Section 5321(a)(5)(A) provides that the Secretary of Treasury “may impose a civil money penalty” on anyone who violates the FBAR reporting requirements.  Originally, the penalty for willful violation was the greater of the amount in the account (not to exceed $100,000) or $25,000. In 2004, Congress amended the FBAR penalty provision to increase the maximum willful penalty from the amount in the account (up to $100,000) to the greater of $100,000 or 50% of the amount in the account.  Section 5321(a)(5)(C)(i). Based on the statute, the IRS has routinely imposed FBAR penalties equal to 50% of the high balance in the taxpayer’s offshore accounts, sometimes for several years.  As a result, taxpayers have been faced with millions of dollars in FBAR penalties.

Along with a handful of other commentators, I had pointed out that these confiscatory penalties violate a Treasury regulation issued after sec. 5321(a)(5(C)(i) was amended.  That regulation, 31 C.F.R. sec. 1010.820, provides that the maximum FBAR penalty is $100,000.  See “Is it Illegal for the IRS to Assess More than $100,000 for a Willful FBAR Violation?” posted November 17, 2017.

On May 16, 2018, a District Court held that a willful FBAR penalty of over $100,000 was illegal.  United States v. Colliot, Docket No. 1:16-cv-01281 (W.D. Tex.). The Government sued Mr. Colliot to collect FBAR willful penalties assessed against him for 2007, 2008, 2009 and 2010. The penalties assessed were $548,773 for 2007 and $198,082 for 2008. The penalties for 2009 and 2010 were smaller. Mr. Colliot moved for summary judgment on the ground that the IRS improperly assessed penalties of over $100,000 in violation of the regulation. The Government opposed the motion on the ground that regulation was invalidated by the statute. The Court disagreed.

The Court found that there was “little reason to believe” the statute “implicitly superseded or invalidated” the regulation. The maximum penalty is discretionary and the regulation, issued by notice-and-comment rulemaking, “is consistent with § 5321’s delegation of discretion to determine the amount of penalties to be assessed.”  The regulation was neither unreasonable nor contrary to the provisions of the statute. As a result the IRS acted “arbitrarily and capriciously” when it when it assessed penalties in excess of the regulatory cap.

The Court left open the issue of the appropriate relief in this situation: could the IRS still collect up to $100,000 per year if it proved willful violations or was the entire penalty invalid?

This case is a significant victory for taxpayers.  Persons who did not go into the Offshore Voluntary Disclosure Program and are facing 50% penalties have a new weapon to defeat the IRS. The Government will have to consider whether it wants to appeal the decision or just promulgate a new regulation that authorizes a penalty of up to 50% of the maximum balance in the undisclosed offshore accounts.

ROBERT S. HORWITZ – For more information please contact Robert S. Horwitz – horwitz@taxlitigator.com or 310.281.3200   Mr. Horwitz is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former Assistant United States Attorney of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) and 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

 

Beware: some IRS Agents are modifying Form 872 (Consent to Extend the Time to Assess Tax) to include additional language for international penalties and blown statutes.  Although, the forms appears to be the standard preapproved Form 872, reflecting “last revised in July of 2014” or “last revised January 2018”, the altered form contains an additional paragraph typed into the body of the agreement.

First example of additional language:

(6) Without otherwise limiting the applicability of this agreement, this agreement also extends the period of limitations for assessing any penalty imposed under IRC §§ 6038, 6038A, 6038B, 6038D, 6677 or 6679.

This additional paragraph relates to extending the assessment statute specifically to include international penalties in Chapter 61 of the Code.  Interestingly, the IRS has claimed that section 6038 penalties have no statute of limitations.  If so, why are agents typing in and including this language on the consent form?

The Code provides the general rules for assessments including various exceptions including extension of time by agreement[1].  By timely executing a valid Form 872, the parties can extend the time for the IRS to assess.[2]  Once the tax and penalties are assessed, the IRS uses its formidable administrative collection powers to collect.[3]

Question is what are taxpayers agreeing to if they sign this version of the Form 872?  Does the IRS even need to extend the statute for section 6038 penalties?  What, if any, impact is there to the IRS’s ability to assess the stated international penalties if the taxpayer executes this version of the agreement?   Is the taxpayer agreeing or stipulating that the international penalties are assessable?  Is the taxpayer waiving its defense that the section 6038 international penalties are not assessable?

Once the Service determines that a section 6038 penalty applies, the Manual instructs its agents to prepare a Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, and Form 886-A, Explanation of Items, and forward to the Service Center to assess the penalty.[4]  The Manual also states that section 6038 penalties are not subject to deficiency procedures.  The Service fails to address how the IRS can automatically assess a nonassessable penalty.  Can taxpayers agree to allow the IRS to assess a nonassessable penalty even though the Internal Revenue Code does not provide the authority?  Does the IRS explain to taxpayers they may be waiving any potential rights to challenge the assessment?

The Code distinguishes between assessable and non-assessable penalties.  Section 6201(a)[5] provides the general authority for the IRS’s ability to assess all taxes, which include “interest, additional amounts, additions to the tax and assessable penalties imposed by this title (emphasis added).”  The section states that to assess a penalty it must be an assessable penalty.

Section 6671 provides the rules for assessment of assessable penalties as identified in Chapter 68  – Subchapter B  – Assessable Penalties ((§§ 6671 to 6725).[6]  Chapter 68 (Additions to the Tax, Additional Amounts, and Assessable Penalties) also contains section 6665(a) [7] a companion section to 6671 on a slightly different subject.  Section 6665(a) appears to expand the assessable penalty assessment rules to include any penalty under Chapter 68, not just the penalties in Subchapter B.

Penalties on the Modified Form 872

  • Section 6038: Information returns required for certain foreign corporations (Form 5471) and partnerships (Form 8865), and foreign disregarded entities (Form 8858); the associated penalty is in the text of section 6038 all in Chapter 61 (Information And Returns (§§ 6001 to 6117));
  • Section 6038A: Information returns required for certain foreign-owned U.S. corporations (Form 5472); the associated penalty is in the text of section 6038A all in Chapter 61 all in Chapter 61 (Information And Returns (§§ 6001 to 6117));
  • Section 6038B: information returns required for certain transfers to foreign persons (Forms 926 and 8865); the associated penalty is in the text of section 6038B all in Chapter 61 (Information And Returns (§§ 6001 to 6117);
  • Section 6038C: Information returns required for certain foreign corporations engaged in U.S. business (Form 5472); the associated penalty is in the text of sections 6038C all in Chapter 61 (Information And Returns (§§ 6001 to 6117);
  • Section 6038D: Information returns regarding foreign financial assets (Form 8938); the associated penalty is in the text of section 6038D all in Chapter 61 (Information And Returns (§§ 6001 to 6117);
  • Section 6048: Information returns required for certain reportable events for a foreign trust (Forms 3520 and 3520-A)[8]. However, the associated penalty, section 6677 is in Chapter 68 – Additions To The Tax, Additional Amounts, and Assessable Penalties (§§ 6651 to 6751) and is an assessable penalty.

