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

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

This year included in the Super Lawyer ranks are: 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Crypto Compliance and Enforcement

Featuring Michel Stein

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

Featuring Evan Davis

Sandra Brown of our office will be featured on the

following panels-

IRS Criminal Investigation Case Sources

and

Protecting Taxpayer Data

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

Click Here to Register

We are pleased to announce that Steven Toscher , Sandra Brown and Jonathan Kalinski will be speaking at the upcoming Strafford webinar “Taxation of Cannabis: Overcoming Tax Challenges in Cannabis Business Operations, Key Planning Techniques,” Tuesday, January 17, 2023, 10:00 a.m. – 11:30 a.m. (PST).

The sale and distribution of cannabis for recreational or medical use has become a powerful economic engine generating billions in annual revenue with 33 states and the District of Columbia having some form of legalization of the substance. Despite state relaxation of marijuana prohibition laws, without careful planning, the taxation of regulated cannabis businesses can result in hefty tax assessments and penalties.

Cannabis businesses are accounting for and reporting the results of their operations with gross receipts, cost of goods sold (COGS), and other deductions just like other for-profit businesses. However, as long as marijuana remains a Schedule 1 controlled substance under federal law, these businesses must navigate the pitfalls of complex federal and state tax rules.

Under Section 61, all gross income must be reported from whatever source it is derived. However, under Section 280E, cannabis businesses cannot deduct rent, wages, and other expenses unless it is for COGS, resulting in a substantially higher tax rate than other companies on their income. This dilemma has been the subject of recent tax court cases and appeals.



Listen as our panel discusses federal and select tax rules impacting the cannabis industry, recent tax court cases, Section 280E, forfeiture, banking, and other related issues.

We are also pleased to announce that we will be able to offer a limited number of complimentary and reduced cost tickets for this program on a first come first serve basis. If you are interested in attending, please contact Sharon Tanaka at sht@taxlitigator.com. 

Click Here for more information.

We congratulate the lawyers at our firm who have been honored by the

California Board of Legal Specialization of the

State Bar of California

with acknowledgment of at least 20 years of continued professional participation and advancement as

Certified Specialists in Taxation Law

HSTP is proud to encourage its lawyers to seek and maintain professional excellence by participating in the certification process to become and maintain the standards necessary to be publicly designated as a Certified Specialist in Taxation. 

We also recognize our distinguished lawyers, Avram Salkin and Michel Stein who have volunteered their time in past years by serving on the Board of Legal Specialization, both as Members and Chairs during their respective tenures.  

Posted by: Steven Toscher | December 28, 2022

USC Gould School of Law 70th Tax Institute – January 23-25-2023

Please join us January 23-25, 2023 for the USC Gould School of Law 2023 Tax Institute at the Millennium Biltmore Hotel, Los Angeles.  This is the Institute’s 70th year and the firm is proud to continue our participation.

Meet with fellow tax practitioners and address the cutting-edge tax issues affecting all tax professionals.  This three-day institute includes discussions, networking opportunities and workshops led by the best tax professionals in the nation, covering corporate taxes, partnership and individuals taxes and estate planning topics.

Steven Toscher will again be chairing the Enforcement, Compliance and Ethics track Tuesday afternoon and we are looking forward to the following topical programs including members of our firm — –

Handling Tax Cases Before the California Office of Tax Appeals

Featuring Dennis Perez

Getting Ready for Partnership Income Tax Examinations

Featuring Michel Stein

The Future of IRS Enforcement in Light of the

Inflation Reduction Act of 2022

Featuring Sandra Brown

In addition , Evan Davis of our office will be featured on the following panels-

Protecting the Privilege in Tax Matters: It is

Becoming More Difficult

and

Compliance with the Corporate Transparency Act

Click Here for the Brochure

Click Here to Register

In Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (Nov. 9, 2022), the Tax Court invalidated Notice 2017-10, which designated syndicated conservation easements as listed transactions, because it was a legislative rule that was issued without complying with the notice and comment provisions of the Administrative Procedures Act (“APA”).  We recently blogged on the Tax Court’s decision.  See, https://www.taxlitigator.com/wp-content/uploads/2022/11/Blog-The-Tax-Court-Gives-a-Primer.pdf.   

