Court Opinion

ID: 9775554
Source: CourtListenerOpinion
Date Created: 2023-08-29 19:03:02.191467+00
Date Added: 2024-06-11T09:14:25.483528
License: Public Domain

United States Tax Court

                         T.C. Memo. 2023-111

   LAKEPOINT LAND II, LLC, LAKEPOINT LAND GROUP, LLC,
                TAX MATTERS PARTNER,
                        Petitioner

                                   v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                              —————

Docket No. 13925-17.                             Filed August 29, 2023.

                              —————

Jeffrey S. Luechtefeld, Michael Todd Welty, Roland Barral, Samuel H.
Grier, Victor M. Fox, Armando Gomez, Cassandra S. Bradford, Hale E.
Sheppard, Gabriella K. Cole, John J. Nail, Frederick Thaler Goldberg,
Jr., Belinda Be, and Sean R. Gannon, for petitioner.

Shannon E. Craft, William G. Bissell, Erin Kathleen Salel, Veronica L.
Richards, Candace M. Williams, Carol Bingham McClure, Elizabeth P.
Flores, Kevin A. Baker, Jenna N. E. Scott, Elizabeth C. Turnbull,
Shahzaib Jiwani, Laura L. Gavioli, and Vivian Bodey, for respondent.

                       MEMORANDUM OPINION

      WEILER, Judge: Before the Court are petitioner’s (1) Motion for
Reconsideration of this Court’s Order served on March 24, 2023,
granting respondent’s Motion for Partial Summary Judgment and
(2) Motion to Impose Sanctions. Also before the Court is respondent’s
Motion for Reconsideration of this Court’s Order served on March 24,
2023. For the reasons set forth below, we will grant petitioner’s Motion
for Reconsideration and grant, in part, petitioner’s Motion to Impose
Sanctions and deny respondent’s Motion for Reconsideration. Consistent
with this Opinion, we will also vacate our Order served on March 24,
2023.

                           Served 08/29/23
                                            2

[*2]                                 Background

      The following facts are derived from the pleadings, the parties’
Motion papers, and the Exhibits and Declarations attached thereto.
They are stated solely for purposes of deciding the above-referenced
Motions and not as findings of fact in this case. See Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

        LakePoint Land II, LLC (LakePoint), is a limited liability
company (LLC) treated as a partnership under the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401–
407, 96 Stat. 324, 648–71, for federal income tax purposes; petitioner,
LakePoint Land Group, LLC, is its tax matters partner. 1 LakePoint had
its principal place of business in Georgia when the Petition was timely
filed. Absent stipulation to the contrary, appeal of this case would lie to
the U.S. Court of Appeals for the Eleventh Circuit. See I.R.C.
§ 7482(b)(1)(E). 2

      The Internal Revenue Service (IRS) assigned Revenue Agent (RA)
Pamela Stafford to examine LakePoint’s Forms 1065, U.S. Return of
Partnership Income, for the tax periods ending November 15 and
December 31, 2013, and December 31, 2014. RA Catherine C. Brooks
was the immediate supervisor of RA Stafford in connection with the
examination.

       Between May 9 and 20, 2016, RA Stafford corresponded with a
representative of LakePoint. The objective of the correspondence
between the two parties was to review proposed adjustments and
penalties and to potentially reach a resolution of the audit. In the
correspondence, LakePoint’s representative requested that RA Stafford
provide respondent’s “determination” of penalties. RA Stafford
responded by providing a list of “proposed adjustments,” including
penalties, to LakePoint’s representative. The record does not indicate
that a settlement was ever reached.

       On July 15, 2016, RA Stafford prepared a penalty consideration
lead sheet (July Lead Sheet). Initially, in respondent’s Motion for Partial

        1 Before its repeal, TEFRA governed the tax treatment and audit procedures

for many partnerships, including LakePoint.
       2 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, and Rule references are to
the Tax Court Rules of Practice and Procedure.
                                    3

[*3] Summary Judgment, we were led to believe that RA Brooks
personally approved RA Stafford’s initial determination of the penalties
in writing by electronically signing the July Lead Sheet on July 16, 2016,
and that this July Lead Sheet asserted all of the penalties that were
eventually determined in LakePoint’s final partnership administrative
adjustment (FPAA). However, we have since learned from the parties
that there exist different versions of this July Lead Sheet, including a
version signed by RA Brooks on November 29, 2016 (November Lead
Sheet). A Form 5701, Notice of Proposed Adjustment (NOPA), was also
signed by RA Brooks on July 21, 2016. The parties now agree that the
July Lead Sheet was amended by RA Stafford in February 2017 to
include additional penalties (which were recommended by IRS Counsel)
and was in fact signed by RA Brooks on February 10, 2017—although
RA Brooks backdated her signature by writing in a date of July 16, 2016.

