order”) at 4-5 (Mar. 24, 2023), Doc. 95. But RA Brooks did not approve the penalties on July 16, 2016, and Respondent has not provided any trustworthy evidence that all of the penalties at issue in this case were in fact approved in compliance with section 6751(b)(1).

Respondent reports that he is conducting a review and considering a Motion for Reconsideration of Findings. Resp't's Status Report (“Status Report”) (Apr. 10, 2023), Doc. 101. Respondent seems to want this Court to believe that Respondent's counsel just learned on April 3, 2023, of the falsity of the evidence Respondent submitted to this Court — but notice that Respondent is careful not to say that outright. Id. Respondent's counsel knew or should have known that his evidence is false for a long time.

Rather than accepting the gravity of the misconduct here, Respondent wants to just pivot. So the evidence of section 6751(b)(1) compliance that we proffered is false, says Respondent's counsel, no matter, we have other evidence that also works. Consider the implications of that. Suppose a taxpayer litigating in this Court had three possible evidentiary theories for meeting a burden of proof necessary to establishing its claim. One of the evidentiary theories was strong. The other two were weaker. It turned out that the evidence submitted in support of the strong theory was backdated. Let's say one of the taxpayer's attorneys knew or should have known all along that the evidence was backdated. Suppose the taxpayer's other attorneys learned the evidence was backdated after it had been submitted but failed for months to inform the Court and tried to manage discovery so that the government and the Court would never learn the truth of the matter. What happens when this Court is informed that the evidence supporting the taxpayer's main evidentiary theory is backdated? Does it allow the taxpayer to simply pivot to its other evidentiary theories that do not depend on the backdated evidence? Would the Commissioner agree to that? We think not.

The problems with the declarations and evidence submitted to the Court, and the efforts by Respondent's counsel to dodge discovery regarding the same, are serious. Revenue Agent (“RA”) Catherine C. Brooks backdated the document that was Respondent's main evidence of section 6751(b)(1) compliance and lied about it under oath. Respondent's counsel submitted RA Brooks's false declaration and backdated evidence to this Court after being warned by Petitioner's counsel that the motion was not correct based on Petitioner's counsel's understanding of the facts of the case. Attorney Bissell knew, or should have known, that RA Brooks did not sign a penalty lead sheet for all of the penalties on July 16, 2016. In a February 7, 2017 memorandum providing comments on the draft notices of final partnership administrative adjustments (“FPAAs”) in this case, he stated that the substantial valuation and gross valuation misstatement penalties could be asserted, but only after approval in writing by the supervisor. Since at least November 4, 2022, Respondent's counsel has had the emails between RA Pamela V. Stafford and RA Brooks that, considered along with their attachments, make the backdating of the July penalty lead sheet plain. Yet Respondent's counsel resisted turning over those emails to Petitioner and avoided answering or provided misleading answers to Petitioner's questions and requests for information about those emails. On March 3, 2023, when Respondent's counsel finally turned over the emails with attachments to Petitioner's counsel, Respondent's counsel acknowledged that RA Brooks's signature dated July 16, 2016, was in fact a signature affixed to the document “on or about February 10, 2017.” Yet Respondent's counsel made no express concession that RA Brooks's declaration was false or that the so-called July penalty lead sheet was backdated. Respondent's counsel also did not apprise this Court of the false evidence before it on the fully briefed motion for partial summary judgment.

Petitioner recognizes that the relief it seeks in these two motions is extraordinary. But the conduct at issue here is extraordinary. Respect for this Court and the judicial process is critical to the proper functioning of the Court and the tax system. When a party before this Court does not adhere to well-established rules and norms the Court can and should address the situation with swift and severe sanctions. This is necessary both to address the particular conduct at issue, and to show taxpayers and members of the bar of this Court that backdating of documents, filing false declarations, and seeking to avoid discovery of the same will never be tolerated.

First, the Court should reconsider its order concluding that Respondent satisfied the section 6751(b)(1) penalty approval requirement. Respondent cannot rely on the backdated July penalty lead sheet to meet his burden, and without that document the Court should either determine that Respondent has not complied with section 6751(b) or defer judgment on the basis that genuine issues of material fact preclude summary judgment on this question. Respondent might seek to pivot to other documents that he claims show that RA Brooks approved all of the penalties at issue, but none of those documents clearly and unambiguously show that timely supervisory approval was obtained as required under section 6751(b) and the Court's precedents.² Given the issues with the declarations and evidence already submitted by Respondent, the Court should not presume the regularity of any document RA Brooks had a hand in creating without ensuring that its validity is tested rigorously. Instead, the Court should either determine that Respondent has not complied with section 6751(b) or defer judgment on the section 6751(b) issue until any evidence and testimony supporting the same can be tested through cross-examination at trial.

Second, Respondent should be sanctioned for his conduct which violated:

• Rules 3.3(a)(1) & (3) of the Model Rules of Professional Conduct requiring candor to the court, which this Court has adopted as its own. Tax Ct. Rule 201.

• This Court's rule against submitting a declaration in bad faith. Tax Ct. Rule 121(i).

• This Court's rule requiring counsel to make a reasonable inquiry and determine that a motion is “well grounded in fact” before signing the motion. Tax Ct. Rules 33(b) & 50(a).

Respondent's conduct here warrants severe sanctions, including an award of costs, expenses and attorneys' fees under section 6673(a)(2) because it “multiplied the proceedings” in this case “unreasonably and vexatiously.” Indeed, Respondent's conduct here is just as bad as — or worse than — misconduct determined to reach the level of fraud on the Court. This conduct uniquely harms this Court because Respondent submitted backdated evidence in a form that this Court has repeatedly deemed trustworthy. If this Court cannot trust Respondent to submit truthful penalty approval evidence, the Court's job gets much harder. Accordingly, the Court should also consider the further sanction of deciding the section 6751(b)(1) penalty issue against Respondent.

BACKGROUND

I. Petitioner & The Examination of the Partnership's Returns

1. The Petitioner, LakePoint Land Group, LLC, is a Georgia limited liability company and the tax matters partner of LakePoint Land II, LLC (“LakePoint”) for the tax periods at issue.

2. The Internal Revenue Service (“IRS”) assigned RA Stafford to examine LakePoint's Forms 1065 for the tax periods ending November 15, 2013, December 31, 2013, and December 31, 2014.

3. On May 20, 2016, RA Stafford sent a letter to a LakePoint representative stating, in part:

Ex. 1 at LPLII_00000003.

4. This Court would later determine such language to constitute “informal discussions of potential applicable penalties and not an 'initial determination.'” PSJ Order at 4.

5. As of May 20, 2016, RA Brooks had not approved in writing any initial determination to assert any Penalty. Resp. to First Req's for Admission (“FRFA Resp.”) at 7 ¶ 2 (Nov. 7, 2022), Doc. 58.

6. On July 12, 2016, RA Stafford emailed RA Brooks to transmit a “NOPA for the penalties.” Later that same day, RA Brooks responded to RA Stafford, stating “Good job — I did change some of the verbiage to take out some of the somewhat inflammatory commentary.” E x. 2 at LPLII_00000004.

7. The July 12, 2016 email from RA Brooks to RA Stafford did not state that RA Stafford was approving any penalties. Rather, it transmitted a redlined document showing edits to a draft document that presumably had been prepared by RA Stafford. Id.

8. On July 13, 2016, RA Stafford digitally signed a Form 5701 (the Notice of Proposed Adjustment, or “NOPA”) proposing penalties under sections 6662(b)(1), (b)(2), and (b)(3). Ex. 3 at LPLII_00000015.

9. On July 17, 2016, RA Brooks delegated her authority “to act as Team Manager for East Compliance Practice Area Team 1021” to Benjamin M. Brantley “from Monday, July 18th through Friday, July 22nd, 2016.” Ex. 4 at LPLII_00000013.

10. On July 21, 2016, RA Brooks's digital signature was affixed to the NOPA that RA Stafford had digitally signed on July 13, 2016. Ex. 3 at LPLII_00000015.

11. The digital signatures include software-generated timestamps indicating precisely when the document was signed:

Id.

12. The NOPA on which RA Brooks's July 21, 2016, digital signature appears does not specify any amounts for any of the penalties identified on that form. Id.

13. The NOPA on which RA Brooks's July 21, 2016, digital signature appears does not reference the gross valuation misstatement penalty under section 6662(h). Id.

