United States Tax Court

T.C. Memo. 2024-73

OCONEE LANDING PROPERTY, LLC, OCONEE LANDING 

INVESTORS, LLC, TAX MATTERS PARTNER,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent1

__________

Docket No. 11814-19. Filed July 17, 2024.

__________

Kip D. Nelson, Elizabeth K. Blickley, Vivian D. Hoard, Richard A. 

Coughlin, and Brian C. Bernhardt, for petitioner.

Shannon E. Craft, Hilary E. March, Laurie A. Humphreys, Scheherazade R. Ferrand, James G. Hartford, and Benjamin H. Weaver, for respondent.

SUPPLEMENTAL MEMORANDUM OPINION

LAUBER, Judge: In Oconee Landing Property, LLC v. Commissioner (Oconee), T.C. Memo. 2024-25, we disallowed a charitable contribution deduction for a conservation easement and sustained certain penalties. Among the penalties respondent determined was an accuracyrelated penalty for a substantial understatement of income tax and (in 

the alternative) for negligence. See § 6662(a) and (b)(1) and (2).2 This

20% penalty would apply to what we called the “lower tranche” of the 

1 This Opinion supplements our previously filed opinion, Oconee Landing Property, LLC v. Commissioner, T.C. Memo. 2024-25.

2 Unless otherwise indicated, statutory references are to the Internal Revenue 

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are 

to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, 

and Rule references are to the Tax Court Rules of Practice and Procedure.

Served 07/17/24
2

[*2] underpayment, i.e., the portion of the underpayment that was not 

attributable to a valuation misstatement. Oconee, T.C. Memo. 2024-25,

at *75. In this case, the 20% penalty would apply to the portion of the 

underpayment resulting from our conclusion that Oconee, the partnership, was not entitled to a charitable contribution deduction of 

$4,972,002, corresponding to the correct value of the easement.3 Ibid.

In our prior opinion we addressed the applicability of the 20% 

penalty for a substantial understatement, but we did not decide whether 

the penalty applied on the alternative ground of negligence. See id.

at *75–76. Referencing what is often called the “no-stacking rule,” we 

stated: “Only one accuracy-related penalty may be applied with respect 

to any given portion of an underpayment, even if that portion is penalizable on more than one of the grounds set forth in section 6662(b).” Id. 

at *75 n.34. Having decided the applicability of the substantial understatement penalty at the partnership level, we did not make an affirmative determination with respect to negligence.

Currently before the Court is respondent’s Motion for Reconsideration of Opinion. In this Motion respondent seeks a ruling on the negligence penalty, contending that the no-stacking rule does not apply at 

the partnership level. After considering briefing from the parties, we 

find it appropriate to grant respondent’s Motion and consider the negligence issue. We resolve this question in respondent’s favor.

Background

We adopt the findings of fact set forth in Oconee, T.C. Memo. 

2024-25, repeating such facts only as necessary for clarity and convenience.

Discussion

I. Motion for Reconsideration

As applicable here, reconsideration under Rule 161 serves the 

limited purpose of correcting substantial errors of law or fact. Estate of 

Quick v. Commissioner, 110 T.C. 440, 441 (1998), supplementing 110 

T.C. 172 (1998); accord Fed. R. Civ. P. 60(b). Reconsideration is not the 

appropriate forum for rehashing previously rejected legal arguments or 

3 Before its repeal, the Tax Equity and Fiscal Responsibility Act of 1982 

(TEFRA), Pub. L. No. 97-248, §§ 400–407, 96 Stat. 324, 648–71, governed the tax treatment and audit procedures for many partnerships, including Oconee.
3

[*3] tendering new legal theories to reach the end result desired by the 

moving party. Estate of Quick, 110 T.C. at 441–42. The decision of 

whether to grant a motion for reconsideration rests within the discretion 

of the Court and generally requires a showing of unusual circumstances 

or substantial error. CWT Farms, Inc. v. Commissioner, 79 T.C. 1054, 

1057 (1982), aff’d, 755 F.2d 790 (11th Cir. 1985). The U.S. Court of Appeals for the Eleventh Circuit, to which this case is appealable absent 

stipulation to the contrary, has noted that the three primary grounds 

for granting a motion for reconsideration are (1) an intervening change 

in the controlling law, (2) the availability of new evidence, and (3) the 

need to correct clear error or prevent manifest injustice. See Woide v. 

Fed. Nat’l Mortg. Ass’n, 705 F. App’x 832, 836 (11th Cir. 2017) (citing

Del. Valley Floral Grp., Inc. v. Shaw Rose Nets, LLC, 597 F.3d 1374, 

1383 (Fed. Cir. 2010)).

