The moratorium on IRS investigations and collections set forth by the People First Initiative will be ending soon on July 15.[i]  and very high wealth taxpayers should get ready for a little attention from the IRS.  If the moratorium is not extended, the IRS is poised to start the examination of several hundred high net worth taxpayers.  The IRS expects that between July 15 and September 30 several hundred examinations of these taxpayers will be started.[ii]  Each of the cases assigned within the IRS Large Business & International (LB&I) Division will typically involve a pass-through business as the related entity, said LB&I Commissioner Douglas O’Donnell.[iii]  A high-income individual’s enterprise could involve trusts in the Small Business/Self-Employed (SB/SE) Division, tiered partnerships under LB&I’s jurisdiction, and retirement plans that the Tax Exempt and Government Entities (TE/GE) Division examines.  These examinations may also involve private foundations related to the taxpayer.

Global High Wealth Group

The Global High Wealth Group is an industry group created by the IRS LB&I in 2009.  The purpose of the Global High Wealth Group (also known as the “Wealth Squad”) is to bring together an IRS team of specialist to coordinate the compliance, review and, if necessary, detailed examination of complex returns of high wealth individuals and their related entities.  The Global High Wealth Group conducts tax compliance reviews of high net worth individuals and the network of enterprises and entities they control.

The Wealth Squad is designed to allow the IRS to better understand the sophisticated financial, business and investment arrangements of the taxpayer.  The IRS does this by engaging a team of specialists to take a unified, holistic look at the entire web of inter-related entities controlled by the taxpayer to discover the entire economic picture of the enterprise and to assess the tax compliance of that overall enterprise.

The initial examination focus has been on individuals with tens of millions of dollars in assets or income.  Following a review of the initial examinations, the selection criteria will likely evolve to take into account information obtained in the examinations as well as to utilize the expertise of the expanding group of Wealth Squad specialists which will include flow-through specialists, international examiners, economist to identify economic trends, appraisal experts to advise on valuation issues, and technical advisors to provide industry or specialized tax expertise.  It will draw upon resources throughout the IRS including the TE/GE Division, the SB/SE Division, and numerous international information exchange agreements.  In truly egregious situations, the examiners may also make a referral of taxpayers and/or their advisors to the IRS Criminal Investigation division given the IRS new emphasis on fraud referrals from the operating divisions.

IRS Campaigns

IRS LB&I commissioner Douglas O’Donnell has connected this enforcement effort with the recently announced Tax Cut and Job Act (“TCJA”) compliance campaign.[iv]  The TCJA campaign involves issue-based examinations instead of the LB&I old approach of placing large multinational businesses under continuous audits by a rolling teams of examiners.  This will involve large amount of information sharing amongst various IRS divisions.

The TCJA compliance campaign is much broader in approach than other campaigns.[v]  This campaign will look at the entirety of a tax return and thus give examiners the authority to look beyond a specific issue. The TCJA compliance campaign also encompasses the impact on tax returns from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.  The treatment stream for this campaign may include examinations, soft letters, outreach, new and improvement practice units and development of future issue-based campaigns.

Since its creation in 2009 the IRS Global High Wealth Group has been criticized that it was ineffective. The criticism is largely due to employee turnover at the IRS, budget cuts, and complex transactions that take time for examiners to understand.[vi]  However the IRS has increased it’s budget and has been hiring steadily and has a new determination to tackle this very complex compliance and enforcement matter.  The IRS new willingness to accomplish its mission across the operating division lines will also add effectiveness to this effort.  The past problems with enforcement will likely not occur now that the IRS is better equipped to audit these specialized group of taxpayers and have learned important lessons from their past examination efforts.  One organization.  One mission.  We know why Willie Sutton robbed banks and we know why sound tax administration requires that all taxpayers comply with the tax laws.

Steven Toscher is  the Managing Principal of Hochman Salkin Toscher Perez P.C., and specializes in civil and criminal tax litigation.  Mr. Toscher is a Certified Tax Specialist in Taxation, the State Bar of California Board of Legal Specialization and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation.

Tenzing Tunden is a Tax Associate at Hochman Salkin Toscher Perez P.C.  Mr. Tunden recently graduated from the Graduate Tax Program at NYU School of Law and the J.D. Program at UC Davis School of Law. During law school, Mr. Tunden served as an intern at the Franchise Tax Board Legal Division and at the Tax Division of the U.S. Attorney’s Office (N.D. Cal).

