T.C. Memo. 2020-133



                        UNITED STATES TAX COURT



 SUNIL S. PATEL AND LAURIE MCANALLY PATEL, ET AL.,1 Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 24344-17, 11352-18,              Filed September 22, 2020.
                  25268-18.



      David D. Aughtry and Patrick J. McCann, Jr., for petitioners.

      Sebastian Voth, Sheri S. Wilder, Emerald G. Smith, and Kevin R. Oveisi,

for respondent.




      1
       Cases of the following petitioners are consolidated herewith: Sunil S. Patel
and Laurie M. McAnally-Patel, docket No. 11352-18; and Sunil S. Patel and
Laurie M. McAnally-Patel, docket No. 25268-18.
                                       -2-

[*2]                       MEMORANDUM OPINION


       JONES, Judge: By notices of deficiency dated August 25, 2017, March 15,

2018, and September 25, 2018, respondent determined deficiencies in the Federal

income tax of petitioners, Sunil S. Patel and Laurie McAnally Patel, for the 2013,

2014, 2015, and 2016 taxable years2 and accuracy-related penalties under section

6662 as follows:3

             Year                   Deficiency                  Penalty

             2013                    $247,892                  $99,157
             2014                     484,420                   96,884
             2015                     475,186                   95,037
             2016                     529,949                  105,990

       Currently before the Court are cross-motions for partial summary judgment

under Rule 121 as to whether respondent secured timely written supervisory

approval for the penalties at issue as required by section 6751(b)(1). As explained




       2
       By order dated October 17, 2019, we consolidated the cases for briefing
and opinion.
       3
       All section references are to the Internal Revenue Code in effect at all
relevant times. All Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                         -3-

[*3] below we will grant in part and deny in part each motion for partial summary

judgment.

                                    Background

      There is no dispute as to the following facts, which are drawn from the

parties’ filings and the attached declarations and exhibits.

I.    Petitioners

      Petitioners are married. Dr. Patel is an ophthalmologist who was the sole

shareholder of Ophthalmology Specialists of Texas, PLLC (OST). He engaged in

a purported microcaptive insurance arrangement for this business. In the process

he formed several related entities through which petitioners deducted purported

insurance premiums as business expenses during the years at issue.

II.   Administrative Proceedings

      A.     2013 Tax Year

             1.     Letter 5153 and Examination Report

      In February 2016, respondent opened an examination into petitioners’ 2013

tax return. Respondent assigned Revenue Agent David Snow (RA Snow) to

conduct the examination.4 On May 8, 2017, RA Snow sent petitioners a Letter


      4
      Respondent examined returns for additional tax years during this
examination, as discussed in further detail below.
                                        -4-

[*4] 5153 and an accompanying examination report or Revenue Agent’s Report

(RAR). The RAR proposed changes in petitioners’ income tax for the 2013 tax

year, including an adjustment to the amount of income they reported for that year

and the imposition of accuracy-related penalties under section 6662(a), (b)(2) and

(6), and (i).

       The Letter 5153 instructed petitioners to respond in one of four ways. If

petitioners agreed with the changes proposed in the RAR, the first two options

were to either submit payment for the full amount of tax owed or call RA Snow to

discuss payment options. If petitioners did not agree with the changes proposed in

the RAR, the third option was to agree to extend the period for assessment to

allow for their case to be considered by the Internal Revenue Service (IRS) Office

of Appeals (Appeals Office). The fourth and final option advised petitioners that

if they failed to respond by the “response due date”, their case would be processed

on the basis of the proposed changes in the RAR and they would be sent a notice

of deficiency. In response to the Letter 5153 petitioners did not to agree to extend

the period of limitations on assessment.

                2.   Civil Penalty Approval Form

       On May 25, 2017--17 days after he mailed Letter 5153 and the RAR to

petitioners--RA Snow completed work on a civil penalty approval form (first civil
                                          -5-

[*5] penalty approval form) seeking approval to impose accuracy-related penalties

for the 2013, 2014, and 2015 tax years. In the box captioned “Reason(s) for

Assertion of Penalty(s)” RA Snow wrote, in part:

      Section 6662(b)(6) imposes a penalty on any disallowance of claimed
      tax benefits by reason of a transaction lacking economic substance
      (within the meaning of section 7701(o)). * * * Section 6662(i)
      increases the accuracy-related penalty from 20% to 40% for any
      portion of an underpayment that is attributable to a ‘nondisclosed
      noneconomic substance transaction’ if the relevant facts affecting the
      tax treatment are not adequately disclosed in the return or a statement
      attached to the return.

