Berliner Abendpost - Restricted Property Trust Achieve Major Court Victory Against IRS Over Restricted Property Trust Tax Structure

Court awards full attorney fees after Mann Construction, an RPT, LLC client, prevails in dispute over IRS penalty related to Restricted Property Trust transactions.

In a significant legal victory, Mann Construction and RPT, LLC have successfully won a complex and high-stakes legal battle against the Internal Revenue Service (IRS). The U.S. District Court for the Eastern District of Michigan awarded attorney fees to Mann Construction, reinforcing the legitimacy of the Restricted Property Trust (RPT) structure for benefit planning. This decision, secured on November 1, 2024 establishes an important precedent that solidifies taxpayer protections in cases where penalties are imposed without adequate legal grounding.

The case centers on a disputed IRS penalty issued against Mann Construction, who had implemented the Restricted Property Trust-a recognized benefit structure aimed at tax-efficient retirement planning, employee benefits, and business continuity. The IRS, citing Notice 2007-83, classified the RPT structure as an "abusive tax shelter" and levied penalties on Mann Construction, penalizing them for a so-called "listed transaction" with alleged tax avoidance potential. Mann Construction, represented by the skilled tax specialists at RPT, LLC, stood firm in its defense, asserting that Notice 2007-83 was not legally binding and could not be enforced in this context.

This case took a pivotal turn in 2022 when Mann Construction achieved a decisive victory against the IRS on the initial penalties. The Sixth Circuit Court of Appeals ruled that Notice 2007-83 lacked the procedural foundation required for enforcement, ultimately "setting aside" the notice under the Administrative Procedure Act (APA) and providing Mann Construction with a win against the penalties. This marked a landmark moment not only for Mann Construction but also for other businesses using RPT structures, as it underscored that the IRS could not retroactively impose penalties based on regulatory notices that had not undergone required legal scrutiny.

Following this landmark victory, RPT, LLC and Mann Construction took the case one step further by pursuing attorney fees incurred throughout the litigation process. While the Department of Justice (DOJ) initially contested the request for attorney fees-arguing that these expenses had been covered by a third party, RPT, LLC-the court disagreed with the DOJ's stance. The DOJ argued that since RPT, LLC had covered the legal fees on behalf of Mann Construction, they were not "incurred" by the client under IRS code definitions. However, Judge Thomas L. Ludington ruled in favor of Mann Construction, concluding that fees paid by RPT, LLC for their client's defense were indeed incurred, and awarded a total of $220,482.50 in attorney fees and $1,355.90 in court costs.

Legal Implications and Impact on Taxpayers Utilizing RPT Structures

This decision is not only a victory for Mann Construction but a critical ruling for other companies and high-net-worth individuals employing RPT structures as part of their tax planning, retirement benefit solutions, and business continuity. The court's ruling sets a firm precedent for challenging and recovering attorney fees in cases where IRS penalties are imposed without substantial justification. The ruling further emphasizes that third-party payment of attorney fees, where invoices are billed directly to the client and paid on their behalf, meets the legal standard of "incurred" under tax litigation fee recovery rules.

Mann Construction's victory, achieved with RPT, LLC's support, underscores the value of rigorous legal representation in tax matters. This case highlights that the IRS must adhere to due process and follow established procedures when issuing penalties. The Restricted Property Trust, a legally recognized and compliant structure, remains a powerful tool for business owners to enhance employee benefits while achieving tax-efficient planning objectives. This ruling thus reassures taxpayers who have opted for RPTs, affirming that the structure's legitimacy holds strong under judicial scrutiny.

About Restricted Property Trusts and RPT, LLC's Role in the Case

The Restricted Property Trust is designed to provide business owners and highly compensated employees with a compliant, tax-efficient means to save for retirement while focusing on succession planning and business continuity along with managing tax liabilities on contributions. By using cash-value life insurance and restrictive distribution provisions, RPTs provide participants with both immediate and long-term benefits. Mann Construction's case brought significant visibility to the importance of this structure and the critical role of legal representation in navigating IRS disputes.

RPT, LLC has a strong track record in assisting clients like Mann Construction to implement and defend these trusts, offering a valuable resource for companies that face scrutiny from tax authorities. With a dedicated team of experts, RPT, LLC was able to guide Mann Construction through a complex and arduous litigation process, ultimately resulting in a full exoneration from penalties and a rare attorney fee recovery.

A Significant Step Forward for Fair Tax Practice

This case also serves as a reminder to all taxpayers and entities utilizing innovative tax structures that it is possible to challenge IRS penalties effectively. Mann Construction's choice to seek justice on both penalties and attorney fees illuminates the commitment of both the company and RPT, LLC to stand up for fair tax practices and the rights of businesses.

This victory sends a powerful message that companies and individuals using the Restricted Property Trust or similar structures can continue to benefit from these strategies without fear of unjustified penalties. For business owners who prioritize strategic tax planning, this case reaffirms the importance of knowledgeable, tenacious legal support.

About RPT, LLC
RPT, LLC specializes in advising companies and high-net-worth individuals on tax-efficient planning and retirement structures. With years of experience in Restricted Property Trusts, RPT, LLC has established itself as a leader in defending the rights of taxpayers and providing robust representation in cases involving complex tax disputes.

Restricted Property Trust
Website: https://restrictedproperty.com
Email: [email protected]

SOURCE: Restricted Property Trust

A.Schmidt--BlnAP