By JERRY MOSKAL
The Internal Revenue Service is doubling down on real estate developer Igor M. Olenicoff.
The IRS recently ordered Olenicoff and wife Jeanne to pay $60.3 million in extra 1997 taxes and penalties. Igor Olenicoff owns and runs Olen Properties Corp. of Newport Beach (see related story, page 1).
The order comes as the Olenicoffs are fighting an earlier IRS order to pay $32 million in extra taxes and penalties in a separate case for 1996.
As in the earlier case, the couple filed a petition asking the U.S. Tax Court here to overturn the IRS ruling for 1997.
“The clients continue to hope for a quick, efficient resolution,” said Jasper G. “Jack” Taylor III, a Houston tax lawyer with Fulbright & Jaworski LLP who represents the Olenicoffs. “We’ve been through this before.”
The IRS turned its attention to the Olenicoffs after settling a tax dispute with Olen Properties for pennies on the dollar last year. Olen paid $272,024 to settle IRS claims for 1994 to 1996, after the agency originally sought $148 million in back taxes and penalties from the company.
Taylor said he hoped that the tax cases against the Olenicoffs would be resolved in a similar fashion to the settlement of the case against the company once talks begin with the IRS Appeals Office.
In the 1997 ruling, the IRS told Olenicoff to pay $25.6 million in extra taxes plus $19.2 million in penalties. The agency told his wife to pay $12.8 million and $2.5 million in penalties.
Taylor said the couple always has been “honest and cooperative” with tax auditors and was astonished by the IRS decision.
An IRS spokesman said the agency is barred by law from commenting on pending tax cases.
The Olenicoffs said in their petition that the IRS wrongly found income of two businesses taxable to them.
The businesses, Sovereign Bancorp Ltd., and Sovereign Bancorp of Nevada, also figured in the claim against Olen Properties.
The agency called the Sovereign companies “shams” designed to lessen or avoid taxes.
The Olenicoffs said in their petition that the IRS erred in its assessment that the Sovereign companies had “no valid business purpose” and by attributing their taxable income to the couple.
“The commissioner further erred in determining that Mr. Olenicoff failed to maintain, or to submit for examination, complete and adequate books and accounts of his income,” according to the petition.
The petition for Olenicoff, which lists his home address as North Palm Beach, Fla., and his wife, which lists her address as Laguna Beach’s Emerald Bay, also contended that the IRS erred by:
Ruling that $19.1 million in payments made by Olen Properties to the Sovereign companies was interest taxable to Olenicoff.
Making determinations that are “inconsistent” with positions that the IRS took in the tax case that involved the Olen Properties.
The petition said Sovereign Bancorp was set up in the Bahamas by the Vozrozhdeniye Fund, a creation of former Russian President Boris Yeltsin in concert with several Russian groups to lead the privatization of that country’s economy.
Olenicoff was born in Russia and came to the U.S. by way of Iran in 1957.
Olen Properties has evolved into a major real estate developer and owner, with holdings valued by the company at $1.5 billion. Olen has office, industrial and residential projects in California, Florida, Arizona and Nevada.
Prime Orange County holdings include Olen Point Brea, Irvine’s Spectrum Technology Center and Spectrum Pointe in Lake Forest. Two years ago, Olen finished the 100,000-square-foot Orchard Technology Park in Lake Forest.
The IRS ruling, known as a notice of deficiency, was issued in August. The agency has 60 days to file an answer to the couple’s Oct. 5 petition.
If the Olenicoffs and the IRS fail to negotiate a settlement, the case could go to trial before a tax court judge.
Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.
