On February 28, 2023, the Supreme Court issued its opinion in Bittner v. United States, ___ U.S. ___, 143 S.Ct. 713, 2023 WL 2247233, holding that the non-willful FBAR penalty is applied per annual report and not per account. For the past few years, the IRS has taken the position that it could impose a separate $10,000 non-willful FBAR penalty based on the number of foreign accounts a U.S. person failed to properly report. The Ninth Circuit rejected the Government’s argument and held the maximum penalty per year is $10,000, United States v. Boyd, 991 F. 3d 1077 (2021), while the Fifth Circuit held the $10,000 penalty could be imposed per account. United States v. Bittner, 19 F. 4th 734 (2021).

Click Here for Full Blog

On March 7, 2023, the IRS Office of Professional Responsibility (“OPR”) issued an OPR Alert titled Professional Responsibility and the Employee Retention Credit. This OPR bulletin (Issue Number: 2023-02) (the “OPR Alert”), was issued on the same day the IRS issued IR-2023-40, which renewed an October warning to employers about certain third-party advisors in the marketplace urging employers to claim the ERC without appropriately advising about limitations on eligibility and the correct computation of the credit. 

Congress enacted four iterations of ERC relief during 2020 and 2021 to encourage “Eligible Employers” to keep employees on their payroll despite experiencing economic hardships related to the COVID-19.  The ERC ultimately helped many businesses that continued to pay payroll while shut down due to the pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2022. While the refundable ERC in each period was similar in how it was administered by the IRS through a company’s payroll tax filings each quarter, there were important differences in the eligibility requirements for the ERC over this period. Responsible tax professionals did their best to navigate these changes and digest the plentiful IRS guidance during the pandemic. A helpful comparison chart of the 2020 versus the 2021 eligibility requirements is now available on IRS.gov. With the benefit of hindsight, the IRS’s cumulative guidance can help professionals evaluate what transpired since 2020 and advise clients regarding any exposure regarding their ERC positions.

By 2022, tax professionals had called out for IRS guidance and publicity regarding certain promoters who continued to solicit employers to use credits improperly. The IRS’ published warning in IR-2022-183, October 19, 2022, was well received because it gave tax professionals a publication to show to their longstanding client contacts to rebut what the employers heard through third party solicitations. As noted in the OPR Alert, these third-party advisers could charge hefty upfront fees or a fee contingent on the amount of a refund, leading some employers to claim excessive ERCs based on improper positions as to employer eligibility and computation of the credit.

In any event, the OPR Alert highlights some professional obligations to consider regarding ERC positions.  For instance, Section 10.22(a) of Circular 230 requires a practitioner to exercise due diligence in preparing and filing tax returns on a client’s behalf. Also, the OPR Alert addresses section 10.34(c), under which a practitioner is required to advise a client of potential penalties on a tax return the practitioner prepares for the client or when the practitioner has advised the client about the position taken. A complication for practitioners addressing the reporting of the ERC is that while ERC benefits are utilized through the filing of an employer’s payroll tax returns (or amended payroll tax returns), obtaining the ERC impacts the ability for a company to deduct such wages on the employer’s income tax filings. Accordingly, return preparers need to consider reported positions on returns they did not prepare in order to properly evaluate the overall ERC reporting positions. In addition, the ERC is restricted in quarters for which wages were reported as payroll costs in obtaining Payroll Protection Plan (PPP) loan forgiveness, or were used to claim certain other tax credits. Also, as noted above, the rules differ depending on the quarter in which the wages were paid.

As foreshadowed in the IRS alerts and notices cited above, the ERC filings for the 2020 and 2021 tax periods, and forthcoming refund claims reflecting ERC benefits for these periods, are ripe for IRS examinations and enforcement. With an extended statute of limitations, the IRS will have additional time to conduct these examinations. Accordingly, tax professionals should review their clients’ reported ERC positions with care and consider their requirements under Circular 230 and other ethical standards when giving advice in this area.

CORY STIGILE – For more information please contact Cory Stigile – stigile@taxlitigator.com. Mr. Stigile is a principal at Hochman Salkin Toscher Perez P.C., a CPA licensed in California, the past-President of the Los Angeles Chapter of CalCPA and a Certified Specialist in Taxation Law by The State Bar of California, Board of Legal Specialization. His representation includes Federal and state controversy matters and tax litigation, including sensitive tax-related examinations and investigations for individuals, business enterprises, partnerships, limited liability companies, and corporations. His practice also includes complex civil tax examinations. Additional information is available at www.taxlitigator.com.

Posted by: Steven Toscher | March 9, 2023

Tierra Del Sol Foundation – 16th Annual Charity Golf Tournament

Help us celebrate our 16th Annual “Tee Off For Tierra!” Charity Golf Tournament, benefiting the people with developmental disabilities that Tierra empowers each day through Workforce Development, College to Career and Careers in the Arts. This year’s tournament will take place at North Ranch Country Club in Westlake Village. Registration fees include cart, swag bag, BBQ lunch, dinner reception, & more.

