Court Opinion

ID: 9962101
Source: CourtListenerOpinion
Date Created: 2024-04-22 19:02:04.206779+00
Date Added: 2024-06-11T08:19:50.480355
License: Public Domain

United States Tax Court

                               T.C. Memo. 2024-50

  PICCIRC, LLC, PIMLICO, LLC, A PARTNER OTHER THAN THE
                  TAX MATTERS PARTNER,
                          Petitioner

                                          v.

              COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

                                     __________

Docket No. 4308-12.                                           Filed April 22, 2024.

                                     __________

Donald M. Lund, Michael A. Metcalfe, Gabriel G. Tsui, and Steven Gary
Chill, for petitioner.

Thomas J. Kerrigan, Andrew K. Lee, Theodore Robert Leighton, and
Joshua Nachman, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       GALE, Judge: This case is a partnership-level proceeding subject
to the unified audit and litigation procedures of the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, § 402(a),
96 Stat. 324, 648. 1 In a notice of final partnership administrative
adjustment (FPAA), respondent disallowed a $22,718,351 ordinary loss
deduction that PICCIRC, LLC (PICCIRC), claimed on its 2002 Form

         1 Before its repeal for taxable years beginning after December 31, 2017,

TEFRA, codified at sections 6221 through 6234, prescribed procedures for audit and
litigation concerning returns filed by partnerships. Respondent followed these
procedures in this case. Unless otherwise indicated, statutory references are to the
Internal Revenue Code (Code), Title 26 U.S.C., 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. All monetary amounts are rounded to the nearest dollar.

                                 Served 04/22/24
                                           2

[*2] 1065, U.S. Return of Partnership Income, in connection with the
sale of distressed Brazilian trade receivables. Respondent adjusted the
partnership’s basis in the receivables to zero and determined that
accuracy-related penalties under section 6662 applied to any
underpayments of tax attributable to the disallowance. PIMLICO, LLC
(PIMLICO or petitioner), a partner other than the tax matters partner
of PICCIRC, timely filed a Petition for review under section 6226. We
sustain respondent’s determinations concerning the loss deductions and
penalties, as set forth below.

                              FINDINGS OF FACT

       Some of the facts are stipulated and are so found. The Stipulation
of Facts and its Exhibits are incorporated herein by this reference.
PICCIRC’s principal place of business was Greenwich, Connecticut.
PICCIRC’s tax matters partner is Tall Ships Capital Management, LLC
(Tall Ships). Petitioner’s principal place of business was in New York
when the Petition was timely filed. PIMLICO’s tax matters partner is
John D. Howard.

Overview

       This case concerns the tax treatment of a structured distressed
debt investment transaction (transaction) involving transfers of
distressed foreign trade receivables through several purported domestic
partnerships. Three parties were centrally involved in the transaction:
(1) BDO Seidman, LLP (BDO), a professional services firm providing
accounting, tax, financial, and consulting services, that marketed the
transaction; (2) Mr. Howard, who invested in the transaction; and
(3) Gramercy Advisors, LLC (Gramercy Advisors), an investment
advisory firm, that implemented the transaction on Mr. Howard’s
behalf.

       The receivables involved in the transaction originated with Santa
Bárbara Indústria e Comércio de Ferro Ltda. (Santa Barbara), a metal
products supplier organized under the laws of Brazil. The receivables
consisted of duplicatas, 2 i.e., orders for payments, issued by Santa
Barbara in 1996 to Encol S/A Engenharia Comércio e Indústria (Encol),
a real estate development and construction company organized under
the laws of Brazil. Encol purchased products from Santa Barbara on

        2 Under Brazilian law, duplicatas are orders for payments issued by the

creditor against the debtor related to the sales of goods or services that are evidenced
by an invoice.
                                      3

[*3] credit. Santa Barbara billed the trade receivables to Encol when it
purportedly delivered goods to Encol in the ordinary course of business.

       In 1997 Encol filed for bankruptcy protection. A Brazilian
bankruptcy court granted Encol’s petition, preventing adjudication of
bankruptcy so long as Encol satisfied certain conditions concerning
repayment of its creditors, and appointed a trustee to oversee the
process. After Encol failed to meet the court’s stated conditions by the
end of 1998, the trustee recommended that the court declare Encol
bankrupt. The court did so in 1999 and directed the liquidation of its
assets.