      *            *            *            *              *    *          *

      Here, the taxpayer did not file Forms 8275 or 8275-R, and did not
      make any other attempt to disclose the relevant facts affecting the
      items’ tax treatment. Accordingly, a 40% penalty is appropriate for
      any portion of the underpayment attributable to the abusive captive
      insurance company transactions.

      On May 25, 2017, RA Snow submitted the first civil penalty approval form

to his then-immediate supervisor, Acting Group Manager Richard Keker (AGM

Keker). AGM Keker signed it that day. His signature approved the assertion of

penalties under section 6662(a), (b), (c), (d), and (i).5




      5
       Though the civil penalty approval form used by respondent does not
explicitly refer to sec. 6662(a), we construe the approval of a penalty under sec.
6662(b) on the form to constitute approval of a penalty under sec. 6662(a) by
operation of the statute. See sec. 6662.
                                       -6-

[*6]         3.    Notice of Deficiency

       On August 25, 2017, respondent issued a notice of deficiency to petitioners

for the 2013 tax year. As respondent’s primary position, the notice determined

accuracy-related penalties under section 6662(b)(6) and (i).6 As alternative

positions, respondent determined accuracy-related penalties under section

6662(b)(1) and (2).

       B.    2014 Tax Year

       In March 2017, RA Snow expanded the examination to include petitioners’

2014 tax year. RA Snow’s activity record shows that he entered the information

for Dr. Patel’s business, OST, into the Report Generation Software (RGS) on June

22, 2017.

             1.    First Civil Penalty Approval Form

       As discussed above, the first civil penalty approval form was prepared by

RA Snow and signed by his then-immediate supervisor, AGM Keker, on May 25,

2017. In addition to the 2013 tax year AGM Keker’s signature approved the

       6
        The Letter 5153, which was issued on May 8, 2017, asserted an accuracy-
related penalty of $100,688 under sec. 6662 for the 2013 tax year. The
corresponding notice of deficiency, which was issued on August 25, 2017,
determined an accuracy-related penalty under sec. 6662 in the lesser amount of
$99,156.80. The difference appears to be due to the fact that in Letter 5153
respondent calculated the total amount of the underpayment to be $251,719, but in
the notice of deficiency he calculated a lesser underpayment of $247,892.
                                             -7-

[*7] assertion of penalties for the 2014 and 2015 tax years under section 6662(a),

(b), (c), (d), and (i).

                2.    Letter 5153 and RAR

       On January 30, 2018, RA Snow sent petitioners a Letter 5153 and an

accompanying RAR for the 2014 tax year. The Letter 5153 was, in almost all

material respects, identical to the Letter 5153 for 2013 that RA Snow sent to

petitioners on May 8, 2017; it gave petitioners the same four options for 2014

using the same structure and text. The RAR proposed changes to petitioners’

return for the 2014 tax year, including an adjustment to the amount of income they

reported for that year and the imposition of accuracy-related penalties under

section 6662(a), (b)(2), and (6), and (i).

                3.    Second Civil Penalty Approval Form

       At a time not disclosed by the record RA Snow completed work on a second

civil penalty approval form, on which he sought approval to impose penalties for

the 2014, 2015, and 2016 tax years (second civil penalty approval form).7 RA

Snow used the same text in the second civil penalty approval form that he used in

the first civil penalty approval form to explain the assertion of penalties, including

a discussion of section 6662(i) and an explanation of its application to petitioners.

       7
           The 2015 and 2016 tax years are discussed below.
                                         -8-

[*8] On January 31, 2018, RA Snow’s then-immediate supervisor, Group

Manager Stephen Earley (GM Earley), signed the second civil penalty approval

form. GM Earley’s signature approved the assertion of penalties under section

6662(a), (b), (c), (d), and (i) for the 2014 tax year (as well as 2015 and 2016,

discussed below).