Respondent contends that “reconsideration is needed to prevent 

error or manifest injustice.” Specifically, respondent argues that our 

application of the no-stacking rule at the partnership level was erroneous, and that our decision to forgo determining whether the negligence 

penalty should apply has “the unintended consequences of potentially 

absolving some partners . . . of responsibility for a section 6662 penalty 

on a portion of their underpayment.” Respondent notes that the applicability of the substantial understatement penalty is based on a mathematical calculation, whereas the negligence penalty is not so conditioned.

Our decision to forgo determination of the negligence penalty was 

premised on our understanding that the no-stacking rule prohibited the 

application of multiple penalties with respect to a given portion of 

Oconee’s underpayment. See Oconee, T.C. Memo. 2024-25, at *75 n.34. 

But Treasury Regulation § 1.6662-2(c) makes clear that the no-stacking 

rule relates to “the maximum accuracy-related penalty imposed.” (Emphasis added.) This Court has jurisdiction to determine partnership 

items and the applicability of any penalty that relates to an adjustment 

to a partnership item. §§ 6221, 6226; United States v. Woods, 571 U.S. 

31, 39–42 (2013). There is thus no limitation on our ability to determine 

the applicability of more than one accuracy-related penalty at the partnership level. See, e.g., Mill Road 36 Henry, LLC v. Commissioner, T.C. 

Memo. 2023-129, at *70 (holding that the negligence penalty applied, in 

the alternative, “in the event that the understatement for any partner 

is small enough that, on his return, the understatement is not ‘substantial’”); Triumph Mixed Use Invs. III, LLC v. Commissioner, T.C. Memo. 

2018-65, 115 T.C.M. (CCH) 1329, 1340 (finding in a partnership-level 
4

[*4] TEFRA proceeding that both the negligence and the substantial understatement penalty applied).

We likewise agree with respondent that our failure to determine 

the applicability of the negligence penalty at the partnership level would 

preclude him from imposing that penalty (if appropriate) at the partner

level. Section 6221 provides that, in a TEFRA partnership case, the tax 

treatment of any partnership item (and the applicability of any penalty

relating to the adjustment of any such item) shall be determined at the 

partnership level. In Woods, 571 U.S. at 41, the Supreme Court explained that “the applicability of some penalties must be determined at 

the partnership level” (second emphasis added), with the determination 

as to whether such penalties should be imposed being determined “in 

partner-level proceedings after partner-level determinations” are subsequently made.

For the Internal Revenue Service to impose a penalty against an 

individual partner in a TEFRA context, the Court must first determine 

the applicability of that penalty in the partnership-level proceeding. See 

Treas. Reg. § 301.6221-1(c). “Once a partnership-level proceeding is final, the liability of the partners, if any, may be determined in a partnerlevel proceeding, which may involve a computational adjustment or a 

notice of deficiency.” Dynamo Holdings Ltd. P’ship v. Commissioner, 

150 T.C. 224, 233 (2018) (citing § 6230(a)). The results of the partnership-level proceeding are “conclusive” on the individual partners.

Woods, 571 U.S. at 41 (citing § 6230(c)(4)).

In short, we agree with respondent that our prior opinion made a 

“substantial error” on this point, and we agree that this error, unless 

corrected, could prejudice respondent in future partner-level proceedings. We will thus grant his Motion for Reconsideration.4

4 Petitioner incorrectly characterizes respondent’s Motion as a request “to reverse [the Court’s] ruling on the negligence penalty.” The Court in its prior opinion 

made no ruling on the negligence penalty; that is the error of which respondent complains. Petitioner urges that reconsideration is inappropriate because respondent cites 

“no intervening change in law” and “no new evidence.” That is true, but those are not 

the only grounds for seeking reconsideration. Another ground is to correct “substantial 

errors of law or fact,” and that is the ground respondent urges. Petitioner contends 

that respondent failed to produce partner-level evidence showing that individual partners would not be subject to the substantial understatement penalty. This argument 

is silly: Respondent could not possibly know, in this TEFRA partnership proceeding, 

whether individual partners in future partner-level proceedings would have a 
5

[*5] II. Negligence Penalty

The Code provides for an accuracy-related penalty equal to 20% 

of an underpayment attributable to a taxpayer’s negligence or disregard 

of rules or regulations. § 6662(a) and (b)(1). The existence of negligence 

is determined at the partnership level. See Oakbrook Land Holdings, 

LLC v. Commissioner, T.C. Memo. 2020-54, 119 T.C.M. (CCH) 1351, 

1360 (holding that the 20% penalty applies when a partnership takes a 

return position that is negligent); Treas. Reg. § 301.6221-1(c). The Commissioner has no burden of production with respect to penalties in a 

TEFRA partnership action. Dynamo, 150 T.C. at 236. Thus, the burden 

of showing that the negligence penalty does not apply—including the 

availability of any defenses—is on petitioner. See id. at 236–37.