14. On July 21, 2016, RA Brooks emailed the NOPA to RA Stafford. Id. at LPII_00000014.

15. Although the NOPA included in Exhibit 3 refers to a Form 886-A as though it were attached, no Form 886-A was attached to that NOPA or to the email sending it. Ex. 3.

16. On November 29, 2016, RA Brooks digitally signed a Penalty Consideration Lead Sheet (the “November Penalty Lead Sheet”) proposing three penalties: negligence (general), substantial understatement, and “Other Accuracy Related” penalty for disregard of rules and regulations. Ex. 5 at LPLII_00000016.

17. The November Penalty Lead Sheet did not propose either the substantial valuation or gross valuation misstatement penalties. Id.

18. The November Penalty Lead Sheet is dated 07/15/2016. Id.

19. Just above the digital signature on the November Penalty Lead Sheet is a handwritten note. Id.

20. The digital signature on the November Penalty Lead Sheet includes a software-generated timestamp indicating precisely when the document was signed:

Id.

21. On or around February 7, 2017, William G. Bissell, an attorney in the IRS Office of Chief Counsel's Large Business & International Division, sent a memorandum to TEFRA coordinator Tammy Chung recommending that the FPAAs for LakePoint's taxable years ending December 31, 2013 and December 31, 2014 include penalties under sections 6662(e) and (h), “but only after approval in writing by the supervisor.” Ex. 6 at LPLII_00000017-19.

22. On February 10, 2017, at 1:55 p.m., Ms. Chung emailed RA Stafford, apparently attaching a new penalty consideration lead sheet. Respondent has not provided Petitioner with a copy of that attachment even though it is responsive to multiple discovery requests that Petitioner has propounded, as described infra. See Ex. 7 at LPLII_00000020.

23. The February 10, 2017 email from Ms. Chung to RA Stafford stated “Counsel recommended Substantial valuation (6662(b)(3)(1)) and gross valuation penalties (6662(e) & (h)).” The email also stated “If you want those 2 penalties asserted, please ensure they are on the penalty sheet. Otherwise, they will not be on the FPAA, thus, will not be asserted.” Id.

24. On February 10, 2017, at 2:34 p.m., RA Stafford forwarded the email from Ms. Chung to RA Brooks, including a penalty consideration lead sheet proposing the following penalties: negligence (general), substantial understatement, substantial valuation misstatement, and gross valuation misstatement. That penalty consideration lead sheet referenced the substantial valuation misstatement penalty twice (once with reference to section 6662(b) and once with reference to section 6662(e)) but did not reference a penalty for disregard of rules and regulations. Id. at LPLII_00000020-23.

25. The February 10, 2017 email from RA Stafford to RA Brooks stated “I did not get the penalty leadsheet in the case file signed by you as is required by the IRM.” Id. at LPLII_00000020.³

26. The penalty consideration lead sheet included in RA Stafford's February 10, 2017, email was dated 07/15/2016. Id. at LPLII_00000020-23.

27. Near the top of the second page of the penalty consideration lead sheet included in RA Stafford's February 10, 2017, email was a typed version of the handwritten note that appeared on the November Penalty Lead Sheet:

Id. at LPLII_00000023. The text of that typed note was nearly the same as the text of the handwritten note that appeared on the November Penalty Lead Sheet. See supra ¶ 20.

28. On February 10, 2017, at 3:00 p.m., RA Brooks replied to RA Stafford's email, complaining that RA Stafford's failure to obtain RA Brooks's written approval to assert the penalties was a “HUGE oversight” and attaching a new version of the penalty consideration lead sheet. Ex. 8 at LPLII_00000024-27.

29. On this penalty consideration lead sheet, after “Manager Approval:” RA Brooks added “/s/ Catherine C Brooks — penalties were discussed and approved by me — CCB”, and after “Date:” RA Brooks added “7/16/2016”. Id. at LPLII_00000026-27.

30. RA Brooks did not use a digital signature to sign the February 10, 2017 penalty consideration lead sheet (as signed, the “Backdated Penalty Lead Sheet”). Id.

31. In contrast, RA Brooks digitally signed the NOPA, the November Penalty Lead Sheet, and, later, two declarations in this case. Ex. 3 at LPLII_00000015; Ex. 5 at LPLII_00000016; Doc. 43, Ex. A at 3; Doc. 80 at 2.

32. Because RA Brooks did not digitally sign the Backdated Penalty Lead Sheet, the document does not include a software-generated timestamp indicating precisely when the document was signed:

Ex. 8 at LPLII_00000027. In addition, the “Workpaper #” is left blank on this document, unlike on the November Penalty Lead Sheet. See supra ¶ 20.

33. The Backdated Penalty Lead Sheet has a different file name than the penalty consideration lead sheet sent by RA Stafford. Ex. 7 at LPLII_00000020; Ex. 8 at LPLII_00000024.

34. July 16, 2016 was a Saturday.

35. On March 27, 2017, the IRS issued the FPAAs at issue in this case. PSJ Order at 2.

II. Respondent's Motion for Partial Summary Judgment

36. More than five years after the commencement of this action, on August 8, 2022, Petitioner's counsel informed Respondent's counsel that a draft motion for partial summary judgment and supporting documents that Respondent had provided to Petitioner was incorrect and that Petitioner would issue informal discovery regarding the “initial determination to assert penalties, supervisory approval thereof, and communications regarding the same.” Ex. 9 at LPLII_00000168.

37. The next day, August 9, 2022, RA Brooks digitally signed a sworn declaration attesting to this Court that she signed a penalty consideration lead sheet on July 16, 2016. Doc. 43, Ex. A.

38. Paragraph 3 of RA Brooks's August 9, 2022 declaration states:

I reviewed the Penalty Consideration Lead Sheet Agent Stafford prepared and I signed and approved it on July 16, 2016, by typing the following language in the lower left-hand corner of the first page of the lead sheet in the “Manager Approval:” section, “/s/ Catherine C. Brooks — .” The symbol “/s/” was meant to stand for my signature. That line continued beneath with my typed statement “penalties were discussed and approved by me — CCB.” To the right of that last line in the “Date:” field, I typed in “7/16/2016.”

Id. at 2.

39. Paragraph 4 of the same declaration states:

After this case was closed to IRS Technical Services for preparation of a Notice of Final Partnership Administrative Adjustment, I was asked to sign the Penalty Consideration Lead Sheet again because agent Stafford informed me that the Technical Services representative had “indicated that she saw your signature on the penalty NOPA, but still wants the form signed”, even though I had previously signed it. I then signed the penalty lead sheet approving all penalties for a second time on November 29, 2016 using my digital signature. A copy of the Penalty Consideration Lead Sheet that I signed and approved on two separate occasions is attached as Exhibit A.

Id.

40. The first document attached to RA Brooks's August 9, 2022 declaration is a copy of the Backdated Penalty Lead Sheet. See id.

41. The second document attached to that August 9, 2022 declaration is a copy of the November Penalty Lead Sheet. See id.

42. On August 11, 2022, relying on the Brooks declaration, Respondent moved for partial summary judgment that he complied with section 6751(b) in assessing the penalties for LakePoint's 2013 and 2014 tax years. Doc. 43.

43. That motion states:

Revenue Agent Pamela Stafford made the initial determination to assert all of the penalties at issue against petitioner. On July 16, 2016, Agent Stafford's immediate supervisor, Catherine C. Brooks, personally approved Stafford's initial determination of penalties in writing by signing a Penalty Consideration Lead Sheet. Brooks signed the Lead Sheet again on November 29, 2019.Lead Sheet; Brooks Declaration, ¶¶ 3-4. The Penalty Consideration Lead Sheet is attached to the Brooks Declaration as Exhibit A to that document.

Doc. 43 at 3.

On the Penalty Consideration Lead Sheet, Agent Stafford asserted all of the penalties that were eventually determined in the FPAA.

Id. at 4.

Brooks personally approved, in writing, Agent Stafford's initial determination of the penalties by signing the Penalty Consideration Lead Sheet on July 16, 2016.

Id. at 5.

Brooks' July 16, 2016 signature on the Penalty Consideration Lead Sheet timely satisfied the requirements of I.R.C. § 6751(b) for the penalties at issue.

Id.

44. On December 19, 2022, Respondent supplemented his motion for partial summary judgment on whether he complied with section 6751(b) for LakePoint's 2013 and 2014 tax years. Doc. 74.

45. Paragraph 2 of Respondent's supplement states:

Respondent submits herewith a second Declaration by supervisor Brooks with exhibit attached, for the Court's consideration in deciding respondent's motion.

Id. at 1.