Section 6046: United States persons, in certain circumstances, required to file a return if they acquire or dispose of an interest in a foreign corporation, or if their proportional interest in a foreign corporation changes. (Form 5471 Schedule O). However, the associated penalty, section 6679 is in Chapter 68 – Additions To The Tax, Additional Amounts, and Assessable Penalties (§§ 6651 to 6751) and is an assessable penalty.

  • Section 6046A: United States persons, in certain circumstances, required to file a return if they acquire or dispose of an interest in a foreign partnership, or if their proportional interest in a foreign partnership changes. (Form 8865). However, the associated penalty, section 6679 is in Chapter 68 – Additions To The Tax, Additional Amounts, and Assessable Penalties (§§ 6651 to 6751) and is an assessable penalty.

Observations:

None of the section 6038 penalties itemized in paragraph (6) above are governed by the statute of limitations.  The Internal Revenue Manual[9] specifically states these International Penalties are not considered taxes and generally have no statute of limitation for assessment, whereas, penalties related to tax are generally treated as taxes and governed by the statute of limitation for assessment for the underlying return.

As there is no statute of limitations for assertion of the penalties under IRC §§ 6038, 6038A, 6038B, or 6038D what is the purpose of paragraph 6 on the modified Form 872?  As far back as 1959, the Service has a general policy of not asserting taxes retroactively for more than a few prior years even though sometimes there is no statutory bar to assessing unpaid taxes for all prior periods.  The guidance provides that under ordinary circumstances the normal three-year statute may be followed as a guideline in making determinations on the extent of retroactivity.[10]  And, for delinquent returns, the Manual provides guidance that enforcement of delinquency procedures should not be for over six (6) years back.[11]

Chapters 63 and 68 of the Code give the IRS the authority to assess the penalties under section 6677 and section 6679.  But there is no corresponding authority in the Code giving the IRS the authority to assess the section 6038 series of penalties.[12]  If the IRS cannot assess the penalties, the IRS must request the Department of Justice to sue the taxpayer in District Court to collect the penalties and reduce them to a judgment.

Back to the initial question, if the IRS has no authority to assess the section 6038 series of penalties what is the taxpayer agreeing to in paragraph 6? And would signing the Form 872 with the above paragraph constitute a stipulation to the IRS’s ability to assess these penalties or, at least, waive the taxpayer’s ability to make an argument on the validity of the assessment?

Second example of additional language:

(6) With respect to the returns for the period(s) listed in paragraph (1) above, if the three-year period for assessing tax, under Internal Revenue Code section 6501(a), ended prior to the date of this consent, then this consent serves to extend the time to assess tax under any other provision of section 6501 for which the period of time to assess has not ended as of the date of this consent.

Observations:

It appears the IRS is requesting taxpayers to extend any possible provisions of the code that may kept the assessment statute open as of the execution of the Form 872 without identifying what they are focusing on.  This new paragraph seems to be a catch all or safety net for the Service.  It acknowledges the general assessment statute may be expired and it is asking the taxpayer to extend any possible statute exception that might apply.  Although, the law states the IRS cannot revive a closed statute[13] this extension request is usual.

Has the IRS identified a 25% omission of income that may have a six-year assessment statute?  Is the IRS expecting to argue that under the Hire Act the foreign information forms were not substantially correct and the failure extends the normal three-year statute?  Does executing this form trigger waiver on other items extending the assessment statute?  Is the IRS pushing for fraud or another exception and using this language to coax the taxpayer in agreeing to extend?

Conclusion:  Sign nothing without understanding the consequences of the document.  Practitioners should be appraised of the repercussions and consider pushing back on agents.  The altered forms appear to be the pre-approved standard agreement; however, it has been modified by the field agent.  It seems agents amend or alter the preapproved standard Form 872 without noting the change to the taxpayer.  Practitioners should carefully review the Form 872 to identify any potential changes and understand the consequences before signing these altered statute extensions.

EDWARD M. ROBBINS, Jr. is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., and specializes in representing individuals and organizations who are involved in criminal tax investigations, including related grand jury matters, court litigation and appeals, as well as representing and advising taxpayers involved in complex and sophisticated civil tax controversies, including representing and advising taxpayers in sensitive-issue audits and administrative appeals, as well as civil litigation in federal, state and tax court. Prior to joining the firm, he served as the Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal).  Mr. Robbins may be reached at EdR@taxlitigator.com or 310.281.3247.

[1] Sec. 6501. Limitations on assessment and collection

(a) General rule – Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed. . . ..

[2]  Sec. 6501(c)(4).

[3] See Chapter 64 – Collection (§§ 6301 to 6361).

[4][4] IRM 8.11.5.1(2) (12-18-2015) Introduction of International Penalties.

[5]  Sec. 6201(a) Authority of Secretary

The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title . . ..

[6]  Sec. 6671. Rules for application of assessable penalties

The penalties and liabilities provided by this subchapter shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes.  Except as otherwise provided, any reference in this title to “tax” imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter.

[7] Sec. 6665(a) Additions treated as tax

Except as otherwise provided in this title–

(1) the additions to the tax, additional amounts, and penalties provided by this chapter shall be paid upon notice and demand and shall be assessed, collected, and paid in the same manner as taxes; and

(2) any reference in this title to “tax” imposed by this title shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter.

[8]  These forms are filed as stand-alone forms that are not part of another tax return.

[9] IRM 20.1.9.1.1(3) (10-24-2013)(Common Terms).

Statute of Limitations—Penalties that are not considered taxes generally have no statute of limitation for assessment. Penalties related to returns are generally treated as taxes and governed by the statute of limitation for assessment.

[10]  IRM 1.2.13.1.30 Policy Statement 4-102 (07-10-1959).