Click Here to Register

Click Here for More Information on the Foundation

We are pleased to announce that Cory Stigile will be speaking at the upcoming OCBA webinar “Internal Revenue Service Scrutiny of the ERC,” Thursday, March 9, 2023, 11:00 a.m. – 12:00 p.m. (PST).

This presentation will cover practical considerations for attorneys handling IRS examinations of ERC reported positions. Among other things, attendees will learn about ERC requirements, IRS scrutiny, problematic reported positions, and amended return considerations. The presentation will also highlight the interrelationship with other COVID-19 relief measures (such as PPP loans).

Click Here for More Information.

We are very pleased to announce that we are being featured this month in Forbes and Fortune magazines as leaders in the Southern California legal community. The magazine article and interview focuses on the long history and leadership of our firm specializing in civil and criminal tax controversy and litigation. We are honored to carry on the tradition of our founding attorneys.

Click Here for Article

Posted by: Steven Toscher | February 17, 2023

STEVEN TOSCHER and MICHEL STEIN to Speak at Upcoming CSTC Webinar

We are pleased to announce that Steven Toscher and Michel Stein will be speaking at the upcoming CSTC webinar “Cryptocurrency Tax Compliance: Tax Filing Requirements, Managing IRS Examinations,” Wednesday, March 1, 2023, 6:00 p.m. – 8:00 p.m. (PST).

The program will provide tax advisers and compliance professionals with a practical look at IRS guidance to calculating and reporting income and gain on cryptocurrency (e.g., Bitcoin) transactions. We will discuss the IRS latest positions on cryptocurrency, analyze IRS efforts to increase compliance and define proper reporting and the tax treatment for convertible virtual currency and cryptocurrency, stablecoins as well as NFTs. We will address recently released IRS Chief Counsel Advice, the Ethereum Merge, and the recent IRS enforcement initiatives to identify digital asset activity, how the IRS soft letter campaign fits into the voluntary disclosure practice and the risks of criminal prosecution related to unreported and improperly reported cryptocurrency transactions.

Click Here to Register.

We are pleased to announce that 10 of our principals have been selected to the 2023 Southern California Super Lawyers.

Attorneys selected as Super Lawyers are among the top five percent of Southern California’s licensed attorneys. Southern California Super Lawyers Magazine recognizes outstanding attorneys in more than 70 areas of practice using a rigorous, multiphase selection process that considers 12 separate indicators of peer recognition and professional achievement.

This year included in the Super Lawyer ranks are: 

  • Avram Salkin
  • Steven Toscher
  • Dennis Perez
  • Robert Horwitz
  • Michel Stein
  • Edward Robbins, Jr.
  • Evan Davis
  • Cory Stigile
  • Lacey Strachan
  • Jonathan Kalinski

Hochman Salkin Toscher Perez P.C. congratulates our lawyers for their selection to this special honor.

We are pleased to announce that 6 of our principals have been selected to the 2023 Southern California Super Lawyers List in the field of Taxation.

Attorneys selected as Super Lawyers are among the top five percent of Southern California’s licensed attorneys. Southern California Super Lawyers Magazine recognizes outstanding attorneys in more than 70 areas of practice using a rigorous, multiphase selection process that considers 12 separate indicators of peer recognition and professional achievement.

This year included in the Super Lawyer ranks are: 

  • Avram Salkin
  • Steven Toscher
  • Michel Stein
  • Evan Davis
  • Cory Stigile
  • Jonathan Kalinski

Hochman Salkin Toscher Perez P.C. congratulates our lawyers for their selection to this special honor.

On January 11, 2023, the United States District Court for the Western District of New York ruled on the case of United States v. Chen-Baker, Case. No. 1:22-cv-256. This case provides an important reminder of the importance for individuals or organizations in filing administrative claims against the government before suing the government. 

This case involves a complaint initiated by the Government to collect non-willful, civil FBAR penalties assessed against Ms. Chen-Baker.  Ms. Chen-Baker, in this government FBAR collection case, counterclaimed against the Government for the refund of penalties which she paid in connection with an assessment made against her under Title 26 for failing to file forms 3520 and 8938.  A quick reminder here, lest anyone forget: FBAR penalties are not taxes and the authority to assess this penalty is not found in Title 26, U.S.C., rather it is found under Title 31.  Nonetheless, the IRS has been delegated the authority to assess and collect FBAR penalties. 

At the heart of this case was the question of whether a counterclaimant was required to exhaust administrative remedies before filing a counterclaim against the government. The government argued that Ms. Chen-Baker had not exhausted all required administrative remedies for a refund of civil penalties assessed under Title 26 before filing her counterclaim for same. 