46. Paragraph 3 of the same supplement states:

The exhibit attached to the second Declaration is a Notice of Proposed Adjustment (penalty approval NOPA) which supervisor Catherine Brooks signed on July 21, 2016, approving the penalties asserted in this case. Complaints petitioner asserts with respect to the Penalty Consideration Lead Sheets signed on July 16 and November 29, 2016 are absent from this penalty-approval NOPA.

Id. at 2-3.

47. On December 27, 2022, Respondent filed, in support of his supplement to his motion for partial summary judgment, another declaration of RA Brooks that she had digitally signed on December 14, 2022. Doc. 80.

48. Paragraph 2 of RA Brooks's December 14, 2022 declaration states:

I was Revenue Agent Pamela V. Stafford's immediate supervisor at all times during her examination of LakePoint Land, II, LLC (“LakePoint”) for its November 30, 2013, December 31, 2013, and December 31, 2014, tax years. Agent Stafford made the initial determination to assert penalties against LakePoint for the tax year ending December 31, 2013, under I.R.C. §§ 6662(c) (negligence) 6662(d) (substantial understatement), 6662(e)(substantial valuate misstatement), and 6662(h)(increase in penalty for gross valuation misstatements); and for the tax year ending December 31, 2014, under I.R.C. §§ 6662(c) and 6662(d) in connection with this examination.

Id. at 1-2.

49. Paragraph 3 of the same declaration states:

I personally approved Agent Stafford's determination of penalties on July 21, 2016, by applying my electronic signature to the NOPA attached hereto as Exhibit A. NOPA sections III.A., III.B.i.b, and V., discuss the penalties.

Id. at 2.

50. The document attached to the December 14, 2022 declaration of RA Brooks includes a copy of the NOPA that had been digitally signed in July 2016, as well as a copy of a Form 886-A that was not attached to the email transmitting the NOPA on July 21, 2016. See id.; Ex. 3 at LPLII_00000015.

III. Respondent's Discovery Responses

51. On August 24, 2022, Petitioner issued informal discovery requests to Respondent regarding Respondent's compliance with section 6751.

52. Petitioner's August 24, 2022 informal discovery requests included the following informal requests for admission (“RFAs”):

• Request 24: “Respondent contends that Agent Brooks executed the July Lead Sheet on July 16, 2016.”

• Request 25: “Respondent contends that Agent Brooks executed the July Lead Sheet by typing “/s/ Catherine C Brooks — penalties were discussed and approved by me — CCB.””

• Request 26: “Respondent contends that Agent Brooks executed the July Lead Sheet a second time by digital signature on November 29, 2016.”

Ex. 10 at LPLII_00000173.

53. On September 21, 2022, Respondent responded to Petitioner's informal discovery requests, but declined to provide any substantive answers to those requests. Ex. 11 at LPLII_00000028-31.

54. In response to Petitioner's informal RFAs 23-48, Respondent stated:

Petitioner is attempting to circumvent a decision by the Court on respondent's motion for partial summary judgment. The answers to all these questions are evident from respondent's Motion for Partial Summary Judgment and accompanying statements.

Id. at LPLII_00000029.

55. On October 7, 2022, Petitioner served Respondent with Petitioner's First Request for Admissions (“FRFA”), Doc. 54, Petitioner's Second Interrogatories (“Sec. Interrog's”), and Petitioner's Request for Production of Documents (“RFPs”), Doc. 83, Ex. 1.

56. On November 6, 2022, Mr. Bissell digitally signed Respondent's response to Petitioner's first request for admissions, which response was served on November 7, 2022. FRFA Resp. at 12.

57. On November 7, 2022, Mr. Bissell digitally signed Respondent's response to Petitioner's second set of interrogatories. Mr. Bissell did not make that response under oath as required under Tax Court Rule 71(c). E x. 12 at LPLII_00000033-39.

58. On November 7, 2022, Mr. Bissell digitally signed Respondent's response to Petitioner's first requests for production of documents. Ex. 13 LPLII_00000052.

59. Petitioner's FRFA 24 requested that Respondent admit that “Respondent contends that Agent Brooks executed the July Lead Sheet on July 16, 2016.” FRFA at 9.

60. In response to FRFA 24, Respondent stated: “Admits Agent Brooks executed the penalty lead sheet, denies for lack of sufficient information the exact date the lead sheet was executed.” FRFA Resp. at 7.

61. Petitioner's Second Interrogatory 4 asked Respondent to:

Identify all individuals who prepared or assisted in preparing the Documents that Respondent relies on to establish his compliance with Section 6751(b) with respect to any Penalty, including, without limitation the July Lead Sheet and the November Lead Sheet, and the date that such individuals(s) prepared such Document. This request specifically includes identifying the individual(s) who wrote the typed note at the end of the July Lead Sheet and the handwritten note at the end of the November Lead Sheet regarding the taxpayer's position on the penalty assertion.

Sec. Interrog's at 2.

62. Respondent's November 7, 2022 response to Second Interrogatory 4 states that “The handwritten note on the November Lead Sheet was made by Pamela Stafford.” Ex. 12 at LPLII_00000037.

63. Petitioner's Second Interrogatory 5 asked Respondent to:

Explain why Agent Brooks did not use Adobe Sign or similar software that would register the date and time of her alleged signature on the July Lead Sheet when she used such software for other documents related to this Audit both before and after her alleged execution of the July Lead Sheet.

Sec. Interrog's at 2.

64. Respondent's November 7, 2022, response to Second Interrogatory 5 does not address “why Agent Brooks did not use Adobe Sign or similar software that would register the date and time of her alleged signature on the July Lead Sheet” and instead states that “I.R.C. § 6751(b) does not require that supervisory approval of the determination to assess a penalty be made by “Adobe Sign or similar software.”” Ex. 12 at LPLII_00000038.

65. Petitioner's RFP 6 requested that Respondent

Provide all draft versions and non-identical copies of the July Lead Sheet, including all unexecuted versions of the July Lead Sheet, in original, native format with all metadata preserved.

RFPs at 11.

66. Respondent's November 7, 2022 response to RFP 6 states that “respondent has been unable to locate any documents responsive to this request.” Ex. 13 at LPLII_00000046.

67. Petitioner's RFP 9 states:

Provide all Documents, including Communications, in their original, native format with the metadata preserved, establishing that Agent Brooks executed the July Lead Sheet on July 16, 2016.

RFPs at 11.

68. Respondent's November 7, 2022 response to RFP 9 most directly pointed to “the July Lead Sheet, which petitioner already has in its possession.” Respondent also referenced his response to RFP 8, which in turn referenced the response to RFP 3, which objected to Petitioner's request but also referenced without explanation certain “enclosed emails.” Ex. 13 at LPLII_00000047.

69. Respondent nowhere even hinted that the “July Lead Sheet” might not have been executed on the date it presents, July 16, 2016, and instead specifically identified it as responsive to Petitioner's request for documents “establishing that Agent Brooks executed the July Lead Sheet on July 16, 2016.” Id.

70. In addition, although Respondent now “enclosed emails” including the previously discussed February 10, 2017 emails between Ms. Chung and RA Stafford and between RA Stafford and RA Brooks, supra ¶ 22-33, he did not produce the documents in native format, produce emails with their corresponding attachments, identify any documents as attachments to emails, include all emails or their attachments, or label the documents by file name, and thus concealed the fact that the “July Lead Sheet” had been backdated, as those attachments make plain. Ex. 13 at LPLII_00000053-95.

71. On October 13, 2022, Respondent sent Petitioner a copy of Respondent's administrative file. The letter transmitting the administrative file did not state whether Respondent had withheld any information under a claim of privilege or other protection. Ex. 14 at LPLII_00000032.

72. The administrative file produced to Petitioner on October 13, 2022 did not include the email correspondence between Ms. Chung and RA Stafford on February 10, 2017, or between RA Stafford and RA Brooks on February 10, 2017.

73. The documents that Respondent produced in response to Petitioner's RFPs did not include any email purporting to establish that RA Brooks received or executed a penalty consideration lead sheet in July 2016.

74. On January 27, 2023, Petitioner moved to compel responses to Petitioner's second set of interrogatories, Doc. 83, and also moved to compel production of documents, Doc. 84.

75. On February 2, 2023, this Court ordered Respondent to “(1) serve on counsel for petitioner full and complete responsive answers, made under oath and in good faith, to each and every interrogatory served on respondent on December 6, 2022, and, (2) produce . . . each and every document requested in [the RFPs], which are in his possession, custody, or control.” Doc. 91. This Court warned Respondent that, if he “does not fully comply with the provisions of this order, he may be barred from introducing at trial any documents that he fails to produce . . . in accordance with this order.” Id.