       On August 1, 2002, Santa Barbara contributed the Encol
receivables using a tiered partnership structure. First, Gramercy
Advisors and Santa Barbara formed XBOXT, LLC (XBOXT). 3 Santa
Barbara contributed the Encol receivables in exchange for a 99%
interest in XBOXT. Gramercy Advisors owned the remaining 1%
membership interest. Second, XBOXT and Tall Ships, a limited liability
company affiliated with Gramercy Advisors, formed PIMLICO. XBOXT
contributed the majority of its Encol receivables to PIMLICO in
exchange for a 99% membership interest, and Tall Ships acquired the
remaining 1% interest.

      Next, Mr. Howard became involved. He had significant
investment experience including investments in distressed assets. In
2002 BDO approached Mr. Howard to pitch the distressed debt
structure. BDO discussed with him tax benefits—including specific tax
losses—that could be obtained through the transaction.

        On December 10, 2002, Mr. Howard entered into a consulting
agreement with BDO with respect to the transaction. Mr. Howard
agreed to pay BDO a consulting fee of $865,000, while BDO agreed to
provide Mr. Howard with an opinion letter concerning the federal
income tax consequences of the transaction. BDO issued the opinion
letter, dated October 15, 2003, to Mr. Howard.

      Through BDO, Mr. Howard was introduced to Gramercy
Advisors. On December 3, 2002, Mr. Howard entered into an investment
management agreement with Gramercy Investment Management, LLC,
an affiliate of Gramercy Advisors, with respect to an investment of
$360,000.

      3 XBOXT was a limited liability company (LLC) formed under Delaware law.
                                   4

[*4] On December 11, 2002, Mr. Howard transferred $360,000 to an
account at Boston Safe Deposit & Trust Co. (Boston Trust) managed by
Gramercy Advisors for the benefit of Mr. Howard. On that same day,
Mr. Howard acquired an 89.10% membership interest in PIMLICO from
XBOXT in exchange for $300,164. An interest-bearing account for
XBOXT at Boston Trust was opened on December 20, 2002. On
December 23, 2002, an internal transfer (i.e., from another Boston Trust
account) of $300,164 was made into the XBOXT account. After Mr.
Howard’s acquisition of his interest, PIMLICO’s three members were
Mr. Howard with an 89.10% interest, XBOXT with a 9.9% membership
interest, and Tall Ships with a 1% interest.

       PIMLICO and Tall Ships formed PICCIRC, a limited liability
company under Delaware law. On December 11, 2002, PIMLICO
contributed 104 of the Encol receivables valued at Brazilian real
23,585,000 to PICCIRC for a 99% ownership interest. Tall Ships
contributed 0.1871% participation interests in two promissory notes for
$900 each in exchange for 1% interest in PICCIRC. RSK Investments,
LLC, and Wester Gailes Capital Management, LLC, issued the notes.
The PICCIRC operating agreement valued the PIMLICO capital
contribution at $333,335 and Tall Ships’ contribution at $3,376.

       On December 13, 2002, Mr. Howard entered into an Investment
Advisory Services Fee Agreement with Mead Point Capital
Management LLC (Mead Point), an affiliate of Gramercy Advisors that
collects fees with respect to its separately managed accounts. Under the
terms of the agreement, Mr. Howard agreed to pay Mead Point a one-
time fee of $59,836 with respect to the transaction. (This figure
represented the balance of the $360,000 Mr. Howard initially
transferred to his account at Boston Trust after his payment to XBOXT
of $300,164 for his PIMLICO interest.)

       On December 26, 2002, PICCIRC sold all its Encol receivables to
an affiliate of Gramercy Advisors, Gramercy Financial Services, LLC,
for $357,144. Mr. Howard was not aware of the sale by PICCIRC of its
Encol receivables to Gramercy Financial Services, LLC.

      On January 16, 2003, Gramercy Advisors received a facsimile
copy of a letter, dated December 16, 2002, from Santa Barbara
requesting a withdrawal of $300,164 of its membership interest in
XBOXT and its payment to an account at Hudson United Bank for
                                          5

[*5] Kiesser Investments, SA. 4 XBOXT’s account at Boston Trust,
which had received a transfer of $300,164 on December 23, 2002, had a
closing balance of $79 on January 30, 2003.

       On January 21, 2003, Tojal Renault Advogados Associados issued
a legal opinion related to the validity and enforceability of the
assignment of the Encol receivables by Santa Barbara to XBOXT. This
document represented that Santa Barbara had the necessary authority
to perform its obligations.

