1 5 0 T.C. No . 1 0

UNITED STATES TAX COURT

DYNAM O HOLDINGS LIM ITED PARTNERSHIP, DYNAM O, GP, INC., TAX M ATTERS PARTNER, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

BEEKM A

N VISTA, INC., Pet i t i o ner v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo s . 2 6 8 5 -1 1 , 8 3 9 3-1 2
. Fi l edM ay 7 , 2 0 1 8
.

In th es e co ns o l i dat edcas es C, a co rp o rat i on , an dP, a p art n ers h i p , s h are co m

m o n o wn ers h i p . Duri n g th e y ears i n i ss u e C tran s ferred p ro p ert y

t o P. R arg u es thatth e t ran sfers were g i ft s am o n g t h e u l t i m at e b en efi ci al o wn ers . R arg u es i n th e al t ern at i v e t h at th e t ran s fers were fo r l es s than fai r m ark etv al u e an dthatth e am o u n t s o f t h e d is co u ntare s ub

j ectt o wi th h ol d i n g t ax u n d er I.R.C. s ecs . 1 44 2 an d1 4 4 5(e)(3 ). R d et erm i n edth atp en al t i es u n d er I.R.C. s ec. 6 6 6 2 (a) ap p l iedt o th e ad

ju s t m en t s i n t h e P p ro ceed i n g an dal s o d et erm in ed ad d i ti o n s t o t ax u n d er I.R.C. s ec. 6 6 5 1 (a)(1 ) an dp en al t i es u n d er I.R.C. s ec. 6 6 5 6 (a) ag ai n s tC. In Graev v . Co m

m i s s i o n er, 1 4 9 T.C. _

_ (Dec. 2 0 , 2 0 17 ), s up p l em en t i n g 1 4 7 T.C. 4 6 0 (2 0 1 6 ), we h el dth ati n cas es wh ere t h e Co m m is s i o n er b ears th e b u rd en o f p ro du ct i o n wi th res p ectt o2

p en al t i es u nd er I.R.C. s ec. 7 4 9 1 (c), t h e b u rd en o f p ro du ct i o n i ncl u d es ev i d en ce o f wri t t en s up erv i s o ry ap p ro v al o f p en al t i es as req u i redb y I.R.C. s ec. 6 7 5 1 (b )(1 ). Un d er I.R.C. s ec. 7 4 9 1 (c), R “ sh al l h av e t h e b u rd en o f p ro du ct i o n i n an y co u rtp ro ceed i ng wi th res p ectt o th e l i ab i l i ty o f an y i n d i vi du al fo r an y p en al ty , ad d it i o n t o t ax , o r ad d i ti o n al am o u n t i m

p o sedb y th i s t i t l e.” R fi l eda m o t i o n t o reo p en th e reco rdt o s up p l em en tex i s t i n g p ro o f o f s up erv i so ry ap p ro v al . C an d P m o v ed fo r d i s m is sal as t o th e p en al t i es b ecau s e R d id n o tm eetthe b u rd en o f p ro duct i o n wi th res p ectt o p en al t i es u nd er I.R.C. s ec. 7 49 1 (c). Hel d : In a p art n ers h i p -l ev el p ro ceed i n g R d o es n otb ear t he b u rd en o f p ro du ct i o n wi th res p ectt o p en al t i es u n d er I.R.C. s ec. 7 4 9 1 (c). Hel d , fu rt h er, wh ere t h e Co m m i s s i o n er d o es n otb ear t he b u rd en o f p ro du ct i o n as t o p en al t i es , th e l acko f s uperv i s o ry ap p ro val o f p en al t ies m ay

b e rai s edas a d efen s e t o t h o s e p en al t i es . Hel d , fu rt h er, C an dP d i d n o trai s e t h e l acko f s up erv is ory ap p ro v al o f p en al t i es as a d efen s e t o p en al t i es , an dth erefo re t h e d efen s e i s wai v ed
. Hel d , fu rt h er, t h e m o t io n t o reo p en th e reco rdwi l l b e d en ied
. Hel d , fu rt h er, t h e m o t io n t o d i s m i s s as t o p en al t i es wi l l b e d en i ed
.

M art i n R. Pres s , EdwardA. M aro d, Cl i n t o n R. Lo s eg o , Lu -An n M
. Do m i n g u ez, Al an S. Led erm an , an dJ o h n W . Terwi l l eg er, fo r p et i ti o n ers .3

Dav i dB. Fl as s i ng , Li s a M . Go l db erg , W i l l i am G. M erk l e, Ti m ot h y A. Sl o an e, an dG. Ro g er M ark l ey , fo r res p o n d en t.
BUCH, J u d g e: Th e i s s u e b efo re u s i s wh eth er we s h o u l dg ran tth e Co m m i s s i o n er’ s m ot io n t o reo p en th e reco rdt o recei ve fu rt h er ev id en ce
co n cern in g s uperv i s o ry

ap pro v al o f t he p en al t i es th atare at i s su e. In d eci di n g th i s i s su e, we m

u s tco nfro n t th e qu es t i o n o f wh et h er t h e Co m m is s i o n er b ears th e b u rd eno f p ro du ct i o n wi th res p ectt o p en al t i es u n d er s ect i on 7 4 9 1(c) i n a p art n ers hi p -l ev el p ro ceed i n g . 1 Pet i t i o ners i n th es e co n s o l i d at edcas es are Beek m an Vi s t a, In c. (Beek m an Vi s t a), a U.S. co rp o rat i o n , an d Dyn am o GP, In c. (Dyn am o GP), the t ax m at t ers p art n er o f Dyn am o Ho l d i n g s Li m i t edPart n ers hi p (Dyn am o ), a p art n ers hi p . Th e Co m m i s s i o n er d et erm i n edan ad d i t io n t o t ax u n d er s ect i on 6 6 5 1(a)(1 ) an d a p en al ty u n d er s ect i o n 6 6 5 6 (a) ag ai n s t Beek m an Vi s t a an dd et erm i n edth ata p en al ty u n d er s ect i o n 6 6 6 2 (a) ap p l i es t o th e ad ju s t m en t s fo r Dyn am o . Inth e p as t we h av e qu es t i o n edwh et her t h e Co m m i s s i o ner b ears th e b u rd eno f p ro du ct i o n wi th res p ect t o p en al ti es u n d er s ect i o n 7 4 9 1 (c) i n a p art n ers hi p -l ev el p ro ceed i n g ,