76. On February 21, 2023, Candace M. Williams, an attorney in the IRS Office of Chief Counsel's Large Business & International Division who entered her appearance in this case on September 14, 2022, Doc. 50, digitally signed Respondent's supplemental response to Petitioner's second interrogatories. Ms. Williams made that response under oath as required under Tax Court Rule 71(c) and this Court's order dated February 2, 2023. Ex. 15 at LPLII_00000096, 00000102.

77. Respondent's February 21, 2023, supplemental response to interrogatory 4 of Petitioner's second interrogatories states that “Agent Pamela Stafford made both the typed note at the end of the July Lead Sheet and the handwritten note on the November Lead Sheet.” Id. at LPLII_00000100.

78. Respondent's February 21, 2023, supplemental response to interrogatory 5 of Petitioner's second interrogatories (requesting an explanation for RA Brooks's failure to “use Adobe Sign or similar software” to sign “the July Lead Sheet”) was nearly identical to his November 7, 2022 response to that interrogatory. Id. at LPLII_00000101.

79. On February 21, 2023, Ms. Williams digitally signed Respondent's supplemental response to Petitioner's first requests for production of documents. Ex. 16 at LPLII_00000116.

80. Respondent's February 21, 2023, supplemental response to request for production 6 (request for draft versions of the “July Lead Sheet”) states that “respondent has been unable to locate any documents responsive to this request.” Id. at LPLII_00000110.

81. Respondent's February 21, 2023, supplemental response to request for production 9 (request for documents and communications “establishing that Agent Brooks executed the July Lead Sheet on July 16, 2016”) was nearly identical to his November 7, 2022 response to that request. Id. at LPLII_00000111; Ex. 13 at LPLII_00000047.

82. On February 28, 2023, Petitioner's counsel wrote to Ms. Williams regarding deficiencies in Respondent's February 21, 2023, discovery responses, including a need for production of the February 10, 2017, email from RA Stafford to RA Brooks and associated attachment. Ex. 17 at LPLII_00000162-163.

83. On March 3, 2023, Ms. Williams responded to Petitioner's counsel, and provided a jump drive containing the documents specified in the February 28, 2023, letter as well as certain documents previously produced on November 7, 2022. Ex. 18 at LPLII_00000164-165.

84. Respondent's unjustifiably delayed production, on March 3, 2023, was the first to include, as such, the attachments to the emails between RA Stafford and RA Brooks on February 10, 2017 that revealed the backdating of the July penalty lead sheet. See supra ¶¶ 24-34.

85. Until March 3, 2023, Respondent had not produced to Petitioner's counsel the attachment to RA Stafford's February 10, 2017 email to RA Brooks, which the email identifies as “SAIN 011 — Penalty Leadsheet.doc”. Ex. 7 at LPLII_00000020, 00000022-23; see also supra ¶¶ 24-27.

86. Regarding the timing of the penalty approvals, the March 3, 2023 letter states that:

Ms. Brooks, Ms. Stafford's immediate supervisor, approved in writing on several occasions, the penalties proposed by Ms. Stafford, the individual making such determination. She approved the penalties on the penalty NOPA dated July 21, 2016, on the penalty consideration lead sheet dated July 15, 2016, and then in an abundance of caution on or about February 10, 2017 when she resigned the lead sheet.

Ex. 18 at LPLII_00000164-165.

IV. The Court's March 24, 2023 Order

87. On March 24, 2023, the Court issued its order granting Respondent's motion for partial summary judgment on whether he complied with section 6751(b) with respect to the penalties he determined for Petitioner's 2013 and 2014 tax years.

88. The third paragraph on page 2 of the Court's March 24, 2023, order states:

On July 15, 2016, RA Stafford prepared a penalty consideration lead sheet (July Lead Sheet). On July 16, 2016, RA Brooks personally approved RA Stafford's initial determination of penalties in writing by electronically signing the July Lead Sheet. The July Lead Sheet asserted all of the penalties that were eventually determined in LakePoint's final partnership administrative adjustment (FPAA). Then on July 17, 2016, RA Brooks delegated her authority to act as Team Manager to Benjamin Brantley between July 18, 2016, through July 22, 2016.

89. The July Lead Sheet (as defined in the Court's March 24, 2023, order) was not signed by RA Brooks on July 16, 2016. Rather, on February 10, 2017, RA Brooks typed her name and inserted the date 7/16/2016 into that document. See supra ¶¶ 28-34, 86.

ARGUMENT

This Court's grant of partial summary judgment on the section 6751(b) penalty issue depended entirely on its determination that “[a]ll of the penalties at issue in this case were . . . approved by RA Brooks on July 16, 2016.” PSJ Order at 4-5. That determination should be reconsidered because it relies on Respondent's false declarations and backdated evidence. See supra ¶¶ 28-34, 37-41, 47-50, 86. In making the determination, this Court relied on a presumption applied to section 6751(b)(1) determinations allowing it to accept as true “declarations from relevant IRS officers” without requiring that they “be subjected to cross-examination.” PSJ Order at 4 (citing cases). Here, the egregious misconduct of Respondent's personnel and counsel obliterates that presumption. This Court should reconsider its order based on a document RA Brooks backdated, and should impose sanctions on Respondent.

I. This Court should reconsider its order granting Respondent's motion for partial summary judgment.

This Court should consider whether Respondent is entitled to partial summary judgment without RA Brooks's false declarations and the Backdated Penalty Lead Sheet. He is not. The remaining evidence fails to meet Respondent's burden under section 6751(b)(1) to establish supervisory approval of the asserted penalties. Accordingly, the Court should defer judgment on the section 6751(b) issue until any evidence and testimony supporting the same can be tested through cross-examination at trial.

A. The Backdated Penalty Lead Sheet is not a valid section 6751(b)(1) penalty approval.

Respondent has asserted three different penalty approvals. See Ex. 18. By far the most straightforward of the three is the one this Court solely relied on. The document that purports to be a penalty lead sheet prepared on July 15, 2016, and signed by RA Brooks on July 16, 2016, does — on its face — show RA Stafford's determination to assess all four of the penalties that later were asserted in the FPAAs issued in March 2017. But that document was backdated. Respondent cannot rely on a backdated document to establish the supervisory approval section 6751(b)(1) requires. See, e.g., Latimer v. Roaring Toyz, Inc., 601 F.3d 1224, 1237 (11th Cir. 2010) (disregarding sham evidence for purposes of summary judgment).

The Backdated Penalty Lead Sheet should be rejected out of hand. This Court need not address whether a document Respondent proffered as a July 16, 2016, penalty approval may be counted as a February 10, 2017, penalty approval. In any event, it cannot. The penalty lead sheet does not purport to be a written approval on or about February 10, 2017, of penalties. And it is not such a written approval. This Court should not give the Backdated Penalty Lead Sheet a meaning that RA Brooks — who has given false testimony under oath to this Court — expressly disclaimed. RA Brooks never said and never meant that she authorized the substantial valuation and gross valuation misstatement penalties on or about February 10, 2017. Because her penalty lead sheet did not say that and did not mean that, it does not accomplish that.

B. The NOPA is not a valid Section 6751(b)(1) penalty approval.

Sensing trouble, Respondent pivoted and sought to rely on RA Brooks's approval of the NOPA on July 21, 2016, as the section 6751(b)(1) approval. Doc. 74 ¶¶ 2-3; Doc. 80. In pivoting, Respondent did not come clean about the backdated evidence he had proffered and did not disclaim reliance on that evidence. This Court relied on Respondent's much more straightforward position, which Respondent never disavowed.

1. Critically, this Court also implicitly rejected Respondent's alternate position, that Brooks approved all the penalties on July 21, 2016, by signing the NOPA. This Court determined that RA Stafford's communications with Petitioner in May 2016 were “informal discussions regarding potential applicable penalties and not an 'initial determination.'” PSJ Order at 4 (citing Kroner v. Commissioner, 48 F.4th 1272, 1277 (11th Cir. 2022)). This Court concluded that RA Stafford made the initial determination of penalties on July 15, 2016, when she “prepared a penalty consideration lead sheet.” Id. at 2, 4.

This Court was no doubt aware that RA Stafford had signed the NOPA on July 13, 2016, two days before July 15, 2016, when she purportedly prepared the penalty consideration lead sheet. Yet this Court determined that RA Stafford's preparation of the lead sheet was the section 6751(b)(1) initial determination. That determination logically precludes a finding that RA Stafford's July 13, 2016, signing of the NOPA was the “initial determination.”