       On February 27, 2003, Proskauer Rose, LLP, sent a
representation letter to Mr. Howard confirming that the firm would
represent him in reviewing the tax consequences of the transaction.
Pursuant to the representation agreement, Mr. Howard agreed to pay a
fixed fee of $100,000. 5 On June 13, 2003, Mr. Howard executed a copy
of the representation letter, agreeing to and accepting the terms set
forth therein. Proskauer Rose issued a tax opinion letter, dated
October 13, 2003, to Mr. Howard with respect to the transaction. The
opinion letter represented that the transaction had the requisite
economic substance and business purposes to be respected under the
authorities discussed in the opinion letter.

       On October 15, 2003, BDO issued a tax opinion letter to Mr.
Howard. The opinion letter represented that no penalty should apply to
the transaction pursuant to section 6662(b)(2) or (3).

      On its Form 1065 for taxable year 2002, PICCIRC reported an
ordinary loss of $22,718,351 from the transaction. This purported
ordinary loss from the transaction was allocated to PIMLICO. Mr.
Howard’s share of the purported loss from the transaction was
$20,446,516. He claimed flow-through ordinary loss deductions of
$14,506,070 and $6,118,531 from PIMLICO for the taxable years 2002
and 2004, respectively.

        4 This letter was identical to a sample draft letter that Gramercy Advisors had

sent to Santa Barbara, except with respect to the designation of the account to which
the withdrawn funds were to be sent.
       5 On June 20, 2003, Mr. Howard paid $75,000 of this fee. On October 13, 2003,

Proskauer Rose invoiced Mr. Howard for the remaining $25,000, which he paid on
October 15, 2003.
                                   6

[*6]                          OPINION

I.     Burden of Proof

      Generally, the Commissioner’s determinations set forth in an
FPAA are presumed correct, and taxpayers bear the burden of showing
the determinations are erroneous. Rule 142(a); Welch v. Helvering, 290
U.S. 111, 115 (1933); Republic Plaza Props. P’ship v. Commissioner, 107
T.C. 94, 104 (1996). Petitioner did not contend that the burden of proof
should shift to respondent under section 7491(a).

II.    Disguised Sale

      In general, partners may contribute capital to a partnership tax
free and may receive a tax-free return of previously taxed profits
through distributions to the extent that a distribution does not exceed
adjusted basis. See §§ 721, 731. These nonrecognition rules do not
apply, however, where the transaction is found in substance to be a
disguised sale of property. See Jacobson v. Commissioner, 96 T.C. 577
(1991), aff’d per curiam, 963 F.2d 218 (8th Cir. 1992).

       A disguised sale occurs where a partner contributes property to a
partnership and receives a related distribution that is, in effect,
consideration for the contributed property. See § 707(a)(2)(B); Canal
Corp. & Subs. v. Commissioner, 135 T.C. 199, 210–11 (2010); Treas. Reg.
§ 1.707-3. A transaction may be deemed a disguised sale if, on the basis
of all the facts and circumstances, (1) the partnership’s transfer of
money or other consideration to the partner would not have been made
but for the partner’s transfer of property and (2) if the transfers were
not made simultaneously, the subsequent transfer was not dependent
on the entrepreneurial risks of partnership operations. Treas. Reg.
§ 1.707-3(b)(1); see also Route 231, LLC v. Commissioner, 810 F.3d 247,
253 (4th Cir. 2016), aff’g T.C. Memo. 2014-30. The regulations provide
that transfers between a partnership and a partner within a two-year
period are presumed to be a sale of property to the partnership unless
the facts and circumstances “clearly establish” otherwise. Treas. Reg.
§ 1.707-3(c)(1); see Superior Trading, LLC v. Commissioner, 728 F.3d
676, 681 (7th Cir. 2013) (finding the presumption triggered where the
partner received a substantial distribution 10 months after contributing
distressed receivables), aff’g 137 T.C. 70 (2011), supplemented by T.C.
Memo. 2012-110. “This presumption places a high burden on the
partnership to establish the validity of any suspect partnership
                                   7

[*7] transfers.” Va. Historic Tax Credit Fund 2001 LP v. Commissioner,
639 F.3d 129, 139 (4th Cir. 2011), rev’g T.C. Memo. 2009-295.

       Petitioner contends that the transaction is not a disguised sale.
In particular, petitioner argues that the record contains no evidence of
a distribution to Santa Barbara within two years of its contribution of
the Encol receivables. We disagree.

