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Partita Partners LLC v. United States

United States District Court, S.D. New York

July 10, 2017

PARTITA PARTNERS LLC and DENISE JO LEVY, a partner other than the tax matters partner, Plaintiffs,


          P. KEVIN CASTEL, United States District Judge

         In 2008, plaintiff Partita Partners LLC (“Partita”) claimed a federal tax deduction of $4, 186, 000 for the donation of a preservation easement in the façade of a building that it owns on the Upper East Side. The Italianate-style building was constructed in the 1870s, and it has been a part of the Upper East Side Historic District since 1981. Partita made its donation to the Trust for Architectural Easements, and, as part of its deed of easement, reserved 2, 700 square feet for future development rights.

         The IRS disallowed the deduction in 2014. The IRS also assessed an underpayment penalty against Partita of 40 percent, asserting that Partita had made a gross valuation misstatement. In the alternative, the IRS assessed an underpayment penalty of 20 percent on grounds of negligence, substantial understatement of income tax or a substantial valuation misstatement. See 26 U.S.C. § 6662.

         Partita and one of its partners, Denise Jo Levy, commenced this action pursuant to 26 U.S.C. § 6226(b), asserting that Partita's taxes should be readjusted to recognize the charitable deduction of the façade easement donation, and that no underpayment penalty should be imposed.

         On October 25, 2016, this Court granted a motion for partial summary judgment that was filed by the United States. Partita Partners LLC v. United States, 216 F.Supp.3d 337 (S.D.N.Y. 2016) (“Partita I”). The Court concluded that, as a matter of law, Partita's donation of the façade easement did not preserve the building's entire exterior, as required by 26 U.S.C. § 170(h)(4)(B), and that Partita therefore was ineligible for the $4, 186, 000 deduction that it claimed. See id. at 339-43.

         The only remaining issue is plaintiffs' challenge to the underpayment penalties. At a pretrial conference of October 28, 2016, the Court granted leave to plaintiffs to move for partial summary judgment on the issue of penalties. The government argues that a trial is needed to resolve plaintiffs' challenge to the penalties.

         For the reasons explained, the plaintiffs' motion for partial summary judgment is denied.


         Summary judgment “shall” be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Rule 56(a), Fed.R.Civ.P. A fact is material if it “might affect the outcome of the suit under the governing law . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). On a motion for summary judgment, the court must “construe the facts in the light most favorable to the non-moving party and resolve all ambiguities and draw all reasonable inferences against the movant.” Delaney v. Bank of Am. Corp., 766 F.3d 163, 167 (2d Cir. 2014) (quotation marks omitted). It is the initial burden of the movant to come forward with evidence on each material element of his claim or defense, demonstrating that he is entitled to relief, and the evidence on each material element must be sufficient to entitle the movant to relief in its favor as a matter of law. Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004).

         If the moving party meets its burden, “the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.” Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008). “A dispute regarding a material fact is genuine ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000) (quoting Anderson, 477 U.S. at 248).


         I. Partita's Motion for Summary Judgment Is Denied as to the Valuation Misstatement Penalties.

         A. The Penalties Established by Section 6662.

         As noted, the Court has previously concluded that Partita was not eligible for a charitable deduction based on its donation of a historic preservation easement, because the donation did not preserve the entire exterior of the building, as required by the plain language of the Internal Revenue Code. Partita I, 216 F.Supp.3d at 341-43; 26 U.S.C. § 170(h)(4)(B)(i)(I). Familiarity with Partita I is assumed.

         Section 6662 of the Internal Revenue Code establishes penalties for the underpayment of taxes. It provides that “there shall be added to the tax an amount equal to 20 percent of the portion of underpayment, ” including when underpayment “is attributable to 1 or more of the following” specified circumstances. 26 U.S.C. § 6662(a), (b). The 20 percent penalty applies when the underpayment of taxes is caused by “[n]egligence or disregard of rules or regulations, ” “[a]ny ...

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