     On March 27, 2017, respondent issued the FPAA to LakePoint.
The FPAA determined for the 2013 tax year a section 6662(a)
underpayment penalty based on the following:

   (1) negligence or disregard of rules or regulations under section
       6662(b)(1);
   (2) a substantial understatement of income tax under section
       6662(b)(2);
   (3) a substantial valuation misstatement under section 6662(b)(3);
       and
   (4) an increase to the section 6662(a) penalty from 20% to 40% for a
       gross valuation misstatement under section 6662(h).

The FPAA determined for the 2014 tax year a section 6662(a)
underpayment penalty based on the following:

   (1) negligence or disregard of rules or regulations under section
       6662(b)(1); and
   (2) a substantial understatement of income tax under section
       6662(b)(2).

      Petitioner timely filed a Petition with this Court on June 22, 2017,
disputing the FPAA and seeking readjustments of partnership items
under section 6226.

       On August 11, 2022, respondent filed a Motion for Partial
Summary Judgment seeking favorable adjudication on the issue of
whether he complied with the written supervisory approval requirement
of section 6751(b)(1) for the penalties asserted under section 6662(a),
                                      4

[*4] (b)(1), (2), and (3), and (h). On December 19, 2022, respondent filed
a First Supplement to Motion for Partial Summary Judgment in which
he argued that “complaints petitioner asserts with respect to the Penalty
Consideration Lead Sheets signed on July 16 and November 29, 2016,
are absent from the penalty-approval NOPA.” In respondent’s
supplemental filing, there is no indication to the Court that the July
Lead Sheet was in fact signed by RA Brooks on February 10, 2017.
Rather, respondent’s counsel continued to represent to the Court that
RA Brooks had in fact signed the document in question on July 16, 2016.

      On January 27, 2023, petitioner filed its Opposition to Motion for
Partial Summary Judgment. By Order served on March 24, 2023, we
granted respondent’s Motion for Partial Summary Judgment. The
parties both now seek reconsideration of our Order.

                                 Discussion

I.     Legal Background

        Section 6751(b)(1) provides that “[n]o penalty . . . shall be assessed
unless the initial determination of such assessment is personally
approved (in writing) by the immediate supervisor of the individual
making such determination.” An “immediate supervisor” is the person
who supervises the agent’s substantive work on examination. See Sand
Inv. Co. v. Commissioner, 157 T.C. 136, 142 (2021). We have previously
ruled that an “initial determination” signifies a “consequential moment”
of IRS action. See Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15
(2020) (quoting Chai v. Commissioner, 851 F.3d 190, 221 (2d Cir. 2017),
aff’g in part, rev’g in part T.C. Memo. 2015-42).

       In Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022),
rev’g in part T.C. Memo. 2020-73, the Eleventh Circuit held that “the
IRS satisfies [s]ection 6751(b) so long as a supervisor approves an initial
determination of a penalty assessment before [the IRS] assesses those
penalties.” The court interpreted the phrase “initial determination of
[the] assessment” to refer to the “ministerial” process by which the IRS
formally records the tax debt. See id. at 1278. Communications about
proposed penalties cannot be equated to an “initial determination of
such assessment.” Id. at 1277.

      Furthermore, section 6751(b)(1) does not require approval to be
indicated by a wet signature, nor any particular form of signature;
rather, respondent need only show written evidence that timely
supervisory approval was obtained. See Chadwick v. Commissioner, 154
                                           5

[*5] T.C. 84, 94 (2020) (citing Blackburn v. Commissioner, 150 T.C. 218,
223 (2018)); Belair Woods, 154 T.C. at 16 (holding that the statute
“mandates only that the approval of the penalty assessment be ‘in
writing’ and by a manager” (quoting PBBM-Rose Hill, Ltd. v.
Commissioner, 900 F.3d 193, 213 (5th Cir. 2018))); Palmolive Bldg.
Invs., LLC v. Commissioner, 152 T.C. 75, 86 (2019).