[11] IRM1.2.14.1.18 Policy Statement 5-133 (08-04-2006).

[12] The Treasury Regulations under sections 6038, 6038B, 6038C and 6038D do not say the penalty can be assessed.  These regulations use language like “penalty shall be imposed,” or “person shall pay a penalty,” or “person is subject to a penalty,” or “a penalty will apply.”  Whereas, the regulation under section 6038A says the penalty “shall be assessed” but does not provide any authority for the assessment.

[13] To be valid, an agreement by the taxpayer to extend the statute of limitations on assessment must be (1) in writing; (2) entered into before the expiration of the original collection period or a previously agreed upon extension; and (3) executed by the taxpayer and an authorized delegate of the Commissioner. I.R.C. § 6502(a); Treas. Reg. § 301.6502-1(a)(2)(i).

Posted by: Steven Toscher | April 13, 2018

Tax Problem for Departing Aliens by Steven Toscher

The regulations[1] require that no alien, whether resident or non-resident, can depart from the United States unless he or she first procures a certificate that he or she has complied with the obligations imposed upon him or her by the income tax laws.[2] Failure to do so may result in a termination assessment.

Certain types of individuals, however, are not required to obtain a certificate of compliance. These include:

(1)        employees of foreign governments or international organizations;

(2)        alien students and industrial trainees admitted on F or H-3 visas, respectively, who have limited income (as defined by the regulations); and

(3)        other aliens temporarily in the United States.

The last category includes an alien visitor for pleasure admitted solely on a B-2 visa; an alien visitor for business admitted on a B-1 visa; an alien in transit to the United States or any of its possessions on a C-1 visa; an alien admitted to the United States on a border-crossing identification card or regarding whom passport visas and border identification cards are not required, if that alien is a visitor for pleasure, if that alien is a visitor for business who does not remain in the United States or its possessions for a period exceeding ninety days during the taxable year, or if that alien is in transit through the United States or its possessions; an alien military trainee admitted to the United States; and, finally, an alien resident of Canada or Mexico who commutes between that country and the United States at frequent intervals for employment and whose wages are subject to the withholding of tax.[3]

Note that holders of a Permanent Resident Card (“ a Green Card”) are not excused from this regulation.

Except for the above individuals, every alien departing the country must obtain a certificate of compliance wherein the district director determines whether the alien’s departure jeopardizes the collection of any income tax. If the district director finds that the departure of the alien will result in jeopardy, the taxable period of the alien will be terminated and the alien will be required to file returns and make payment for the shortened tax period. If the district director finds that the departure of the alien does not result in jeopardy, the alien will be required to file a statement on Form 2063, U.S. Departing Alien Income Tax Statement,[4] but will not be required to pay income tax before the usual time for payment.[5]  See I.R.S. Publication 519 (U.S. Tax Guide for Aliens) for more details.

The intended departure of an alien who is a resident of the United States or a U.S. possession and who intends to continue that residence will not be treated as resulting in jeopardy and, therefore, will not require a termination of the alien’s taxable year, unless the district director has information indicating that the alien intends by his or her departure to avoid payment of income taxes. With a non-resident alien or a resident alien discontinuing residence, the fact that the alien intends to depart from the United States will justify termination of the taxable period unless the alien establishes that he or she intends to return to the United States and that his or her departure will not jeopardize the collection of any taxes. The determination is to be made on a case-by-case basis. Evidence tending to establish the nonexistence of jeopardy from the departure includes showing that the alien is engaged in a trade or business in the United States or that the alien leaves enough property in the United States to secure payment of his or her income tax for the taxable year.[6]

Every alien required to obtain a certificate of compliance, whether a resident or a nonresident, whose taxable period is terminated upon departure because of jeopardy is required to file with the district director a return in duplicate on Form 1040C, U.S. Departing Alien Income Tax Return,[7] for the short taxable period resulting from the termination. Income received and reasonably expected to be received through the taxable period, during and including the date of departure, must be stated. Moreover, other income tax returns due but not filed must be submitted.[8]

Upon compliance with the foregoing requirements and payment of the income tax required to be shown on the return and of any income tax due and owing for prior years, the departing alien will be issued a certificate of compliance. The departing alien can postpone payment of the tax required to be shown on the return until the usual time of payment by furnishing a bond.[9]

STEVEN TOSCHER – For more information please contact Steven Toscher – toscher@taxlitigator.com Mr. Toscher is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., specializing 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. Additional information is available at http://www.taxlitigator.com

 

[1] Treas. Reg. § 1.6851-2.

[2] See Pub. 519 (U. S. Tax Guide for Aliens).

[3] Id.

[4] Available at www.irs.gov.

[5] Treas. Reg. § 1.6851-2(b)(1).

[6] Id.

[7] Available at www.irs.gov.

[8] Treas. Reg. § 1.6851-2(b)(3)(iii).

[9] Id.

 

Generally, when a taxpayer files a tax return, the federal tax laws afford the Internal Revenue Service (“IRS”) with a limit of only three-years within which it must act to examine and assess additional taxes and penalties on any unreported income. While the Internal Revenue Code provides various exceptions to this three-year limit[i], on January 2, 2018, the Tax Court in Rafizadeh v. Commissioner[ii], not only narrowed one of those exceptions, but did so in the context of the IRS’s ability to assess tax on unreported income derived from an undisclosed foreign bank account.

In February 2009, the United States entered into a deferred prosecution agreement with Switzerland’s largest bank, UBS AG, in connection with the bank’s facilitation of the creation and use of non-disclosed foreign bank accounts by U.S. taxpayers. The agreement was unprecedented and resulted in the IRS obtaining secret bank account information on tens of thousands of U.S. taxpayers.

The landmark settlement with UBS was further exemplified by the concerted efforts of the Department of Justice and the IRS to not only utilize its criminal powers but also its civil tools to obtain additional secret foreign bank account information, such as the filing of a John Doe summons action, whereby the IRS received thousands of additional undisclosed foreign accounts and the Offshore Voluntary Disclosure Initiative, an administrative compliance program which resulted in over 14,700 additional taxpayers coming forward to report previously-undisclosed foreign bank accounts.

