TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

We are pleased to announce that Steven Toscher and Evan Davis will be speaking at the upcoming CalCPA webinar “Defending Civil Fraud Case in light of the new IRS Office of Civil Fraud 2023,“ Tuesday, June 13, 2023, 9:00 a.m. – 10:00 a.m. (PST).

In September 2020, the IRS created the Office of Fraud Enforcement (OFE) to improve fraud detection and development of fraud cases to address areas of high fraud and risks noncompliance with the tax laws. With this new office, the IRS emphasized its focus on case selection when determining to pursue civil fraud penalties and the appropriate cases to refer to IRS-Criminal Investigation (CI). With an $60 billion budget over the next ten years and a focus on hiring and enforcement and the IRS’s increased ability to analyze data, the increased attention to non-compliance taxpayers is almost certain. This program’s learning objections will help you better recognize what may be a sensitive audit and when intrusive demands for evidence and your client’s interview, an often “touchy issue” may signal issues beyond a tax deficiency.  

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The FTB issued Notice 2023-02 (Notice) on May 31, 2023 providing taxpayers a time-limited opportunity to resolve tax matters relating to potentially abusive Micro-captive Insurance (MCI) and Syndicated Conservation Easement (SCE) Transactions in return for zero or reduced penalties.  

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We are very pleased to announce that on May 18, 2023, following the success of the firm’s participation in the Taxation Section of the California Lawyers Association’s “DC Delegation,” the following principals and associates of Hochman Salkin Toscher Perez P.C. were sworn in as members of the Supreme Court of the United States by Chief Justice John Roberts. 

Principals

Sandra R. Brown

Michel Stein

Associates

Garabed “Gary” Markarian

Philipp Behrendt

Chief Justice Roberts was joined by all eight Associate Justices for the swearing in ceremony. Also in attendance in the courtroom was retired Associate Justice Stephen Breyer.

Prior to the Supreme Court swearing in ceremony, our firm, represented by Sandra Brown, Michel Stein, Gary Markarian, Philipp Behrendt, along with Robert Horwitz, Edward Robbins and Michael Greenwade, met with government officials from the Department of Treasury, Internal Revenue Service, Department of Justice Tax Division, Joint Committee on Taxation, House Ways and Means and the Senate Finance as part of the “DC Delegation” and presented three separate papers all of which focused on advocating for improvements in various aspects of federal tax administration, including partnership audits, “safe harbor” penalty relief for appraisers and due process changes to the IRS’s assertion of certain foreign penalties. Additionally, several of our attorneys were invited to orally contribute to presentations by other members of the Tax Section which were focused on FATCA loopholes and digital asset “ponzi scheme” losses.  

Judicial Jurisdiction for Assessable and Foreign Information Penalties

IRC Section 6695A Appraiser Penalties

BBA Imputed Underpayment Abuse of Discretion

A special thanks to Annette Nellen, Tiffany Creswell, Adria Price, Natascha Fasteabend, Myriam Bouaziz, Jaclyn Zumaeta, and Troy Van Dongen, who, on behalf of the Taxation Section of the California Lawyers Association, made the 2023 “DC Delegation” not only possible, but a huge success. 

Please join us in congratulating our colleagues in their membership before the highest court in the United States and their presentations as part of the “DC Delegation.” 

We are pleased to announce that Dennis Perez, Robert Horwitz and Jonathan Kalinski will be speaking at the upcoming CPA Academy webinar “Resolving Employment Tax Disputes,“ Tuesday, June 6, 2023, 2:00 p.m. – 3:00 p.m. (PST).

The IRS is increasing civil and criminal enforcement against taxpayers who fail to comply with withholding and remitting of employment taxes. Noncompliance can cause heavy penalties and interest against taxpayers that could destabilize a company and its operations. Tax professionals and advisers must grasp a complete understanding of tax rules and available techniques to avoid or minimize tax assessments and penalties. This webinar will guide tax professionals and advisers on critical issues relating to employment taxes.