       Rule 201(a) provides that practitioners before the Court shall
carry on their practice in accordance with the American Bar Association
(ABA) Model Rules of Professional Conduct (Model Rules). ABA Model
Rule 3.3, Candor Toward the Tribunal, provides that a lawyer shall not
knowingly make a false statement of fact to a tribunal or fail to correct
a false statement of material fact previously made to the tribunal.

        The Court has the power to assess attorney’s fees against counsel
who willfully abuse the judicial process. See Dixon v. Commissioner, 132
T.C. 55, 68 (2009). These powers are derived from various sources,
including the Internal Revenue Code, our Rules, 3 the Federal Rules of
Civil Procedure, and the Court’s inherent power. See Chambers v.
NASCO, Inc., 501 U.S. 32, 46 (1991); Roadway Express, Inc. v. Piper,
447 U.S. 752, 766 (1980); Harper v. Commissioner, 99 T.C. 533, 543–44
(1992). 4

       “When an attorney representing the Commissioner has
committed a fraud on the Court, the Court has power to assess
attorneys’ fees against the Commissioner as a sanction pursuant to
section 6673(a)(2)(B) or under the Court’s inherent power.” Dixon, 132
T.C. at 68. If the attorney is appearing on behalf of the Commissioner,
the Court may require the United States to “pay such excess costs,
expenses, and attorneys’ fees in the same manner as such an award by
a district court.” I.R.C. § 6673(a)(2)(B).

        3 Although not applicable here, Rule 121(i) provides that the Court may, when

affidavits or declarations filed under this Rule are presented in bad faith or solely for
delay, award reasonable expenses which the other party was caused to incur, including
reasonable attorney’s fees.
        4 We noted in Dixon, 132 T.C. at 103, that “[a] primary aspect of the Court’s

discretion to invoke its inherent power is the ability to fashion an appropriate sanction
for conduct that abuses the judicial process.” The Court’s inherent powers may be
invoked irrespective of whether “existing statutes or procedural rules sanction the
same conduct.” Id.
                                    6

[*6] II.    Summary of Parties’ Arguments

       A.    Petitioner’s Arguments

       Petitioner contends that reconsideration of the Court’s Order
served on March 24, 2023, granting respondent’s Motion for Partial
Summary Judgment is appropriate. First, petitioner argues that the
Court relied on respondent’s false Declaration and backdated document.
Second, petitioner contends that respondent’s reliance on the July 21,
2016, NOPA as a valid section 6751(b) approval is misplaced and that
he never disclaimed the July Lead Sheet, which this Court relied upon.
Third, petitioner contends that the November Lead Sheet is likely also
invalid and does not approve the substantial valuation or gross
misstatement penalties.

      With respect to its Motion to Impose Sanctions, petitioner
contends, on the basis of false evidence presented and respondent’s
counsel’s conduct, that sanctions against respondent under section
6673(a)(2), this Court’s Rules, and the powers inherent to it are
warranted here.

       B.    Respondent’s Arguments

       Respondent also seeks reconsideration of this Court’s Order
served on March 24, 2023. Respondent acknowledges that RA Brooks
did not execute the July 2016 Lead Sheet until February 10, 2017;
however, respondent argues this approval was made timely under the
requirements of section 6751(b) on the basis of controlling law of the
Eleventh Circuit. Accordingly, respondent now contends he remains
entitled to partial summary adjudication with respect to his compliance
with section 6751(b).

       In response to petitioner’s Motion to Impose Sanctions,
respondent acknowledges how his actions—and those of his counsel—
fall short, but he contends that these actions do not rise to the level of
fraud or bad faith and therefore do not warrant the imposition of any
sanctions. Respondent argues that his counsel has complied with ABA
Model Rule 3.3(a)(1) and (3) and with Rule 201 requiring candor to the
Court. Next, respondent contends that prior to filing for partial
summary judgment his counsel made a reasonable inquiry and properly
determined that the relief sought was grounded in fact as required by
Rules 33(a) and 50(a). Respondent goes on to contend that the first
Declaration by RA Brooks was not submitted in bad faith or solely for
delay and that respondent’s actions do not warrant petitioner’s
                                    7

[*7] requested relief under Rule 123. Moreover, respondent contends
that his actions—and those of his counsel—have not multiplied these
proceedings and that his counsel have not otherwise acted recklessly or
in bad faith making respondent subject to sanctions under section
6673(a)(2) or the powers inherent to this Court.