In reaching its conclusion that the preparation of the penalty lead sheet was the section 6751(b)(1) “initial determination,” this Court applied Kroner.⁴ Under Kroner, “the IRS makes a 'determination of [the relevant] assessment' when it concludes that it has the authority and duty to assess penalties and resolves to do so.” 48 F.4th at 1278. A penalty lead sheet represents a clear resolution to assess penalties. See Nassau River Stone, LLC v. Commissioner, T.C. Memo. 2023-36, at *6. On that sheet, the revenue agent lists each penalty and the reason for its assertion or non-assertion. See Ex. 8. The purpose of the lead sheet is for the supervisor to sign off on the initially determined penalties.⁵

On the other hand, the NOPA is not a resolution to impose penalties. For purposes of section 6751(b)(1), the NOPA is similar to an initial letter. Indeed, here the NOPA is less of a resolution to impose penalties than the initial letter RA Stafford sent on May 20, 2016. The initial letter here seemed to assert penalties rather than informally discuss them: “[t]he Service is asserting the accuracy related penalty under IRC § 6662 on all adjustments.” Supra ¶ 3. Yet this Court determined that the letter was not an “initial determination” under section 6751(b)(1). The NOPA makes the penalties a mere proposal “[b]ased on the information we now have available and our discussions with you.” Ex. 3 at LPLII_00000015. It also allowed Petitioner to provide any “additional information that would alter or reverse this proposal.” Id. Thus, the NOPA, even more than the initial letter, was part of a discussion between the IRS and the taxpayer “regarding potential applicable penalties and not an 'initial determination.'” PSJ Order at 4. Indeed, this Court ruled in Tribune Media Co. v. Commissioner, that a NOPA was not, by itself, an “initial determination.” T.C. Memo. 2020-2, at *16-20; accord Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020) (cited by Nassau River Stone, T.C. Memo. 2023-36, at *6-7) (holding that a document that “advised [the taxpayer] of the possibility that penalties might be proposed” was not an “initial determination” because it was not “an unequivocal 'communication that advise[d] the taxpayer that penalties will be proposed'” (alteration in original (citation omitted))).

This Court and others have found aspects of section 6751(b)(1) ambiguous. But one thing the statute makes pellucid is that the thing a supervisor must approve is “the initial determination of such assessment.” It follows that supervisory approval of a communication that precedes the “initial determination” is not an approval that satisfies section 6751(b)(1). RA Brooks's alleged written approval of the NOPA on July 21, 2016, was not a valid section 6751(b)(1) approval because it was not an approval of a document that “concludes that it has the authority and duty to assess penalties and resolves to do so.” Kroner, 48 F.4th at 1278. No such resolution had yet been made. No evidence supports the proposition that RA Stafford completed the penalty lead sheet on July 15, 2016. (See Ex. 5 (showing document dated 7/15/2016 was not signed until November 29, 2016).) Even if she had, RA Brooks did not approve a July 15, 2016, resolution to assess penalties when she signed the July 13, 2016, NOPA on July 21, 2016.

2. Even if the NOPA can count as the section 6751(b)(1) “initial determination,” there is a question of fact regarding the validity of RA Brook's approval of the NOPA. The record shows, and this Court found, that “RA Brooks delegated her authority to act as Team Manager to Benjamin Brantley between July 18, 2016, through July 22, 2016.” PSJ Order at 2. Because this Court relied on Respondent's Backdated Penalty Lead Sheet, it concluded that this delegation was “inconsequential.” Id. at 5. But there is a question of fact regarding whether RA Brooks remained RA Stafford's “immediate supervisor” on July 21, 2016, when she had delegated that supervisory authority to Mr. Brantley.

3. Additionally, the NOPA did not assert the gross valuation misstatement penalty under section 6662(h). That penalty was discussed in the explanation of items (Form 886-A) allegedly included with the NOPA. But RA Brooks did not sign that explanation. Although the NOPA references an attached Form 886-A, no Form 886-A was attached to the NOPA that RA Brooks emailed to RA Stafford on July 21, 2016, or to the email itself. Ex. 3. And the redlined document that RA Brooks sent to RA Stafford on July 12, 2016 merely reflects a discussion between the two agents, not an affirmative decision to assert or approve any penalties. Whether RA Brooks approved the gross valuation misstatement penalty in writing is, at least, a disputed question of fact.

4. Finally, if the Court does not accept Petitioner's position that, as a matter of law, a NOPA is not a section 6751(b)(1) “initial determination,” at the very least, RA Brooks must be subject to cross-examination on the validity of the document that purports to be a NOPA signed by her on July 21, 2016. In its order, this Court accurately states that it has “regularly decided section 6751(b)(1) questions on summary judgment” and consistently “rejected the notion that examining agents and their supervisors must be subjected to cross-examination.” PSJ Order at 4 (citing cases). In reaching that same determination in other cases, this Court has relied on the believability of declarations of IRS personnel submitted “under penalty of perjury” and a “presumption of regularity” under which “in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties.” Nassau River Stone, T.C. Memo. 2023-36, at *10 (quoting Long Branch Land, LLC v. Commissioner, T.C. Memo. 2022-2, at *5). No doubt, IRS employees almost always justify the institutional faith this Court has placed in them. Unfortunately, in light of the problems with the evidence proffered by Respondent in this case, the Court cannot rely here on its usual “presumption of regularity.”

All of the alleged section 6751(b)(1) penalty approvals in this case were allegedly made by RA Brooks. Each depends on the credibility of her testimony and authenticity of documents she created or had a hand in creating. If this Court rejects Petitioner's argument that the signed NOPA fails as a matter of law to satisfy section 6751(b)(1), it should allow Petitioner to cross-examine RA Brooks to determine the authenticity of each of the alleged penalty approvals.

C. The November 2016 penalty lead sheet is likely invalid and does not approve the substantial valuation or gross valuation misstatement penalties.

The penalty consideration lead sheet that RA Brooks digitally signed on November 29, 2016, is dated July 15, 2016. No evidence in the record establishes that RA Stafford prepared the penalty lead sheet on that date. On its face the document purports to be RA Brooks's approval of certain penalties that RA Stafford initially determined on July 15, 2016. If, in fact, RA Stafford did not initially determine those penalties on July 15, 2016, and instead RA Stafford (or someone else) backdated the document, then the document is a falsified document. Respondent cannot rely on a falsified document to establish the supervisory approval section 6751(b)(1) requires. See Latimer, 601 F.3d at 1237.

The November Penalty Lead Sheet represents the proposition that RA Brooks approves in writing penalties that RA Stafford initially determined on July 15, 2016. Suppose that proposition is false. The falsity of the proposition the document represents does not convert the document into a document that represents a different proposition. Thus, the document cannot reasonably be understood to convey that RA Brooks approved in writing penalties that RA Stafford initially determined on some other date. Indeed, if RA Stafford backdated this penalty lead sheet, she has expressly disclaimed that meaning. This Court should allow Petitioner to cross-examine RA Stafford to determine when the November Penalty Lead Sheet was created and who created it.

Even supposing that the November Penalty Lead Sheet can be understood as a valid penalty approval (it cannot), it would only be an approval for two of the penalties at issue — the negligence and substantial understatement of income penalties. The November Penalty Lead Sheet does not mention the substantial valuation or gross valuation misstatement penalties, and thus cannot support their application in this case. Ex. 5.

II. This Court should impose sanctions.

Respondent's misconduct here goes well beyond failing “to turn square corners when it deals with [citizens].” Niz-Chavez v. Garland, 141 S. Ct. 1474, 1486 (2021). It goes beyond violating the “minimum standard of decency, honor, and reliability” citizens are entitled to expect from government officials. See Heckler v. Cmty. Health Servs., Inc., 467 U.S. 51, 61 (1984). Respondent's representatives have misled this Court about an issue on which this Court's need to trust IRS personnel is at its apex. And they repeatedly attempted to thwart Petitioner's efforts to discover the true facts on this issue.

