Restricted Property Trusts

After several years of legal battles with the IRS, we are thrilled to inform you that Restricted Property Trusts have been vindicated in the US Court of Appeals for the Sixth Circuit. On March 3, 2022, the Appellate Panel of three judges ruled unanimously in our favor! Please join me as I recap the winding legal path that has led to this victory.

In the Fall of 2016, the IRS started a task force to specifically investigate RPT transactions, instigated by a so-called whistleblower. By this time, RPT had received well over a dozen no-change audits in the field and in appeals, but due to what could be perceived as government ineptitude or corruption, these facts were ignored. Instead, the IRS began a campaign against RPT, me personally, and nineteen different RPT clients.

My legal counsel pursued different cases in Federal Court on three separate issues. In every field audit, the assessments were made based on the claim that the RPT was “not complying with the limitations set forth in IRS Notice 2007-83“.

The IRS was not playing by its own rules with that claim because a Notice cannot set forth limitations, so this made it an obvious claim to challenge. That issue was addressed in Mann Constr., Inc v. United States. This began a war that lasted several years, cost me personally over two million dollars in legal fees, and triggered that which can only be described as a harassment campaign by the IRS.

A promoter investigation was launched against me that seemed designed to put me out of business, without fact or cause. I am now, finally, thrilled to inform you that all of that came to a screeching halt on March 3, 2022, with a unanimous Appeals Court decision overturning the lower District Court’s dismissal.

So let me outline the three Federal cases and then wrap up with what the March 3rd ruling means for RPT’s future.

Govig & Assocs. v. United States, was the narrowest in scope, as we were merely needing to demonstrate the RPT cannot ever be considered a listed transaction under IRS Notice 2007-83 in year one, as there is no cash value relative to the amount of premium that was deducted. Surprisingly, the DOJ recognized this pretty quickly and agreed to a stipulated order resulting in the taxes and penalties paid being returned to the taxpayer, along with legal fees. This was a good first step, but again, very narrow in scope.

McGowan v. United States has focused on the specific tax reporting as IRS Notice 2007-83 targets plans which are alleged “improper” for tax reporting. Therefore, if it IS “proper”, or legal, IRS Notice 2007-83 cannot apply. We feel the outcome of this case has dramatically changed because of the March 3rd victory in the Mann Constr. case, as all penalties are automatically removed and only year one in the case is still open under the statute of limitations.

Truly neither I nor my counsel have ever wavered on the legality of the deduction; and thus, we believe a favorable ruling will come very soon in this case. However, when we do win McGowan, although that is great precedent, every taxpayer stands alone. Enter Mann Constr., Inc. v. United States.

Mann Constr., Inc. v. United States consisted of four complaints, two of which were primary. The first of the two was actually our third complaint and by far the most sweeping as we sought, for the first time in Internal Revenue Code history, to have IRS Notice 2007-83 ruled invalid and therefor unlawful. The fourth complaint was specific to the RPT, stating that even if the Notice is lawful, the RPT is clearly outside of the Notice.

Frankly, the fourth complaint was the clearest for the Court to identify in our favor, as the tax consequences of the transaction need to be the “same or substantially similar” to the ones outlined in the Notice, and RPT’s are 90% different. In late Spring 2021, the judge in the Lower District Court dismissed our complaints without review of the merits. We immediately appealed the decision.

The United States Court of Appeals for the Sixth Circuit agreed to review the case, with Chief Judge Honorable Jeffrey S. Sutton one of three judges on the Appellate Panel. The panel assigned to our appeal consisted of a Bush Sr. appointee, an Obama appointee, and a Trump appointee. If we had a favorable ruling 2-1, that would have been great, but it would have left the door open to the DOJ and/or IRS coming back to an end banc review, and motivation to challenge it in other Circuits.

I was hoping for a unanimous opinion and beyond that, I really wanted an opinion, authored by the Honorable Jeffrey Sutton, that came down strongly against the government’s actions. Hon. Jeffrey Sutton is well-respected and there would be great strength of precedent for other Circuits if this opinion was under his name.

By the grace of God and the LAW, on March 3, 2022, we won. We won unanimously, Hon. Jeffrey Sutton authored the opinion, and it was very, very strongly in our favor. This was easily the greatest day of my career – for two years I had to watch my reputation and my brand come under unfair and illegal attack and could do nothing but keep silent and wait.

The wait is ENDED! RPT cannot be considered a listed transaction and I am entitled to all the legal fees I have paid for every client caught up in this IRS smear campaign. For the first time in my life, the IRS will owe me money!

What’s next? “CAVU”!

I will be presenting the RPT on a Leimburg webinar on March 31st. We will be adding additional insurance carriers next month. Stay tuned!

We are now wrapping up the appeals still outstanding. McGowan v United States should come to a satisfactory conclusion as the Notice used previously to disallow the deduction is now considered unlawful and there is no other support for the IRS under the tax code.

George H. W. Bush became a naval aviator before the age of 19. As Director of the CIA, Vice-President and President of the United States, when asked how he was doing, his favorite response was “CAVU”. This is the best possible scenario for a pilot – Ceiling and Visibility Unlimited! Join us as we enter a new era of success with RPT – where the ceiling and visibility are unlimited!

With a very grateful heart,

Ken Crabb, Founder of the Restricted Property Trust
[email protected]