Sometimes the IRS is Even Steven

Seinfeld fans will recall the episode called "Even Steven", where Jerry was Even Steven. If he lost a gig, another one became available. If he lost money, he would find the same amount somewhere else.

In two recent cases, the IRS was Even Steven, like Jerry. In one case, Lakepoint Land II LLC v. Commissioner, Tax Court Docket No. 13925-17, the IRS stands accused of knowingly using a backdated document to win a penalty defense. In the second case, Soleimani v. Commissioner, T.C. Memo 2023-60, the IRS prevailed in disallowing millions of dollars in deductions, after the court determined the taxpayers were relying on forged documents and information from a fictious lawyer.

In Lakepoint, the IRS issued a Final Partnership Administrative Adjustment disallowing conservation easement deductions claimed on Lakepoint 2013 and 2014 tax returns. In addition, the IRS proposed significant penalties. The IRS filed a motion for partial summary judgement (MPSJ) asking the court to rule that the IRS had complied with the penalty approval steps required by Section 6751(b). Readers will recall that Section 6751(b) requires written supervisor approval before penalties are assessed. In support of the MPSJ, the IRS attached a lead sheet showing a supervisor penalty approval signature dated July 16, 2016 and a declaration from the supervisor stating she signed the approval on July 16, 2016. The court granted the IRS motion for partial summary judgement but soon thereafter the taxpayer discovered evidence that the supervisor had not signed the approval in July 2016, but instead signed the approval in February 2017 and backdated the document. In addition, according to the taxpayer’s motion to reconsider the MPSJ and request for sanctions, the IRS attorneys became aware of the backdated document before the court’s MPSJ ruling, but failed to notify the court. In its own motion for reconsideration, the IRS has apologized to the court, but said that although the document was backdated, the supervisor approval was timely, i.e. no harm no foul. The Court is currently considering the motions for reconsideration and the request for sanctions.

The IRS had a much better day in Soleimani, where the IRS was disallowing the taxpayers’ claims for losses from real property seized by the government of Iran. According to Mr. Soleimani, his uncle informed him in 1981 that there were three Tehran properties worth approximately $5.5 million in his name. In 2006, Soleiamni decided to sell the properties and asked a friend who regularly travel to Tehran to help him. The friend claimed he hired an Iranian attorney, Mohammad Ali Soltanpour, to investigate a potential sale of the property. Soltanpour purportedly obtained documents showing that Soleimani acquired the three properties in the late 1970’s but the Iranian government had seized the properties in 2007. After the taxpayer presented the friend’s testimony, expert testimony and the records from Soltanpour, the court noticed significant discrepancies between the property descriptions and the map of Tehran. The court granted the IRS leave to hire its own expert, who discovered the Iranian attorney, Soltanpour, did not exist, his bar number was not assigned and no one at his purported address knew who he was. In addition, the IRS presented evidence that two of the properties at issue were never owned by Soleiamni. The court agreed with the IRS and denied the losses, but denied the IRS request for a fraud penalty, because the request was made too late.

The IRS generally wins more cases than it loses because it settles the hard cases and tries the bad fact cases. However, in Lakepoint and Soleimani, the IRS was Even Steven.

If you have any tax-related questions please feel free to contact me at jcrouch@meadowscollier.com.