Notably, at the time the government was involved these efforts, which can fairly be described as very public actions to obtain information about what were previously viewed as “secret” foreign bank accounts, the U.S. tax laws did not impose a separate filing obligation on U.S. taxpayers, under Title 26, with respect to such interests in foreign bank accounts. Congress, on March 18, 2010, as part of the Hiring Incentives to Restore Employment (HIRE) Act, created this additional filing obligation by enacting Section 6038D. Section 6038D imposes a duty on U.S. taxpayers to file a report of information relating to an interest in a “specified foreign financial asset,” e.g., foreign bank accounts, where the aggregate value of such asset(s) exceed $50,000.  This newly enacted reporting obligation applied only to tax years ending after December 19, 2011.[iii]  Thus, for tax years ending after 2011, the tax laws required that U.S. taxpayers – in addition to the underlying obligation to report all income from all sources – separately report, on Form 8938, their interests in foreign bank accounts. Form 8938 is then required to be submitted with the U.S. taxpayer’s income tax return.[iv]  

In imposing the new Form 8938 reporting requirement on taxpayers, Congress determined that the IRS should be entitled to additional time to examine and assess a tax related to the foreign bank account information now required to be disclosed directly to the IRS under Section 6038D. As a result, Congress, under HIRE, also enacted Section 6501(e)(1)(A)(ii), which provided a six-year statute of limitations for the IRS to assess a tax deficiency, rather than the more narrow three-year limit, in cases involving omitted gross income attributable to assets required to be reported under Section 6038D, where the amount of omitted gross income exceeded $5,000.

This brings us to Mr. Rafizadeh. For the tax years 2006 through 2009, Mr. Rafizadeh, a U.S. taxpayer, owned a foreign bank account, the gross income of which he did not disclose when he filed his tax returns for those years. Prior to his attempt to submit an offshore voluntary disclosure, the bank at which the taxpayer owned this account received a John Doe summons from the IRS. As a result, the IRS determined that the taxpayer was not eligible for the administrative compliance program. The IRS then proceeded to examine not only the taxpayer’s foreign account issues for 2006 through 2009, but also his income tax returns for those same years.

On December 8, 2014, the IRS, relying upon the six-year statute of limitations under Section 6501(e)(1)(A)(ii), issued a notice of deficiency to the taxpayer asserting tax deficiencies as well as the accuracy-related penalty for each of those years. The additional tax assessed for each year, other than 2009, exceeded $5,000.  The taxpayer petitioned the Tax Court, asserting the three-year statute of limitations to assess additional tax for the years 2006-2009 had expired and the six-year statute upon which the IRS had relied was inapplicable to these tax years as Section 6038D, unambiguously on its face, did not impose a duty on him to file the Form 8938 for these tax years.

The IRS in response, after conceding the inapplicability of Section 6501(e)(1)(A)(ii) to 2009 on grounds that the amount in issue for that year was less than $5,000 (an additional factor mandated for the application of the six-year statute of limitations), asserted the six-year statute extension should be interpreted to apply to not only years in which the Form 8938 was required but years, such as 2006-2008, in which the omitted gross income involved the type of assets required to be reported under Section 6038D as long as the statute of limitations on the underlying income tax return was still open.

The Tax Court, relying upon Supreme Court precedent[v], noted that it “must presume that a legislature says in a statute what it means and means in a statute what it says there” found that absent a preexisting obligation to file a report under Section 6038D (akin to the statute’s unambiguous $5,000 threshold), the six-year statute of limitations did not apply.[vi]  As such, the Tax Court found the notice of deficiency for 2006, 2007, and 2008 to be untimely.[vii]

In short, while the holding in Rafizadeh serves to limit the IRS’s ability, under Section 6501(3)(1)(A)(ii), to extend the general three-year statute of limitation for years prior to 2011, where the taxpayer’s omission of income from any source, including but not limited to a “specified foreign financial asset” exceeds 25% of the gross income reported on the return or is the result of fraud, the IRS doesn’t need that statute to extend its time to six years, or even, to forever. At least in the context of the IRS’s use of its civil tools. Of course, the IRS’s criminal tools are a whole different story . . .

Sandra R. Brown is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., and specializes in representing individuals and organizations who are involved in criminal tax investigations, including related grand jury matters, court litigation and appeals, as well as representing and advising taxpayers involved in complex and sophisticated civil tax controversies, including representing and advising taxpayers in sensitive-issue audits and administrative appeals, as well as civil litigation in federal, state and tax court. Prior to joining the firm, she served as the Acting United States Attorney, the First Assistant United States Attorney and the Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal).  Ms. Brown may be reached at brown@taxlitigator.com or 310.281.3217.

[i] 26 U.S.C. §6501, et seq.

[ii] Rafizadeh v. Commissioner, 150 T.C. No. 1 (2018).

[iii] Treas. Reg. §1.6038D-2(g).

[iv] Treas. Reg. §1.6038D

[v] Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-254 (1992).

[vi] Rafizadeh, 150 T.C. No. 1, at 7.

[vii] Id. at 12-13.

 

As we approach the tax return filing deadline of April 17 this year, taxpayers are scrambling for documents to substantiate their expenses and basis in assets. Tax practitioners are always asked low long should one keep records.  Three years?  Seven years?  Forever?  If you find yourself without records, all may not be lost thanks to early 20th century Broadway writer, producer, director George M. Cohan.[i]

Andrew Shank[ii] withdrew over $27,000 from his IRA and did not report any of it on his tax return despite receiving a Form 1099-R.  At trial he credibly testified that he opened the IRA in the 1990s when he was a high earner and therefore could not deduct the contributions.  The Court found it understandable that Mr. Shank didn’t have records from the 1990s and combined with his credible testimony used the Cohan rule to estimate his basis.  Although the Court ultimately determined a basis of only $4,760, there are several important lessons from this case.

First, although documentary evidence might be the best evidence to prove basis, testimony is evidence and credible testimony is valuable evidence. IRS Revenue Agents, Appeals Officers, and even lawyers frequently get tunnel vision and only look at documentary evidence and ignore the taxpayer’s words.  If a taxpayer can credibly tell his or her story the Court will consider it even where recordkeeping is light.  As a practitioner, you need to build your case around your client’s story to offer as much support as possible.  Cohan is not automatic.  You must establish a reasonable evidentiary basis.

Second, this case serves as a reminder that the Cohan rule does not only apply to expenses, but also basis. Taxpayers are frequently trying to prove their basis in stocks purchased years ago, or the cost of home improvements.  These issues are ripe for the Cohan rule, assuming you can establish a reasonable evidentiary basis.