             4.     Notice of Deficiency

      On March 15, 2018, respondent issued to petitioners the notice of deficiency

for the 2014 tax year. The notice determined accuracy-related penalties under

section 6662(a) and (b)(1), (2), and (6). The notice did not determine a penalty

under section 6662(i).

             5.     First Amendment to Answer

      Petitioners filed a petition on June 8, 2018, asking the Court to redetermine

respondent’s determination regarding the 2014 tax year, and respondent answered

on August 3, 2018. About eight months later, on March 8, 2019, we filed

respondent’s first amendment to answer in which he asserted an accuracy-related

penalty of $193,768 under section 6662(i).

      In his first amendment to answer, respondent represented that the initial

determination to assert the penalty under section 6662(i) was made by Special

Trial Attorney Sebastian Voth (STA Voth). Area Counsel Sherri S. Wilder (AC
                                        -9-

[*9] Wilder), STA Voth’s immediate supervisor, electronically signed the first

amendment to answer on February 25, 2019, thereby approving the assertion of

the penalty under section 6662(i).

             6.    Summary of Respondent’s Assertion of Penalties for the 2014
                   Tax Year

      To summarize: For the 2014 tax year respondent asserted penalties under

section 6662(a), (b)(2) and (6), and (i) in Letter 5153 and the accompanying RAR,

which RA Snow mailed to petitioners on January 30, 2018. In the notice of

deficiency dated March 15, 2018, respondent determined accuracy-related

penalties under section 6662(a) and (b)(1), (2), and (6), but did not determine the

penalty under subsection (i). Rather, respondent asserted the penalty under section

6662(i) in his first amendment to answer filed March 8, 2019.

      C.     2015 and 2016 Tax Years

      We will address tax years 2015 and 2016 together because they have similar

fact patterns and respondent covered both years in the same civil penalty approval

form and communications to petitioners.

             1.    Second Civil Penalty Approval Form

      As discussed above, the second civil penalty approval form was prepared by

RA Snow and signed by his then-immediate supervisor, GM Earley, on January
                                        - 10 -

[*10] 31, 2018. GM Earley’s signature approved the assertion of penalties for the

2015 and 2016 tax years under section 6662(a), (b), (c), (d), and (i).8

             2.     The Letter 950 and RAR

      On April 10, 2018, respondent sent petitioners a Letter 950, also referred to

as a 30-day letter, and an accompanying RAR. The RAR proposed changes in

petitioners’ income tax for the 2015 and 2016 tax years, including an adjustment

to the amount of income they claimed for each year and the imposition of

accuracy-related penalties under section 6662(a), (b)(1), (2), and (6), and (i) for

each year.

      The Letter 950 instructed petitioners to respond in one of three ways by a

“response due date” and provided a fourth option in the event that they did not

respond. If petitioners agreed with the changes proposed in the RAR, the first two

options were to either submit payment for the full amount of tax owed or to

consult respondent’s publications regarding payment options. If petitioners did

not agree with the proposed changes, the third option instructed them to contact

RA Snow to request a meeting or telephone conference with him. If the proffered


      8
        The record shows that there was a third civil penalty approval form, which
RA Snow prepared on May 28, 2018, and which was signed by his then-immediate
supervisor, a group manager, on the same day. Because the form is not necessary
to our analysis, it is not addressed.
                                       - 11 -

[*11] meeting with RA Snow did not produce agreement, petitioners could request

a conference with the Appeals Office. Letter 950 advised petitioners that if they

failed to respond by the “response due date”, their case would be processed on the

basis of the proposed changes in the RAR. If petitioners chose this fourth and

final option, they would be sent a notice of deficiency. Letter 950 bears the

signature of Acting Group Manager Rafaela Mendez (AGM Mendez), who was

serving as RA Snow’s immediate supervisor when the letter was mailed.

             3.    Notice of Deficiency

      On September 25, 2018, respondent issued the notice of deficiency for the

2015 and 2016 tax years. The notice determined accuracy-related penalties under

section 6662(a) and (b)(1), (2), and (6). The notice did not determine penalties

under section 6662(i).

