IRS States Its Case vs. Raiders : Football: If U.S. Tax Court judge ultimately rules in the government’s favor, it could cost Al Davis’ team $20 million.

Attorneys for the Internal Revenue Service told a U.S. Tax Court here Monday that the Raiders had failed to pay income taxes on at least $17.9 million in income and had wrongfully taken a $400,000 deduction for a “bad debt” in the 1980s.

The attorneys said that $6.7 million the team had called a “loan” from the Los Angeles Coliseum Commission and $10 million it called a “loan” from Irwindale was money that was never paid back and should have been acknowledged as income.

They added that $1.2 million the team received from Oakland in partial settlement of a lawsuit should also have been called income.

Although IRS attorneys David Sorensen and Paul Dixon gave no overall figures on what the team’s partners will be liable for in taxes, interest and penalties, should Tax Court Judge Mary Ann Cohen rule in the government’s favor, Sorensen said that tax rates during the period often were 50%.

When interest ranging from 9% to 11% a year is added in, and penalties that could range as high as 100%, depending on whether negligence or fraud is adjudged, the total amount the Raiders might have to pay could exceed $20 million. A decision is not expected for months.

Team owner Al Davis appeared at Monday’s hearing for a little more than an hour to testify on his appeal from the IRS deficiency notice and said the team considered it had taken real loans, which it intended to pay back.

The questioning of Davis by his own and the government’s attorneys was sometimes unclear, and Davis’ answers often were vague.

He often replied that he had little detailed knowledge as to what had transpired so many years ago, and had often, in any event, relied on what his own lawyers had told him was written in the agreements.

At one point, the tax judge admonished Sorensen, “Try to lodge questions that will elicit meaningful answers.”

After he testified, Davis told reporters that the IRS case “is not understandable” to him.

“I don’t know what they’re talking about,” Davis said.

But Sorensen told the court that previous tax rulings had taken the position that a payment is not a loan unless there is a binding obligation to pay back the money.

The issue could be pertinent in the team’s new agreement to move to Oakland, because there is a $31.9 million “loan” structured into that agreement with what some critics have suggested may be only vague repayment provisions.

As tenants of the Los Angeles Coliseum, the Raiders were supposed to build luxury suites with the $6.7 million “loan,” the IRS attorney said, but there was no obligation that they do so, and when they did not build the suites, they did not have to pay back the money.

Similarly, he said, the team had no obligation to pay back the $10 million to Irwindale, unless a stadium was built, and when it was not built, the money was forfeited to the team.

Davis, however, testified that it was not the team’s fault it could not build the luxury suites at the Coliseum, and it was not its fault that the Irwindale stadium was never built.

Sorensen and Davis clashed when the IRS attorney cited a statement attributed to Davis some years ago that the Raiders never had an obligation to build the suites, and therefore need not pay the loan back. This meant it was income, he said.

Davis answered that, according to his understanding, he was only obligated to build the suites if he deemed it reasonable to do so. He said at one point he had started to build the suites, but the Coliseum Commission stopped him.

As for precisely what the agreement prescribing the loan said, Davis said he was not aware of it and relied on his attorneys to tell him.