[i] The Peoples First Initiative suspended many collection and examination functions due to COVID-19 between April 1, 2020 and July 15, 2020.

[ii] Comments from IRS LB&I Division Commissioner Douglas O’Donnell at the NYU Tax Controversy Institute held on June 18, 2020.

[iii] Id.

[iv] Supra note 2.

[v] IRS LB&I campaign descriptions available at https://www.irs.gov/businesses/corporations/lbi-active-campaigns.

[vi] Jesse Eisinger and Paul Kiel, The IRS Tried to Take on the Ultrawealthy. It Didn’t go Well, ProPublica, April 5, 2019, available at https://www.propublica.org/article/ultrawealthy-taxes-irs-internal-revenue-service-global-high-wealth-audits.

We are pleased to announce that Sandra Brown will be speaking at the ABA Virtual 2020 May Meeting –When You Need to Disclose More Than Just a Tax Crime — on Tuesday July 14th at 2:00 p.m. – 3:00 p.m. (EST).

Under the IRS voluntary disclosure practice, in exchange for a timely, accurate, and complete disclosure and full cooperation during the associated audit, the IRS will not refer the taxpayers to the U.S. Department of Justice for criminal investigation and prosecution. But what if your client committed non-tax offenses that don’t require a referral from the IRS? What is the risk that the IRS will share the information with another federal agency, who may choose to prosecute? Will the voluntary disclosure protect a taxpayer from prosecution for hiring or harboring undocumented workers, failing to file Forms 8300, or other non-tax criminal conduct? Panelists will review frequent dilemmas faced when a client engages in criminal conduct outside of the Internal Revenue Code, options available to address these issues, how the IRS will treat, and whether it will disseminate, such information received through a voluntary disclosure, and best practices in these cases.

For More Information Click Here.

 

he Taxpayer First Act, signed into law on July 1, 2019, codified and
established the “Internal Revenue Service Independent Office of Appeals.”
Since it was first established almost 100 years ago, Appeals was intended
to be independent and for the most part it has been. So why was the legislation
needed? William Shakespeare wrote, “A rose by any other name would smell as
sweet.” It is worth examining why there was a need for the legislation and what
it may mean for the IRS Appeals of the future. We are not sure the legislation
was necessary—but we are confident it will help advance the mission of an
independent Appeals.

To Read More Click Here.

 

 

We are pleased to announce that Steven Toscher will be moderating and speaking at the upcoming University of San Diego School of Law – RJS Law Tax Controversy Institute on Friday, July 17, 2020, from 10:30 am to 2:45 p.m. (PST).  This year the program will be a webinar and will be complimentary for all attendees.

We have two amazing programs planned including—

“What Every Practitioner Needs to Know in Handling a Tax Controversy in the COVID-19 Environment.”

“IRS New Emphasis on Fraud Enforcement and Criminal Investigations”

We have a great line up of Government and private speakers this year including:

  • The Honorable Emin Toro, Judge, United States Tax Court
  • Sharyn Fisk, Director of the IRS Office of Professional Responsibility (Keynote speaker)
  • Don Fort, Chief IRS Criminal Investigation
  • Darren John Guillot – Deputy Commissioner for Collection and Operations Support SBSE Division, IRS
  • De Lon Harris – Deputy Commissioner for Examination SBSE Division, IRS
  • Damon Rowe – Executive Director, Fraud Enforcement Office, SBSE, Division, IRS
  • Kathy Keneally – former Assistant Attorney General, Tax Division, U.S. DOJ, Partner, Jones Day
  • Richard Carpenter, ’84 (JD) – Principal, Richard Carpenter Tax Law Office
  • Lavar Taylor – Principal at Law Offices of A. Lavar Taylor, LLP
  • Bryan Skarlatos – Partner, Kostelanetz & Fink, LLP
  • Marty Schainbaum – Former Assistant U.S. Attorney, Former IRS Regional Counsel Trial Attorney

During the program we will be presenting the Richard Carpenter Award to M. Carr Ferrguson. The award is given to individuals who personify honesty, integrity, ethics, and compassion throughout his/her careers in the field of tax controversy and have demonstrated outstanding dedication and expertise while working in the legal tax field.