       The timeline for the transaction is far less than two years. On
August 1, 2002, Santa Barbara contributed the receivables to XBOXT.
On December 16, 2002, Santa Barbara requested a withdrawal from
XBOXT of $300,164. The withdrawal Santa Barbara requested is the
same amount Mr. Howard paid to acquire an 89.10% interest in
PIMLICO from XBOXT on December 11, 2002. Given that XBOXT had
received a transfer of $300,164 into an interest-bearing account on
December 23, 2002, but had a balance in that account of only $79 on
January 30, 2003, we are satisfied that the $300,164 requested by Santa
Barbara on December 16, 2002, was in fact paid from the XBOXT
account sometime between December 23, 2002, and January 30, 2003.

       The above facts do not appear to be coincidental. The facts and
circumstances existing on the date of the earliest transfer are generally
the relevant ones to be considered. Treas. Reg. § 1.707-3(b)(2).
Petitioner has the burden of proving that there was no premeditated
agreement that Santa Barbara would receive any distributions. The
circumstances surrounding Santa Barbara’s partial redemption of its
XBOXT interest suggest that it was a preconceived step to shift basis to
Mr. Howard.

       The payment to Santa Barbara was not paid out of operational
profits but rather from the proceeds of Mr. Howard’s subsequent
acquisition of an interest in PIMLICO from XBOXT. The redemption
and acquisition are for the same amount. Mr. Howard’s acquisition was
made five days before the date on the Santa Barbara redemption letter.
The purpose of the redemption was to trigger the section 704(c) loss
allocation rule for the benefit of Mr. Howard. The dates and account
activity of the partnerships match to such an extent that it becomes
clear that XBOXT was formed solely as a conduit to execute a disguised
sale of the Encol receivables.

       Petitioner has offered no alternate explanation for this account
activity or posited where more than $300,000 in funds went between
December 23, 2002, and January 30, 2003. Petitioner has failed to
                                     8

[*8] counter these facts and has failed to meet its burden of proof.
Therefore, the transaction is a disguised sale. Accordingly, we sustain
respondent’s disallowance of PICCIRC’s claimed loss deduction to the
extent that the claimed loss exceeds the transferred basis from XBOXT
(via PIMLICO) in the Encol receivables.

III.   Basis in Encol Receivables

       Pursuant to section 723, the basis of property contributed to a
partnership by a partner shall be the partner’s adjusted basis at the
time of the contribution. In other words, the basis equals the basis the
asset had in the hands of the contributing partner. Santa Barbara
purportedly transferred the Encol receivables to XBOXT as the first step
in the transaction.

       The only evidence related to basis are the 125 duplicatas and a
spreadsheet prepared by Gramercy Advisors listing the duplicatas.
These documents do not provide enough information to determine the
value of the duplicatas immediately before Santa Barbara’s contribution
of them to XBOXT. Therefore, we cannot determine the basis in the
Encol receivables.

IV.    Validity of Partnerships

       A partnership exists for federal income tax purposes when parties
intend to join together in the conduct of a trade or business and to share
in the profits or losses of that trade or business. Commissioner v. Tower,
327 U.S. 280, 286 (1946). Whether a partnership is respected for federal
tax purposes depends upon whether “the parties in good faith and acting
with a business purpose intended to join together in the present conduct
of the enterprise.” Commissioner v. Culbertson, 337 U.S. 733, 742
(1949). To form a bona fide partnership, the parties “must have two
intents: (1) the intent to act in good faith for some genuine business
purpose and (2) the intent to be partners, demonstrated by an intent to
share ‘the profits and losses.’” Chemtech Royalty Assocs., LP v. United
States, 766 F.3d 453, 461 (5th Cir. 2014); see also Commissioner v.
Culbertson, 337 U.S. at 741–43; Commissioner v. Tower, 327 U.S. at
286–87; Southgate Master Fund, L.L.C. ex rel. Montgomery Cap.
Advisors, LLC v. United States, 659 F.3d 466, 483–84 (5th Cir. 2011). In
determining whether a bona fide partnership has been formed, we must
consider all relevant facts and circumstances, including “the agreement,
the conduct of the parties in execution of its provisions, their statements,
the testimony of disinterested persons, the relationship of the parties,
                                    9

[*9] their respective abilities and capital contributions, the actual
control of income and the purposes for which it is used, and any other
facts throwing light on their true intent.” Commissioner v. Culbertson,
337 U.S. at 742.