1 Al l s ect i o n referen ces are t o th e In tern al Rev en u e Co d e (Co de) i n effect at al l rel ev an tt i m es , an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an d Pro cedu re, u n l es s o th erwi s e i n d i cat ed
.4

b u twe h av e n ev er ex p res s l y ru l edo n th e i s s u e. W e h o ldth atth e Co m m i ss i o n er d o es no tb ear t h e b u rd en o f p ro du ct i o n wi th res p ectt o p en al ti es i n a p art n ers h i p l ev el p ro ceed i n g . FINDINGS OF FACT Beek m an Vi s t a i s a Del aware co rp o rat io n th ati s wh o l l y o wn edb y

a Can ad i an en ti ty . Iti s a p ro p ert y d ev el o p m en t co m

pan y th ats p eci al i zes i n d ev el o p in g p ro p ert y

i n s o u th ern Fl o ri d a, an di t s p ri n ci p al p lace o f b u s i n es s i s Fl o ri da. Dyn am o i s a p art n ers h i p fo rm edi n Del aware wi th i t s p ri n ci p al p l ace o f b u s i n es s i s Fl o ri d a. Li k e Beek m an Vi s t a, Dyn am o i s i n th e b u s i n es s o f p ro p ert y d ev el o p m en tan d s p eci al i zes i n d ev el o p in g p ro pert y i n s o u thern Fl o ri d a. Dy

n am o
an d Beek m an V is t a h av e atl eas to n e d i rect o wn er i n co m m o n an ds h are o th er i n d i rect b en efi ci al o wn ers . Du ri n g 2 0 0 5 , 2 00 6, an d2 0 0 7 , th e y ears i n i s s u e, t h ere were t ran s fers o f p ro p erty am o n g Beek m an Vi s t a, Dyn am o , an d en ti t ies o wn ed b y each o f t h em . Th e Co m m i ss i o n er p ri nci p al l y

arg u es thatth o se t ran sfers were g ift s am o n g th e b en efi ci al o wn ers o f Beek m an Vi s t a an d Dyn am o . Beek m an Vi s t a an dDy n am o GP arg u e t h atth e t ran s fers were s al es p ai dfo r wi th l o an s th atwere ev en tu al l y rep ai d . If we fi n db o na fi d e l o an s , th e Co m m i s s i o ner arg u es th atth e t ran s fers were fo r l es s th an fai r m ark etv al u e an dth atth e d i s co u n t s were co n s tru ct i v e5

d i s tri b u t i o n s s ub

jectt o wi th h o l d i n g t ax es . Beek m an Vi s ta an d Dynam o GP arg u e th atth e tran s fers were fo r fai r m ark etv al u e. W e wi ll ad dres s th es e i s s ues i n a
s ep arat e o p i ni on . Th e Co m m is s i o n er ex am i n edBeek m an Vi st a’ s i n co m e t ax retu rn s fo r t ax y ears en d i n g J un e 3 0 , 2 0 0 4 thro u g h 2 0 0 8 , an dDy nam o ’ s p art n ers h i p retu rn s fo r 2 0 0 5 , 2 0 0 6 , an d 2 0 0 7. Th e i n co m e t ax ex am i n at i o n o f Beek m an Vi s t a’ s retu rn s l edt o an
ex am i n at i o n o f wh et her Beek m an Vi st a p ro p erl y wi th h el dt ax es u n d er s ect i o n 1 4 4 2 . OnFeb ru ary

1 , 2 0 1 2, the Co m

m i s s i on er i s s u eda n ot i ce o f d efi ci en cy t o Beek m an Vi s t a fo r 2 0 0 5 an d2 0 0 6 . Th e Co m m i s s i o ner d et erm i n edth atBeek m an Vi s t a was l i ab l e fo r wi th h o l d i n g t ax es an dfo r an ad d i t io n t o t ax u n d er s ect i o n 6 6 5 1 (a)(1 ) an da p en al ty

u n d er s ect i o n 6 65 6 (a) fo r each y ear. Beek m anVi s t a fi led a t i m el y

p et i t i o n ch al l en g i n g th e d efi ci en ci es , th e ad d i t i on s t o t ax , an dth e p en al t i es . Inan am en d m en tt o an s wer t h e Co m m i s s i o n er as s ert ed an i n creas ed d efi ci en cy , an i n creas e t o t h e ad d i t i o n t o t ax u nd er s ect i on 6 6 5 1(a)(1 ), an dan i n creas e t o th e am o un to f t h e s ect i on 6 6 5 6(a) p en al ty fo r each y ear. Th e Co m m is s i o n er i s s u eda n o t i ce o f fi nal p art n ers h i p ad m i n i s trat i v e ad ju s t m en t(FPAA) wi th res p ectt o Dy n am o fo r 2 0 0 5 , 2 00 6 , an d2 0 0 7 o n Decem b er 2 8 , 2 0 10 . Inad d i t i o n t o v ari o u s ad ju s t m en ts t o p art n ers h i p i t em s , th e6

Co m m i s s i o n er d et erm i n edth e ap p l icab il it y o f accu racy -rel at edp en al t i es u n d er
s ect i on 6 6 6 2 (a) an d(b )(1 ) an d(2 ) fo r n eg l i gen ce an ds ub s tan t i al u n d ers tat em en t s
o f i n co m e t ax . In th ei r res pect i v e p et i t i on s , n ei th er Beek m an Vi s t a n or Dyn am o GP rai s ed th e i s s ue o f wh et h er t h e Co m m i s s i on er co m

p l i edwi th th e s up erv i s o ry ap p ro v al req u i rem en to f s ect i o n 6 7 51 (b ). Th e cas es were co n s ol i dat ed , an da t wo -week tri al was h el di n earl y

2 0 1 7
. OnDecem

b er 2 0, 2 01 7 , th e Co u rt i s s u edan Op i n i o n i n Graev v . Co m m i s s i o n er (Graev III), 1 4 9 T.C. _

_ _ (Dec. 2 0 , 2 0 1 7 ), s up p l em en t i n g 1 4 7 T.C. 4 6 0 (2 01 6 ). In Graev III, 1 49 T.C. at_ __ (s l i p o p . at1 4 ), we h el d t h ati n cas es i n wh i ch th e Co m

m i s s i o n er b ears th e b u rd en o f p ro du ct i o n wi th res p ectt o p en al t i es
u n d er s ect i o n 7 4 9 1 (c), th e b u rd en o f p ro duct i o n i ncl u d es ev i d en ce o f wri t t en
s up erv i s o ry

ap p ro v al o f p en al t ies as req u i redb y s ect i o n 6 7 51 (b )(1 ). OnDecem b er 2 1 , 2 0 1 7 , we i s s u edan o rd er i n t h es e co n so l i d at ed cas es d irect i n g t h e p art i es ’ at t en ti o n t o Graev III an d o rd eri n g th e Co m m is si o n er t o fi l e a res p o n s e t o b o th ad dres s th e effect o f s ect i on 6 7 5 1 (b ) o n t h es e cas es an dt o d i rect th e Co u rtt o an y
ev i d en ce o f s ect i on 6 7 5 1(b ) s up erv i s o ry ap pro v al i n th e reco rd . Beek m an Vi s t a
an d Dyn am o GP were al s o g i v en th e o p po rtu n i ty t o res p o n dt o t h e Decem b er 2 1 , 2 0 1 7 , o rd er.7

OnJ an u ary

1 9 , 2 0 1 8 , th e Co m

m i s s i o n er fi l edh i s res p o n s e. He o b s erv es th at , u n d er s ect io n 6 7 5 1 (b )(2 )(A), s uperv i s o ry ap pro v al i s n o treq ui redfo r ad d it i o n s t o t ax u n d er s ect i on 6 6 5 1 . As fo r t h e p en al t i es u n d er s ect i o n s 6 6 5 6 (a)
an d 6 6 6 2 (a), t h e Co m

m i s s i on er arg u es th ath e d o es n o t b ear t h e b urd en o f p ro duct i o n b ecau se n ei th er Beek m an Vi s t a n o r an y o f Dyn am o ’ s p art n ers were i n d i v i du al s . He fu rt h er arg ues th at , ev en i f h e d o es b ear t h e b u rd en o f p ro du ct i o n wi th res p ect t o p en al ti es u n d er s ect i o n s 6 6 56 (a) an d6 66 2 (a), h e h as m etthat b u rd en . To es t ab l is h th ath e co m

p l i edwi th th e s uperv i s o ry ap p ro val req u i rem en t
u n d er s ect i o n 6 7 5 1 (b ) fo r t h e s ect i o n 6 6 6 2 (b )(2 ) s ub st an t i al u n ders t at em en to f i n co m e t ax p en al ty

as s ert edag ai n s tDy

n am o , th e Co m

m i s si o n er d i rect s u s t o d o cu m en t s t i tl edSub s t an ti al Un d ers t at em en tPen al ty W o rk s h eetfo r 2 0 0 6 an d 2 0 0 7
. 2 Th es e wo rk sh eet s were s i g n edb y Team M an ag er Ni v een M al at y . Acco rd in g t o th e Co m

m i s s io ner’ s res p o n se t o t h e Co u rt ’ s Decem b er 2 1 , 2 0 1 7 , o rd er, Team

M an ag er M al at y

i s th e s up erv i s o r o f t h e rev en ue ag en twh o i ni t i al l y d et erm i n edth e p en al t i es .