Less than a month after the Tax Court published its opinion, the IRS issued a Notice of Proposed Rulemaking and Notice of Public Hearing on a proposed regulation on “Syndicated Conservation Easement Transactions as Listed Transactions” as Treas. Reg. §1.6011-9.  87 Fed. Reg. 7185 (Dec. 9, 2022).  While this may appear to be a concession of error by the IRS in issuing a listed transaction notice without following notice and comment rule making procedures, Part 7 of the Preamble to the Notice of Proposed Rulemaking states that Treasury and the IRS disagree with Green Valley Investors , but:

… to eliminate any confusion and ensure consistent enforcement of the tax laws throughout the nation, the Treasury Department and the IRS are issuing these proposed regulations to identify certain syndicated conservation easement transactions as listed transactions for purposes of all relevant provisions of the Code and Treasury Regulations.

These proposed regulations inform taxpayers that participate in syndicated conservation easement transactions, and substantially similar transactions, and persons who act as material advisors with respect to these transactions, and substantially similar transactions, that, once these proposed regulations are published in final form, those taxpayers and material advisors must disclose the transactions in accordance with the final regulations and the regulations issued under section 6011 and 6111. Material advisors must also maintain lists as required by section 6112. Prior to the date these regulations are published as final regulations, it is the position of the Treasury Department and the IRS that disclosure and list maintenance requirements for syndicated conservation easement transactions identified as listed transactions in Notice 2017-10 continue to be in effect, other than in the Sixth Circuit. In addition, taxpayers, including taxpayers in the Sixth Circuit, who have filed a tax return reflecting their participation in a syndicated conservation easement transaction before the final regulations are published and who have not disclosed the transaction pursuant to Notice 2017-10 will be required to file a disclosure statement within 90 calendar days after the date on which the final regulations are published if the period of limitations for the transaction remains open. Material advisors also have disclosure and list maintenance obligations with respect to such transactions.

      In other words, we can expect that the IRS will continue to advocate, outside of the Sixth Circuit, that Notice 2017-10 is valid and will continue to assert penalties against taxpayers and material advisors who fail to file disclosure statements and material advisors who fail to maintain lists. 

The Preamble to the proposed regulations discusses:

  • The reportable transaction “regime;”
  • The duty of participants to disclose reportable transactions and the penalties for failing to disclose;
  • The duty of material advisors to disclose reportable transactions and maintain lists and the penalties for failing to disclose and maintain lists;
  • Tax-exempt entities as parties to prohibited tax shelter transactions;
  • Provisions of IRC §170 relating to conservation easements;
  • Notice 2007-10;
  • The purpose of the proposed regulations; and
  • An explanation of the rules.

             Other than Part 7, discussed above, the part of the preamble that I found of interest was Part 4, concerning tax-exempt entities involvement in prohibited tax shelters.  IRC §4965 was enacted to deter tax-exempt entities from facilitating prohibited tax-shelter transactions, including listed transactions.  A tax-exempt entity which facilitates a prohibited tax shelter transaction by reason of its tax-exempt, tax-indifferent, or tax-favored status, and its managers are subject to an excise tax and the entity is subject to certain reporting and disclosure obligations.  Part 4 contains a detailed discussion of the taxes under §4965 to which a tax-exempt entity and its managers could be subjected and the disclosure and reporting requirements imposed on tax-exempt entities that are parties to tax shelters.

Note: the essence of syndicated conservation easement transactions is the donation of an easement to a tax-exempt entity.  This would seem to make those entities subject to the §4965 excise tax.  The proposed regulation does not list tax-exempt entities to whom conservation easements are donated as participants in the transaction and expressly excludes them from such treatment.  Thus, a tax-exempt entity will not be subjected to the §4965 excise tax for its role as the donee of an easement. 

            The regulation defines as syndicated conservation easement transaction as one in which:

  • A taxpayer receives promotional material (which can be written or oral) offering investors in pass-through entities the possibility of a charitable contribution deduction that is equal to or greater than 2.5 times the investment in the pass-through;
  • The taxpayer acquires, directly or indirectly through one or more tiers of pass-through entities an interest in a pass-through entity that owns real property;
  • The pass-through entity that owns the real property contributes an easement on such property, which it treats as a conservation easement, to a qualified organization and allocates, directly or through a pass-through, a charitable contribution deduction to the taxpayer; and
  • The taxpayer claims a charitable contribution deduction with respect to the conservation easement on a federal income tax return.

The regulation also defines (a) a charitable contribution deduction relating to a conservation easement; (b) promotional materials; (c) qualified organizations (which includes governmental entities other than the United States) and (d) real property.

