A Florida man failed to prove that nearly $25 million in transfers to him were gifts that he didn’t need to report as taxable income, but the IRS can’t collect any of the nearly $1.9 million it assessed in penalties because it didn’t approve the penalties in time, the U.S. Tax Court ruled.
Burt Kroner argued that the transfers were gifts under tax code Section 102, which depended on the intention of David Haring, the transferor. Kroner said he developed a close personal relationship with Haring as a result of a long business relationship. Kroner said it ended up with Haring sending Kroner the gift money.
But the court found in its Monday opinion that Kroner’s story was unconvincing and the testimony of two other witnesses in his support wasn’t credible.
“Petitioner’s story is simply insufficient to prove that he and Mr. Haring had anything more than a business relationship where occasionally personal matters were discussed,” Judge Joseph Robert Goeke said.
Kroner was nonetheless able to avoid a 20% penalty for tax underpayment because the court found that the IRS didn’t satisfy a requirement under tax code Section 6751(b) for an immediate supervisor to approve an initial determination of a penalty.
The IRS had argued that a letter to Kroner on potential penalties sent before getting supervisory approval wasn’t the initial determination. The IRS said it was meant to invite Kroner to submit more information when there was an understanding that he wouldn’t pursue an administrative appeal at that time.
The court rejected that argument, noting that the letter proposed the penalties and gave Kroner a chance to file a protest with the IRS Appeals Office.
Barbara T. Kaplan, Scott E. Fink, and G. Michelle Ferreira of Greenberg Traurig LLP, who represented Kroner, didn’t immediately return requests for comment. The IRS also didn’t immediately return a request for comment.
The case is Kroner v. Comm’r, T.C., No. 23983-14, 6/1/20.