2 Al th o ug h th e FPAA p u rp o rt edt o d et erm i n e an accu racy -rel at edp en al ty fo r each y ear 2 0 0 5 th ro u g h 2 0 07 , th e Co m m i s s io n er arg u es th atn o p en al ty was as s ert ed fo r 2 0 0 5 b ecau s e t h e FPAA ad ju st m en t s res u l t ed i n a n et redu ct i o n o f Dynam o ’ s i n co m e.8

To es t ab l is h th ath e co m

p l i edwi th th e s uperv i s o ry ap p ro val req u i rem en t wi th res p ect t o th e p en al t ies u n d er s ect i o n 6 6 5 6 (a) t hatwere d et erm i n edi n th e
n o t i ce o f d efi ci en cy , th e Co m m i s s i o n er d i rect s u s t o a l et t er t ran s m it t in g th e
ex am i n at i o n rep o rtt o t h e t ax p ay er’ s rep res en t at i v e. Th e l et ter i s s i g n edb y Team M an ag er M al at y

an d tran s m i t s an ex am i n at i o n rep o rtco n t ai n i ng p en al ty d et erm i n at i o n s m ad e b y

th e rev en u e ag en t . Th e Co m m i s s i on er ag ai n rep res en t s th atTeam

M an ag er M al at y i s th e s up erv i s or o f t he rev enu e ag en t wh o i n it ial l y d et erm i n edth e p en al t i es . Th e Co m m i s s i o n er al so d i rect s u s t o a Fo rm 5 7 0 1 , No t ice o f Pro p o s edAd

ju s t m en t , fo r 2 0 0 5 an d2 0 0 6 th atwas s i gn edb y Team M an ag er Ri ch ardBl u m en th al . Th e Co m m i s s i o n er rep res en t s th atTeam M an ag er Bl u m en th al i s th e s up erv i s o r fo r o n e o f t h e rev en ue ag en t s wo rk i n g o n th e m at t er. Th e Co m m i ss i o n er d i dn o td i rect th e Co u rtt o an y ev i d en ce i n the reco rd
co n cern in g s uperv i s o ry

ap pro v al o f t he i n creas edp en al t ies as sert edag ai n s t Beek m an Vi s t a i n the am en d m en tt o an s wer. 3 OnJ an u ary

2 6 , 2 0 1 8 , Beek m an Vi s t a an d Dyn am o GP fi l ed a res p o n s e t o th e Decem

ber 2 1 , 2 0 1 7, o rd er. Th ey arg ue t h atth e Co m

m i s s i o ner b ears th e b u rd eno f p ro du ct i o n fo r th e s ect i o n 6 6 56 (a) p en al ty at i ss u e i n th e Beek m an Vi s t a

3 Al l o f t h e d o cu m en t s rel i edo n b y th e Co m m i s s i o n er t o es tab l i s h s up erv i s o ry

ap p ro v al were o ffered attri al b y the p et i t i o n ers an d ad m i t t edi n t o ev i d en ce o v er o bject i o n s b y th e Co m m i s s io n er.9

d efi ci en cy

p ro ceed in g an dth e s ect i o n 6 66 2 (a) p en al ty ati s s u e i n th e Dyn am o p art n ers hi p -l ev el p ro ceed i n g . Th ey al s o arg u e t h atthe Co m

m i ss i o n er d id n o tm eet th e b u rd en o f p ro du ct i o n wi th res p ectt o s up erv i s o ry ap p ro v al as req u i redb y
s ect i on 6 7 5 1 (b ) b ecau se t h e Co m m i s s i o n er d i dn otes t ab l i s h th at Team M an ag er M al aty an dTeam

M an ag er Bl um en th al were t he ap p ro p ri at e s up erv i s o rs t o ap p ro v e t h e p en al ty

d et erm i n at i o n s . OnFeb ru ary 2 , 2 0 1 8 , b o th the Co m m i s s i o n er an d p et i t io n ers fi ledm o t i o n s wi th th e Co u rt . Th e Co m m i s s i o n er fi l ed a m o t i on t o reo p enth e reco rd , arg u i n g th atth e Co u rts h o ul dreo p en the reco rdt o al l o w ad d i t io n al t es t i m o ny fro m th e
s up erv i s o rs an drev enu e ag en t s i n v o l v edi n the cas es t o rei n fo rce t h e ev id en ce o f
s up erv i s o ry

ap p ro v al . Th e Co m

m i s si o n er as s ert s t h at p et i t i o n ers wi l l n o t b e p reju d i ced b ecau s e t hey

wi l l h av e t h e o p p o rtu n it y t o i n t erv i ew t h e wi tn es s es . No t ab l y , th e Co m

m i s s i o ner d o es n o ti n d i cat e an y i n t en t t o o ffer ev i d en ce o f
s up erv i s o ry

ap p ro v al o f t h e i ncreas edp en al t i es as s ert edi n h i s am en d m en t t o
an s wer. Pet i t i o ners fi l eda m o t i o n t o d i s m i s s as t o the p en al t i es u n d er s ect i on s 6 6 5 6
an d 6 6 6 2 . Th ey

arg ue t h at th e Co m

m i s si o n er b ears the b u rd en o f p ro du ct i o n
u n d er s ect i o n 7 4 9 1 (c) an dm u stm eetth e s up erv is ory

ap p ro v al req u i rem en t u n d er
s ect i on 6 7 5 1 (b ) as a p arto f t h atb u rd en . Th ey al s o arg u e t h atth e Co m

m i s s i o n er10

d i dn o t m eetth atb u rd en b ecau s e h e d i dn o tes t ab l i s h th atTeam M an ag er M al at y
an d Team M an ag er Bl u m en th al were i m m ed iat e s up erv i s o rs . Th ey co n ten dth at b ecau s e th e Co m

m is s i o n er d idn o tm eeth i s b u rd en th e Co u rts h o u l dd i sm i s s as t o th e p en al t i es u n der s ect i o n s 6 6 5 6 an d6 6 6 2
. OPINION Un d er s ect i o n 7 49 1 (c) t h e Co m m i s s io n er “ s h al l h av e t h e b u rd en o f p ro duct i o n i n an y

co urtp ro ceed i n g wi th res p ect t o th e l i ab i l it y o f an y i n d i v i du al fo r an y p en al ty , ad di ti o n t o t ax , o r ad d it i o n al am o u nti m p o sedb y th i s t i t l e.” W e wi l l d en y th e Co m m i s s i on er’ s m o t i o n t o reo pen th e reco rdb ecau se, u n d er t h e ap p li cab l e s tatu t es , th e Co m m i s s i o n er d o es n o t b ear t h e b u rd en o f p ro du ct i o n wi t h
res p ectt o p en al t i es i n a co rp o rat e o r p art n ers h i p-l ev el p ro ceed i n g . W e wi l l d en y p et i t i o n ers ’ m o t io n t o d i s m i s s as t o th es e p en al t i es fo r t h e s am e reas o n . As t o the i n creas edp en al t i es fi rs trai sed i n h i s am en d m en tt o an s w er, we wi ll d en y th e
m o ti o n t o reo p en th e reco rd , b ecau s e t h e Co m m i s si o n er d idn o t o ffer t h ro u g h h i s
m o ti o n an y