For Full Programming Details Click Here.

We are pleased to announce that Steven Toscher, Michel Stein and Jonathan Kalinski will be speaking at the Spidell Webinar–Taxation of Cannabis— on Thursday July 9th  at 10:00 a.m. – 12:00 p.m.  The cannabis business has been growing at very fast pace in California and other jurisdictions since legislative changes legalizing and regulating the sale, manufacture and cultivation of cannabis.  We will cover a wide range of topics including:

  • The impact of recent Tax Court cases on the cannabis business.
  • The legal landscape of the cannabis business in California and other states
  • The impact of cannabis as an illegal controlled substance under federal law
  • California sales and excise taxes of the cannabis business
  • Handling IRS examinations of the cannabis business
  • Collection issues unique to the cannabis business
  • The impact of IRC Section 280E on the cannabis business
  • Cost of Goods Sold issues unique to the cannabis business
  • The risk of criminal investigations and prosecutions of the  cannabis businesses

Click Here For More Information.

For taxpayers heading into the extended tax season there is good news! The IRS will now allow E-filing of amended returns. The IRS published a notice on May 28, 2020 that amended returns for tax years beginning on or after January 1, 2017 can be filed electronically.[i]  Previously, amended returns had to be submitted manually through U.S. mail to the IRS for processing.

This is important and helpful for taxpayers because the IRS is facing a significant backlog of mail of approximately 11 million letters and packages. The new electronic option allows the IRS to receive amended returns faster while minimizing errors normally associated with manually completing the form.

IRS Operations During COVID-19

On March 30,2020 the IRS directed all employees to evacuate their workspace and work from home or an alternative location. Since then, the IRS has accumulated millions and millions of unprocessed mail and returns that has built up during the COVID-19 pandemic. As of May 16 , there were 4.7 million tax returns to process and 10 million pieces (now updated to 11 million) of unopened mail.[ii] This backlog does not include the mail that is incoming to the IRS offices.  Therefore, taxpayers that do not e-file may face significant delays in obtaining refunds for past tax years.

California Amended Returns

For taxpayers in California, the California Franchise Tax Board has allowed amended returns to be e-filed. This preceded the recent IRS notice. For taxable years beginning on or after January 1, 2017, Schedule X, California Explanation of Amended Return Changes, has replaced Form 540X the amended Individual Income Tax Return. Schedule X and a correct California tax return can be submitted to the Franchise Tax Board electronically.[iii]

A copy of the original tax return is not required to be submitted and may result in a delay in processing the amended California tax return. The taxpayer or accountant should check the box labeled “Check here if this is an amended return” that is located on the corrected form (540, 540 2EZ, 540NR).[iv]

Those seeking to amend their tax returns to take advantage of recent changes in tax law, such as claiming bonus depreciation for qualified improvement property or to increase the business interest deduction, should e-file or else face an extended waiting period to get their refund.

Robert S. Horwitz is a Principal at Hochman Salkin Toscher & Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division.  He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Additional information is available at http://www.taxlitigator.com.

Tenzing Tunden is a Tax Associate at Hochman Salkin Toscher Perez P.C. Mr. Tunden recently graduated from the Graduate Tax Program at NYU School of Law and the J.D. Program at UC Davis School of Law. During law school, Mr. Tunden served as an intern at the Franchise Tax Board Legal Division and at the Tax Division of the U.S. Attorney’s Office (N.D. Cal).

[i] IR-2020-107 available at https://www.irs.gov/newsroom/irs-announces-form-1040-x-electronic-filing-options-coming-this-summer-major-milestone-reached-for-electronic-returns

[ii] Allyson Versprille, Virus Fears, Unopened Mail Await IRS Employees Returning to Work, Bloomberg Tax, June 1, 2020, available at https://news.bloombergtax.com/daily-tax-report/virus-fears-unopened-mail-await-irs-employees-returning-to-work.

[iii] https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/january-2018/new-amended-return-process-for-tax-years-2017-and-beyond.html

[iv] Id.

The Independent Commission for the Reform of International Corporate Taxation (“Commission”) is a group of leaders from around the world who believe that there is both an urgent need and an unprecedent opportunity to bring about significant reform of the international corporate taxation system.  The Commission is comprised of influential members from parliament, the United Nations, and academia.

