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Battle Flat, LLC v. United States

United States District Court, D. South Dakota, Western Division

September 21, 2015

BATTLE FLAT, LLC, a South Dakota, Limited Liability Company, Plaintiff,




Plaintiff Battle Flat, LLC (“Battle Flat”) filed a complaint seeking to recover late-filing penalties the government allegedly unlawfully assessed against it for the 2007 and 2008 tax years. (Docket 1). The government denies Battle Flat’s claim. (Docket 9). Pending before the court is the government’s motion for summary judgment. (Docket 13). Battle Flat resists the government’s motion. (Docket 20). For the reasons stated below, the government’s motion for summary judgment is granted.


Because Battle Flat does not dispute the government’s statement of material facts (Docket 19), the court incorporates the government’s statement of material facts by reference. (Docket 15). Further recitation of salient facts, including the two additional paragraphs of information propounded by Battle Flat (Docket 19 at p. 3), is included in the discussion section of this order.


1. Standard Applicable to Summary Judgment Motions

Under Fed.R.Civ.P. 56(a), a movant is entitled to summary judgment if the movant can “show[] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Only disputes over facts that might affect the outcome of the case under the governing substantive law will properly preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Id. at 247-48 (emphasis in original).

In determining whether summary judgment should issue, the facts and inferences from those facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986). In order to withstand a motion for summary judgment, the nonmoving party “must substantiate [their] allegations with ‘sufficient probative evidence [that] would permit a finding in [their] favor on more than mere speculation, conjecture, or fantasy.’ ” Moody v. St. Charles County, 23 F.3d 1410, 1412 (8th Cir. 1994) (citing Gregory v. Rogers, 974 F.2d 1006, 1010 (8th Cir. 1992)).

In assessing a motion for summary judgment, the court is to “consider only admissible evidence and disregard portions of various affidavits and depositions that were made without personal knowledge, consist of hearsay, or purport to state legal conclusions as fact.” Howard v. Columbia Public School District, 363 F.3d 797, 801 (8th Cir. 2004); see Fed.R.Civ.P. 56(e) (a party may not rely on his own pleadings in resisting a motion for summary judgment; any disputed facts must be supported by affidavit, deposition, or other sworn or certified evidence). The nonmoving party’s own conclusions, without supporting evidence, are insufficient to create a genuine issue of material fact. Anderson, 477 U.S. at 256; Thomas v. Corwin, 483 F.3d 516, 527 (8th Cir. 2007); Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc).

2. The Appropriate Level of Deference Owed to Revenue Procedure 84-35

The parties’ dispute lies in the amount of deference, if any, owed to Revenue Procedure 84-35. See Rev. Proc. 84-35, 1984-1 C.B. 509 (1984). The court’s analysis begins with a summary of 26 U.S.C. § 6698, its legislative history and the deference, if any, typically given to an Internal Revenue Service (“IRS”) revenue procedure.

Section 6698 of Title 26 allows the IRS to assess penalties “for each month (or fraction thereof)” against a partnership for failing to file a partnership tax return, Form 1065, on or before the prescribed filing deadline.[1] 26 U.S.C. § 6698(a)(2); see also 26 U.S.C. § 6031 (describing the requirements of a partnership federal income tax return). The penalty provisions of § 6698 do not apply if the partnership’s failure to timely file its tax return “is due to reasonable cause.” 26 U.S.C. 6698(a). “Reasonable cause” is not defined in the statute, see id., but the taxpayer bears the burden of proving it meets the reasonable cause exception. See Shafmaster v. United States, 707 F.3d 130, 137 (1st Cir. 2013) (“The taxpayer bears the burden of proving both reasonable cause and the absence of willful neglect.”) (citing United States v. Boyle, 469 U.S. 241, 245 (1985)); see also Gustashaw v. C.I.R., 696 F.3d 1124, 1139 (11th Cir. 2012) (“The taxpayer bears the burden of establishing that he acted with reasonable cause and in good faith.”) (citing Calloway v. Comm’r, 691 F.3d 1315 (11th Cir. 2012)); Thompson v. C.I.R., 312 F. App’x 831, 831 (8th Cir. 2009) (affirming the tax court’s determination that the plaintiff “had not shown reasonable cause warranting an exception to the accuracy-related penalty assessed.”).

In the legislative history supporting § 6698, the Committee on Ways and Means concluded “full reporting of the partnership income and deductions by each partner is adequate and that it is reasonable not to file a partnership return in this instance.” H.R. Rep. 95-1445, 75, 1978 U.S.C.C.A.N. 7046, 7111. In support of this conclusion, the Committee noted “small partnerships (those with 10 or fewer partners) often do not file partnership returns, but rather each partner files a detailed statement of his share of partnership income and deductions with his own return.” Id. Similarly, 26 U.S.C. § 6231 defines the term “partnership” as “not includ[ing] any partnership with 10 or fewer partners each of whom is an individual (other than a non-resident alien), a C corporation, or an estate of a deceased partner.” 26 U.S.C. § 6231(a)(1)(B)(i). Neither § 6698 nor its legislative history explicitly impose a requirement that the individual partners timely file his or her individual income tax returns in order for the ...

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