IRS Finds Over a Dozen Cases That Lacked Supervisory Approval

The IRS found 13 cases where it wasn’t following rules for approving penalties in the wake of the agency’s settlement over a multimillion-dollar penalty with a conservation easement donor, a watchdog said in a report released Tuesday.

The IRS reviewed over 1,200 cases—both docketed and nondocketed—and found 13 cases that lacked supervisory approval. Of those cases, seven involved backdated penalty approvals where the IRS conceded over $68 million in penalties, the Treasury Inspector General for Tax administration said in a report.

The IRS and a conservation easement donor reached an agreement to settle after a battle over the approval of a $15.2 million penalty in September 2023. The deal came after the IRS previously admitted that an employee backdated the approval signature on a penalty form in the LakePoint Land II, LLC v. Commissioner easement case and misled the Tax Court about it.

LakePoint formed a conservation easement—where a partnership donates land development rights to a nonprofit and then allocates shares of charitable deductions to investors. The IRS had deemed certain of these easements abusive. In LakePoint, the donor had claimed a $38 million deduction, which the IRS disallowed, and a $15.2 million penalty was added. The IRS has historically argued that deductions are often highly inflated appraisals of what the donated rights are worth.

TIGTA said the disciplinary actions ranged from non-disciplinary counseling letters to written reprimands in the cases where the agency lack supervisory approval. The IRS agreed with several recommendations to improve employee practices and procedures.