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Real Estate Owner’s Estate Fights IRS Demand for More Taxes



By JERRY MOSKAL

The estate of a low-profile real estate investor in Costa Mesa is fighting an Internal Revenue Service demand for more taxes and penalties.

The case stems from the 2001 death of Jayne P. Lenk of Lenk Investment & Strategy Corp. of Costa Mesa.

The IRS upped the taxable value of Lenk’s estate to $10.16 million, from the estate’s $6.1 million.

The result: an IRS demand for $2.18 million in extra estate taxes plus a $126,742 penalty.

The family, led by Dale K. Lenk, executor of his mother’s estate, is challenging the IRS finding in U.S. Tax Court.

The family contends the agency overestimated the value of Lenk Investment & Strategy.

The IRS finding, known as a notice of deficiency, was issued in November.

The agency has until next week to answer to the family’s Feb. 11 petition.

If the IRS and estate fail to reach a settlement, the case could go to trial before a tax court judge.

Not much is known about Lenk Investment. A company spokeswoman said Lenk Investment owns and leases a number of industrial and commercial properties.

Dale Lenk didn’t return calls for this story.

John W. Ambrecht, the family’s lawyer with Santa Barbara-based Ambrecht Associates, said the IRS estimate of the value of the company is higher than those done by an appraiser for the estate.

“The IRS auditor in Orange County is really aggressive and he comes in with really high values,” Ambrecht said. “We do expect to prevail, at least come close to what we think (the estimates) should be.”

An IRS spokes-man said the agency is barred by law from commenting on pending tax cases.

The family’s petition claimed that the IRS erred when it determined that Jayne Lenk’s interest in Lenk Investment was worth $2.6 million, rather than the $2.4 million the estate valued it at.

The petition also disputes the agency’s valuation of her stake in another business, Lenk Development, which the IRS put at $2.9 million instead of the family’s $726,000.

The notice said that the IRS determined Jayne Lenk owned all of Lenk Development rather than the 59% the estate reported. That increased the taxable estate by $2.17 million, according to the IRS.

The petition also took issue with an IRS finding that the $313,361 value of a life insurance policy owned by the Lenk Family Trust should be included in the value of her estate because it transferred to the trust within three years of her death.

“It has been determined that there were omitted taxable gifts consisting of life insurance premium payments,” said the IRS’ notice.

Including the insurance policy and other cash gifts, the notice said Jayne Lenk’s taxable gifts should be upped to $572,343 instead of the $330,000 that was reported.

Another sticking point for the family: the IRS determination that Jayne Lenk’s half ownership of property in Anaheim was worth $198,800, instead of $108,328 the estate reported.

The estate also issued a blanket charge that the IRS has “erred with respect to every determination not herein specifically alleged to be in error.”

Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.

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