The Commission published a report on June 15 titled “The Global Pandemic, Sustainable Economic Recovery, and International Taxation.”[i] In this report, the  Commission  recommends that governments should increase enforcement with regards to tax havens and international tax avoidance.[ii] Doing so would give governments the resources needed to assist public health and workers hurt by the COVID-19 pandemic.

In view of the effects of COVID-19 on the global economy and governments, the Commission believes that present tax rules will not be sufficient.[iii] As profits fall so will corporate tax revenues.  Sales and value-added tax revenue decline with consumption and personal income tax revenue with employment.[iv]  Global tax revenues will likely fall more than the 11.5% decline experienced from 2007 to 2009.[v]

The Commission believes that governments should not lower corporate tax rates since the base that this rate will be applied to will be significantly less than prior years or even negative while the pandemic lasts.  Reductions to corporate tax rates will not stimulate corporate investment because there is already excess capacity and expansion plans are constrained by uncertainty.[vi] The Commission feels that  now is not the time halt tax coordination efforts amongst governments.  The authors recommend greater international cooperation to prevent tax avoidance by large firms – implementing the agenda proposed by the G-24 for global formulary apportionment of taxing rights.[vii]

The Commission used the example of cruise lines that are seeking support from the U.S. government.  Many of these cruise lines are headquartered in tax havens, such as Panama and Bermuda, to minimize their tax obligations– yet they are seeking relief from the federal government.[viii]

The Commission wants effective taxation of wealth, and offshore wealth, to be put in place.[ix]  The use of “offshore” structures allows not only the real ownership of this wealth to remain hidden, but also its location and its existence.[x]  This same secrecy can also lead to  tax evasion, avoidance, and  financial crimes.

The Commission suggests that governments should do the following:

  1. Set a minimum effective corporate tax rate of 25% all across the world to stop base erosion and profit shifting,
  2. Introduce progressive digital services taxes on the economic rents captured by multinational firms in this sector.
  3. Mandate country-by-country reporting of public assistance for corporations,
  4. Make data on offshore wealth public to help governments that want to levy a wealth tax on their richest taxpayers, and
  5. Require higher corporate rates to more consolidated industries like technology.

Congress is currently considering increases in the IRS budget.  Given the prominent members of the Commission, such as professors Thomas Piketty and Gabriel Zucman, this report may  influence the  U.S. Congress  to increase the IRS budget  directed at  enforcement in the international tax arena. You know what Willie Sutton said when they asked him “why he robbed banks?”

Steven Toscher is the Managing Principal at Hochman Salkin Toscher & Perez P.C., and specializes in civil and criminal tax litigation. Mr. Toscher is a Certified Tax Specialist in Taxation, the State Bar of California Board of Legal Specialization and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation.

Tenzing Tunden is a Tax Associate at Hochman Salkin Toscher Perez P.C. Mr. Tunden recently graduated from the Graduate Tax Program at NYU School of Law and the J.D. Program at UC Davis School of Law. During law school, Mr. Tunden served as an intern at the Franchise Tax Board Legal Division and at the Tax Division of the U.S. Attorney’s Office (N.D. Cal).

[i] This report is available at  https://static1.squarespace.com/static/5a0c602bf43b5594845abb81/t/5ee79779c63e0b7d057437f8/1592235907012/ICRICT+Global+pandemic+and+international+taxation.pdf.

[ii] Id. at 3.

[iii] Id. at 4.

[iv] Id. at 4-5.

[v] Id. at 5.

[vi] Id.

[vii] See  https://www.g24.org/wp-content/uploads/2019/03/G-24_proposal_for_Taxation_of_Digital_Economy_Jan17_Special_Session_2.pdf

[viii] Leticia Miranda and Isabel Soisson, Most Cruise lines Don’t Pay Federal Income Tax – Just one of the Reasons why They Are Not Getting a Bailout, NBC News, April 1, 2020, available at https://www.nbcnews.com/business/business-news/most-cruise-lines-don-t-pay-taxes-u-s-just-n1172496.

[ix] Id. at 6.

[x] Id.

