Definition of 'immediate supervisor' clarified for penalty purposes.

AuthorBeavers, James A.

For purposes of the Sec. 6751(b) supervisory approval requirement for penalties, the immediate supervisor who must approve the penalties is the person who directly supervises the work in an examination of the examining agent who makes the initial determination to assert the penalties.


Sand Investment Co. LLC is a South Carolina limited liability company that was treated as a partnership for its short tax year beginning Dec. 9, 2015, and ending Dec. 31, 2015. Sand is subject to the TEFRA unified audit and litigation procedures.

In May 2014, Sand acquired land in Jasper County, S.C. On Dec. 28, 2015, Sand granted the Southeast Regional Land Conservancy a conservation easement over a portion of that land. Sand timely filed Form 1065, U.S. Return of Partnership Income, for its short 2015 tax year on which it claimed a charitable contribution deduction of $80,150,000 for the donation of the easement.

Sand's return was selected for examination, and the IRS assigned the case to Revenue Agent Adrienne Cooper, a member of Team 1124 in the IRS Large Business & International Division (LB&I). Supervisory Revenue Agent Gregory Burris supervised all cases assigned to Team 1124, and he served as both the "case manager" and the "issue manager" for the examination of Sand's return. In these capacities, he supervised all aspects of the examination of Sand's return.

Near the end of the exam, Cooper was promoted to senior revenue agent. As a result, she was transferred to a different team in LB&I, and William Wilson became her new immediate supervisor. For the ongoing Sand examination, the IRS authorized Cooper to continue working with Team 1124 until the examination was finished. Although Wilson, as Cooper's new supervisor, was responsible for approving Cooper's time sheets, leave requests, and other routine administrative matters, Burris remained the case and issue manager of the Sand examination and continued to oversee all of Cooper's work on that examination.

Proceeding with the Sand examination after her promotion, Cooper determined that Sand's charitable contribution deduction for its contribution of the conservation easement should be disallowed. Without that deduction, Sand had a large understatement of tax and, accordingly, on Sept. 27, 2018, Cooper decided to assert accuracy-related penalties under Sec. 6662A and Sec. 6662(a) for 2015. She set out her penalty recommendations in a "Penalties Lead Sheet." Burris, as her supervisor on the...

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