ev id en ce t o s up po rtth e s up erv i s o ry ap p ro v al o f t h o se p en al t i es . I. Reo p en in g t h e Reco rd Wh et h er t o reo p en a reco rdi s a m at t er l eftt o th e d i s cret i on o f t h e Co u rt . In h i s m o t i o n t o reo p en th e reco rdth e Co m m i s s i o ner ci t es Un i tedSt at es v . Byrd , 4 0 3 F.3 d1 2 7 8 (1 1 th Ci r. 2 00 5 ), an o p i n i o n o f th e Co u rto f Ap p eal s fo r th e El ev en t h11

Ci rcu i t , th e co urtt o wh i ch th es e cas es can b e ap p eal ed . InByrd , th atCo u rto f Ap p eal s ad o pt eda fo u r-p art in qu i ry t o ai d co u rt s i n d et erm i n i ng wh et her t hey
s h o u ldreo p en a reco rd . Id
. at 1 2 8 3 -1 2 8 4
. Th e fo u r fact ors are (1 ) t h e t i m el i n es s
o f t h e m o t i o n , (2 ) t he ch aract er o f t h e t es t im o n y t o b e o ffered , (3 ) t h e effect o f g ran t i n g th e m o t i on , an d(4 ) t h e reas o n ab l en es s o f th e requ es t . Id . at1 2 8 4 . Th e fact or m o s trel ev an tt o thes e cas es i s th e t h i rd : th e effect o f g ran t i n g th e m o t i o n . If we co n cl u d e t h at g ran t i n g a m o t i o n t o reo p en th e reco rd wo u l dn o taffect th e
o u t co m e o f t h e cas es , th e m o t i o n s ho u l db e d en i ed . Gran t i n g s u ch a m o t i o n wo u l d b e a m ean i n gl es s g es tu re i f i two u l dn o taffect th e o u t co m e, an di two u l db e a
was te o f ju d i ci al res o u rces . See Bu t l er v . Co m m is si o n er, 1 1 4 T.C. 2 7 6 , 2 8 7 (2 0 0 0). Acco rd in g l y , we tu rn t o th e qu es t i o n o f wh atwo u l db e t h e effect , i f an y , o f g ran t i n g th e Co m

m i s s i o n er’ s m ot i o n . II. Pen al t i es atIs s u e Th e n o t i ce o f d efi ci en cy

i s s u edt o Beek m an Vi st a d et erm in edfo r each y ear
an ad di t i o n t o t ax u n d er s ect i o n 6 6 5 1 (a) fo r fai l ure t o fi l e an da p en al ty u n d er
s ect i on 6 6 5 6 fo r fai l u re t o m ak e d ep o s i t s . Th e FPAA i s s u edwi th res p ectt o Dynam o d et erm in edth e ap pl i cab i l i ty o f an accu racy -rel at edp en al ty u nd er s ect i o n 6 6 6 2 (a). Ad d i t i o n s t o t ax u n d er s ect i on 6 6 5 1 are n o ts ub jectt o t h e s up erv i s o ry ap p ro v al req u i rem en to f s ect io n 6 7 5 1 . See s ec. 6 7 5 1 (b )(2 )(A). Acco rd i n g l y ,12

wh et h er t h ere was s up erv is o ry ap p ro v al fo r t h e s ect i o n 6 6 5 1 (a) ad d i t i o n t o t ax i s
n o tan is s u e we n eedt o co n s i d er. III. Bu rd en o f Pro du ct i on Un d er Sect i on 7 4 9 1 (c) Un d er s ect i o n 7 49 1 (c) t h e Co m m i s s io n er “ s h al l h av e t h e b u rd en o f p ro duct i o n i n an y

co urtp ro ceed i n g wi th res p ect t o th e l i ab i l it y o f an y i n d i v i du al fo r an y p en al ty , ad di ti o n t o t ax , o r ad d it i o n al am o u nti m p o sedb y th i s t i t l e.” Here, we h av e a co ns o l i d at edp ro ceed i n g i n v o l v i n g t h e l i ab i l i ty o f a co rp o rat i o n (Beek m an Vi s t a) an dd et erm i n at i o n s rel at i ng t o a p art n ers h ip (Dynam o ). W e wi l l ad dres s each p ro ceed i n g s ep arat el y . A. Beek m an Vi s t a Th e fi rs t , an dp erh ap s eas i es t , i s s u e t o ad dres s i s th e Co m m i s s i o ner’ s b u rd en
o f p ro du ct i o n as t o th e s ect io n 6 6 5 6 p en al ty d et erm i n ed ag ai ns tBeek m anVi s t a i n th e n o ti ce o f d efi ci en cy . In NT, In c. v . Co m m i ss i on er, 1 2 6 T.C. 1 9 1 (2 00 6 ), th e Co u rth el dth atth e Co m

m i s s i o ner d o es n o tb ear t h e b u rd eno f p ro du ct i o n u n d er
s ect i on 7 4 9 1 (c) wi th res pect t o p en al t i es as s ert edag ai n s ta co rp orat i o n . Th e Co u rt ’ s an al y s i s was s u cci n ctan dd i rect : “ Sect i o n 7 49 1 (c) ap p l ies s p eci fi cal l y
o n l y t o t h e l i ab i l i ty

o f an ‘ i nd i v i du al fo r an y p en al ty , ad d i t i o n t o t ax , o r ad d i t i o n al
am ou n ti m

po s edb y th i s t it l e.’ Pet i ti o ner i s n o tan i n di v i du al ; i ti s a co rp o rat i o n .” NT, In c. v . Co m

m i s s io n er, 1 2 6 T.C. at 1 9 5 (ci t at i o n o m i t t ed ) (qu o ti n g s ect i o n13

7 4 9 1 (c)). Th e h o ld i n g i n NT, In c. i s u naffect edb y o u r h o l d i ng i n Graev III. Th e Co m m i s s i o n er d o es n ot b ear t h e b u rd en o f p ro du ct i on reg ard i n g t h e l i ab i l i ty o f a
co rp o rat i o n fo r p en al t i es . As a res u l t , th e Co m m i s s i o n er d o es n oth av e t h e b u rd en
o f p ro du ct i o n as t o s up erv i s o ry ap p ro v al u n d er s ect i o n 6 7 5 1 (b ) fo r a p en al ty d et erm i n edag ai n s ta co rp o rat i o n i n a n o t i ce o f d efi ci en cy . B. Dyn am o W e h av e p rev i ou s l y

co n s i d eredwh et h er th e Co m m i s s i o ner b ears th e b u rd en
o f p ro du ct i o n wi th reg ardt o p en al t ies d et erm i n ed i n p art n ers h i p -l ev el p ro ceed in g s . Att i m es we h av e t ak en th e Co m m i s s i on er’ s b u rd enfo r g ran t ed
. See, e.g
. , RERI Ho l d i n g s I, LLC v . Co m m i s s i o ner, 1 4 9 T.C. _

