I wasn’t going to cover this. I usually don’t cover tax fraud, but this is closer to garden variety fraud committed as part of a tax case. The irony of the IRS committing fraud in a tax case is simply too good to pass up.
This gets technical so hang on, it’s worth it. Congress created “syndicated conservation easements” in the 1980’s. Essentially land owners could donate development rights on a piece of land to a qualified charity in exchange for a tax deduction. Essentially this is a tax break for not covering every piece of land in concrete.
Unsurprisingly, the easements have become big business. Companies buy up land, have it appraised for its foregone developmental value, and then sell stakes to investors who receive the tax benefit. Unsurprisingly, some people don’t like this aspect and the IRS started cracking down on inflated land appraisals.
There’s just one hiccup. The federal tax code requires an IRS supervisor to approve in writing the initial determination of a penalty. It told you this would get technical. In the case of Lakepoint Land II LLC v. Commissioner that didn’t happen in 2016 like it should have. The company presented emails in the case which showed the IRS didn’t get a supervisor’s written approval for a $15 million penalty.
Okay. Somebody made a mistake. No harm, no foul, the company gets off on a technicality, right? It happens. Wrong. They say the problem is not the crime but the coverup and boy did the IRS appear to engage in a coverup.
The supervisor backdated her signature by seven months. This wasn’t a case of forgetting to sign on Friday so she signed on Monday and back-dated it. Seven months is not an honest mistake. Additionally, IRS attorneys swore to the accuracy of the date and continued to mislead the court even after the lie was discovered.
This paragraph is too good not to quote:
“A judge in U.S. Tax Court had sanctioned the IRS in the case, ripping the agency’s counsel for acting in “bad faith” and having “multiplied the proceedings in this case unreasonably and vexatiously” by failing to tell the court that documents it used to assess a penalty had been backdated.”
The IRS agreed to settle this case without any penalties to Lakewood, IRS attorneys were sanctioned, read fined, and the IRS was ordered to pay Lakewood’s attorney fees and costs.
The Wall Street Journal opinion article alleges that there are other cases like this. This is still fraud and monkey business like this goes on in non-governmental organizations as well.