COVID-19 has placed much of our normal activities on hold.  It hasn’t, however, slowed down the maneuverings around California’s new worker classification law, known as AB5, which took effect January 1, 2020.  Just before the law took effect, the trucking industry won a major victory when Judge Benitez of the Southern District of California issued a temporary restraining order.  A few weeks later a preliminary injunction was issued.  The case is currently pending before the 9th Circuit.

San Diego and Instacart are going toe to toe on the issue as well.  The City initially was granted an injunction against Instacart, which was stayed when the company appealed.  San Diego has now filed an appeal asking the injunction to be reinstated arguing that allowing Instacart to operate and misclassify workers during coronavirus will cause serious harm.

In April, Judge Chhabria of the Northern District of California, presiding over Lyft drivers’ suit against Lyft, denied the drivers’ request for an emergency injunction, but warned Lyft that it was obvious AB5 applies to its drivers and that if it resists reclassifying it would be disregarding the law.

On May 5, 2020, California sued Uber and Lyft in San Francisco Superior Court seeking to force the companies to treat its drivers as employees.  The suit calls Uber’s and Lyft’s misclassification a “scheme”.  On June 9, the California Public Utilities Commission held that Uber and Lyft drivers were employees under AB5.  This decision is a blow to Uber and Lyft but is far from the final word.  Uber, Lyft, and several other companies sponsored a ballot initiative for November and are pouring millions into the campaign.  Labor unions are doing the same to oppose it.

The fight continues in Sacramento as well, as many industries continue lobbying for exceptions.  There are several bills pending that would change parts of AB5.  Perhaps the main one is AB 1850, introduced by Assembly Member Gonzalez, the author of AB5.  AB 1850 would expand the business to business exception to individual workers and create additional exemptions.

As the battles in Court continue, businesses should not expect the EDD and other agencies to sit back and wait for everything to be resolved.  That will likely take years.  Those businesses not complying with AB5 risk being audited and having their workers reclassified to go along with additional taxes and penalties.  The coronavirus pandemic may only make things worse for businesses.  Unemployment claims have skyrocketed throughout the country and California is no exception.  Some of these claims are being filed by workers who are treated as independent contractors.  These claims are likely to trigger several audits.  Businesses beware.

To recap for those who (somehow) still aren’t familiar with AB5.  It codified the California Supreme Court decision in Dynamex, adopting the ABC Test to determine worker classification.  In order to be treated as an independent contractor, businesses must show their workers satisfy all three prongs of the ABC Test.  Some commentators acted like the ABC Test was new and rewrote worker classification rules.  In fact, the ABC Test has existed for many years and is followed in whole or in part by nearly 30 states.  The ABC Test is as follows:

A:         The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

B:         The worker performs work that is outside the usual course of the hiring entity’s business;

C:            The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed

For many businesses the B test, or integration, is the backbreaker.  Lyft and Uber without drivers isn’t much of a rideshare company.  The companies argue they are more like tech companies.  Trucking companies without truckers won’t be too successful.  Landscape companies without landscapers, etc., etc.  Certain industries, such as entertainment, have taken a status quo or wait and see approach to AB5.  Some read AB5 to be the end of loan outs, making actors and directors employees of the studios or production companies that use their services.  Others argue that AB5 will have no affect or that an exception applies.  AB5 exempted certain professionals from the ABC Test including licensed insurance agents, licensed professionals such as doctors and lawyers, security brokers, direct salespersons, commercial fishermen, “other professional services” including estheticians and fine artists.  If you qualify as one of these professions, you aren’t subject to the ABC Test, but you must still satisfy the old Borello factors.  The pending legislation looks to expand the exemptions.

In addition to the above exempt professions, AB5 contains a business to business exception that may be the focus of many audits.  To satisfy this exception, the worker must meet all 12 requirements.  If you meet these requirements, you must still satisfy the Borello test.

  1. The business service provider must be free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.
  3. The contract with the business service provider is in writing.
  4. If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.
  5. The business service provider maintains a business location that is separate from the business or work location of the contracting business.
  6. The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.
  7. The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.
  8. The business service provider advertises and holds itself out to the public as available to provide the same or similar services.
  9. The business service provider provides its own tools, vehicles and equipment to perform the services.
  10. The business service provider can negotiate its own rates.
  11. Consistent with the nature of the work, the business service provider can set its own hours and location of work.
  12. The business service provider is not performing the type of work for which a license from the Contractors State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

Businesses must be proactive in reclassifying if they believe they misclassified workers in the past.  Waiting for the courts or the legislative process to provide relief is risky and the costs of misclassification are high.  Businesses, and the professionals who advise them can be subject the penalties.