_ _ , _

_ _ (s li p o p . at 3 3 ) (J u l y 3 , 2 0 1 7 ); Cu rt i s In v . Co . v . Co m m i s s i o ner, T.C. M em o. 2 0 17 -1 5 0 , at
* 3 7 . Ins ev eral cas es we h av e ex am i n edth e s t atu t e b u tex p res sl y d ecl in edt o ru l e
o n wh et h er t h e b u rd en o f p ro duct i o n l i es wi th the Co m m i ss i o n er wi th res p ectt o p en al t i es . See, e.g ., Pal m er Ran ch Ho l d i n g s , Lt d. v . Co m m is s i o n er, T.C. M em o . 2 0 1 4 -7 9 , at* 4 3-* 44 , aff’ d i n p art , rev ’ d i n p art , an drem an d ed , 8 1 2 F.3 d9 8 2 (1 1 t h Ci r. 2 0 16 ); San t a M o n i ca Pi ctu res , LLC v . Co m m is s i o n er, T.C. M em o . 2 0 0 5 -1 0 4 , 8 9 T.C.M . (CCH) 1 1 5 7 , 1 2 2 5 (2 0 0 5 ). In th o s e cas es we fo u n dth atwe d idn o t
n eed to ad dres s th e i s s u e b ecau s e t h e Co m m i s s i o n er h adm etth e b u rd eno f14

p ro duct i o n , reg ard l es s o f wh et h er h e was req u i redt o d o s o . No w we m u s t ad dres s th i s i s s u e. 1
. Wri t ten Sup erv i s o ry Ap p ro v al Un d er Sect io n 6 7 5 1 (b )(1 ) Th e qu es ti o n o f wh et h er t h e Co m m i s si o n er b ears the b u rd en o f p ro du ct i o n fo r p en al t i es u n der s ect i o n 7 4 9 1 (c) i n p art n ers h ip -l ev el p ro ceed i n gs h as b eco m e
m o re p res s i n g . InGraev III we h el dth atth e Co m m i s s io n er’ s b u rd en o f p ro duct i o n i n cl u d es ev i d en ce o f wri t t en s uperv i s o ry ap p ro val as req ui redb y
s ect i on 6 7 5 1 (b )(1 ). Graev III, 1 4 9 T.C. at_ _ _ (s l ip o p . at1 4 ). Un der s ect i o n 6 7 5 1 (b ) t h ere m

u stb e wri t t en s up erv i s o ry ap p ro v al b y

th e i m m ed i at e s up erv i s o r o f th e i n d i v i du al m ak i n g th e d et erm i n at i on u n l es s th e ad d i t i o n s t o t ax are u n d er
s ect i on 6 6 5 1 , 6 6 5 4 , o r 6 6 55 , o r t h e p en al t i es are au t o m at i cal l y cal cu l at edth ro u g h el ect ro ni c m ean s . 4 In th es e cas es th e Co m

m i s s i o n er d irect ed u s t o ev i d en ce o f s up erv i s ory ap p ro v al o f accu racy -rel at edp en al t i es d et erm in edu n d er s ect io n 6 6 6 2 (a), b u tth at
ev i d en ce i s i n co ncl u s i v e, p art i cu l arl y as t o th e qu es ti o n o f wh et h er th e ap p ro v i n g
o ffi ci al was th e i m

m ed i at e s up erv i s or o f th e p ers o n wh o i n i t i al l y d et erm i n edth e p en al t i es . If th e Co m

m i s s i on er b ears th e b u rd eno f p ro du ct i o n i n th es e cas es , i ti s

4 Th e Co m

m i ss i o n er d o es n o targ u e th atth e p en al t i es were au to m at i cal l y cal cu l at edth ro u g h el ect ro n i c m ean s .15

n o tcl ear t h ath e h as m etth atb u rd en . If th e Co m m i s s i o n er d oes n o t b ear t h e b u rd eno f p ro du ct i o n , th en th e b u rd en l i es wi th p et it i o n ers .

2
. Part n ers h ip -Lev el Pro ceed i n g s Un d er a p l ai n read i ng o f th e s t atu t es g ov ern i n g p art n ers h ip -l ev el p ro ceed in g s , s u ch p ro ceed i n g s are n o t wi th res p ectt o th e l i ab il i ti es o f i n di v i du al s . Un d er s ect i o n 6 22 1 the t ax treat m en to f p art n ers h i p i t em s 5 i s d et erm i n ed atth e p art n ers hi p l ev el . Th e ap p l i cab i l i ty o f an y p en al ty , ad d i t i o n t o t ax , o r ad d it i o n al
am ou n tthatrel at es t o an ad ju s t m en tt o a p art n ers h i p i t em i s al s o d et erm i n edatth e p art n ers hi p l ev el . Secs
. 6 2 2 1 , 6 2 2 6 (f). Th e Co m m i s s i on er co n du ct s a p art n ers hi p -l ev el ad m in is trat i v e p ro ceed i n g t o d et erm i n e ad ju s t m en ts t o p art n ers hi p i t em s an d t h e ap p l i cab i l i ty o f an y p en al ty , ad di t i o n t o t ax , o r ad d i t i o n al
am ou n trel at i n g t o t h o s e ad ju s t m en t s . Th at p ro ceed i n g m ay res u l t i n an FPAA. Sec. 6 2 23 (a)(2 ). Un d er s ect i o n 6 2 2 6, the Tax Co urth as juri s d ict i o n t o rev i ew an FPAA up o n th e fi l i ng o f a t i m el y p et i t i o n o f a t ax m at t ers p art n er o r a n o t i ce p art n er. In a p ro ceed i n g b ro u g h ti n the Tax Co urt , th e Co u rth as juri s d i ct i o n t o d et erm i n e t h e t ax treat m en t o f al l p art n ers h i p i tem s fo r t h e t ax ab l e y ear at i s s u e,

5 A p art n ers h i p i t em

i s “ an y i t em req u i redt o b e t ak en i n t o acco u n tfo r t h e p art n ers hi p ’ s t ax ab l e y ear u n d er an y p ro v i s io n o f s ub t i t l e A t o th e ex t en t reg u l at i o n s p res cri b edb y th e Secret ary

p ro vi d e t h at* * * s u ch i t em i s m o re ap p ro p ri at el y

d et erm i n ed atthe p art ners hi p l ev el th an atth e p artn er l ev el .” Sec. 6 2 3 1 (a)(3 ).16

n o tju s tth o s e i ncl u d edi n th e FPAA, an d t h e ap p l icab i l it y o f an y p en al ty , ad d i t i o n t o t ax , o r ad d i t i o n al am o u n t rel at i n g t o th o s e ad ju s t m en t s . Sec. 6 2 2 6 (f). On ce a p art ners h i p-l ev el p ro ceed i n g i s fi n al , th e l i ab i l i ty o f t h e p art n ers , i f
an y , m ay b e d et erm i n edi n a p art n er-l ev el p ro ceed i n g , wh ich m ay i nv o l v e a
co m p u t at i o n al ad

ju st m en t o r a n o t i ce o f d efi ci en cy . See s ec. 6 2 3 0 (a). In th at p art n er-l ev el p ro ceed i n g a p art n er m ay rai s e d efen ses t o p en al ti es an d ad d i t i o n s t o t ax . Sec. 3 0 1 .6 2 2 1 -1 (d ), Pro ced . & Ad m i n . Reg s . Th e v ery n atu re o f a p art n ers h i p -l ev el p ro ceed in g i s i n co ns i s ten t wi th
s ect i on 7 4 9 1 (c), wh i ch fo cu s es o n l i ab i l i ty . A p art n ers h i p -l ev el p ro ceed i n g d et erm i n es th e t reat m en to f p art n ers hi p i t em s an d t h e ap p l icab i l it y o f a p en al ty