Finally, when it comes to keeping records, if it deals with basis, it is wise to keep records for several years after you dispose of the asset. Without records you may not end up with zero basis, but even with Cohan, it is unlikely to be what you think you deserve.

Jonathan Kalinski 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.

[i] Cohan was famously portrayed by James Cagney, who won an Oscar for Yankee Doodle Dandy.  https://www.youtube.com/watch?v=StDpLge_ITM

[ii] Shank v. Commissioner, T.C. Memo. 2018-33.

There’s been a recent uptick in state and federal prosecutions of restaurants who use sales-suppression software (also known as “zappers”) that delete transactions on computerized point-of-sale systems, as governments have finally woken up to the fact that they are losing tens of billions of dollars per year in underreported sales and income taxes. These zapper programs are a modern update to an age-old practice in cash businesses – keeping one set of “real” books and another, showing lower sales, to give to the tax collectors. In the past few years, the IRS has teamed up with state taxing agencies on cases, training, and software to detect businesses – primarily restaurant so far – that are submitting false sales and income figures.

In the article, my brother Kirk, a Seattle attorney who defended a low-level zapper salesperson in the first prosecution of a zapper distributor, and I tracked the increasing frequency of zapper prosecutions. Kirk’s client’s case resulted from a federal-state partnership, whereby a restaurant owner was prosecuted by the State and Kirk’s client was prosecuted by the US Attorney’s Office. As we noted, what started out as one zapper prosecution every decade has increased to one prosecution every few months. We also discussed that states are sending their tax investigators to zapper training, hoping to detect and nab businesses who are using the software.

As if on cue, two months after our article, the next case dropped. On March 9, 2018, the Washington Attorney General filed charges against the owner of seven Tacos Guaymas restaurants for zapping more than $5.6 million in sales tax under a 2013 Washington law that specifically outlaws using zapper software. The AG touted the case as “potentially the largest in the country,” which very well may be true. Washington’s sales tax rate is roughly 10 percent, so the restaurants allegedly zapped more than $50 million of sales.

It’s worth noting this case was brought in Washington State. Washington is on the forefront of investigating and prosecuting zapper cases, and it appears they now have the expertise – using undercover agents as well as computer forensics – to investigate the cases without the IRS’s help. The IRS isn’t mentioned in the press release, which in the world of law enforcement would be a major faux pas if the IRS were involved. This development should make cash businesses in Washington as well as other states that have devoted training and agent resources to zapper cases – including Connecticut, Illinois, and California – nervous.

If you’d like to learn more, please forward an email requesting a copy of the article referenced above.

EVAN J. DAVIS – For more information please contact Evan Davis – davis@taxlitigator.com or 310.281.3288. Mr. Davis is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former AUSA of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) handling civil and criminal tax cases and, subsequently, of the Major Frauds Section of the Criminal Division of the Office of the U.S. Attorney (C.D. Cal) handling white-collar, tax, and other fraud cases through jury trial and appeal. He has served as the Bankruptcy Fraud coordinator, Financial Institution Fraud Coordinator, and Securities Fraud coordinator for the USAO’s Criminal Division, and the U.S. Attorney General awarded him the Distinguished Service Award for his work on the $16 Billion RMBS settlement with Bank of America.

Mr. Davis represents individuals and closely held entities in criminal tax investigations and prosecutions, civil tax controversy and litigation, sensitive issue or complex civil tax examinations and administrative tax appeals, and federal and state white-collar criminal investigations including money laundering and health care fraud. He is significantly involved in the representation of taxpayers throughout the world in matters involving the ongoing, extensive efforts of the U.S. government to identify undeclared interests in foreign financial accounts and assets and the coordination of effective and efficient voluntary disclosures (OVDP, Streamlined Procedures and otherwise).

 

Did you ever fail to keep complete and accurate records? Pay someone in cash? Not give an accountant all your records? Deposit a business check in a personal account? Thanks to the Supreme Court’s March 21 decision in Marinello v United States, 584 U.S. ___, you won’t have to worry that these acts can lead to your being charged with a tax crime (at least if they didn’t occur while you  knew you were the subject of an IRS audit or investigation).

The tax obstruction statute, Internal Revenue Code sec. 7212(a), makes it a crime to use force or threats of force against a federal employee in order to obstruct the “due administration” of the Internal Revenue Code. The omnibus clause of that statute criminally penalizes anyone who ʺcorruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration ofʺ the Internal Revenue Code in ways not addressed by other specific provisions of the statute.  For many years the omnibus clause was rarely used in criminal tax prosecutions.  This changed in the mid 1990s, when it became a way to beef up a tax prosecution.

A case in point: Carlos Marinello, who operated a courier service. He lived off of income from his business.  From 1992 to 2010 he failed to file individual or corporate income tax returns. He destroyed bank statements and business records.  In the early 2000s the IRS began an investigation of Marinello but closed the case because it could not determine whether he owed tax.  Marinello never learned of this investigation.

In 2009, the IRS reopened its investigation of Marinello. Special agents showed up at his home and he consented to an interview.  He admitted not filing returns, living off income from his business and destroying records.  A slam-dunk case of willful failure to file tax returns.  The problem from the Government’s point of view is that willful failure to file is only a misdemeanor.  And the IRS apparently failed to gather enough evidence to prove felony tax evasion.

To fix the problem, the Government indicted Mr. Marinello on 8 counts of willful failure to file and one count of violating the omnibus clause. The acts that supported the omnibus clause count: a) failing to keep business books and records; b) shredding bank statements; c) cashing checks from business clients; d) paying employees in cash; e) failing to provide his accountant with complete books and records; f) putting business income in his personal bank account; and g) putting assets in nominee names.

A jury convicted Marinello on all nine counts. The trial judge rejected Marinello’s proposed instruction that to convict for violation of the omnibus clause count the Government must prove he was aware of an IRS investigation when he committed these allegedly obstructive acts.  The trial judge sentenced the 69-year-old Marinello to 36 month in prison, one year supervised release and payment of over $350,000 restitution.  The Second Circuit affirmed.  Joining the First, Ninth and Tenth Circuit, and rejecting the reasoning of the Sixth Circuit in US v. Kassouf, 144 F.3rd 952 (6th Cir. 1998), the Second Circuit held that the Government does not need to show that the defendant was aware of an on-going IRS audit or investigation in order to convict under sec. 7212(a).