Although CA law now differs substantially from Federal law in this area, it will be difficult if not impossible for businesses to treat workers one way for CA purposes and another for Federal purposes.  Attempts to do so could lead to an IRS audit.  The IRS has emphasized employment tax issues for several years now and I would expect AB5 to feed into that.

Businesses are focusing on surviving the pandemic, but they shouldn’t ignore worker classification issues.  The AB5 fight wages in courts and the legislature, but the EDD will not wait.

Jonathan Kalinski is a principal at Hochman Salkin Toscher Perez, P.C. and specializes in both civil and criminal tax controversies as well as sensitive tax matters including disclosures of previously undeclared interests in foreign financial accounts and assets and provides tax advice to taxpayers and their advisors throughout the world.  He handles both Federal and state tax matters involving individuals, corporations, partnerships, limited liability companies, and trusts and estates.

Mr. Kalinski has considerable experience handling complex civil tax examinations, administrative appeals, and tax collection matters.  Prior to joining the firm, he served as a trial attorney with the IRS Office of Chief Counsel litigating Tax Court cases and advising Revenue Agents and Revenue Officers on a variety of complex tax matters.  Jonathan Kalinski also previously served as an Attorney-Adviser to the Honorable Juan F. Vasquez of the United States Tax Court.

Comparing recent annual statistics of criminal investigations and  prosecutions by the Internal Revenue Service seems to suggest that the agency may be shifting resources away from criminal tax enforcement. In Fiscal Year 2019, the IRS Criminal Investigation Division initiated 2,485 investigations and recommended 1,893 prosecutions.  This continues a trend seen in recent years of declining criminal investigations by the IRS. In 2016, the division initiated 3,395 investigations, and, in 2017, it initiated only 3,019 investigations. In 2018, that number had dropped to 2,886.4 This trend coincides with a continuing decline in criminal investigation special agents—in 2019, the division had the fewest special agents since the early 1970s.

To Read More Click Here.

Like much of the country, the Tax Court is taking its business online, adopting procedures for remote proceedings on May 29 by issuing Administrative Order No. 2020-02.  Since March 11, when the Tax Court started cancelling trial sessions, court business has virtually stopped.  The Tax Court building in Washington, D.C. itself has been closed since March 18.  Trial sessions have already been cancelled through June 30.  The new procedures are in effect until further notice.  The Tax Court’s Administrative Order includes some sample documents such as a Standing Pretrial Order.

  • The primary questions remote proceedings raise are what effect will this have on taxpayers’ ability to have their cases heard   This is all new to all of us and care needs to be taken that the traditions of the Tax Court for effective and fair resolution be maintained.   Don’t trust any practitioner who claims to know the answer.  We are all making educated guesses here.  We can, however, focus on some specific areas of court practice and procedure and see whether the impact will be negative, positive, or neutral.  One must understand that most taxpayers before the Tax Court are pro se and most cases are relatively small dollar cases.  What may be good for small cases or lower income taxpayers may not be good for larger cases where seasoned lawyers are involved.

Time

The Court conducts trial sessions in 74 cities, visiting large cities like Los Angeles and New York many times a year, but smaller cities like Lubbock, TX at most only once a year.  The order doesn’t make clear whether the Court intends to stick with geographic based sessions, but in theory remote proceedings allow the Court to decrease the time it takes to hear a case by hearing cases from around the country at once.  Quick resolution is generally best for all parties.

The Court generally does not hold trial sessions during summer months so it may not be until September (when remote proceedings may not be necessary) for us to see what effect this has on the time to resolve cases.

Cost

Tax Court judges travel around the country holding trial sessions.  Including Senior Judges and Special Trial Judges there are currently 31 Tax Court judges.  Remote proceedings obviously save money on travel, hotel, meals, etc. for judges and the trial clerks that typically accompany judges on sessions.  Some taxpayers do not live that close to any location the Tax Court holds sessions.  These taxpayers will save time on travel and the costs of getting to court.  The cost of legal fees should remain largely the same.