Under section 6751(b)(1), Respondent must prove that each penalty assessed has received the required approval. Graev v. Commissioner, 149 T.C. 485, 493 (2017). Taxpayers have often sought to test the evidence Respondent proffers to meet this burden. See, e.g., Thompson v. Commissioner, T.C. Memo. 2022-80, at *8; Nassau River Stone, LLC v. Commissioner, T.C. Memo. 2023-36, at *11. This Court has resisted. Id. That resistance is understandable. If Respondent were required to establish at trial that penalty approval forms are genuine, that issue would be a feature of nearly every Tax Court trial and would necessitate trials in cases that could otherwise be decided on the pleadings. See Thompson, T.C. Memo. 2022-80, at *7 (rejecting taxpayer's contention that authenticity of penalty approval forms accompanied by a sworn declaration must be established at trial); Nassau River Stone, T.C. Memo. 2023-36, at *10 (relying on a “presumption of regularity” and an IRS agent's sworn declaration to overcome, on summary judgment, taxpayer's allegation that the IRS employee who approved the penalty may not have been the “immediate supervisor” of the agent who initially proposed it).

In essence, to avoid what would otherwise be a burdensome feature of nearly every case that comes before it, this Court puts its trust in the IRS. The Court presumes that the IRS will only submit, and IRS personnel will only attest under penalty of perjury to the validity of, valid and signed and un-doctored penalty approval forms. Here, RA Brooks backdated a penalty approval form and then attested under penalty of perjury that she had signed the form on the backdated date. And when Respondent's counsel knew or should have known what RA Brooks had done, they sought to dodge discovery and failed to timely apprise this Court of the false evidence before it on the fully briefed motion for partial summary judgment.

A. The false evidence presented to the Court

The attached exhibits confirm that Respondent submitted two false declarations and backdated evidence to the Court:

• On February 10, 2017, RA Stafford informed RA Brooks that she had not signed a lead sheet that included the substantial valuation and gross valuation misstatement penalties. Ex. 7 at LPLII_00000020.

• RA Brooks recognized that this was a “HUGE oversight.” Ex. 8 at LPLII_00000024.

• On February 10, 2017, RA Brooks typed “7/16/2016” in the “Date:” space on the penalty lead sheet that RA Stafford sent to her less than thirty minutes earlier. Id. at LPLII_00000026-27.

• On February 10, 2017, RA Brooks typed “/s/ Catherine C Brooks — penalties were discussed and approved by me — CCB” in the “Manager Approval:” space on the penalty lead sheet. Id.

• RA Brooks used this typed signature rather than her digital signature, which would have included a timestamp and which she had used to sign the November Penalty Lead Sheet and the NOPA. Ex. 5 at LPLII_00000016; Ex. 3 at LPII_00000015.

• On August 9, 2022, RA Brooks declared to this Court, under penalty of perjury, that she “signed and approved” the penalty consideration lead sheet “on July 16, 2016.” Doc. 43, Ex. A ¶ 3.

• The Backdated Penalty Lead Sheet dated “7/16/2016” was attached to RA Brooks's declaration. Doc. 43, Ex. A.

• In the same declaration, RA Brooks falsely stated that she signed the penalty lead sheet for a second time on November 29, 2016. Doc. 43, Ex. A ¶ 4.

The clear implication of these facts is that RA Brooks intentionally backdated the date on the lead sheet so that anyone who reviewed the document would believe that she signed it seven months before she actually did sign it. And if that is what happened, then it is fair for her to be questioned about why she submitted the lead sheet to this Court with a sworn statement that she had signed and approved it on July 16, 2016.

B. Respondent's counsels' conduct

The attorneys in the IRS Office of Chief Counsel responsible for this case received the February 2017 emails between RA Stafford and RA Brooks no later than on or about November 4, 2022. Ex. 18 at LPII_00000164. At that point, those attorneys certainly knew or should have known that RA Brooks had backdated her signature on the July penalty lead sheet. Those emails considered along with their attachments make it plain that RA Brooks did not sign the penalty lead sheet on July 16, 2016, and they make the backdating obvious. See supra ¶¶ 22-34, 86.

Rather than admit that the penalty lead sheet was backdated and that RA Brooks's declaration was false, Respondent's counsel attempted to avoid disclosing evidence of the true facts regarding the Backdated Penalty Lead Sheet. After Respondent's counsel was in possession of the emails that make the backdating plain, Respondent's counsel:

• Repeatedly pointed to the Backdated Penalty Lead Sheet as responsive to a request for all documents “establishing that Agent Brooks executed the July Lead Sheet on July 16, 2016.” Supra ¶¶ 67-69.

• Claimed that Respondent was unable to locate any “draft versions and non-identical copies” of the Backdated Penalty Lead Sheet, even though they possessed the unexecuted copy of the penalty lead sheet that RA Stafford had sent to RA Brooks on February 10, 2017. Supra ¶¶ 65-66, 80-81.

• Denied for lack of knowledge the date that the penalty lead sheet was executed, even though they possessed the emails and attachments showing that RA Brooks backdated the penalty lead sheet on February 10, 2017. Supra ¶¶ 59-60.

• Attempted to provide an alternative basis for this Court to rule in its favor by submitting a second declaration of RA Brooks in which RA Brooks characterized her July 21, 2016, signature on the NOPA as her written approval of “Agent Stafford's determination of penalties,” but did not correct the record or disavow Respondent's previous theory that the Backdated Penalty Lead Sheet satisfied section 6751(b)(1).

• Even after producing the February 2017 emails in electronic format and tacitly admitting on March 3, 2023, that the penalty lead sheet was backdated, failed to bring that fact to the attention of this Court before the Court acted on Respondent's motion — and still has not brought the matter forthrightly to the attention of the Court. See Status Report (stating that “petitioner's counsel alerted respondent to possible factual inaccuracies” only “[o]n or about April 3, 2023,” even though Petitioner first alerted Respondent on August 8, 2022, supra ¶ 36).

Under Rule 3.3(a)(3), if an attorney learns that evidence previously offered to the Court is false, the attorney must take reasonable remedial measures. Model Rules of Prof'l Conduct 3.3(a)(3); see also Tax Ct. Rule 201 (adopting the Model Rules of Professional Conduct). Although Respondent's counsel knew or should have known since at least November 2022 that a backdated document and false declaration were submitted to this Court in support of Respondent's motion for partial summary judgment, counsel has not retracted the false evidence. Worse, Respondent's counsel tried to prevent the falsity of the evidence from surfacing in two ways. First, they proffered false and misleading discovery responses for months, before tacitly conceding the backdating on March 3, 2023, when this Court's discovery order and Petitioner's counsel's February 28, 2023, letter pointing out the deficiencies in Respondent's initial response to that order made the concession unavoidable. Second, they pivoted to a different theory for section 6751(b)(1) compliance in an apparent effort to spur this Court to resolve the issue without relying on the Backdated Penalty Lead Sheet (though, as explained at pages 30-35, supra, this alternative theory is incorrect). This pivot suggests that Respondent's counsel recognized that they had submitted backdated evidence to this Court and recognized the import of that evidence. Yet Respondent's counsel sought to steer this Court away from the Backdated Penalty Lead Sheet without informing this Court about the problems with the evidence they had submitted.

The conduct of Respondent's counsel appears to go even beyond violating Rules 3.3(a)(1) & (3) by failing to correct a misstatement of fact or take remedial measures to deal with evidence submitted to the court that the attorney later learns is false. Evidence suggests that Mr. Bissell knew or should have known that RA Brooks's declaration was false when he filed it along with Respondent's motion for partial summary judgment. After all, it was his recognition, in a February 7, 2017, memorandum, that the substantial valuation and gross valuation misstatement penalties had not been asserted in the draft FPAAs that started the chain of events that led to the creation of the Backdated Penalty Lead Sheet. See Ex. 6 at LPLII_00000017-19. Moreover, Petitioner's counsel informed Mr. Bissell on August 8, 2022, three days before he filed Respondent's motion for partial summary judgment, that the motion was incorrect based on Petitioner's counsel's understanding of the facts that would need to be addressed in discovery. See supra ¶ 36. Further, a cursory review of the two attachments to the sworn declaration that he attached to that motion should have raised substantial questions regarding when and under what circumstances they were prepared and executed.⁶

Yet Respondent represented in his motion for partial summary judgment that “Catherine C. Brooks, personally approved Stafford's initial determination of penalties in writing by signing a Penalty Consideration Lead Sheet” “[o]n July 16, 2016.” Doc. 43 at 3 ¶ 10. And he urged this Court to rule that “Brooks' July 16, 2016 signature on the Penalty Consideration Lead Sheet timely satisfied the requirements of I.R.C. § 6751(b) for the penalties at issue.” Id. at 5 ¶ 17.