             4.    Answer

      Petitioners filed a petition on December 20, 2018, in which they asked the

Court to redetermine respondent’s determination regarding the 2015 and 2016 tax

years. In respondent’s answer, which was filed with the Court on March 19, 2019,

he asserted accuracy-related penalties under section 6662(i) of $190,074 and

$211,980 for the 2015 and 2016 tax years, respectively.
                                        - 12 -

[*12] In his answer respondent represented that the initial determination to assert

the penalties under section 6662(i) was made by STA Voth. STA Voth’s

immediate supervisor, AC Wilder, electronically signed the answer on March 19,

2019, thereby approving the assertion of the penalties under section 6662(i).

             5.     Summary of Respondent’s Assertion of Penalties for the 2015
                    and 2016 Tax Years

      To summarize: For tax years 2015 and 2016, respondent asserted penalties

under section 6662(a), (b)(1), (2), and (6), and (i) in Letter 950 and the

accompanying RAR, which RA Snow mailed to petitioners on April 10, 2018.

Respondent did not determine the penalty under section 6662(i) in the September

25, 2018, notice of deficiency but did assert it in his March 19, 2019, answer.

      We will discuss the significance of respondent’s communications and the

timing of these penalty approvals below.

                                     Discussion

I.    Law

      A.     Summary Judgment

      Summary judgment serves to “expedite litigation and avoid unnecessary and

expensive trials.” Fla. Peach Corp. v. Commissioner, 

, 681 (1988).

The Court may grant summary judgment when there is no genuine dispute as to
                                        - 13 -

[*13] any material fact and a decision may be rendered as a matter of law. Rule

121(b); Sundstrand Corp. v. Commissioner, 

, 520 (1992), aff’d, 

(7th Cir. 1994). Both parties have moved for partial summary judgment,

and they agree that no genuine dispute of material fact exists regarding the

question they have asked the Court to decide. After reviewing the parties’ filings

and the attached declarations and exhibits, we conclude that a decision may be

rendered as a matter of law.

      B.     Accuracy-Related Penalties and Requirements of Penalty Approval

             1.     Generally

      Section 6662(a) and (b)(1) and (2) imposes an accuracy-related penalty

equal to 20% of the portion of an underpayment of tax required to be shown on a

return that is attributable to “[n]egligence or disregard of rules or regulations” or

“[a]ny substantial understatement of income tax”, or both. An understatement of

income tax is a “substantial understatement” if it exceeds the greater of 10% of the

tax required to be shown on the return or $5,000. Sec. 6662(d)(1)(A).

      Section 6662(a) and (b)(6) imposes an accuracy-related penalty equal to

20% of the portion of an underpayment that is attributable to “[a]ny disallowance

of claimed tax benefits by reason of a transaction lacking economic substance

(within the meaning of section 7701(o)) or failing to meet the requirements of any
                                       - 14 -

[*14] similar rule of law.” Section 6662(i) increases the accuracy-related penalty

imposed under section 6662(a) to 40% of an underpayment which is attributable to

one or more “nondisclosed noneconomic substance transactions”.

            2.     Timeliness of Penalty Approval

      Section 6751(b)(1) provides: “No penalty under this title shall be assessed

unless the initial determination of such assessment is personally approved (in

writing) by the immediate supervisor of the individual making such determination

or such higher level official as the Secretary may designate.” Although section

6751(b)(1) does not explicitly prescribe the timing of the written supervisory

approval, we have interpreted the provision to require such approval before the

first formal communication to the taxpayer that demonstrates that an initial

determination has been made. See, e.g., Belair Woods, LLC v. Commissioner, 154

T.C. ___, ___ (slip op. at 24-25) (Jan. 6, 2020); Clay v. Commissioner, 

, 249 (2019); Carter v. Commissioner, T.C. Memo. 2020-21, at *27.

      When asked to conduct inquiries into whether the Commissioner’s

employees gave sufficient consideration to the penalties they proposed and

approved, we have determined that such lines of questioning are “immaterial and

wholly irrelevant to ascertaining whether respondent complied with the written

supervisory approval requirement of section 6751(b)(1)”. Raifman v.
                                        - 15 -

[*15] Commissioner, T.C. Memo. 2018-101, at *61. In sum, the “written

supervisory approval requirement of section 6751(b)(1) requires just that: written

supervisory approval.”

   Initial Determination

      We recently held that the “initial determination” of a penalty, for purposes

of section 6751(b)(1), must be a “formal act” that resembles a determination.

