A Lawrence-based manufacturer of nutritional supplements is in a battle with the IRS over nearly $1 million in back income taxes and penalties.

Officials with Pines International Inc. have filed suit in U.S. Tax Court in Washington, D.C., contesting an Internal Revenue Service ruling that company officials improperly deducted personal expenses as business expenses, which led to underpayment of income taxes from 1999 through 2001.

An IRS audit determined the company — which has corporate offices and a manufacturing plant just north of Lawrence at the Midland Junction, 1992 E. 1400 Road — underpaid taxes by $788,270 during the three-year period. The audit also found the company was subject to penalties totaling $157,654.

Web Golden of Lawrence, the company’s attorney, said no trial date had been set and that Pines was optimistic about reaching an out-of-court settlement.

“This is the product of a really difficult audit but I’m optimistic that with further appeal within the IRS regulatory scheme that we’re going to be able to work this out,” Golden said.

Unless overturned on appeal, he said the ruling could provide financial hardship for the company, which was founded in 1976 and produces wheat and barley tablets and other nutritional supplements sold around the world.

But Golden said he did not think the tax issue threatened to put Pines out of business.

“I don’t think it jeopardizes the company,” he said. “I don’t think there should be any fear in the community over that, but this is something that should be dealt with.”

Pines employs about 30 people in Lawrence. The privately owned company does not release business results, but officials previously have said annual sales are between $5 million and $10 million.

A large portion of the IRS’ findings involve allegations that company co-founders and shareholders Ron Seibold and Steve Malone improperly deducted personal expenses.

Golden said many of the allegations revolve around a misunderstanding over the use of three company-owned houses in Jefferson County.

The company has long had an interest in developing a “significant” tract of land on the northern banks of the Kansas River as an environmentally conscious housing development, he said. Pines has built three homes on the property as part of its research.

Seibold and Malone have used the homes as their personal residences but Golden said the two have paid the company fair market rental rates for personal use of the property.

“That is a common practice but it is also common for an IRS agent to take a different view,” Golden said. “I think we had an examining agent for whatever reason who did not fully understand what the company was trying to do with that property.”

Attempts to reach Seibold and Malone for comment were unsuccessful.

The IRS ruling also questioned some salaries the company paid and a home the company owns in the Central American country of Belize.