Because of a split in the circuits, the Supreme Court granted Marinello’s petition for certiorari. In a 7-2 opinion, the Supreme Court reversed the Second Circuit.  The Court put the question before it and the answer in the following terms:

The question here concerns the breadth of that statutory phrase. Does it cover virtually all governmental efforts to collect taxes? Or does it have a narrower scope? In our view, “due administration of [the Tax Code]” does not cover routine administrative procedures that are near-universally applied to all taxpayers, such as the ordinary processing of income tax returns. Rather, the clause as a whole refers to specific interference with targeted governmental tax-related proceedings, such as a particular investigation or audit.

The Court looked to its decision in United States v. Aguilar, 515 U.S. 593 (1995), which involved similar wording in the obstruction of justice statute.    In Aguilar the Court held to convict under that omnibus clause of the obstruction of justice statute the Government must prove the defendant intended to influence a judicial or grand jury proceeding and that his acts had a temporal, causal or logical relationship with the proceeding.  The reasons for its narrow reading in Aguilar were deference to Congress and concerns about giving “fair warning … of what the law intends to do if a certain line is crossed.”

The Court observed that the words “obstruct or impede” are broad. The objective phrase is “due administration of this title.”  The omnibus clause occurs in the context of language dealing with the obstruction of an officer or employee or the forcible rescue of property after seizure, acts “against individual, identifiable persons or property.”  According to the Court the omnibus clause is a “catchall” to the types of obstructive conduct set out in sec. 7212(a), not to all interference with what the Government termed “the continuous, ubiquitous and universally known” administration of the internal revenue laws.

Following its textual analysis, the Court turned to the legislative history of sec. 7212(a). It found that both House and Senate Reports made it clear that Congress meant to limit the scope of sec. 7212(a)’s omnibus clause.  The Court could find nothing in the legislative history to indicate an intent to make the omnibus clause a catchall for routine filing, return processing and similar activities under the Internal Revenue Code.

The Court also expressed concern that application of the omnibus clause to the full panoply of the Internal Revenue Code would potentially transform misdemeanors into felonies. The Government’s broad reading would create overlaps and redundancies and run the risk of potentially applying to such actions as paying a babysitter without withholding tax, not keeping all receipts for charitable contributions, or failing to give all records to an accountant.  Limiting the reach of the omnibus clause to acts done “corruptly” wouldn’t help since corruptly means “acting with the specific intent to obtain an unlawful advantage.” The Court said it could not image a person willfully violating the Code without intending to gain some advantage.  In the world of taxation no one is altruistic, I guess.

The Court rejected the Government’s argument that it could rely on prosecutorial discretion. Not only had the Government expanded the use of the omnibus clause since the 1990s, but relying on prosecutorial discretion would place too much power in the hands of prosecutors and police, lead to inconsistent application of the law and allow the law to be used arbitrarily.

The Court concluded:

… to secure a conviction under the Omnibus Clause, the Government must show (among other things) that there is a “nexus” between the defendant’s conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action. That nexus requires a “relationship in time, causation, or logic with the [administrative] proceeding.” Aguilar, 515 U. S., at 599 (citing Wood, 6 F. 3d, at 696). By “particular administrative proceeding” we do not mean every act carried out by IRS employees in the course of their “continuous, ubiquitous, and universally known” administration of the Tax Code. Brief in Opposition 9. While we need not here exhaustively itemize the types of administrative conduct that fall within the scope of the statute, that conduct does not include routine, day- to-day work carried out in the ordinary course by the IRS, such as the review of tax returns. The Government contends the processing of tax returns is part of the administration of the Internal Revenue Code and any corrupt effort to interfere with that task can therefore serve as the basis of an obstruction conviction. But the same could have been said of the defendant’s effort to mislead the investigating agent in Aguilar. The agent’s investigation was, at least in some broad sense, a part of the administration of justice. But we nevertheless held the defendant’s conduct did not support an obstruction charge. 515 U. S., at 600.  In light of our decision in Aguilar, we find it appropriate to construe §7212’s Omnibus Clause more narrowly than the Government proposes. Just because a taxpayer knows that the IRS will review her tax return every year does not transform every violation of the Tax Code into an obstruction charge.

In addition to satisfying this nexus requirement, the Government must show that the proceeding was pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant. See Arthur Andersen, 544 U. S., at 703, 707–708 (requiring the Government to prove a proceeding was foreseeable in order to convict a defendant for persuading others to shred documents to prevent their “use in an official proceeding”). It is not enough for the Government to claim that the defendant knew the IRS may catch on to his unlawful scheme eventually. To use a maritime analogy, the proceeding must at least be in the offing.

Associate Justice Thomas, joined by Associate Justice Alito, dissented. They opined that the majority reading transformed the meaning of the text from obstructing “the due administration of” the Code to “the due administration of some of” the Code.  The plain language of the text made the omnibus clause applicable to the entire Code, from to information gathering to return preparation to return processing to assessment, collection, audit and investigation, not just a to few specific provisions of the Code.  That a broad reading may be redundant is irrelevant.  Since the omnibus clause doesn’t require that a specific proceeding be ongoing, the dissent believed that the majority erred in reading it into the statute.  It would have affirmed the Second Circuit.

So you can sleep easier tonight even if you didn’t issue a 1099 or W-2 to your babysitter or paid cash for a meal or dumped some receipts. Unless of course you know that the IRS is auditing or investigating you.

For more information please contact Robert S. Horwitz – horwitz@taxlitigator.com or 310.281.3200   Mr. Horwitz is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former Assistant United States Attorney of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) and 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.

 

 

 

 

Posted by: Robert Horwitz | March 14, 2018

Two IRS Pronouncements on Penalties by Robert S. Horwitz

When it comes to taxes, Congress is penalty happy. There are over 150 separate penalties that can be imposed for various infractions of the Internal Revenue Code.  Two recent IRS pronouncements address penalties.

First Time Abatement Relief

Among the myriad of penalties, the Internal Revenue Code provides for the penalties for:

  1. Failure to file a tax return by the due date;
  2. Failure to pay tax shown due on a return by the due date;
  3. Failure to deposit tax;
  4. Failure to file a partnership return by the due date; and
  5. Failure to file a S-corporation return by the due date.

In 2001, the IRS adopted a “first time abatement” policy for these penalties. Under the policy, a taxpayer could receive relief for these penalties if it is shown that (a) the taxpayer was never previously required to file a return or has no prior penalties for the three preceding years; (b) has filed (or filed an extension) for all currently due returns; and (c) has paid or arranged to pay any tax that is due.  The taxpayer who meets these requirements can have the penalty abated for a single tax period.  The IRS normally abates the earliest tax period that meets the abatement criteria.