at th e p art n ers h i p l ev el , b u tn o tth e l i ab i l i ty o f an y p artn er fo r ei ther t ax o r p en al t i es . If a p art n er’ s l i ab i l it y

i s affect edb y

a p artn ers h i p -l ev el d et erm i nat i o n , th e p art n er’ s l i ab i l i ty , i f an y , i s d et erm i n edl at er atth e p art n er l ev el . Des m etv . Co m m i s s i o n er, 5 8 1 F.3 d2 9 7, 3 0 2 (6 th Ci r. 2 0 09 ), aff’ g i n p art , rem an d i n g i n p artDo m u l ewi cz v . Co m m i s s i o n er, 1 2 9 T.C. 1 1 (2 0 0 7 ). An dev en i f t h e ap p l i cab i l i ty o f a p en al ty

i s d et erm i n edatth e p art n ers h i p l ev el , th atp en al ty m ay n otap p l y

t o an y p art icu l ar p art n er. 6 Th erefo re, u nd er a p l ai n read i ng o f t h e ap p l i cab l e s t atu t es , s ect i o n

6 Fo r ex am

p l e, t h e Co u rtm i g h td et erm i n e atth e p art n ers h i p l ev el th ata s ub s t an t i al u n ders t at em en tp en al t y i s ap p l i cab l e, b u tp art n er-l ev el co m p u t at i o n s (co n ti n u ed ...)17

7 4 9 1 (c) d o es n o t ap p ly , an dth e Co m m i s si o n er d oes n o t b ear t h e b u rd en o f p ro duct i o n wi th res pect t o p en al t i es an dad d it i on s t o t ax i n a p art n ers h i p -l ev el p ro ceed in g . No to n l y d o p art n ers h ip -l ev el p ro ceed in gs n o td et erm in e l i ab i l i t i es , b u tth ey al s o are n o t p ro ceed i ng s wi th res p ectt o i n d iv i du al s . See s ec. 7 4 9 1 (c). Part ners h i p s th em s el v es are n o ti n d i v idu al s . Sec. 7 6 1 (a). Th e t erm “ i n d i v i du al ” i s
n o tex pl i ci t l y

d efi n edi n the Co d e. Wh en a t erm i s n o td efi n ed , we g i v e i ti t s
o rd i n ary m ean in g . FDIC v . M ey er, 5 1 0 U.S. 4 71 , 4 7 6 (1 9 94 ); Gat es v . Co m m i s s i o n er, 1 3 5 T.C. 1 , 6 (2 0 1 0 ). Bl ack ’ s Law Di ct io nary8 9 2 (1 0 th ed . 2 0 1 4 ) d efi n es th e wo rd“ i n d i vi du al ” as “ 1 . Ex i s t i n g as an i n d iv i s i b l e en t it y . 2 . Of, rel at i n g t o , o r i n vo l v i n g a s i n g le p ers o n o r th in g , as o p po s edt o a g ro up.” M erri am -W eb s t er’ s Co l l eg iat e Di ct i o n ary 5 9 3 (1 0 th ed . 1 99 6 ) d efi n es “ i n d i v i du al ”
as “ a p art i cu l ar b ei ng o r t hi n g as d i s ti n g ui s h edfro m a cl as s , s p eci es , o r co l l ect i on : [s u ch ] as * * * a s in g l e h u m an b ei n g”. Th e “ s i n gl e h u m an b ei n g ” d efi n i t i on i s
co n si s t en twi th th e Co d e. Sect i o n 7 7 0 1(a)(1 ) d efi n es a p ers o n as “ an i n di vi du al , a tru s t , es tat e, p art n ers h ip , as s o ci at i o n , co m p an y o r co rp orat io n ”, m ak i n g cl ear t h at
an i n d iv i du al i s d i s ti n ctfro m an y o f t h e o th er en t i t i es o n the l is t .

6 (...co n t in u ed ) m ay rev eal th ata p art i cu l ar p art n er, o r p erh ap s n o p artn er, m eet s th e t hres h o l dfo r a s ub st an t i al u n d ers t at em en t o f i n co m e t ax . See s ec. 6 6 6 2 (d ).18

Sect io n 7 4 9 1 (c) d o es n o t fo cu s o n p art ies b u to n th e n atu re o f t h e p ro ceed in g . Part n ers are t reat edas th e p art i es t o a p art n ers h ip -l ev el p ro ceed i n g , Ch ef’ s Ch o i ce Pro du ce, Lt d . v . Co m m i s s i o n er, 9 5 T.C. 3 8 8 , 3 9 5 (1 9 9 0), b utth e p ro ceed in g i t s el f i s co n du ct ed atth e p art n ers h ip l ev el . Iti s the p art n ers h i p retu rn th ati s ex am i n ed ; i ti s p art n ers h i p i t em s th atare ad j u s t ed ; an d i ti s p art ners h i p i t em s an dth e ap pl i cab il it y o f p en al t i es th atare d et erm i n edi n a p art n ers h i p -l ev el p ro ceed in g . See, e.g ., s ec. 6 2 26 (f); s ec. 3 0 1.6 2 2 1 -1 (c), Pro ced . & Ad m i n Reg s . Defen s es t o p en al t i es th atare u n i qu e as t o an y p art i cu lar p art n er (i n d i v i du al o r
o th erwi s e) are n o tp arto f t h e p art n ers hi p -l ev el p ro ceed i n g . Sec. 3 0 1
. 6 2 26 (f)-1 (a), Pro ced
. & Ad m i n Reg s. In co n tras t , s ect i o n 7 4 91 (c) ap p l i es “ i n an y co u rt p ro ceed in g wi th res p ectt o th e l i ab i l i ty o f an y i n d i v i du al fo r an y

p en al ty ”. W e can i nfer fro m

o th er Co d e p ro v is io n s th atCo n g res s d i d n o ti n t en d
s ect i on 7 4 9 1 (c) t o ap pl y

i n a p art n ers h i p -l ev el p ro ceed i n g . Fo r ex am p l e, s ect i o n 7 4 3 0 al l o ws fo r t h e award i ng o f co s t s an dfees t o a p rev ai l i ng p art y . Sec. 7 4 3 0 (a). As n o t edab o v e, i n a p art n ers h i p -l ev el p ro ceed i n g th e p art n ers are t reat edas p art i es . Sec. 6 2 26 (c). Th u s , wh en ap pl y i n g the n etwo rt h req u irem en t s u n d er t h at
s t atu te, we h av e l o o k edt o t h e p art n ers as th e p art ies , b ecau se t h e s t atu t e fo cu s es
o n a p rev ai l i n g p art y . See, e.g ., Fo o th i l l Ran ch Co . P’ s h i p v . Co m m i s s io n er, 1 1 0 T.C. 9 4 , 9 9 (1 99 8 ). Bu ts ect i o n 7 4 9 1 (c) d o es n o t fo cu s o n “p art ies ”.19