Belair Woods, LLC v. Commissioner, 154 T.C. at ___ (slip op. at 15). We went

on to conclude that in a deficiency context “the document by which the

Examination Division formally notifies the taxpayer, in writing, that it has

completed its work and made an unequivocal decision to assert penalties” would

embody the initial determination of those penalties.

___ (slip op. at 24-25);

see Clay v. Commissioner, 

.

      In Carter v. Commissioner, at *6, a deduction for a charitable contribution

was at issue, and the IRS sent the taxpayers a Letter 5153 and accompanying

RAR. The Commissioner argued that because the agent’s communication to the

taxpayers did not contain a 30-day letter and therefore did not communicate appeal

rights, their case could be meaningfully distinguished from Clay.

*28-*29.
In Clay v. Commissioner, 
152 T.C. 249
, the IRS sent the taxpayers the RAR and

a 30-day letter that “propos[ed] adjustments including penalties and gave * * *
                                       - 16 -

[*16] [the taxpayers] the right to protest those proposed adjustments.” In Carter v.

Commissioner, at *30, we rejected the IRS’ argument, holding that the Letter 5153

and RAR sent to the taxpayers “clearly reflected * * * [the agent’s] conclusion that

* * * [the taxpayers] should be subject to gross valuation misstatement penalties

for each of the years in issue.” See also Belair Woods, LLC v. Commissioner, 154

T.C. at __ (slip op. at 24-25).

      We concluded that the absence of 30-day letters did not indicate a lack of

formality about the IRS agent’s determination to assert penalties. Carter v.

Commissioner, at *30. Rather, the RAR was sent with Letter 5153 because of the

Carters’ unwillingness to provide the Appeals Office sufficient time to consider

their cases.
 Id. at 
*30-*31. We also rejected the argument that a communication

cannot be an initial determination unless it provides appeal rights.
 Id. at 
*29. We

noted that “any ‘document by which the Examination Division formally notifies

the taxpayer, in writing, that it has completed its work and made an unequivocal

decision to assert penalties’ would necessarily embody the initial determination of

those penalties.”
 Id. (quoting Belair Woods
, LLC v. Commissioner, 154 T.C.

at __ (slip op. at 24-25)).

      We have previously acknowledged that the Commissioner can make more

than one initial determination of a penalty under section 6662 (with written
                                        - 17 -

[*17] supervisory approval, of course), Roth v. Commissioner, T.C. Memo. 2017-

248, aff’d, 
922 F.3d 1126 
(10th Cir. 2019), and that an initial determination can be

made by an IRS attorney, see Graev v. Commissioner, 
149 T.C. 485
, 494-498

(2017), supplementing and overruling in part 
147 T.C. 460 
(2016).

II.   Analysis

      We will determine whether respondent complied with the procedural

requirements of section 6751(b)(1) by identifying the communication that formally

notified petitioners, in writing, that respondent’s Examination Division had

completed its work and made an unequivocal decision to assert penalties. See

Belair Woods, LLC v. Commissioner, 154 T.C. at __ (slip op. at 23-25). Then, we

will ascertain whether the individual who made the initial determination to assert

such penalties obtained the required written supervisory approval before

petitioners were formally notified. See
 id. at 
__ (slip op. at 27).

      A.     2013 Tax Year

      Respondent argues that the notice of deficiency dated August 25, 2017,

embodied his formal communication to petitioners of his initial determination to

assert penalties. Petitioners disagree. They point to Letter 5153, dated May 8,

2017, as respondent’s formal communication of penalties. Respondent argues that

Letter 5153 and the RAR do not embody his “initial determination” with respect to
                                        - 18 -

[*18] the penalties proposed therein (section 6662(a), (b)(2) and (6), and (i))

because the letter did not grant petitioners the opportunity to go to the Appeals

Office, which would have been included in a 30-day letter.

      In Carter v. Commissioner, at *31, we found that the absence of a 30-day

letter did not indicate a lack of formality about the IRS agent’s determination to

assert penalties. Rather, we observed that the fact that an RAR was sent with

Letter 5153 rather than a 30-day letter appeared to have been attributable solely to

the taxpayers’ unwillingness to provide the Appeals Office sufficient time to

consider their cases.
 Id. at 
*30-*31. We concluded that the granting of appeal

rights is not a necessary element of an initial determination of penalties.
 Id.

