If you can't be called names and either defend your position or take the criticism with a grain of salt and keep it moving, RE is probably not the best business for you.

They also checked box 2b which says "Taxable amount not determined", but the IRS has ignored that check and focused on the taxable amount for the deficiency.Does anyone have any guidelines, a court case, lawyer recommendations, etc. that could help me defend myself in court?

The wording of the statute is a bit unclear about who you have to name as defendants in the lien foreclosure lawsuit.

So I am looking to get educated on how to defend against it. 

there are many adu companies out there who would provide you the model from builder like champion home or clayton home, and then take care of site work - foundation + pulling all utilities. the lowest quote i have recd is for 146k for around 770 sqft. 

Also, an insurance company will help defend any suits brought against you where you need to foot the bill for an attorney if using an LLC.There are other reasons to go one way or the other depending on what you are trying to achieve.

If the optionee then files suit against the property owner I would expect (s)he would file a claim with the insurer who would then get involved, but not as a defendant.  

Since you are defending your assignment fee, my personal opinion is that I don’t care what the fee is.

Hoping to hear from investors who had LLC and lost in court as well as successfully defend lawsuits because of LLC. 

When you are going to compare a fair fight between 2 champions you won't put one  that is fresh just eaten 2 hours ago, against the same category fighter that has not slept for 4 days and malnutritioned.