III.   Analysis

       A.    The Parties’ Motions for Reconsideration

      Both petitioner and respondent have filed Motions for
Reconsideration of this Court’s March 24, 2023, Order, granting
respondent’s Motion for Partial Summary Judgment. In our Order we
stated in part:

       RA     Stafford’s    communication       with    LakePoint’s
       representative between May 9, 2016, and May 20, 2016,
       concerned proposed penalties and the possibility of
       resolutions prior to letting this matter go before the Court.
       We find these communications to be informal discussions
       regarding potential applicable penalties and not an “initial
       determination.” See Kroner, 48 F. 4th at 1277. Instead, the
       July Lead Sheet indicates that RA Stafford made the initial
       determination of penalties on July 15, 2016. All of the
       penalties at issue in this case were then approved by RA
       Brooks on July 16, 2016. Respondent supplied a
       Declaration confirming that RA Brooks was RA Stafford’s
       immediate supervisor as part of his Motion for Partial
       Summary Judgment. Respondent supplied a copy of the
       July Lead Sheet, which was digitally signed by RA Brooks,
       as RA Stafford’s manager. The subsequent actions of RA
       Brooks[] on July 18, 2016, are inconsequential.

       Respondent’s arguments on reconsideration, with respect to his
Motion for Partial Summary Judgment, are different from those initially
proffered in his Motion for Partial Summary Judgment. Originally, and
on the basis of RA Brooks’s Declaration dated August 9, 2022,
respondent contended that RA Brooks personally approved, in writing,
RA Stafford’s initial determination of penalties by “signing the Penalty
Consideration Lead Sheet on July 16, 2016.” Respondent, in the
alternative in a supplemental filing, argued that RA Brooks’s signature
on the July 21, 2016, NOPA satisfied section 6751(b)(1) for all penalties
                                         8

[*8] at issue in the case. 5 However, notwithstanding this secondary
argument, in this supplemental filing made on December 19, 2022,
respondent continued to represent to the Court that RA Brooks had
executed the July Lead Sheet on July 16, 2016. We agreed with
respondent’s initial argument and granted partial summary judgment
on the issue of his compliance with section 6751(b)(1) in our March 24,
2023, Order. 6

       However, it is now apparent that our ruling was predicated on
facts that were not true. Accordingly, we will grant reconsideration and
vacate our Order, which is based on erroneous facts.

               1.      Whether Respondent’s Motion Meets the Standard
                       for Reconsideration

       Reconsideration under Rule 161 is intended to correct substantial
error, either of fact or law, and facilitates the introduction of new
evidence the moving party could not have previously introduced with
due diligence. See, e.g., Estate of Quick v. Commissioner, 110 T.C. 440,
441 (1998), supplementing 110 T.C. 172 (1998). However,
reconsideration is not the appropriate forum for rehashing previously
rejected legal arguments or for tendering new legal theories to reach the
end result desired by the moving party. See id. at 441–42. Deciding
whether to grant a motion for reconsideration lies within the discretion
of the Court. See CWT Farms, Inc. v. Commissioner, 79 T.C. 1054, 1057
(1982), aff’d, 755 F.2d 790 (11th Cir. 1985).

      It is undisputed that respondent possessed all of the documents
and records when he moved for partial summary judgment in August
2022. We conclude that respondent’s Motion for Reconsideration is
inappropriate here. Respondent’s arguments in his Motion for

       5 Before our Order, respondent submitted a second Declaration by RA Brooks

dated December 14, 2022. In the second Declaration RA Brooks stated that she
approved RA Stafford’s initial determination of penalties on July 21, 2016, by
electronically signing the NOPA. The Court now understands the purpose of
submitting a second Declaration by RA Brooks, namely, that respondent was
presenting additional evidence in support of a new theory on when the initial
determination occurred. However, in this supplemental filing respondent’s counsel
failed to notify the Court that RA Brooks’s August 9, 2022, Declaration was factually
erroneous.
        6 In its Motion for Reconsideration petitioner notes that we have previously

ruled that RA Stafford’s preparation of the July Lead Sheet was respondent’s section
6751(b) initial determination.
                                         9

[*9] Reconsideration were previously considered by the Court in its
March 24, 2023, Order, and he raised no new arguments meriting
reconsideration. Accordingly, we will deny respondent’s Motion for
Reconsideration.