When Petitioner's counsel sought discovery on the facts alleged in Respondent's motion and the Brooks' declaration, Respondent's counsel failed to directly answer the questions presented, and took pains to point back at every turn to the Backdated Penalty Lead Sheet. And if they did not already know the true facts, by the time that Respondent's counsel possessed the February 10, 2017 emails and attachments that illuminate the backdating of the penalty lead sheet, they had no basis for continuing to ask this Court to rely on the Backdated Penalty Lead Sheet, or for denying for lack of knowledge the date that RA Brooks executed the Backdated Penalty Lead Sheet — February 10, 2017.

C. Sanctions are warranted under this Court's rules, under section 6673(a)(2), and under this Court's inherent authority to supervise the proceedings before it.

1. Sanctions are warranted under several Tax Court Rules.

a. Tax Court Rule 121 addresses motions for summary judgment or partial summary judgment. Generally, parties may submit affidavits or declarations in support of, or opposition to, a motion for summary judgment. Tax Ct. Rule 121(c)(4). But a party's submission of an affidavit or declaration “in bad faith or solely for delay” is sanctionable. Tax Ct. Rule 121(i). This Court may “order the submitting party to pay the other party the reasonable expenses, including attorney's fees, it incurred as a result.” Id. “An offending party or attorney may also be held in contempt or subjected to other appropriate sanctions.” Id.

RA Brooks provided a false declaration and attached a Backdated Penalty Lead Sheet to that declaration. Respondent's counsel knew or should have known that RA Brooks's declaration was false when it was filed in this Court. Thus, RA Brooks and Respondent's counsel acted in bad faith in filing RA Brooks's first declaration with the attached Backdated Penalty Lead Sheet. This Court should thus impose “appropriate sanctions” including ordering Respondent to pay Petitioner “reasonable expenses, including attorney's fees, it incurred as a result” of Respondent's bad faith submission of RA Brooks's false declaration and attached Backdated Penalty Lead Sheet. Id.

b. Under Rule 33(b), an attorney who signs a pleading certifies that the attorney has read the pleading and believes after making a “reasonable inquiry” that it “is well grounded in fact.” Tax Ct. Rule 33(b). For a violation of Rule 33(b), this Court may impose “an appropriate sanction, which may include an order to pay to the other party or parties the reasonable expenses incurred because of the filing of the pleading, including reasonable counsel's fees.” Id. The same rule applies to motions. Tax Ct. Rule 50(a).

Respondent's counsel knew or should have known when signing Respondent's motion for partial summary judgment on the penalty approval issue that the July penalty lead sheet was backdated and that RA Brooks did not in fact sign a penalty lead sheet approving all the asserted penalties on July 16, 2016. Yet Respondent's counsel signed a motion asking this Court to find that RA Brooks signed the penalty lead sheet on July 16, 2016, and to rely on the finding to rule in Respondent's favor on the section 6751(b)(1) penalty approval issue. Doc. 43 at 3 ¶ 10 & 5 ¶ 17. Respondent's counsel knew or should have known that the motion was not “well grounded in fact” in violation of Tax Court Rules 50(a) and 33(b). At a minimum, Mr. Bissell failed to make a “reasonable inquiry” into the veracity of RA Brooks's declaration. See Tax Ct. Rule 33(b). The evidence that Mr. Bissell violated this “reasonable inquiry” obligation is overwhelming when one considers that Petitioner's counsel told him three days before he filed the motion that the motion was incorrect based on the facts — which Mr. Bissell should have known based on his own prior experience with this case.

c. Under Rule 123(b), this Court may “dismiss a case” or “decide against any party any issue as to which such party has the burden of proof” as a sanction for a party's failure to comply with this Court's rules or failure to comply with an order of this Court. Tax Ct. Rule 123(b). Respondent's counsel has violated Rule 50(a) and Rule 121(i). Respondent's counsel has also violated the Model Rules of Professional Conduct (Rules 3.3(a)(1) & (3)), which this Court has adopted as its own, Tax Ct. Rule 201. Respondent bears the burden of proving compliance with section 6751(b)(1)'s penalty approval requirement. See Graev, 149 T.C. at 493. This Court should sanction Respondent's serious violations of its rules by deciding the section 6751(b)(1) penalty approval issue against him.

2. This Court should sanction Respondent under section 6673(a)(2).

Section 6673(a)(2) specifies that the United States waives its immunity and must, like taxpayers, pay “excess costs, expenses, and attorneys' fees” if its counsel has “multiplied the proceedings in any case unreasonably and vexatiously.” Section 6673(a)(2). See also 28 U.S.C. § 1927 (setting out the same standard). Under Schwartz v. Millon Air, Inc., 341 F.3d 1220, 1225 (11th Cir. 2003), a violation of this standard occurs when an “attorney knowingly or recklessly pursues a frivolous claim or engages in litigation tactics that needlessly obstruct the litigation of non-frivolous claims.” Attorney conduct that is “tantamount to bad faith,” id. at 1226, violates the statute, but the determination of bad faith “turns not on the attorney's subjective intent, but on the attorney's objective conduct.” Amlong & Amlong, P.A. v. Denny's, Inc., 500 F.3d 1230, 1239 (11th Cir. 2007).

Respondent's counsel has “multiplied the proceedings” in this case “unreasonably and vexatiously” in violation of section 6673(a)(2). Mr. Bissell's conduct was tantamount to bad faith. He was the one who pointed out that the draft FPAA did not include the substantial valuation or gross valuation misstatement penalties, see supra ¶ 21 — which presumably is what spurred RA Brooks to backdate her signature. Even if Mr. Bissell did not recall noting in his February 2017 memorandum that some of the penalties still needed written approval before they could be asserted, and even if he failed to review that memorandum before filing the motion for partial summary judgment, he acted in bad faith by failing to investigate the factual inaccuracies when Petitioner's counsel informed him of those inaccuracies and propounded discovery seeking to get to the truth of the matter. See supra ¶¶ 36, 51-52, 55, 74, 82.

Respondent's counsel likewise unreasonably and vexatiously multiplied the pleadings in this case by failing to produce the emails between RA Stafford and RA Brooks in a format in which the email attachments could be identified. In their native format those emails along with their attachments establish that the RA Brooks's first declaration is false and that the July penalty lead sheet was backdated. When they got those emails, Respondent's counsel had an obligation to come clean right away. Model Rule of Prof'l Conduct 3.3(b); Tax Ct. Rule 201. Instead, they used misleading discovery responses to prevent RA Brooks's backdating of the penalty lead sheet from coming to light. When Respondent's counsel finally turned over the emails in a format in which their attachments could be identified, they admitted that RA Brooks signed the July penalty lead sheet “on or about February 10, 2017.” Ex. 18 at LPLII_00000165. That logically entailed recognition that the penalty lead sheet submitted to this Court was backdated, and that RA Brooks's first declaration was false. Yet Respondent's counsel did not explicitly acknowledge these facts — facts that were undeniable given the information it produced to Petitioner's counsel on March 3, 2023, and which had been in Respondent's counsel's possession since at least November 4, 2022. Worse, Respondent's counsel did not inform this Court of the false evidence before it. This Court then relied on that false evidence to grant Respondent's motion for partial summary judgment.

3. Respondent's counsel perpetrated a fraud on this Court.

This Court has inherent power to vacate a judgment when there has been a fraud on the court. Hartman v. Commissioner, 95 T.C.M. (CCH) 1448 (2008), opinion supplemented on denial of reconsideration, 97 T.C.M. (CCH) 1649 (2009).⁷ Conduct constituting fraud on the court includes “egregious misconduct” such as a “fabrication of evidence by a party in which an attorney is implicated.” Rozier v. Ford Motor Co., 573 F.2d 1332, 1338 (5th Cir. 1978) (citations omitted); see also Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (adopting Fifth Circuit precedent).

Respondent's conduct here is much like the conduct of litigants whose claims have been dismissed because their misconduct rose to the level of fraud on the court. See, e.g., Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1118-19 (1st Cir. 1989) (fabricating an agreement, attaching the false agreement to pleadings, and remaining silent in discovery for months was a fraud on the court that warranted dismissal); Vargas v. Peltz, 901 F. Supp. 1572, 1581-82 (S.D. Fla. 1995) (fabricating evidence to support sexual harassment claim, perjury, and obstruction of the discovery process was a fraud on the court that warranted dismissal); Pope v. Fed. Express Corp., 138 F.R.D. 675, 677-78, 683-84 (W.D. Mo. 1990) (fabricating a note to support a sexual harassment claim and obstruction warranted dismissal and sanctions for counsel for failing to make reasonable inquiry), aff'd in relevant part, 974 F.2d 982 (8th Cir. 1992); Eppes v. Snowden, 656 F. Supp. 1267, 1274-77 (E.D. Ky. 1986) (backdating letters regarding the value of a horse constituted fraud on the court and warranted dismissal).