In our prior opinion we held that Oconee, for two reasons, was 

entitled to a charitable contribution deduction of zero. First, because 

the property on which the easement was granted (Subject Property) was 

“ordinary income property” in Oconee’s hands, it was entitled to no deduction because it failed to prove its basis in the property. See 

§ 170(e)(1)(A); Oconee, T.C. Memo. 2024-25, at *45–47. Second, we held 

that Oconee had failed to secure a “qualified appraisal” because its managers “had knowledge of facts that would cause a reasonable person to 

expect the appraiser falsely to overstate the value of the donated property.” Oconee, T.C. Memo. 2024-25, at *36–43 (quoting Treas. Reg. 

§ 1.170A-13(c)(5)(ii)).

We find that Oconee was negligent with respect to both issues. 

Oconee’s managers, the Reynoldses, were real estate developers charged 

with knowledge that the land they contributed to Oconee was “inventory 

property” in their hands. The reason that Oconee was entitled to a deduction of zero is that it failed to substantiate its basis in the Subject 

Property. “Negligence includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly.” Treas. Reg. 

§ 1.6662-3(b)(1). Oconee’s failure to maintain and supply adequate records to substantiate its adjusted basis in the Subject Property is prima 

facia evidence of negligence. See id. We concluded in our prior opinion 

“substantial understatement” of tax, which will obviously depend on their individual 

tax circumstances. Respondent is simply arguing that the error in our prior opinion 

creates a risk of prejudice to him in future partner-level proceedings, and that is sufficient to justify his Motion.
6

[*6] that Oconee did not establish “reasonable cause” for this failure. 

See Oconee, T.C. Memo. 2024-25, at *76.5

We likewise find that Oconee acted negligently in connection with 

its failure to secure a “qualified appraisal.” That determination flowed 

from our finding that the Reynoldses, the ultimate managers of Oconee 

and petitioner, “had knowledge of facts that would cause a reasonable 

person to expect the appraiser falsely to overstate the value of the donated property.” Ibid. (quoting Treas. Reg. § 1.170A-13(c)(5)(ii)). In 

making this determination, we found that the Reynoldses, acting 

through their intermediaries, had reached a “meeting of the minds” with 

their appraiser that the Parent Tract would be appraised at a predetermined inflated value necessary to achieve their desired “easement 

value.” See id. at *43. Securing and relying upon an appraised value 

that one knows to be inflated is necessarily “negligent.”

We held in our prior opinion that Oconee lacked reasonable cause 

for its failure to secure a “qualified appraisal.” Id. at *45–46. Reasonable cause requires taxpayers to “have exercised ordinary business care 

and prudence.” Crimi v. Commissioner, T.C. Memo. 2013-51, 105 T.C.M. 

(CCH) 1330, 1353 (citing United States v. Boyle, 469 U.S. 241 (1985)). 

Oconee based its “reasonable cause” defense on alleged reliance on professional advice. But as we concluded in our prior opinion, “[a] person 

who achieves an advance agreement with an appraiser that property 

will be overvalued—knowing that it is being overvalued—cannot establish good faith reliance on professional advice that the appraisal is acceptable.” Oconee, T.C. Memo. 2024-25, at *46–47.

5 In concluding that the land within the Subject Property was “ordinary income 

property,” we found (among other relevant facts) that Jamie Reynolds and Reynolds 

Partners, L.P., an entity controlled by Mercer Reynolds, had reported the profits from 

prior sales of portions of the Parent Tract, between February and June 2014, as ordinary income on their Federal income tax returns. See Oconee, T.C. Memo. 2024-25, 

at *50, *52, *76. This fact was stipulated as to Jamie Reynolds’s 2014 return. Although there was no stipulation as to Reynolds Partners’ 2014 return, we inferred that

its return had likewise reported the sales as generating ordinary income and not capital gain. See id. at *50, *76. First, Jamie Reynolds and Reynolds Partners were 50/50 

partners, and we found it logical to assume that they had reported the same transactions the same way. Second, if Reynolds Partners had reported the transactions as 

generating capital gain, it would have been in petitioner’s interest to offer that 2014 

return into evidence. The fact that petitioner did not do so gives rise to an inference

that Reynolds Partners’ return would not have supported petitioner’s position that the 

Parent Tract (including the Subject Property) was not “ordinary income property.”
7

[*7] In sum, the facts establish that the accuracy-related penalty for a 

substantial understatement of income tax, see § 6662(a), (b)(2), and the 

negligence penalty, see § 6662(a) and (b)(1), both apply (in the alternative) to the “lower tranche” of Oconee’s underpayment. We note that 

these conclusions do not preclude a partner’s ability to raise penalty defenses during a subsequent partner-level proceeding. See Dynamo, 150 

T.C. at 233 (citing § 6230(a)).

We have considered all of the parties’ contentions and arguments 

that are not discussed herein, and we find them unnecessary to reach, 

without merit, or irrelevant.

To reflect the foregoing,

An appropriate order will be issued granting respondent’s Motion 

for Reconsideration of Opinion, and decision will be entered under 

Rule 155.