Recent revelations involving documents found to be backdated by the IRS in the case of Lakepoint Land II, LLC v. Commissioner resulted in the Tax Court imposing sanctions on the IRS. Further inquiries ensued as to whether the IRS also proffered backdated penalty documents in other similar cases, hinting at a troubling picture of potentially systemic issues within the IRS.
Lakepoint Land II, LLC v. Commissioner
On August 29, 2023, the Tax Court served a Memorandum Opinion in the case of Lakepoint Land II, LLC v. Commissioner, T.C. Memo. 2023-111, concluding that IRS counsel in the case knew or should have known no later than November 2, 2022, that his representations to the Court as to when a revenue agent signed a penalty lead sheet were less than accurate, and that IRS counsel failed to timely advise the Court of the revenue agent's erroneous declaration.
The issue of when the penalty lead sheet was signed involves Internal Revenue Code section 6751(b)(1), which prohibits the IRS from assessing a penalty unless the initial determination to apply the penalty is first approved in writing by the intermediate supervisor of the IRS employee who made such determination. Section 6751(b)(1) has been the subject of much debate over the last few years, with different courts adopting different interpretations of the phrase "initial determination of [the] assessment." Compare Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022), rev'g in part T.C. Memo. 2020-73, with Laidlaw's Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1074 (9th Cir. 2022), rev'g and remanding 154 T.C. 68 (2020), and Chai v. Commissioner, 851 F.3d 190, 220 (2d Cir. 2017), aff'g in part, rev'g in part T.C. Memo. 2015-42.
During the examination of the taxpayer in Lakepoint, IRS revenue agents failed to...