Historically, the IRS only granted first time abatement relief where the taxpayer either asserted reasonable cause or specifically requested first time abatement relief. The Treasury Inspector General for Tax Administration (TIGTA) criticized the IRS for not informing taxpayers of the availability of first time abatement relief and for not addressing the negative impact upon taxpayers who also qualify for abatement for reasonable cause.

An internal IRS memorandum was recently published providing that the IRS will automate the first time abatement process so that all taxpayers who meet the criteria for first time abatement will be granted relief. The IRS estimates that automating the process will increase the number of penalties waived from approximately 350,000 per year to approximately 1.7 million a year.

Besides automating the first time abatement process to ensure that all eligible taxpayers get relief, the memorandum is notable for other reasons. First, it clarifies that the three-year look back period means if you obtained relief in the past and you compliant for three straight years, you can qualify for a later failure.  Second, it notes that “civil tax penalties exist for the purpose of encouraging voluntary compliance.” Third, it highlights the fact that the Commissioner has broad discretion to “choose not to impose a penalty on a particular class of taxpayers if he believes that doing so will enhance overall tax compliance.”

Adequate Disclosure to Avoid Penalties

On January 29, 2018, the IRS issued Revenue Procedure 2018-11, to identify the circumstances in which a taxpayer’s return will be deemed to have adequately disclosed an item or position to avoid the understatement penalty imposed by Internal Revenue Code sec. 6662(d) and the preparer penalty under Internal Revenue Code sec. 6694(a).

The understatement penalty under 6662(d) applies if there is a “substantial understatement” of income tax. For an individual a “substantial understatement” is the greater of a) 10% of the tax required to be shown on the return or b) $5,000.  For a corporation an understatement is substantial if it exceeds the lesser of a) 10% of the tax required to be shown on the return or b) $10 million.

The preparer penalty under 6694(a) is imposed on a return preparer who prepares a return or refund claim reflecting an understatement of a tax liability due to an “unreasonable position” that the return preparer knew or should have known about. A position is unreasonable unless there is or was a) substantial authority for the position or b) the position was properly disclosed and had a reasonable basis.

The minimal information to constitute adequate disclosure is:

  1. A description of the item and the verifiable dollar amount ;
  2. If the item is not one described on a line of the return (i.e., rent, wages), the item must be clearly described and the amount – “other expenses” doesn’t cut it;
  3. If the return does not provide enough space for an adequate description, the description must be continued on an attachment.

The Revenue Procedure discusses in detail what must be provided for purposes of a) Form 1040 itemized deductions and certain trade or business expenses; b) Form 1165; c) Form 1120; d) Form 1120-L; e) Form 1120-PC; f) Form ll20-S; g) foreign tax items; and g) other tax items.

Of course, all bets are off for the sec. 6662(d) penalty no matter how detailed the disclosure if the position taken does not have a reasonable basis as defined in Treas. Reg. sec. 1.6662-3(b)(3), or is attributable to a tax shelter item or is not adequately substantiated by the taxpayer. For purposes of the preparer penalty, no relief is available if the position taken involves a tax shelter or a “reportable transaction.”

ROBERT S. HORWITZ – For more information please contact Robert S. Horwitz – horwitz@taxlitigator.com or 310.281.3200   Mr. Horwitz is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former Department of Justice Trial Attorney and former Assistant United States Attorney in the Tax Division of the U.S. Attorney Office in Los Angeles. He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending clients in criminal tax investigations and prosecutions. Additional information is available at http://www.taxlitigator.com.

In recent years, the United States Supreme Court has wrestled with the issue of whether time limits for bringing administrative and judicial actions against the Federal Government jurisdictional. In Sebelius v Auburn Regional Medical Center, 568 U.S. __, Justice Ginsburg, writing for the majority, stated:

Characterizing a rule as jurisdictional renders it unique in our adversarial system. Objections to a tribunal’s jurisdiction can be raised at any time, even by a party that once conceded the tribunal’s subject-matter jurisdiction over the controversy. Tardy jurisdictional objections can therefore result in a waste of adjudicatory resources and can disturbingly disarm litigants. See Henderson v. Shinseki, 562 U. S. ___, ___ (2011) (slip op., at 5); Arbaugh v. Y & H Corp., 546 U. S. 500, 514 (2006). With these untoward consequences in mind, “we have tried in recent cases to bring some discipline to the use” of the term “jurisdiction.” Henderson, 562 U. S., at ___ (slip op., at 5); see also Steel Co. v. Citizens for Better Environment523 U. S. 83, 90 (1998) (jurisdiction has been a “word of many, too many, meanings” (internal quotation marks omitted).

In Duggan v Commissioner, No. 15-73819 (9th Cir. Jan. 12, 2018), the taxpayer received two CDP determination notices, both dated January 7, 2015. The notices stated that the taxpayer could “file a petition with the United States Tax Court within a 30-day period beginning the date after the date of this letter.”  Interpreting this as meaning that the 30-day period began to run on January 8, 2015, the taxpayer filed his petition on February 7, 2015.  The Tax Court dismissed on the ground that the petition was untimely.

The Ninth Circuit affirmed. The question before it was whether the thirty-day time limit contained in 26 U.S.C. sec. 6330(d)(1) is jurisdictional. If it is, there can be no waiver or equitable tolling and the failure to comply deprives the Tax Court of jurisdiction.

Because of the severity attached to making a filing deadline jurisdictional, the Ninth Circuit noted that the Supreme Court has emphasized that the statute must clearly state that the time limit is jurisdictional. No special words are required.  If, under traditional rules of statutory construction it is clear that Congress “imbued a procedural bar with jurisdictional consequences” then the time limit is jurisdictional.   Additionally, stare decisis may “counsel against overturning a well-settled law interpreting a deadline as jurisdictional, especially where Congress has acquiesced in the interpretation.”  Section 6330(d)(1) provides:

(1) Petition for review by Tax Court — The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).

After discussing a Second Circuit case holding that similar language in the innocent spouse statute made timely filing jurisdictional, the Ninth Circuit held that since sec. 6330(d)(1) “expressly contemplates” the filing deadline “in the same breath as the grant of jurisdiction” it makes timely filing a condition of jurisdiction. Therefore the taxpayer’s petition was one day late and the Tax Court lacked jurisdiction to consider the case.

