IRS Gives More Ground in Settling Case of Backdated Documents

The IRS will let a conservation easement donor claim a deduction of about $7.9 million after the agency agreed to settle the case in which it admitted it backdated a penalty approval form.

In Lakepoint Land II, LLC v. Commissioner, the agency admitted that an employee backdated the approval signature on a penalty form in the case and misled the Tax Court about it. In the months following, the IRS agreed to settle and forgo the donor’s $15.2 million penalty.

Lakepoint, a partnership based in Georgia, claimed a deduction of over $38 million on donated land development rights in 2013 and 2014 returns, which the Internal Revenue Service disallowed and added the penalty, arguing that the deduction was inflated.

Following settlement talks, the partnership’s deduction was adjusted to about $7.9 million, according to the lodged decision filed by the IRS in US Tax Court on Nov. 2. It was filed concurrently with a motion for entry of decision.

Lakepoint agreed with the entry of the proposed decision and won’t face penalties for any underpayment of taxes. The IRS is liable for attorney fees and costs, though the filing said it amounts to $0.

The IRS said it conceded penalties in this case because it didn’t establish that it satisfied the procedural requirements under Section 6751(b) in which an IRS supervisor had to give written approval of the initial determination of penalties.

The agency said “no negative inference regarding the merits of the penalties should be drawn from the respondent’s concession of the penalties in the instant case.”

The IRS has been laser-focused on enforcing tax laws about conservation easements—when a partnership donates land development rights to a nonprofit and then allocates the shares of the charitable deduction to investors—arguing that many partnerships claim a charitable deduction based on an inflated appraisal of the land.

In LakePoint’s case, the IRS supervisor described her initial misrepresentation to the court about the penalty-approval form as an “unintentional error,” and the agency admitted it should have “more fully explained the circumstances surrounding the placement of the date,” but it denied acting fraudulently or in bad faith.

Three more conservation easement donors asked the IRS to admit it backdated penalty approval forms in their cases. Separately, two other donors asked the Tax Court reconsider its determination in their cases from last year.

One of the terms of this settlement is that it is limited to this specific case and may not be used in any other court proceedings, according to the filing.

LakePoint was represented by Todd Welty PC. A representative of Todd Welty wasn’t immediately available for comment. The IRS didn’t immediately respond to a request for comment.

The case isLakepoint Land II, LLC v. Commissioner, T.C., No. 13925-17, 11/2/23