      In these cases, 
Letter 5153 and the accompanying RAR clearly reflected

respondent’s conclusion that petitioners should be subject to the accuracy-related

penalties under section 6662(a), (b)(2) and (6), and (i). See Carter v.

Commissioner, at *30.9 It appears that RA Snow mailed Letter 5153 and the RAR

to petitioners because they were unwilling to extend the period of limitations on

assessment. We, therefore, agree with petitioners that Letter 5153 and the


      9
      Respondent filed his response to petitioners’ motion for partial summary
judgment and his own motion for the same before we issued our opinion in Carter
v. Commissioner, T.C. Memo. 2020-21, on February 3, 2020. As a result,
respondent did not address Carter in his filings.
                                        - 19 -

[*19] accompanying RAR embodied the “initial determination” of the penalties

under section 6662(a), (b)(2) and (6), and (i) for the 2013 tax year. See Belair

Woods, LLC v. Commissioner, 154 T.C. at ___ (slip op. at 24-25). Respondent

does not dispute that RA Snow did not obtain written approval of those penalties

before he sent Letter 5153 and the accompanying RAR on May 8, 2017.

      The record establishes that the notice of deficiency embodied respondent’s

formal communication of his unequivocal decision to assert the penalty under

section 6662(b)(1). See Belair Woods, LLC v. Commissioner, 154 T.C. at ___

(slip op. at 24-25). Because RA Snow secured supervisory approval of the section

6662(b)(1) penalty through AGM Keker’s signing of the first civil penalty

approval form before respondent issued the notice of deficiency, we hold that

respondent complied with section 6751(b)(1) with respect to that penalty.

      On the basis of the record, we conclude that respondent did not satisfy the

requirements of section 6751(b)(1) with respect to the penalties asserted under

section 6662(a), (b)(2) and (6), and (i), but did satisfy such requirements with

respect to the penalty asserted under section 6662(b)(1) for the 2013 tax year.

      B.     2014 Tax Year

      Letter 5153 and the accompanying RAR, dated January 30, 2018, reflected

respondent’s conclusion that petitioners should be subject to accuracy-related
                                        - 20 -

[*20] penalties under section 6662(a), (b)(2) and (6), and (i). We therefore hold

that Letter 5153 and the accompanying RAR embodied the “initial determination”

of penalties under section 6662(a), (b)(2) and (6), and (i) for the 2014 tax year.

See Belair Woods, LLC v. Commissioner, 154 T.C. at __ (slip op. at 24-25). The

penalty under section 6662(b)(1) was first determined in the notice of deficiency,

dated March 15, 2018, and we hold that the notice embodied the “initial

determination” of that penalty for tax year 2014.

      We will first address whether the approval of penalties asserted under

section 6662(a) and (b) was timely and will then turn to the timeliness of the

approval for the penalty asserted under section 6662(i).

             1.    Timeliness of Approval of Penalties Asserted Under Section
                   6662(a) and (b) for 2014

      Because AGM Keker signed the first civil penalty approval form on May

25, 2017, he approved the section 6662(a) and (b)(2) and (6) penalties in writing

before respondent asserted them on January 30, 2018, in Letter 5153 and the RAR.

Likewise, AGM Keker approved the section 6662(b)(1) penalty--and GM Earley

approved that penalty on the second civil penalty approval form--before

respondent asserted it on March 15, 2018, in the notice of deficiency.
                                        - 21 -

[*21] Petitioners argue that the first civil penalty approval form is meaningless

with respect to the 2014 tax year because, according to them, respondent had not

performed sufficient work in his review of petitioners’ return to assert a penalty

for that period. Petitioners read RA Snow’s examination activity record to mean

that he did not enter the information into the RGS for tax year 2014 until June

2017. They also argue that RA Snow’s case records reflect that he did not begin

analyzing some of the expenses petitioners reported for the 2014 tax year until

October 2017.

      Respondent counters by showing that he expanded the examination to the

2014 tax year in March 2017 and that RA Snow performed sufficient work on the

2014 tax year before preparing the first civil penalty approval form. Before

preparing the form, RA Snow reviewed case information. On the basis of this

review, he believed that it was appropriate to assert a penalty for the 2014 tax year

based on all of the information that was available to him at the time, including his

knowledge of petitioners’ microcaptive insurance arrangement.