               2.     Whether Petitioner’s Motion Meets the Standard for
                      Reconsideration

       Unlike respondent’s Motion for Reconsideration, we find
petitioner’s motion has established sufficient grounds for
reconsideration. Namely, new evidence previously unavailable to
petitioner refutes the factual representations respondent made in RA
Brooks’s August 9, 2022, Declaration. See Estate of Quick, 110 T.C. at
441. Accordingly, we will grant petitioner’s Motion for Reconsideration.

               3.     Reconsideration of the Court’s March 24, 2023, Order

      Respondent has now abandoned his argument that the initial
determination and supervisory approval for all penalties at issue
occurred on July 16, 2016. Rather, respondent now contends penalty
approval occurred before the issuance of the FPAA in this case, when
RA Brooks reviewed and edited Form 886–A, Explanation of Items, on
July 12, 2016, signed the NOPA on July 21, 2016, and then approved
the July Lead Sheet on November 29, 2016. 7 Petitioner disputes these
arguments and contends that the NOPA is not a valid section 6751(b)
penalty approval. Petitioner also contends that there remain underlying
disputes of fact with respect to the July Lead Sheet; namely, when the
document was signed—November 29, 2016, or February 10, 2017—and
what penalties were listed on the versions of the document prepared by
RA Stafford in July 2016 and February 2017. 8 We agree with petitioner’s
arguments.

       Viewing the factual materials and the inferences drawn
therefrom in the light most favorable to petitioner, we conclude that

       7  Since we will deny respondent’s Motion for Reconsideration, it is
inappropriate to reconsider respondent’s arguments (as revised) in support of his
Motion for Partial Summary Judgment.
        8 We acknowledge petitioner’s arguments concerning (1) a second lead sheet

signed on November 29, 2016, by RA Brooks which did not include a section 6662(b)(3)
penalty for substantial valuation misstatement or section 6662(h) increased penalty
for gross valuation misstatement, and (2) an email correspondence from RA Stafford
and the TEFRA coordinator to RA Brooks concerning a missing signature on a lead
sheet. These factual issues cannot be resolved by summary adjudication.
                                    10

[*10] genuine disputes of material fact exist precluding a finding that
respondent has complied with the requirements of section 6751(b)(1).
Consequently, we will vacate our March 24, 2023, Order granting
respondent’s Motion for Partial Summary Judgment filed on August 11,
2022, as supplemented.

      B.     Petitioner’s Motion to Impose Sanctions

       Petitioner seeks sanctions under section 6673(a)(2), this Court’s
Rules, and the Court’s inherent authority to supervise its proceedings.
In its Motion to Impose Sanctions and Memorandum in Support of
Motion to Impose Sanctions, petitioner contends that sanctions are
appropriate, since RA Brooks provided a false Declaration and attached
the backdated July Lead Sheet to that Declaration. Petitioner also
contends that respondent’s counsel knew or should have known that RA
Brooks submitted a false Declaration to this Court. Petitioner’s Motion
to Impose Sanctions further cites Rule 123(b) and requests that this
Court decide the section 6751(b) penalty approval issue against
respondent and award reasonable expenses including attorney’s fees it
incurred as a result of respondent’s misconduct.

      In response respondent has acknowledged his counsel’s
shortcomings and indicated that “he should have exercised more candor
to the Court by explicitly identifying the issue with the date of the
Penalty Lead Sheet referenced in the First Brooks Declaration.”
Respondent has also acknowledged that his First Supplement to Motion
for Partial Summary Judgment “fall[s] short of the level of excellence
and professionalism that the Court has a right to expect”; however,
respondent contends his counsel’s actions do not rise to the level of fraud
or bad faith. Respondent contends that his counsel was unaware of the
issues related to the July Lead Sheet when the original Motion for
Partial Summary Judgment was filed. Respondent goes on to
acknowledge his counsel’s obligation under ABA Model Rule 3.3 of
ongoing candor to this Court and contends that his counsel took
remedial actions to correct this error.