Under the 2.5 times investment rule, if the promotional material suggests a range of possible charitable contributions, the highest amount will determine if the 2.5 times requirement is met.  There is a rebuttable presumption that the 2.5 times rule is met if, within 3 years of the taxpayer’s investment, the pass-through entity that owns the real property allocates a charitable contribution deduction to the taxpayer that is equal to or exceeds 2.5 times the taxpayer’s investment.  The proposed regulation also has an “anti-stuffing rule” under which, if the investment in the pass-through is allocable in part to property on which a conservation easement is placed and in part to other property, whether the 2.5 times rule is met will be based solely on the part of the investment allocable to the property on which the conservation easement is placed.

The proposed regulation lists the parties who will be considered participants in a syndicated conservation easement transaction: (1) the owner of a pass-through entity; (2) a pass-through entity; and (3) any other taxpayer whose federal income tax return reflects the tax consequences of or a tax strategy arising from the syndicated conservation easement transaction.

Comments on the proposed regulation must be received by the IRS by February 6, 2023; requests to attend the public must be received by 5 p.m. ET on February 27, 2023; and the public hearing will be held by teleconference on 10:00 a.m. ET on March 1, 2023.   According to the Regulations.gov website, one comment on the proposed regulation has already been submitted.

It is also of interest that in the Preamble to the above proposed regulation, the IRS also makes clear that, while not involving Syndicated Conservation Easement Transaction, it also doesn’t agree with the adverse ruling issued in Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022) (holding that Notice 2007-83, designating as a listed transaction certain trust arrangements using cash value life insurance, was invalid for failing to follow APA’s notice and comment rulemaking procedure).  So why hasn’t the IRS issued proposed regulations designating as a listed transaction the transaction described in Notice 2007-83?  Two possible reasons: first, the notice was issued 15 years ago and the trust transactions involved are not prevalent any longer; second, the Tax Court is a court of national jurisdiction and is the court which is handling the syndicated conservation easement cases while the Mann Construction decision is only binding in the Sixth Circuit.  Note that since the enactment of the Tax Cut and Jobs Act in 2004, the IRS has issued only six listed transaction notices, four of which were issued more than a dozen years ago.  The number of cases involving listed transactions other than syndicated conservation easements may be few and far between.

Again, it should be expected that the IRS will continue to argue in cases outside the Sixth Circuit that Notice 2017-10 (and other listed transaction notices including 2007-83) is exempt from the APA’s notice and comment rulemaking provisions, possibly in the hope that there will be a conflict in the circuits and the Supreme Court will ultimately resolve whether listed notice transactions are subject to the APA’s notice and comment rulemaking procedures.  It would save time and money if in the future the IRS follows the APA in issuing listed transactions notices.  The APA has several exceptions to the notice and comment rulemaking procedures, including good cause exception where following the procedure would be “impracticable, unnecessary, or contrary to the public interest.”  The Tax Court in Green Valley Investors noted that the IRS expressly waived reliance on this exception.  

Robert S. Horwitz is a Principal at Hochman Salkin Toscher Perez P.C., former Chair of the Executive Committee 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 clients in criminal tax investigations and prosecutions. In 2022 the Tax Section of the California Lawyers Association awarded him the Joanne M. Garvey Award for lifetime achievement in and contributions to the field of tax law. Additional information is available at http://www.taxlitigator.com.

We are pleased to announce that Steven Toscher has been elected as a board member of the Tierra Del Sol Foundation. Tierra serves people of disabilities through creative pathways to employment, education and the arts by empowering Tierra associates to lead productive and personally meaningfully lives. The Firm and Steve have been long time supporters of Tierra, which is a great opportunity to give back—benefiting Tierra’s worthy associates and building a stronger community and better society for all of us.

Click Here to Read More.

Click Here for More Information on the Foundation

Posted by: Steven Toscher | December 15, 2022

Happy Holidays from Hochman Salkin Toscher Perez P.C.

We are pleased to announce that Cory Stigile and Philipp Behrendt, will be speaking at the upcoming BHBA webinar “The Ins and Outs of Tax Audits,” Tuesday, January 10, 2023, 12:30 p.m. – 1:30 p.m. (PST).

This program will go over the fundamentals of tax audits in order to provide business owners, entrepreneurs, and practitioners with the tools and language they need to navigate the maze of an audit situation. The IRS audit rate will rise as a result of the new funds from the Inflation Reduction Act; thus, this program will familiarize you with what to expect and prepare you for the various types of audit situations.

Click Here for More Information

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