      With respect to this part of the dispute, we repeat our observation that the

“written supervisory approval requirement of section 6751(b)(1) requires just that:

written supervisory approval.” Raifman v. Commissioner, at *61. The record

includes the required written approval: the first civil penalty approval form. To
                                        - 22 -

[*22] the extent that petitioners ask the Court to look behind the civil penalty

approval form, “it would be imprudent for this Court to now begin examining the

propriety of the Commissioner’s administrative policy or procedure underlying his

penalty determinations.” See
 id. at 
*61 (citing Greenberg’s Express, Inc. v.

Commissioner, 
62 T.C. 324
, 328-329 (1974)). Moreover, petitioners have not

demonstrated “substantial evidence of unconstitutional conduct on respondent’s

part and [that] the integrity of our judicial process would be impugned if we were

to let respondent benefit from such conduct.” Greenberg’s Express, Inc. v.

Commissioner, 
62 T.C. 328
.

        To the contrary, the record establishes that respondent’s agent prepared the

civil penalty approval form after reviewing case information, including his

knowledge of petitioners’ microcaptive insurance arrangement. We conclude that

respondent satisfied the requirements of section 6751(b)(1) with respect to the

penalties asserted under section 6662(a) and (b)(1), (2), and (6) for the 2014 tax

year.
                                        - 23 -

[*23]         2.    Timeliness of Approval of Penalty Asserted Under Section
                    6662(i) for 2014

        Because AGM Keker signed the first civil penalty approval form on May

25, 2017, he approved the section 6662(i) penalty in writing before respondent

asserted it on January 30, 2018, in Letter 5153 and the RAR. Although Letter

5153 and the accompanying RAR reflected respondent’s conclusion that for 2014

petitioners should be subject to the penalty under section 6662(i), that penalty was

not included in the notice of deficiency dated March 15, 2018. When STA Voth

realized that the notice of deficiency neglected to include that penalty, he decided

to assert the penalty in a first amendment to answer, which was filed (without

objection) on March 8, 2019.10


        10
         These facts are similar to the ones we faced in Roth v. Commissioner,
T.C. Memo. 2017-248, aff’d, 
922 F.3d 1126 
(10th Cir. 2019). In that case a
revenue agent received supervisory approval to assert a 20% penalty under sec.
6662(a) and a 40% penalty under sec. 6662(h), both of which were communicated
to the taxpayers in a proposed report.
 Id. at 
*4. The taxpayers submitted a protest
to the Appeals Office. The Appeals Office issued a closing memorandum which
fully sustained the proposed penalties but sent the taxpayers a notice of deficiency
which included only the 20% penalty under sec. 6662(a) and omitted the 40%
penalty under sec. 6662(h).
 Id. at 
*5. In response to the taxpayers’ petition, IRS
counsel filed an answer reasserting the taxpayers’ liability for the 40% penalty
under sec. 6662(h).
 Id. We concluded that 
the initial determination of the 40%
penalty could be said to rest with the revenue agent, the Appeals officer, or IRS
counsel because in all three instances the individual proposing the penalties
received personal approval, in writing, from his or her immediate supervisor.
Accordingly, sec. 6751(b) was satisfied in each instance.
 Id. at 
*9-*10.
                                        - 24 -

[*24] STA Voth’s immediate supervisor, AC Wilder, signed--and thereby

approved--the pleading on February 25, 2019, before STA Voth lodged it with the

Court when he filed the motion for leave to file first amendment to answer, but AC

Wilder’s written approval was not necessary for compliance with section

6751(b)(1). Rather, respondent previously satisfied the requirements of section

6751(b)(1) with respect to the penalty asserted under section 6662(i) for the 2014

tax year when AGM Keker signed RA Snow’s civil penalty approval form.