A cl o s e ex am i nat i o n o f t h e p rev ai l i n g p art y ru le wi th i n s ect i o n 7 4 3 0 h el p s t o s h arp en th e d i s t i n ct i o n . Th e d efi n i t i o n o f p rev ai l i n g p art y i n s ect i o n 7 4 30 (c)(4 ) refers t o 2 8 U.S.C. s ec. 2 4 1 2 (d )(2 )(B), wh i ch d efi n es a p arty fo r t h e p u rp o s es o f act i on s t o reco v er l eg al fees . Ind efi n in g “p art y ” fo r p u rp o s es o f th atp ro v i s i o n , Co n g res s l i s t edi n d iv i du al s s ep arat el y fro m “ an y o wn er o f an u n i n co rp o rat ed b u s i n es s , o r an y p art n ers h i p ” i n t h e d efi n i t i o n o f p art y . In co nt ras t, s ect i o n 7 4 9 1 (c) d o es no tco n t ai n an y referen ce t o o wn ers o f an u n i n co rp o rat edb u s i n es s . Had Co n g res s wan t edt o i n cl ud e t he o wn ers o f an u n i n co rp o rat edb us i n es s i n th e effect
o f s ect i o n 7 4 91 (c), i tkn ew h ow t o d o s o . Th ere i s ev id en ce wi th i n s ect i o n 7 4 9 1 i t sel f t h atCo n g res s i n t en d edt o
n arro wl y d efi n e t he s co p e o f s ect i o n 7 49 1 (c). Wh ereas s ect i o n 7 4 9 1 (c) refers t o th e “ li ab i l i ty

o f an y i n di vi du al fo r an y

p en al ty ” (em

p h as i s ad d ed ), th e b urd en s h i ft i n g ru l e o f s ect i o n 7 4 9 1(a) s p eak s o f t h e “ li ab i l i ty o f t h e t ax p ay er fo r an y

t ax ” (em p h as i s ad ded ), an ds ect io n 7 4 9 1 (a)(2 )(C) m ak es i tcl ear t h at b u rd en s h i ft i n g
u n d er s ub s ect i o n (a) ex p l i ci t l y ap p l i es t o “p art n ers h i p [s ] ” (em p h as i s ad ded ). Bu t
s ect i on 7 4 9 1 (c) i s ex p l i ci t l y l i m i t edt o p ro ceed i n g s wi th res p ectt o th e l i ab i l i ty o f
an y i n d i v i du al
. As we reas on edi n San t a M o n ica Pi ctu res , LLC v . Co m m i s s i o n er, 8 9 T.C.M . (CCH) at 1 2 2 5 , “ [p ] l ai n l y , b y u s i n g th e d i fferen tt erm s ‘ i n d i vi dual ’ an d

‘ tax pay er’ , Co n g res s i n t en dedt o d i s t i n g u i s h th e t wo t erm s .”20 3
. Ad m i ni st rat i v e an dJ u d i ci al Effi ci en cy Th ere are p ract i cal co n cern s i n p art n ers h ip -l ev el p ro ceed i n gs th atm ak e t h i s th e o n ly reas o n ab le ap pro ach . Becau s e p art n ers h i p s are n oti n d iv idu al s, th e o n l y
o th er p o t en t i al ap p ro ach wo u l db e t o d et erm i n e wh o h as th e b urd en o f p ro du ct i o n b y l o o k i n g th ro u g h t o t h e t ax p ay i n g p art n ers . Bu tth e h al l m arko f a p art ners h i p i t em , an db y

ex t en s i o n a p art n ers h i p -l ev el p ro ceed i n g , i s th ati ti s co m m o n t o al l p art n ers . Gri g o raci v . Co m m i s s i o n er, T.C. M em o . 2 0 02 -2 0 2 , 8 4 T.C.M . (CCH) 1 8 6 , 1 8 9 (2 0 0 2). Th e p ract ical effect o f ap p l y i n g s ect i o n 7 4 91 (c) i n a p art n ers h i p -l ev el p ro ceed in g wo u l db e t o req u i re t h e Co m m i s s i o n er an d th e Co u rtt o i d en t i fy th e
u l t i m at e t ax p ay i ng p artn ers o f a p artn ers h i p t o d et erm i n e wh o b ears th e b urd en o f p ro duct i o n as t o p en al t i es . Incas es wi th t i ered p art ners h i p s tru ctu res th e Co m m i s s i o n er an dth e Co u rt wo u l ds p en dt i m e an d res ou rces t o i d en t i fy th e
u l t i m at e t ax p ay i ng p artn ers , s o m et h i n g th e TEFRA n o t i ce p ro v is io n s are d es i g n ed t o av o id . See s ec. 6 2 2 3(c). An di n a p art n ers h i p i n wh i ch o n e o f th e u lt i m at e t ax p ay i ng p art n ers i s a co rp o rat i o n an dan o th er i s an i n d iv i du al , th e Co m m i s s i o n er
wo u l db ear t h e b u rd en o f p ro duct i o n as t o o n e p artn er b u tn o tth e o th er. As ap p li edi n cas es l ik e t h es e, t h e Co u rtm ig h tn eedt o ren d er s ep arat e h o l d in g s i f t he21

Co m m i s s i o n er d i dn o th av e t h e b u rd en o f p ro du ct i o n as t o o n e p art n er b u th adth e b u rd eno f p ro du ct i o n (an dfai l edt o m eet i t ) as t o an o th er p art n er.

4
. Co n cl u si o n Th e Co m m is s i o n er d o es n o t b ear t h e b u rd en o f p ro du ct i on wi th res p ectt o p en al t i es i n a p art ners h i p-l ev el p ro ceed i n g . To the ex t en tRERI Ho l d i n g s I an d Cu rt i s In v . Co
. s t at e t h atth e Co m m i s s i o n er h as th e b urd en o f p ro du ct io n wi th
res p ectt o p en al t i es i n p art n ers h i p p ro ceed i n g s , th ey are n o t fo l l o w ed
. Ou r co n cl u s i o n th atthe Co m m i s s i o n er d o es n o t b ear t h e b urd en o f p ro duct i o n u n d er s ect i on 7 49 1 (c) d o es n o tn eces s ari l y m ean th atth e Co m m i s s i o n er’ s m ot io n t o reo p en th e reco rds h o u l d b e d en i ed . A t ax p ay er m ay rai s e th e l acko f s up erv is o ry ap p ro v al as a d efen s e t o p en al t i es , Graev III, 1 4 9 T.C.

_ _ _ , an di f t h ati s s u e were v al i d l y rai s ed , the Co m

m i ss i o n er m i g h t wan tt o
s up p lem en tthe reco rdt o res p o n d . Bu tDy nam o GP d idn o trai s e t h e l acko f p en al ty ap p ro v al i n i ts p et i t i o n , attri al , o r o n b ri ef. Itwas n o tu nt i l th e Co urt d i rect ed th e p art i es ’ at t en t i on t o Graev III, aft er th e reco rdwas cl o s edan dth e cas e
was fu l l y s ub m i t t ed , thatp et it i o n ers ch al l en gedth e s u ffi ci en cy o f t h e wri t ten p en al ty ap p ro v al i n the reco rd
. An dev en th en , Dy n am o GP d i dn o ts eekt o reo p en th e reco rdt o d i sp u t e wh et h er p en al ty ap p ro v al o ccu rred . Co n s equ en t l y , we22

co n si d er t h e d efen s e t o h av e b een wai v ed . Ru l e 1 5 1 ; Pet zo l d tv . Co m m i s s i o n er, 9 2 T.C. 6 6 1 , 6 8 3 (1 9 8 9 ). Th i s b ri ng s u s b ackt o th e t h i rdfact o r i n Byrd : wh et h er g ran t i n g a m o t i o n t o reo p en the reco rdwo u l daffect th e o u t co m e o f th e cas e. Th e Co m m i s s i o n er d i d
n o th av e t h e b u rd en o f p ro du ct i o n as t o s uperv i s o ry ap p ro v al u n d er s ect i o n 6 7 5 1 (b ), an d Dyn am o GP d i dn o t ch al len g e s up erv i s o ry ap p ro v al . Th ere i s n o
n eed fo r t h e Co m