The defendant faced a lawsuit for civil penalties because of her failure to report an interest in a foreign bank account. She failed to file the required FBAR forms for the years 2010-2013 for a Hong Kong bank account that her father opened in her name. Never being notified about deposits, withdrawals and unconscious about the account’s balance, the defendant entered the Offshore Voluntary Disclosure Program once she became aware of her FBAR obligations. The IRS assessed four $10,000 penalties for non-willful failure to file FBARS.  It also assessed penalties against the defendant for failure to file Form 8938 and failure to file Form 3520.  She paid the penalties with interest relating to Forms 8938 and 3520 but did not pay the FBAR penalty.

After the Government sued to collect the FBAR penalty, the defendant filed a counterclaim against the government seeking a refund for other penalties (Form 3520 penalty and Form 8938 penalty) that she had paid. Approximately two months after filing the counterclaim, she filed a claim for refund.  The government moved to dismiss the counterclaim on the ground of sovereign immunity because the defendant never filed an administrative refund claim with the IRS before filing the counterclaim.

The court ultimately ruled in favor of the government. It held that administrative remedies must be exhausted before a claim can be filed against the government. This means that a claimant seeking a refund must first file an administrative claim before filing a lawsuit or asserting a counterclaim in court. If an administrative claim is denied or the requisite six months has passed, then the claim is ripe for filing a lawsuit in court.

Citing United States v. Forma, 42 F.3d, 759, 764 (2d Cir. 1994), the court stated that under the doctrine of sovereign immunity the court is without jurisdiction to adjudicate a claim against the United States unless the claim falls within an applicable waiver of the United States’ presumptive sovereign immunity.

In general, the government has waived its sovereign immunity for claims for the refund of taxes, penalties, or other amounts the government has collected in excess of what the person owed (28 U.S.C. § 1346(a)(1), Forma, at 763). This general waiver, however, is limited. Among other things, the law requires that administrative claims for refund or credit must first be duly filed with the Secretary of the Treasury (26 U.S.C. § 7422(a)). This includes complying with the administrative claim exhaustion rules imposed by the Secretary for seeking a refund of taxes and penalties assessed under Title 26.

Since the defendant failed to file an administrative refund claim before filing her counterclaim, her claim was not ripe and, thus, the court lacked jurisdiction over her counterclaim.

Ms. Chen-Baker next argued that the “informal claim doctrine” which allows a court to consider imperfect or improperly filed claims and to perfect them later (see United States v. Kales, 314 U.S. 186, 194 (1941); Magnone v. United States, 733 F. Supp. 613, 618 (S.D.N.Y. 1989)) applied here. The court, however, also rejected the defendant’s attempt to utilize this doctrine, pointing out that this doctrine tolls the statue of limitation and does not “alter the jurisdictional prerequisites.” That she simply filed a refund claim at some point in time did not help her, as jurisdiction is determined at the time the complaint is filed in court, and in this case, the refund claim was filed after she filed her counterclaim.

The court’s ruling serves as a significant reminder for any individual or organization that plans to file a suit against the government for the refund of any tax or penalty assessed under Title 26. It is important to exhaust all administrative remedies, including filing a timely refund claim with the IRS, and waiting until the claim is denied or six months has passed, before filing a lawsuit or counterclaim in court. Failing to do so results in the court dismissing the case. There is no hope for lenience because the court has no jurisdiction to exercise such.

Philipp Behrendt is an Associate at Hochman Salkin Toscher Perez P.C., and a graduate of University of Southern California (USC) Gould School of Law (LL.M.) and a former associate of the leading German tax firm.  Philipp’s prior experience includes representing wealthy individuals and companies in global tax settings, cross-border investigations and audit matters, as well as handling complex voluntary disclosure issues for U.S. and other international companies, stemming from tax avoidance structures as well as crypto assets.

Please join us February 9-11, 2023 for the ABA Midyear 2023 Meeting at the Hilton San Diego Bayfront. Our firm is proud to continue our participation.

Meet with fellow tax practitioners and address the cutting-edge tax issues affecting all tax professionals. This three-day event includes discussions, networking opportunities led by the best tax professionals in the nation, covering various topics.

We are looking forward to the following topical programs including members of our firm —

Crypto Compliance and Enforcement

Featuring Michel Stein

In re Grand Jury and the Future of Attorney Client Privilege: A Post-Oral Argument Discussion

Featuring Evan Davis

Sandra Brown of our office will be featured on the

following panels-

IRS Criminal Investigation Case Sources


Protecting Taxpayer Data

We are pleased to partner with the Tax Section to offer a special 10% off discount to attend. Please use the discount code 23MID_SteveT10 to apply the 10% discount when checking out.

Click Here to Register

Older Posts »