      C.     2015 and 2016 Tax Years

      The record establishes that Letter 950 and the accompanying RAR, each

dated April 10, 2018, were formal written communications to petitioners. These

communications notified petitioners that the Examination Division had completed

its work and made an unequivocal decision to assert penalties under section

6662(a), (b)(1), (2), and (6), and (i) for each year. Accordingly, we hold that

Letter 950 and the accompanying RAR embodied the “initial determination” for

the 2015 and 2016 tax years. See Belair Woods, LLC v. Commissioner, 154 T.C.

at __ (slip op. at 24-25). We will first address the approval of penalties asserted

under section 6662(a) and (b) and will then turn to section 6662(i).
                                         - 25 -

[*25]         1.     Timeliness of Approval of Penalties Asserted Under Section
                     6662(a) and (b) for 2015 and 2016

        The record establishes two acts by which respondent arguably satisfied the

requirements of section 6751(b)(1). GM Earley signed the second civil penalty

approval form on January 31, 2018--approving RA Snow’s initial determination of

penalties under section 6662(a) and (b)--before Letter 950 and the RAR were

issued on April 10, 2018. If GM Earley had not made such an approval, then

AGM Mendez’ signature on Letter 950 would have constituted a valid approval.

See Palmolive Bldg. Inv’rs, LLC v. Commissioner, 
152 T.C. 75
, 85 (2019); Flume

v. Commissioner, T.C. Memo. 2020-80, at *34.

        Petitioners argue that the second civil penalty approval form is deficient

with respect to the 2015 and 2016 tax years because it repeats the text in the

“Reason(s) for Assertion of Penalty(s)” portion of the first civil penalty approval

form, which they interpret to relate solely to the 2013 tax year. In addition, they

attack AGM Mendez’ signature on Letter 950 as insufficient to satisfy the

requirement under section 6751(b)(1) that an initial determination must be

approved in writing by the immediate supervisor of the individual making the

determination. According to petitioners, AGM Mendez’ signature was a nominal
                                        - 26 -

[*26] act that did not reflect meaningful review, noting that the letter itself does

not mention the penalty or the approval.

      In arguing that the text on the second civil penalty approval form is

inapplicable for the 2015 and 2016 tax years and that AGM Mendez’ signature on

Letter 950 is insufficient, petitioners again ask the Court to look behind the

documents. See Belair Woods, LLC v. Commissioner, 154 T.C. at ___ (slip op.

at 26). But with respect to each of these contentions we “‘decline to read into

section 6751(b)(1) the subtextual requirement’ that respondent demonstrate the

depth or comprehensiveness of the supervisor’s review.”
 Id. at 
___ (slip op. at 27)

(quoting Raifman v. Commissioner, at *61). On that basis we hold that

respondent satisfied the requirements of section 6751(b)(1) with respect to the

penalties asserted under section 6662(a) and (b)(1), (2), and (6) for the 2015 and

2016 tax years.

             2.     Timeliness of Approval of Penalty Asserted Under Section
                    6662(i) for 2015 and 2016

      The section 6662(i) penalties were included by RA Snow in his second civil

penalty approval form, which was signed by GM Earley. The section 6662(i)

penalties were not thereafter included in the notice of deficiency dated September

25, 2018. When STA Voth realized that the notice of deficiency neglected to
                                        - 27 -

[*27] include the penalties, he decided to assert them in the answer, which was

filed on March 19, 2019. STA Voth’s immediate supervisor, AC Wilder, signed

the pleading on March 19, 2019, before STA Voth filed it later that same day. But

AC Wilder’s approval was not necessary under section 6751(b)(1), because the

“initial determination” of the penalties--made by RA Snow--had already been

timely approved by his immediate supervisor, GM Earley. Thus, the record

establishes that respondent satisfied the requirements of section 6751(b)(1) with

respect to the penalties under section 6662(i) for the 2015 and 2016 tax years.

III.   Conclusion

       We hold that, with respect to the penalties asserted under section 6662 for

the 2013 tax year, respondent did not satisfy the requirements of section

6751(b)(1) with respect to the penalties asserted under section 6662(a), (b)(2)

and (6), and (i) but did satisfy such requirements with respect to the penalty

asserted under section 6662(b)(1). We further hold that respondent satisfied all of

the requirements of section 6751(b)(1) regarding the penalties asserted under

section 6662(a), (b)(1), (2), and (6), and (i) with respect to the 2014, 2015, and

2016 tax years.
                                       - 28 -

[*28] We have considered all of the arguments made by the parties and, to the

extent they are not addressed herein, we find them to be moot, irrelevant, or

without merit.

      To reflect the foregoing,


                                                An appropriate order will be issued.