Crosscountry takes IRS to court over tax adjustments

Crosscountry Mortgage filed a petition against the IRS after the agency alleged the lender underpaid taxes five years ago.

In a case revolving around tax deductions taken for risk insurance, the Cleveland-based retail lender said it was requesting a redetermination of the purported underpaid amount claimed by the government agency. Earlier this summer, the IRS sent a letter to Crosscountry advising it owed an additional $1.4 million in taxes from 2019, while adding another $559,000 in penalties and fees. 

The company took issue with the adjustments, claiming the IRS erred in disallowing the deductions, "by claiming that certain insurance and/or reinsurance transactions lack economic substance," it said in the petition to U.S. Tax Court dated Aug. 22. 

Removal of the insurance premiums as tax deductions resulted in an increase of almost $3.8 million in Crosscountry's 2019 income, according to the filing. 

The lender also stated the agency erred in claiming Crosscountry had failed to establish that insurance expenses in question were "ordinary and necessary."

The insurance premium and related expense payments had economic substance "because they had a nontax practicable economic effect in mitigating the risk exposure" of its business, the filing said.

In the petition, the lender asked the court to determine the proposed IRS adjustments were in error and declare it not liable for any deficiencies or penalties. It also claimed deductions were made in good faith based on advice from its accountants. 

A spokesperson for Crosscountry Mortgage said the company would not comment on any legal matters.  

An all-retail operation, Crosscountry ranked as the fifth largest lender in the country based on total unit originations at the end of last year, according to Home Mortgage Disclosure Act data. The company originated almost 78,000 loans in 2023, amounting to $27.9 billion in dollar volume.

Among retail lenders, Crosscountry landed in the top spot at the end of 2023 based on both dollar and unit volume, according to Scotsman Guide's calculations. The lender is licensed in all 50 states.

In unrelated cases, the lender has found itself the subject of multiple legal disputes over the past 12 months with former employees, who claimed CrossCountry failed to pay them for eligible expenses or or overtime in violation of the Fair Labor Standards Act. 

The mortgage lender emerged victorious last December in a separate federal suit when the judge in that case dismissed charges filed by former loan officers for nonpayment. 

Crosscountry has also taken legal action against other LOs over the past several months, demanding repayment of signing bonuses after they exited the company early in violation of their agreements.