A closely analogous situation involving government attorneys was presented in United States v. Shaffer Equip. Co., 11 F.3d 450 (4th Cir. 1993). There, the EPA's coordinator for the cleanup of a hazardous waste site in West Virginia “had misrepresented his academic achievements and credentials” and government attorneys responded to the situation by obstructing “the defendants' efforts to root out the discrepancies and failed to reveal them once they learned of them.” Id. at 452. After holding a hearing, the district court found that the government's attorneys “repeatedly and deliberately violated their duty of candor to the court by failing to disclose [the cleanup coordinator's] misrepresentations, by obstructing defendants' efforts to discover them, and by continuing the litigation and filing court papers dependent on an administrative record developed largely by [the cleanup coordinator].” Id. at 454. “Stating that the only sanction appropriate to address the violation was dismissal, the [district] court dismissed the action under its inherent powers and awarded the defendants their attorney's fees incurred in responding to the government's misconduct.” Id. at 556.

The Fourth Circuit affirmed the district court's determination that the government attorneys committed sanctionable misconduct. It stressed that

When the government's attorneys filed a motion for summary judgment dependent on the administrative record made by [the EPA witness with fraudulent credentials] and requested a favorable resolution of the case prior to a full documentation of the perjury, these attorneys overstepped the bounds of zealous advocacy, exposing themselves and their employer to sanctions.

Id. at 461.

The Fourth Circuit decided in the end that dismissal of the case was too severe. Id. at 463. It remanded the case to the district court for imposition of sanctions stopping short of dismissal, noting that “the district court may deny the government the benefit of any portion of the record or the right to claim any expense, which may have been tainted by [the] misconduct.” Id. It also explained that “[b]ecause of the government's misconduct, the benefit of any doubt must be resolved in the defendants' favor” and cited Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 247 (1944), for the proposition that “where the effect on a judgment of the admission of a fraudulent document could not be accurately assessed, the [Supreme] Court resolved the question against the wrongdoer and vacated the entire judgment.” Id.

Respondent's conduct here is even worse than the conduct of the government attorneys in Shaffer. RA Brooks backdated a document that existed solely to prove the IRS's compliance with section 6751(b)(1)'s supervisory approval requirement. She then executed a sworn declaration that was submitted to this Court, which declaration falsely claimed that the document was signed on the backdated date. Respondent's counsel obstructed Petitioner's efforts to uncover the true facts regarding these documents, and kept the true nature of the evidence from this Court, thus preserving the option for this Court to rely on it to rule in Respondent's favor, which this Court did.

Under Tax Court Rules 121(i), 50(a), 123(b), 201(a), and under section 6673(a)(2), and under this Court's authority to address fraud on the court, this Court should impose these sanctions: First, this Court should vacate its order granting Respondent's motion for partial summary judgment, which depends on the false evidence and testimony Respondent submitted to this Court; Second, this Court should resolve the section 6751(b)(1) penalty approval issue against Respondent (as it may do under Tax Court Rule 123(b) and through its authority to address fraud on the court); Third, this Court should award Petitioner the reasonable expenses, including attorney's fees, it incurred as a result of Respondent's misconduct (see section 6673(a)(2), Tax Ct. Rule 33(b), and Tax Ct. Rule 121(i)).

D. Petitioner's counsel acted decisively and prudently in dealing with Respondent's misconduct.

Petitioner's counsel exercised due diligence in dealing with the evidence of Respondent's misconduct. After reviewing the final discovery responses, which Respondent provided on Friday, March 3, 2023, Petitioner's counsel who had previously entered their appearances — Jeffrey S. Luechtefeld, John J. Nail, and Belinda Be, all of Chamberlain, Hrdlicka, White, Williams, and Aughtry (the “Chamberlain Team”) — undertook a careful analysis of the timeline concerning the Backdated Penalty Lead Sheet and Respondent's related discovery responses and pleadings, including the declarations filed under penalties of perjury. During that review, and recognizing the seriousness of Respondent's apparent misconduct, those attorneys elevated the matter to Todd Welty, who also represents Petitioner.

Mr. Welty met with the Chamberlain Team on March 10, 2023. Mr. Welty believed that Respondent's conduct may have deceived the Court and thus could have criminal implications (e.g., section 7214), and decided that it was necessary to consult with other experienced counsel before settling on a plan. Accordingly, after the March 10, 2023, meeting, Mr. Welty consulted with other tax and criminal law attorneys, including attorneys at Skadden, Arps, Slate, Meagher & Flom LLP (the “Skadden Team”).

On Friday, March 24, 2023, before Petitioner's counsel had made a decision about how to proceed, this Court issued its order granting Respondent's motion for partial summary judgment. That order relied on Respondent's proffered evidence that RA Brooks approved the penalties here at issue by signing the penalty lead sheet on July 16, 2016. Mr. Welty, the Skadden Team, and others met on Monday, March 27, 2023, to discuss the situation. Petitioner's counsel decided that the seriousness of this situation called for a careful, measured response. Rather than immediately making public allegations that could not be retracted, Petitioner decided to bring this issue privately to Respondent's counsel's senior management.

To that end, later on March 27, 2023, Mr. Gomez from the Skadden Team contacted IRS Deputy Chief Counsel (Operations) Drita Tonuzi to request an urgent meeting. Mr. Welty and the Skadden Team met with Ms. Tonuzi and other attorneys from the IRS Office of Chief Counsel on Monday, April 3, 2023. During the meeting, Petitioner's counsel walked through a detailed presentation presenting specific concerns regarding the facts that had been presented to the Court and the discovery responses provided by Respondent's counsel. At the end of the meeting, Petitioner's counsel proposed that the parties work together to present the true facts to the Court, and provided Respondent's counsel a draft joint stipulation of facts for that purpose. Later that week, on Friday, April 7, 2023, Ms. Tonuzi informed Petitioner's counsel that Respondent agreed that the Backdated Penalty Lead Sheet had not been signed in July 2016, and that Respondent would take prompt steps to correct the record.

Although Petitioner would have preferred to have been able to jointly bring this matter to the Court's attention, Respondent declined and instead stated that Respondent would address the matter on his own.

On April 10, 2023, Respondent filed a status report with this Court. Doc. 101. The report states that “[o]n or about April 3, 2023, petitioner's counsel alerted respondent to possible factual inaccuracies in” the motion for partial summary judgment, RA Brooks's declaration, and this Court's order granting partial summary judgment. Id. at 1. That statement is not accurate because Petitioner's counsel has repeatedly alerted Respondent's counsel of the “factual inaccuracies.” Thus, on April 11, 2023, Petitioner's counsel sent an email to Respondent's counsel delineating six occasions before April 3, 2023 on which these issues were brought to the attention of the Office of Chief Counsel. That email also renewed the invitation for Respondent to join Petitioner in presenting a complete statement of facts to transparently inform the Court precisely what happened in this case.

Moreover, the statement in the status report that Respondent might file a “Motion for Reconsideration of Findings” can only be read to mean that, notwithstanding the fact that Respondent's counsel previously offered this Court a backdated document, Respondent still believes that he is entitled to summary judgment on the section 6751(b) approval issue. Accordingly, Petitioner had no choice but to file the instant motions.

CONCLUSION

This Court should grant Petitioner's Motion for Reconsideration and should either determine that Respondent has not complied with section 6751(b) or defer judgment on the section 6751(b) issue until any evidence and testimony supporting the same can be tested through cross-examination at trial. In addition, the Court should grant Petitioner's Motion for Sanctions, including by deciding the section 6751(b) issue in Petitioner's favor.

Dated: April 18, 2023

Respectfully submitted,

MICHAEL TODD WELTY
Todd Welty, P.C.
4279 Roswell Rd NE
Suite 208, #352
Atlanta, GA 30342
Tax Court Bar No. WM0494
Telephone: (214) 289-9693
E-mail: todd@toddweltypc.com

ARMANDO GOMEZ
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Tax Court Bar No. GA0514
Telephone: (202) 371-7868
E-mail: armando.gomez@skadden.com

ROLAND BARRAL
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, NY 10001
Tax Court Bar No. BR0140
Telephone: (212) 735-3708
E-mail: roland.barral@skadden.com

Counsel for Petitioner