m i s s i o n er t o s up p l em en tth e reco rdas t o t h e p en al ty as s ert edi n th e Dyn am o p ro ceed i n g b ecau se, ev en i f h e s upp l em en t edth e reco rd , i two u l d h av e n o effect o n t h e o u t co m e o f t he s ect i o n 6 7 5 1 (b ) i s s u e. III. Pen al t i es Rai s edi n the Am en dm en tt o An swer W e h av e co n cl u d edth at , as t o th os e i t em s i ncl u d edi n th e n o t i ce o f d efi ci en cy

i s s u edt o Beek m an Vi s t a an dth e FPAA i s s u edwi th res p ectt o Dy n am o , th e Co m m i s s i o n er d o es n o th av e t h e b u rd en o f p ro du ct i o n as t o p en al t ies u n d er
s ect i on 7 4 9 1 (c). W e h av e an o th er b u rd en i s s u e we m us tco n s i der: th e i ncreas e i n th e s ect i o n 6 6 5 6 p en al ty

thatwas as s ert edi n th e Co m m i s si on er’ s am en d m en tt o
an s wer i n Beek m an Vi s t a. 7

7 Th e Co m

m i ss i o n er al s o as s ert edan i n creas edad d i t i o n t o t ax u n d er s ect i o n 6 6 5 1 , b u ts up erv i so ry

ap p ro v al i s n o t req u iredfo r t h atad d it i on t o t ax . Sec. 6 7 5 1 (b )(2 )(A).23

Th e Co m m is s i o n er b ears th e b u rd en o f p ro o f o n an y n ew m at t er, i n creas es i n d efi ci en cy , o r affi rm at i ve d efen ses p l ead ed i n h i s an s w er. Ru le 1 42 (a); Sh ea v . Co m m i s s i o n er, 1 1 2 T.C. 1 8 3 , 1 9 0 -1 9 1 n .1 0 (1 9 9 9 ). Th e Co m m i s si o n er fi l edan
am en d m en tt o an s wer t h at , am o n g o th er t h i n gs , i n creas edth e am o u n to f t h e
s ect i on 6 6 5 6 p en al ty

ag ai n stBeek m an Vi st a. Th e Co m m i ss i o ner h as th e b u rd en
o f p ro o f o n th e i n creas e. Rad er v . Co m m i s s i on er, 1 4 3 T.C. 3 7 6 , 3 89 (2 0 1 4 ). Th e Co m m is s i o n er’ s m o t i o n t o reo pen th e reco rdi s s i l en tas t o s up erv i s o ry ap p ro v al o f t he p en al ty

am o un t th atwas fi rs t as s ert edi n th e am en d m en t t o an s wer. Th e Co m m i ss i o n er, i n h i s J an u ary

1 9 , 2 01 8 , res p o n se t o th e Co u rt ’ s Decem b er 2 1 , 2 0 1 7 , o rd er d o es n o tci t e an y ev i d en ce i n the reco rdo f s up erv is o ry ap p ro v al o f t h e d et erm i n at i o n t o i n creas e t h e p en al ty i n th e am en d m en tt o an s wer. An di n h i s
m o ti o n t o reo p en th e reco rd , th e Co m m i s s i o n er d o es n o tp ro ffer an y ev i den ce reg ard i n g s up erv i s o ry

ap p ro v al o f t h e d et erm i n at i o n t o as s ertan i n creas edp en al t y
am ou n ti n t h e am en d m en tt o an s wer. Becau s e t he Co m

m is s i o n er d i dn otp ro ffer an y i n fo rm at i o n co n cern i n g
s up p lem en t i n g th e reco rd as t o th e p en al ty fo r wh ich h e h as th e b u rd en o f p ro o f, th ere i s n o b as is fo r u s t o reo p enth e reco rd fo r an y s u ch p ro o f th atm i g h tex i s t .24

IV. M o t io n To Di sm i s s W e al s o m

u s t d en y p et it i o n ers ’ m o t i o n t o d is m i ss as t o p en al ti es . Th at
m o ti o n as k s th atwe d i s m i s s as t o p en al t ies b ecau s e t h e Co m m is s i o n er d i d n o t
m eeth i s b u rd en u n der s ect i o n 7 4 9 1 (c). Bu tas we h av e h el d, the Co m m i s s i o n er d o es no tb ear t h e b u rd en o f p ro du ct i o n as t o p en al ti es i n p art ners h i p -l ev el o r
co rp o rat e p ro ceed i n g s . Th e Co m m is s i o n er d i d n o tfai l t o m eeth i s b u rd en o f p ro duct i o n , b ecau s e th e b u rd en was n o th i s t o m eetas t o t h o s e p en al t i es i n cl u d ed i n the n o t i ce o f d efi ci en cy an dth e FPAA. As fo r t h e i n creas ed p en al ty as sert ed b y th e Co m m i s s i o n er i n h i s am en d m en tt o an s wer i n Beek m anVi s t a, t h e qu es t i o n o f wh et h er t h e Co m

m i s s i on er m eth i s b u rd eno f p ro o f i s an i s s u e t o b e res ol v edo n th e m eri t s , wh i ch we wi ll ad dres s i n a s ep arat e o p i n i o n . V. Co n cl u si o n Sect io n 7 4 9 1 (c) i m

p o s es th e b u rd en o f p ro du ct i o n o n the Co m m i s s i on er “ i n
an y co u rtp ro ceed in g wi th res p ectt o th e l i ab i l i ty o f an y i n d i v i dual fo r an y

p en al t y , ad d it i o n t o t ax , o r ad d i t io nal am o u n t ” i m p os edu n d er the In t ern al Rev en u e Co d e. A p art n ers h i p i s n o tan i nd i v i du al , an da p art n ers h ip -l ev el p ro ceed i n g i s n o ta p ro ceed in g wi th res p ectt o th e l i ab i l i ty o f an y i n d i v i du al . Co n seq u en tl y , th e Co m m i s s i o n er d o es n ot b ear t h e b u rd en o f p ro du ct i on wi th res p ectt o p en al t i es , ad d it i o n s t o t ax , o r ad d i t i o nal am o u n t s i n a p art n ers h i p -l ev el p ro ceed i n g . Becau s e25

reo p en in g th e reco rdwo u l dn o taffect th e o u tco m e o f t hes e p ro ceed i n gs , th e Co m m i s s i o n er’ s m ot io n t o reo p en th e reco rdwi l l b e d en i ed . An db ecau s e t h e Co m m i s s i o n er d o es n ot b ear t h e b u rd en o f p ro du ct i on , p et i t i o n ers ’ m o ti o n t o d i s m i s s wi l l l i kewi s e b e d en i ed
. Anap p ro p ri at e o rd er wi ll b e i s s u ed
. Rev i ewedb y

the Co u rt . M ARVEL, FOLEY, GALE, THORNTON, GOEKE, HOLMES, GUSTAFSON, PARIS, M ORRISON, KERRIGAN, LAUBER, NEGA, PUGH, an d ASHFORD, J J ., ag ree wi th th i s o p i n i o n o f t h e Co urt . VASQUEZ, J ., d i d n o t p art i ci p at e i n th e co n s id erat i o n o f t h i s o pi n i o n .