       Considering the foregoing, we find the actions taken by
respondent, namely his November 7, 2022, Response to Petitioner’s First
Request for Admissions, and December 19, 2022, First Supplement to
Motion for Partial Summary Judgment, fall short of respondent’s
obligation to this Court. It is undisputed that this Court was not made
aware of the backdated July Lead Sheet and erroneous RA Brooks
Declaration until April 10, 2023, which was some seven months after
                                    11

[*11] the Motion for Partial Summary Judgment was filed, and some
five months after respondent’s counsel knew (or should have known) of
the backdated signature.

      The facts before us support a finding that respondent’s counsel
was less than forthcoming with this Court. The month before filing his
First Supplement to Motion for Partial Summary Judgment on
December 19, 2022, respondent also denied petitioner’s Request for
Admissions seeking to confirm that RA Brooks executed the July Lead
Sheet on July 16, 2016. In his written response dated, November 7, 2022,
respondent stated: “Admits Agent Brooks executed the [July] penalty
lead sheet, denies for lack of sufficient information the exact date the
lead sheet was executed.” Then on March 3, 2023, respondent’s counsel
produced emails between RA Brooks and RA Stafford reflecting that RA
Brooks signed the July Lead Sheet on February 10, 2017 (not July 16,
2016). At the same time, however, he continued to represent to this
Court in the First Supplement to Motion for Partial Summary Judgment
that RA Brooks signed the July Lead Sheet on July 16, 2016.

       It was respondent’s counsel who previously recommended in a
February 2017 internal memorandum to RA Stafford that she include
both the substantial valuation and gross valuation misstatement
penalties. Even if respondent’s counsel did not initially recall the
sequence of penalty approvals in this case, at a minimum counsel for
respondent had a duty to the Court to timely correct these erroneous
factual representations in November 2022. RA Brooks informed
respondent’s counsel by email on November 2, 2022, that she had
noticed a discrepancy between the July and November Lead Sheets and
stated: “Based on the email and the differences in the lead sheet . . . I
am not sure that the typed in date of 7/16/2016 on this version Word doc
lead sheet was accurate for that document—it is important to note also
that the file I located matching the p27 exhibit is dated 2/10/2017.”

       On the basis of the foregoing, we find respondent’s counsel knew
or should have known, no later than November 2, 2022, that his
representations made to this Court were less than accurate and lacked
candor and that RA Brooks’s Declaration was false. Under ABA Model
Rule 3.3, respondent’s counsel has an ongoing obligation to correct these
misrepresentations of fact but failed to do so. Rather than correcting this
material misrepresentation found in respondent’s Motion for Partial
Summary Judgment, respondent’s counsel sought to pivot and present
additional evidence on an alternative legal theory without withdrawing
or conceding the original legal theory for why summary adjudication was
                                         12

[*12] appropriate here. Furthermore, no other remedial action was
taken with the Court to correct the error until April 10, 2023, which was
after this Court had issued its Order granting respondent’s Motion.

        In sum we find respondent’s counsel failed to timely advise the
Court of RA Brooks’s erroneous Declaration. Accordingly, we find the
actions of respondent’s counsel to be in bad faith and to have multiplied
the proceedings in this case unreasonably and vexatiously. See I.R.C.
§ 6673(a)(2). In fact the actions of respondent’s counsel have, among
other things, resulted in petitioner’s retaining additional counsel to
elicit the truth regarding the section 6751(b) issues in this case and have
substantially increased the discovery and motion practice required.
However, the actions of these actors should not be attributed to
respondent directly. 9

        Respondent acknowledges that this Court has previously
awarded attorney’s fees and expenses to a taxpayer under section
6673(a)(2)(B) on the basis of misconduct of the Commissioner’s counsel;
however, respondent here contends that his counsel’s conduct does not
rise to the level of misconduct found in Dixon, 132 T.C. at 68. We
disagree. Both parties cite Eleventh Circuit cases for the proposition
that bad faith turns on an attorney’s objective conduct. See Amlong &
Amlong, P.A. v. Denny’s, Inc., 500 F.3d 1230, 1239 (11th Cir. 2007). We
find that the objective actions of respondent’s counsel rise to the level of
bad faith. See Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1178 (11th Cir.
2005) (“[T]he proper standard in the Eleventh Circuit for an award of
attorney’s fees from opposing counsel is conduct tantamount to bad
faith. In other words, in contradistinction to several of its sister circuits,
the Eleventh Circuit does not require an express factual finding by the
Court that Plaintiff’s counsel acted in deliberate bad faith, merely that
counsel’s conduct sunk so far beneath a reasonable standard of
competence, much deeper than mere negligence, that it became
essentially indistinguishable from bad faith.” (quoting Cordoba v.

