IRS Asked to Admit to More Easement Penalty Approval Backdating

Three conservation easement donors have asked the IRS to admit it backdated penalty approval forms in their cases, after the agency recently admitted it backdated an approval form in a separate easement case.

The three easement donors—partnerships Arden Row Assets LLC, Basswood Aggregates LLC, and Delwood Resources LLC—each included an exhibit in US Tax Court filings that they want the Internal Revenue Service to concede shows an agency team manager admitting to backdating penalty forms. Attorney Todd Welty, who heads Todd Welty PC and represents the donors, provided the Aug. 16 filings to Bloomberg Law Monday.

The filings come after the IRS admitted it backdated an approval signature on a penalty form in a separate easement case, Lakepoint Land II, LLC v. Commissioner, and then misled the Tax Court about it. In that case, the supervisor described her initial misrepresentation to the court 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.

The requests for agency admissions concern a requirement under tax code Section 6751(b) for the IRS to get an immediate supervisor’s written approval of the initial determination to assess various penalties.

The exhibit shows what appears to be a March 2022 email exchange, with an IRS employee telling a team manager that “the date you use to sign should be either the date you ‘approved’ penalties against the Taxpayer (7/14/21)...or a little thereafter?” The team manager responds a few days later by attaching three documents and stating, “All 3 are signed with date of July 14, 2021,” according to the exhibit.

The partnerships’ cases, along with several other cases, have been consolidated for case management at the Tax Court. The IRS determined each of the three partnerships owed penalties of about $8.4 million, and also that they couldn’t claim any of the charitable deductions they reported, which were each about $57 million, according to the partnerships’ petitions.

In the new filings, each partnership asks the IRS to admit an agency team manager “backdated the penalty consideration lead sheet for this Matter by exactly 8 months from March 14, 2022 to July 14, 2021,” and that the agency isn’t relying on any document beyond the exhibit to establish it complied with the approval requirement.

A conservation easement donation involves giving away property development rights in order to promote conservation. Such gifts are deductible if the requirements of tax code Section 170(h) are met, but the IRS has aggressively targeted the deduction claims, arguing that many rely on highly-inflated easement valuations.

The IRS didn’t immediately respond to a request for comment.

The cases are Arden Row Assets, LLC v. Commissioner, T.C., No. 3817-23, admissions request 8/16/23 , Basswood Aggregates, LLC v. Commissioner, T.C., No. 3820-23, admissions request 8/16/23, and Delwood Resources, LLC v. Commissioner, T.C., No. 3821-23, admissions request 8/16/23.