Olen Settles Tax Fight for Pennies on Dollar
By JERRY MOSKAL
A staggering $148 million tax bill was slashed to $272,024 by the time Newport Beach-based Olen Properties Corp. and the Internal Revenue Service were done hashing out their tax dispute.
The smaller sum is what the two sides agreed real estate owner and developer Olen should pay in extra taxes for 1993 to 1996. The settlement is part of a decision signed in June by U.S. Tax Court Judge John O. Colvin in Washington, D.C.
“The Olen companies are very pleased with the settlement,” said Jasper G. “Jack” Taylor, a Houston tax attorney representing Olen. “If you look at the public filings and you compare what the IRS said was owed, the amount is a tiny fraction.”
Two years ago, the IRS challenged Olen’s deductions for claimed losses, interest payments and foreign income from dealings with companies in the Bahamas and Iran. The tax agency ruled the transactions with the foreign companies were a “sham,” were not arms-length and lacked economic substance.
While Olen walked away from the dispute owing a relatively small amount of extra taxes, the company has had to pay attorney and other legal fees to defend itself against the IRS charges.
“While the Olen companies were not pleased they had to spend all this time and resources, they are very grateful they assigned the case to someone who was thoughtful and thorough,” Taylor said.
An IRS spokesman said the agency wouldn’t comment on the agreement.
“We don’t comment on decisions, court documents,” IRS spokesman Anthony Burke said. “Whatever our statement in the court record is, that’s our public comment. Litigation, decisions, that kind of thing, the record speaks for itself.”
Olen, founded by President Igor M. Olenicoff (photo) three decades ago, owns some 4.5 million square feet of office and industrial space in Orange County and about 10,000 apartments in Las Vegas, South Florida and elsewhere.
The company reports about $1.5 billion in assets.
In seeking more taxes, the IRS initially ruled Olen Properties had $80 million in extra taxable income for 1993 to 1996. The company had $17 million in taxable interest income for the period, the IRS said. The agency slashed Olen’s loss deductions by $30 million. Olen also had an $86.7 million deferred taxable capital gain, according to the IRS.
That led the IRS to originally seek $125.2 million in added taxes for 1993 to 1996 from Olen Properties and $22.6 million from Olen Residential.
The tax court filings in the Olen case provide some intriguing yet confusing glimpses into Olenicoff’s business empire.
Most surprising was Olen’s assertion that it is a subsidiary of National Depository Co. of the Bahamas, which, in turn, is part of National Depository Co. of Iran. Olenicoff was born in Russia and grew up in Iran.
“No officer or employee of (Olen Properties), nor any related person or entity owned any direct or indirect interest in, or had any right to exercise control over, either NDC or NDC Bahamas,” Olen’s court petition said.
That suggests neither Olenicoff nor his son, Andre Olenicoff, have any interest in the parent company.
The Olenicoffs also said they weren’t related to Sovereign Bancorp Ltd. of the Bahamas, which made $80 million in loans to them at 2.86% interest, according to court filings.
After Olen filed its appeals to the IRS ruling, the case went into the agency’s appeals office, where a settlement was reached.
“The people I worked with were very diligent and thorough,” Olen lawyer Taylor said. “That’s the reason we were able to reach this settlement.”
Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.
