Estate of Kurt A. Amplatz v. Commissioner, T.C. Memo. 2026-35.

In 2014, Kurt A. Amplatz formed KA Medical, LLC (KA Medical), a medical device company. Through the Medical Trust, Mr. Amplatz contributed $500,000 for 500,000 membership units. Furthermore, a separate entity, the Funding Trust, transferred approximately $19 million to KA Medical for research and development in exchange for promissory notes. Between 2015 and 2018, KA Medical generated no revenue, and no principal or interest payments were made on the promissory notes.

Mr. Amplatz passed away on November 6, 2019. Less than a year later, in July 2020, the company received a nonbinding letter of intent from a buyer to purchase KA Medical for $15 million. However, relying on an independent appraisal from Value Consulting Group dated July 20, 2020, the Estate filed Form 706, selecting an alternate valuation date of May 6, 2020, and reported the value of its membership units in KA Medical at zero and the promissory notes at $1 million. In November 2020, the Estate formally sold all membership units in KA Medical to the buyer for $15 million.

The Internal Revenue Service (IRS) subsequently examined the Estate's Form 706 and adjusted the value of KA Medical to $15,145,000, while alternately valuing the promissory notes at either zero (treated as equity) or $17,686,508. The IRS issued a Notice of Deficiency determining an estate tax deficiency of $5,686,714 and assessed accuracy-related penalties under I.R.C. § 6662 totaling $2,423,200.

The Taxpayers Request for Relief

The Estate filed a Motion for Partial Summary Judgment seeking relief on two primary grounds. First, the Estate requested that the Court preclude the IRS from asserting its valuation of KA Medical and the promissory notes because the IRS failed to comply with the mandatory written statement requirements of I.R.C. § 7517 upon the Estate's request. Second, the Estate argued it should not be liable for the § 6662 accuracy-related penalties because it acted with reasonable cause and in good faith under I.R.C. § 6664(c) by relying on an independent appraisal.

Conversely, the IRS filed a Cross-Motion for Partial Summary Judgment arguing that it had fully complied with the supervisory penalty approval requirements of I.R.C. § 6751(b)(1) and that it had satisfied I.R.C. § 7517, or alternatively, that noncompliance with I.R.C. § 7517 does not result in the forfeiture of the IRS's asserted valuations.

The Court's Analysis of the Law The Court reviewed the statutory requirements of three critical procedural and penalty provisions:

Section 6751(b)(1) Penalty Approval: The Court noted that I.R.C. § 6751(b)(1) mandates that the initial determination of a penalty be personally approved in writing by the immediate supervisor of the individual making the determination. Citing Belair Woods, LLC v. Commissioner, 154 T.C. 1, 16 (2020), the Court emphasized that "[t]he natural place to look for an initial ‘determination’ of a penalty assessment is a document that formally communicates to the taxpayer a definite decision to assert penalties".

Section 7517 Furnishing Statement on Request: I.R.C. § 7517(a) requires the IRS, upon written request, to furnish a written statement explaining the basis on which a valuation was determined within 45 days. The statement must explain the valuation basis, set forth any computation used, and contain a copy of any expert appraisal made by or for the Secretary. However, citing Minahan v. Commissioner, 88 T.C. 492 (1987), the Court recognized that the statute does not require a specific format, and none of the information disclosed is binding on the Commissioner.

Section 6664(c) Reasonable Cause: To avoid accuracy-related penalties under I.R.C. § 6662, a taxpayer must demonstrate reasonable cause and good faith. Citing Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 98 (2000), the Court reiterated that "Reasonable cause requires that the taxpayer have exercised ordinary business care and prudence as to the disputed item" which may be satisfied by good faith reliance on a competent, independent professional.

Application of the Law to the Facts

The Court applied the law to the cross-motions as follows:

Compliance with Section 6751(b)(1): The IRS demonstrated that the examining agent's immediate supervisor signed a Civil Penalty Lead Sheet and a Civil Penalty Approval Form on May 17, 2023, approximately one month before the IRS sent the preliminary examination report to the Estate. Because the approval occurred prior to the first formal communication of the penalties, the Court held that the IRS definitively met the procedural requirements of I.R.C. § 6751(b)(1).

Failure to Comply with Section 7517: After receiving the preliminary examination report, the Estate submitted a formal I.R.C. § 7517 request on June 28, 2023. The IRS did not issue a direct response, but issued a Notice of Deficiency within the 45-day window on July 17, 2023. The Court sidestepped deciding whether the Notice of Deficiency satisfied the statute, focusing instead on the remedy. Relying on Estate of Rickman v. Commissioner, T.C. Memo. 1995-545, the Court found that "[b]y its plain text, section 7517 does not suggest any consequence for noncompliance". Because the statute lacks an enforcement mechanism, the Court bluntly refused the Estate's request to invalidate the IRS's valuation, stating: "without express terms setting forth otherwise 'we will not graft . . . extreme remed[ies] onto [section 7517]'".

Reasonable Cause and Good Faith: The Estate relied heavily on the appraisal report by Value Consulting Group to establish reasonable cause. However, the IRS pointed out critical factual disputes, specifically questioning whether the Estate fully disclosed to the appraiser the concurrent, highly lucrative $15 million purchase negotiations taking place near the valuation date. Because establishing reasonable cause requires a review of all facts and circumstances, the Court ruled that "Reasonable cause under section 6664(c)(1) is inherently fact-intensive, and the Estate’s ability to satisfy its requirements here presents a triable issue" precluding summary judgment.

Conclusions

The Tax Court concluded that the IRS secured timely supervisory approval for the assessed penalties, granting summary judgment for the IRS on the I.R.C. § 6751(b)(1) issue. However, the Court denied summary judgment for both parties regarding the I.R.C. § 7517 valuation statement, definitively ruling that precluding the IRS from asserting its valuation is not a legally available remedy for a failure to respond to a § 7517 request. Finally, the Court denied the Estate's motion to abate the penalties, holding that the Estate's reasonable cause defense under I.R.C. § 6664(c) involves material disputes of fact that must be resolved at trial.

Prepared with assistance from NotebookLM.