      All the partnerships involved in this transaction were LLCs
created under Delaware law. Pursuant to the check-the-box regulations
under Treasury Regulation § 301.7701-3(b)(1), an LLC is classified as a
partnership by default unless it elects to be classified as a corporation.
This regulation does not entitle a partnership to the benefits provided
by the Code to partnerships. Superior Trading, LLC v. Commissioner,
728 F.3d at 681.

      There is no evidence that Santa Barbara and Gramercy Advisors,
partners of XBOXT, endeavored to join in a common enterprise with a
community of interest in profits and losses. The purported partners
were accomplices to the transaction. The same is also true for PICCIRC.
There is no evidence that PICCIRC, PIMLICO, and Tall Ships were
engaged in business together.

       The abundance of “abusive tax-avoidance schemes . . . designed to
exploit the Code’s partnership provisions” requires that “our scrutiny of
the taxpayer’s choice to use the partnership form [be] especially
stringent.” Southgate Master Fund, 659 F.3d at 483–84. A partnership
need not be respected “merely because the taxpayer can point to the
existence of some business purpose or objective reality in addition to its
tax-avoidance objective.” TIFD III-E, Inc. v. United States (Castle
Harbour), 459 F.3d 220, 232 (2d Cir. 2006). Rather, the parties’ reasons
for choosing the partnership form “must, on balance, display good
‘common sense from an economic standpoint.’” Southgate Master Fund,
659 F.3d at 484 (quoting Boca Investerings P’ship v. United States, 314
F.3d 625, 631 (D.C. Cir. 2003)). Even where a partnership engages in
transactions having economic substance, the parties’ choice to operate
as a partnership must be for “a legitimate, profit-motivated reason,” id.,
and “the absence of a nontax business purpose is fatal,” ASA
Investerings P’ship v. Commissioner, 201 F.3d 505, 512 (D.C. Cir. 2000),
aff’g T.C. Memo. 1998-305; see also Castle Harbour, 459 F.3d at 231–32;
Andantech L.L.C. v. Commissioner, 331 F.3d 972, 980 (D.C. Cir. 2003),
aff’g in part and remanding T.C. Memo. 2002-97; Merryman v.
Commissioner, 873 F.2d 879, 881 (5th Cir. 1989), aff’g T.C. Memo.
1988-72.
                                     10

[*10] The partnership antiabuse rules provide that the provisions of
subchapter K and the regulations thereunder must be applied in a
manner that is consistent with the intent of subchapter K. Treas. Reg.
§ 1.701-2. Pursuant to these rules, a partnership satisfies the general
antiabuse rule if it meets three conditions: (1) the partnership is bona
fide and each partnership transaction or series of transactions is entered
into for a substantial business purpose; (2) each partnership transaction
is respected under substance over form principles; and (3) the tax
consequences to each partner must accurately reflect the partners’
economic agreement unless deviation therefrom is clearly contemplated
by subchapter K. Id. para. (a). Where a partnership is formed to
facilitate a transaction a principal purpose of which is to produce tax
consequences inconsistent with the intent of subchapter K, the
Commissioner may recast partnership transactions to achieve tax
results intended by subchapter K. Id. para. (b). The Commissioner has
broad authority to disregard the partnership to justify or modify the
claimed tax treatment.

       Whether a partnership satisfies the antiabuse regulation is
determined on the basis of all of the facts and circumstances. Id.
para. (c). The regulation provides a list of illustrative factors that may
indicate a disregard for the intent of subchapter K. Id. para. (c). The
factors relevant to this case include the following: (1) the present value
of the aggregate federal tax liability of the partners is substantially less
than if the partners had owned the partnership’s assets and conducted
the partnership’s activities directly; (2) the present value of the partners’
aggregate federal tax liability is substantially less than would be the
case if purportedly separate transactions designed to achieve a
particular end result were integrated and treated as steps in a single
transaction; and (3) one or more partners who are necessary to achieve
the claimed tax results have a nominal interest in the partnership and
are substantially protected from any risk of loss from the partnership’s
activities. Id.