        9 We also acknowledge the actions of newly appearing IRS Chief Counsel, their

meeting with petitioner’s representative in May 2023, and their subsequent efforts to
provide clarity and correction to the erroneous factual representations made by
original counsel.
                                        13

[*13] Dillard’s, Inc., No. 6:01-cv-1132ORL19KRS, 2003 WL 21499011,
at *7 (M.D. Fla. June 12, 2003))). 10

       Petitioner also seeks relief under Rule 123(b) by requesting an
adverse ruling on respondent’s compliance with the penalty approval
requirement in section 6751(b). Respondent opposes this relief and
contends that “there is no basis on which to impose sanctions, much less
the extreme sanction of determining a major adjustment in the case
adversely to respondent as punishment for what was at most an
unintentional and unknowing violation of the duty of candor.” We do not
accept respondent’s argument in full. While the actions of respondent’s
counsel may have begun as unintentional and unknowing—as detailed
above—we find his counsel’s actions lacked candor for some five months
before counsel disclosed the issue to the Court. However, we do agree
that granting an adverse ruling would be inappropriate here; therefore,
we decline to grant the relief petitioner seeks under Rule 123(b).

       On the other hand, a government attorney who unreasonably and
vexatiously multiplies Tax Court proceedings brings down upon the
United States, subjects the United States to, and makes the United
States vulnerable to liability for the costs, expenses, and fees
attributable to the services of the taxpayer’s attorney’s professional
services that are required as an appropriate response to the misconduct.
I.R.C. § 6673(a)(2). The United States incurs the attorney’s fees by
operation of law under section 6673(a)(2)(B), just as a taxpayer incurs a
penalty for his own misconduct under section 6673(a)(2)(A). See Dixon,
132 T.C. at 86. The operative phrase of section 6673 to be interpreted is
“excess costs, expenses, and attorneys’ fees reasonably incurred because
of such conduct.” The part of the phrase “excess costs, expenses, and
attorneys’ fees” means only the costs, expenses, and fees associated with
the multiplied proceedings and not the total cost of the litigation.

      Under section 6673(a)(2) we must determine what fees and
expenses were incurred by petitioner’s counsel because of respondent’s
counsel’s unreasonable and vexatious misconduct. See Harper, 99 T.C.
at 549 (describing computations under section 6673); see also Huffman
v. Saul Holdings Ltd. Pship., 262 F.3d 1128, 1135 (10th Cir. 2001)

       10 The text of 28 U.S.C. § 1927 is substantially the same as that of section

6673(a)(2), and the two statutes serve the same purposes in different forums. See
Johnson v. Commissioner, 289 F.3d 452 (7th Cir. 2002), aff’g 116 T.C. 111 (2001).
                                           14

[*14] (discussing fees awarded under 28 U.S.C. § 1447(c)). 11 On the
basis of the record before us, we find it is premature to award costs and
fees to petitioner since no evidence of the excess costs and fees incurred
has been submitted; rather, we find it is appropriate for us to make such
a determination in the future.

        We will grant, in part, petitioner’s Motion to Impose Sanctions
under section 6673(a)(2), 12 and we will reserve ruling on respondent’s
liability for excess costs until after trial. We will otherwise deny the
relief sought in petitioner’s Motion to Impose Sanctions.

        To reflect the foregoing,

        An appropriate order will be issued.

        11 In computing attorney’s fees sanctions under 28 U.S.C. § 1927, the generic

sanctioning statute, federal district courts apply the lodestar method without regard
to the client’s obligation to pay the attorney at the billed rate; and whether the client
has in fact paid his attorneys at the rate billed is irrelevant to the issue of the amount
of the sanction. Dixon, 132 T.C. at 84–85.
        12 We need not address whether to grant petitioner’s Motion to Impose

Sanctions under the powers inherent to this Court since the conduct of respondent’s
counsel is adequately addressed and sanctioned by section 6673(a)(2).