The reason why this blog has the heading it does is the language of sec. 6213, which allows a taxpayer to petition the Tax Court for redetermination of the deficiency. It states:

  1. Time for filing petition and restriction on assessment — Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6851, 6852, or 6861 no assessment of a deficiency in respect of any tax imposed by subtitle A, or B, chapter 41, 42, 43, or 44 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court, including the Tax Court, and a refund may be ordered by such court of any amount collected within the period during which the Secretary is prohibited from collecting by levy or through a proceeding in court under the provisions of this subsection. The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition. Any petition filed with the Tax Court on or before the last date specified for filing such petition by the Secretary in the notice of deficiency shall be treated as timely filed.

Note that the only mention of Tax Court jurisdiction in this statute relates to an action to enjoin assessment or collection where a timely petition is filed. There is nothing in the statute that makes the ninety-day period jurisdictional.   Section 6214 gives the Tax Court jurisdiction to redetermine tax, but there is nothing in that section conditioning the grant of jurisdiction on the filing of a timely petition.  Thus the question:  is the 90-day period for petitioning the Tax Court in a deficiency case jurisdictional?  A court may look to stare decisis to answer that the 90-day period is jurisdictional, but the outcome is not certain.

ROBERT S. HORWITZ – For more information please contact Robert S. Horwitz – horwitz@taxlitigator.com or 310.281.3200   Mr. Horwitz is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former Department of Justice Trial Attorney and former Assistant United States Attorney in the Tax Division of the U.S. Attorney Office in Los Angeles. He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending clients in criminal tax investigations and prosecutions. Additional information is available at http://www.taxlitigator.com

On February 8, President Donald J. Trump announced the intent to nominate Charles P. Rettig of Hochman, Salkin, Rettig, Toscher & Perez, PC, to be the next Commissioner of Internal Revenue for the remainder of a term of five years beginning 11/13/17. If confirmed by the Senate, Chuck would be the 49th IRS Commissioner, the first “tax person” to assume the position since 1997 and only the second confirmed Commissioner to be from California. 

In support of this announcement, Steven Toscher stated “we could not be more pleased and honored that the President will nominate our close friend and long-time member of our firm to be the next Commissioner of Internal Revenue. Chuck is the person who can protect taxpayers’ rights, help improve taxpayer service, and oversee the modernization of the ailing IRS information technology infrastructure. He is most capable to lead the IRS in its important mission of properly serving and protecting the rights of taxpayers and insuring the fair, efficient and impartial enforcement of our tax laws. There is no more qualified nominee to lead the IRS and insure accountability at this very critical time for tax administration. As a longtime, strong supporter for the integrity our system of tax administration, Chuck will hold both Government and private tax practitioners accountable to the public. His ongoing efforts and concern for the fair treatment of all taxpayers have earned him tremendous respect throughout the Government and private tax practitioner communities.”

Avram Salkin, co-founder of Hochman, Salkin, Rettig, Toscher & Perez, PC, added “the Commissioner of Internal Revenue is one of the most important positions in our Government and having known and worked closely with Chuck for over three decades, I have been honored and privileged to watch him become one of the most respected tax lawyers in our country with impeccable integrity and judgment.”

Dennis Perez, further added that “Chuck will be sorely missed by all of us and I know it has been an extremely difficult decision for Chuck to leave what has been his home for his entire professional career. However, this country and the IRS are deserving of his focused leadership and dedicated service and for that we are extremely proud of him and his strong commitment toward enhancing our system of tax administration.”

As previously stated in the Chambers USA: America’s Leading Lawyers for Business, “According to peers, Charles Rettig of Hochman Salkin Rettig Toscher & Perez is ‘phenomenal, just phenomenal.’ Further, he “is regarded by market sources as a ‘brilliant and gifted lawyer . . . a real star and a national leader'” who “enjoys a superb reputation and benefits from ‘great presence.’” Chambers USA has further stated “Fantastic controversy tax lawyer” Charles Rettig is “knowledgeable and very intelligent . . . a force to be reckoned with . . . a driving force in policy making at the national level with great client skills when it comes to sensitive matters.”

During his 35+ year professional career with Hochman, Salkin, Rettig, Toscher & Perez, PC, Chuck Rettig has represented numerous taxpayers before every administrative level of the Internal Revenue Service as well as in matters before the Tax Division of the U.S. Department of Justice, and various other taxing authorities. Chuck served as Chair of the IRS Advisory Council (IRSAC suggests best practices and operational improvements for taxpayer services at the IRS as well as current or proposed IRS policies, programs, and procedures); for almost 20 years, he has served as a Member of the Advisory Board for the California Franchise Tax Board and was previously a Member of the Advisory Council of the California State Board of Equalization. Previously, he chaired the 4,000+ member Taxation Section of the California Bar and is currently Vice-Chair, Administration for the 12,000+ member Taxation Section of the American Bar Association, and Vice-President of the American College of Tax Counsel.

Chuck has been an invited participant at various United States Tax Court Judicial Conferences,  has served as Chair of various national, state and local professional organizations, is a frequent lecturer before such professional organizations, and is a regular columnist and author in various national tax-related publications. Notably, he has served as Chair of the UCLA Extension Annual Tax Controversy Institute for more than 20 years, has Chaired the Ethics, Compliance and Enforcement Subcommittee of the USC Institute on Federal Taxation since 2003, and has served on the Advisory Board and Chaired the “Tax Controversies” sessions for the New York University Institute on Federal Taxation since 2007. Further, he has often participated in presentations on behalf of the AICPA, the California Society of CPAs, and the Hawai’i Society of CPAs.

Chuck is a Certified Specialist both in Taxation Law and in Estate Planning, Trust & Probate Law (the State Bar of California, Board of Legal Specialization) admitted to practice law in California, Hawai’i and Arizona (inactive). Chuck received his LL.M. (in Taxation) from the School of Law at New York University, his J.D. from the School of Law at Pepperdine University, and his B.A. (in economics) from UCLA.

Among his many activities on behalf of others, Chuck co-founded the UCLA Extension VETS COUNT Scholarship Fund – Vets Count is designed to provide financial assistance for active duty and retired military personnel who are working to realize their career goals in tax, accounting, wealth management, and other areas of the financial services industry. For further information, see https://giving.ucla.edu/vetscount.

 

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