       Relevant to the first two factors listed above is that if Mr. Howard
had purchased the assets directly from Santa Barbara, PICCIRC’s basis
in the receivables at the time of the sale that produced the losses would
have been significantly lower than what was claimed. If, as our
disguised sale analysis concludes, (1) Santa Barbara’s contribution of
the Encol receivables to XBOXT, (2) XBOXT’s contribution of the
receivables to PIMLICO, and (3) XBOXT’s sale of its 89.1% interest in
PIMLICO to Mr. Howard were integrated into a single transaction, the
result would effectively be a direct sale of the receivables from Santa
                                   11

[*11] Barbara to Mr. Howard. The tax consequence of such a sale would
be that Mr. Howard would have received a cost basis in the receivables
under section 1012, as opposed to the significantly larger basis claimed
to be transferred from Santa Barbara through XBOXT and then to
PIMLICO under section 721. The subsequent contribution of the
receivables to PICCIRC would be deemed made by Mr. Howard himself,
and PICCIRC’s basis would be equal to Mr. Howard’s cost basis. See
§ 721. The subsequent sale of the receivables by PICCIRC would, in
turn, produce significantly lesser losses. The parties’ aggregate federal
tax liability would, consequently, be substantially higher.

      Further, Santa Barbara had no risk of loss because XBOXT and
PICCIRC had no activities besides the sale of tax shelters. Santa
Barbara had a nominal interest in XBOXT and no real participation.
Upon our consideration of the facts and circumstances, we conclude that
the partnerships should be disregarded for violation of the partnership
antiabuse rules.

V.    Other Issues Petitioner Raises

       Petitioner contends that it was in compliance with the Code and
that the Court should not address judicial antiabuse doctrines such as
economic substance, sham transaction, business purpose, and step
transaction. Respondent disagrees with this argument. We do not need
to address the arguments associated with these doctrines because we
have concluded that the transaction was a disguised sale and the
partnerships were shams. An analysis similar to that discussed above
would be used for an analysis under these doctrines. A discussion of
these doctrines would not change our conclusion that respondent’s
determination is correct.

VI.   Accuracy-Related Penalties

       Section 6662 provides that a taxpayer may be liable for a 20%
accuracy-related penalty on the portion of an underpayment of income
tax attributable to, among other things, negligence or disregard of rules
or regulations, a substantial understatement of income tax, or a
substantial valuation misstatement. Section 6662(h)(1) increases the
penalty rate from 20% to 40% to the extent that the underpayment is
attributable to a gross valuation misstatement. A gross valuation
misstatement exists where the value or adjusted basis of the property
claimed on a return is 400% or more of the amount determined to be
                                          12

[*12] correct. 6 If the value or adjusted basis of the property is
determined to be zero, the gross valuation misstatement penalty is
applicable. Treas. Reg. § 1.6662-5(g).

       Section 7491(c) generally places the burden of production of
evidence on the Commissioner with respect to a taxpayer’s liability for
any penalty imposed by the Code. § 7491(c). In cases involving
partnerships to which the TEFRA provisions apply, as is the case here,
section 7491(c) does not apply. See Dynamo Holdings Ltd. P’ship v.
Commissioner, 150 T.C. 224, 235–36 (2018). Petitioner therefore carries
the burden of showing that respondent’s determination to impose the
penalty is erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S.
at 115.

       Under our disguised sale analysis, PICCIRC’s basis is, at the
most, $300,164. PICCIRC’s reported basis of $23,075,495 on the 2002
partnership return is well in excess of 400% of the correct basis.
Petitioner produced no evidence to refute respondent’s determination
concerning the penalty. Further, petitioner’s posttrial briefs fail to
address the accuracy-related penalty. We deem petitioner to have
conceded the issue, and we sustain respondent’s penalty determination
at the heightened rate. See Rule 151(e)(4) and (5); Mendes v.
Commissioner, 121 T.C. 308, 312–13 (2003) (first citing Clajon Gas Co.
v. Commissioner, 119 T.C. 197, 213 n.17 (2002), rev’d, 354 F.3d 786 (8th
Cir. 2004); then citing Davis v. Commissioner, 119 T.C. 1, 1 n.1 (2002);
then citing Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001); and
then citing Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988)).

       To reflect the foregoing,

       Decision will be entered for respondent.

        6 The Pension Protection Act of 2006 (PPA), Pub. L. No. 109-280, 120 Stat. 780,

effected certain amendments to the gross valuation misstatement penalty regime.
Before the enactment of the PPA, the penalty applied when taxpayers misstated the
value of property by 400% or more; PPA § 1219(a)(2), 120 Stat. at 1083, lowered the
threshold to 200%. See § 6662(h). This case involves a return filed before the effective
date of the PPA (August 17, 2006), and therefore we apply the higher threshold.