IRS Audit Defense – $10–$20M Net Operating Loss (NOL) and Partnership Basis Victory in U.S. Tax Court

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OUTCOME: Defended IRS audit of $10–$20M NOL, rebuilt records, and proved entitlement in Tax Court. Return accepted as filed—no added tax or penalties, saving our client millions.

We had a client who had a $10 to $20 million net operating loss (NOL) in 2000. About 15 years later, he finally started making money again, and when he filed his return, he used the old NOL to offset h ... is income. The IRS audited his return and demanded that he substantiate the loss. Unfortunately, he had no records, so he engaged us to prove the losses to the IRS. We started with nothing and had to build the case from scratch. To substantiate the losses, we had to prove his basis in the partnerships -- that required a creative strategy and a lot of effort. We went to the courthouse in the county where he ran his business to pull security interests, showing that he had personally guaranteed the loans and was entitled to the losses. Although we had to go to Tax Court, we convinced the IRS to accept the return as filed. The client was able to claim all of the losses and wasn't subject to any new tax liabilities or penalties. He saved millions.