Access

Here is where we might start seeing significant differences.  The Tax Court will use Zoomgov (Zoom approved for government use basically) to conduct video proceedings but will also allow phone access.  Access to reliable high-speed internet is not equal and low income and older taxpayers will be disproportionately affected.  Although high-speed internet is widely available, statistics show that those who are older, lower income, and less well educated have less access.  If a taxpayer has an unreliable connection making picture or audio quality poor, it’s possible their case will be harder to present.  If the taxpayer is calling in over the phone and the judge and IRS Counsel are using video conferencing it could impact  the outcome.  It shouldn’t and hopefully won’t.  I would be very interested to hear from the many excellent low-income taxpayer clinics on this issue.

Rule Changes

The sample standing order has a few notable differences from the traditional standing pretrial order.  Although the Tax Court requires the parties to stipulate as much as possible, the regular pretrial order does not set a timeline.  The new sample requires parties to file a Stipulation of Facts no later than 14 days before trial.  This forces the parties to meet a little earlier to finalize a stipulation, which should reduce trial time.  As a Counsel  attorney, as much as I tried to have a signed stipulation weeks ahead of time, it was often a last minute endeavor because getting a hold of taxpayers is more difficult that most probably realize.  As long as the parties file a status report updating the court on their efforts this shouldn’t create much of a problem.

The new sample also requires parties to file a proposed stipulated decision, pretrial memorandum, motion to dismiss for lack of prosecution, or a status report no later than 21 days before trial.  Generally, a pretrial memorandum is due 14 days before trial for regular cases and 7 days for small tax cases.  A separate sample standing order was issued for small tax cases that requires 21 days before trial for a pretrial memorandum.  These changes, assuming the sample is representative of what all pretrial orders will look like, will mostly affect IRS Counsel.  Counsel lawyers will have less time to prepare pretrial memorandums.  Many, if not most, pro se taxpayers do not file pretrial memorandums.  For practitioners, the difference is probably negligible.

IRS Counsel will not  be able to continue the longstanding tradition of bringing a stack of motions to dismiss for lack of prosecution to calendar call.  If IRS Counsel  starts filing motion to dismiss cases 21 days before trial because they are unable to reach taxpayers, this may have a negative impact on pro se taxpayers.  As a Counsel  attorney it was common for taxpayers to show up at calendar call having never responded to a letter or call before.  This could be because of a language barrier, lack of reliable telephone service or mail, or just because they were hoping the case would go away.  If the new rule leads to more cases getting dismissed, it will likely disproportionately fall on pro se and lower income taxpayers.

These changes are all designed to reduce the time needed for trial and make the schedule more predicable for the Court.

Effectiveness

At the end of the day if taxpayers and practitioners cannot effectively conduct a trial remotely, the system will not work. .  I am optimistic that for most cases, there will be no quality loss.  Remember, Tax Court trial are bench trials, not jury trials.  Judges will be  understanding of technical issues and  get to the heart of the matter.  For most cases where there is no witness aside from the pro se taxpayer and not many exhibits, the lack of an in-person trial might not matter.

For larger cases, those with several witnesses, expert testimony, and hundreds of exhibits, remote proceedings will present  challenges.  Witnesses may struggle to hear questions or could even pretend not to hear to try to gain an advantage.   How will exhibits be displayed?  By sharing screens or uploading the exhibits prior to trial?  The technology exists to make this seamless, but it remains to be seen how this will work.  The Supreme Court (and many other courts) have been conducting remote proceedings  and the Tax Court  will make the necessary adjustments to achieve its important mission.

Jonathan Kalinski is a principal at Hochman Salkin Toscher Perez P.C. and specializes in both civil and criminal tax controversies as well as sensitive tax matters including disclosures of previously undeclared interests in foreign financial accounts and assets and provides tax advice to taxpayers and their advisors throughout the world.  He handles both Federal and state tax matters involving individuals, corporations, partnerships, limited liability companies, and trusts and estates.

Mr. Kalinski has considerable experience handling complex civil tax examinations, administrative appeals, and tax collection matters.  Prior to joining the firm, he served as a trial attorney with the IRS Office of Chief Counsel litigating Tax Court cases and advising Revenue Agents and Revenue Officers on a variety of complex tax matters.  Jonathan Kalinski also previously served as an Attorney-Adviser to the Honorable Juan F. Vasquez of the United States Tax Court.

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