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An amendment to the U.S. Sentencing Guidelines Manual that takes effect November 1 will include a new two-level reduction for true first offenders having their first contact with the criminal justice system. The amendment, subject to certain exceptions, will apply to offenders with no criminal history points, including offenders with no prior convictions. In adopting this definition of “zero-point offenders,” the Commission opted to hew to the long-standing and carefully crafted criminal history rules set forth in Chapter Four, regarding which prior convictions count for criminal history purposes and which do not. Notably, this reduction in likely to be in play for those charge with certain white collar crimes, including criminal tax violations. 

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Sandra R. Brown is a Principal at Hochman Salkin Toscher Perez P.C., and former Acting United States Attorney, 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 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.

I thought you would be interested in the following story from The Wall Street Journal.

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Steven Toscher specializes in civil and criminal tax controversy and litigation. He is a Certified Tax Specialist in Taxation, the State Bar of California Board of Legal Specialization, a Fellow of the American College of Tax Counsel and has received an “AV” rating from Martindale Hubbell. In addition to his law practice, Mr. Toscher has served as an Adjunct Professor at the USC Marshall School of Business since 1995, where he teaches tax procedure. He has also served on the faculty of the American Bar Association Criminal Tax Fraud Program since 1998. He is a former Internal Revenue Agent with the Internal Revenue Service and a trial attorney with the Tax Division of the United States Department of Justice in Washington where he received its Outstanding Attorney Award.

We are pleased to invite you to register now for the

15th Annual NYU Tax Controversy Forum

to be held June 8 and 9

Westin New York, Times Square

You do not want to miss this program.

Two of our principals will be speaking on the following topics:

Sandra Brown

Employee Retention Credit Audits and Investigations

June 8

Steven Toscher

Recent Developments Affecting International Reporting Penalties

June 9

For 15 years, the NYU School of Professional Studies Tax Controversy Forum has brought together government representatives and expert private practitioners to share their perspectives on a variety of topics involving federal tax audits, appeals, and litigation. The forum covers a wide range of controversy work, from procedural seminars to substantive programs, international issues, ethical problems, current enforcement initiatives, sensitive audits, and civil and criminal tax penalties.

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We are also pleased to announce on June 7, 2023, Michel Stein will be speaking at the Agostino & Associates International and Domestic Tax Controversy Update at the Bergen Community College at the Meadowlands. BBQ to follow at The Green at Hackensack Court Square.

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We are pleased to announce that Robert Horwitz and Jonathan Kalinski will be speaking at the upcoming CalCPA webinar “Handling Partnership Examinations – WYNTK About New Partnership Procedural Rules,” Tuesday, May 23, 2023, 9:00 a.m. – 10:00 p.m. (PST).

This webinar will cover practical considerations for partners and advisers to partnerships operating under the new partnership audit regime. Our panel of experts will review the latest guidance, explain partnership audit adjustments, and make recommendations for steps to take in light of the implementation of this new regime. The centralized partnership audit regime (CAR) is effective now. The Bipartisan Budget Act of 2015 (BBA) included a new audit regime for partnerships effective for audits of partnership returns for years beginning in 2018. Under the new rules, the partnership itself remits the underpayment (or receives the overpayment) resulting from an IRS examination at the end of an IRS review and pays the additional tax due at the highest income tax rate available (37% currently). Alternatives include making a push-out election taxing the individual partners owning interests during the year examined and showing that partners have amended their returns to account for the adjustments, the amended return adjustment. The Corrections Act in 2018 reduced the burden of filing amended returns by allowing partners to pay the amount of tax due and adjust any related tax attributes without the burden of filing amended tax returns, the pull-in procedure. 

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At the end of last year, the IRS has established a digital asset project office to address crypto-related issues, and it has already begun business. The move reflects the IRS’s growing recognition of the importance of cryptocurrencies and the need for clear guidelines for their taxation.[1]

Julie Foerster, who leads the office, recently spoke at Consensus 2023 in Austin, Texas, and announced the IRS’s plans to issue crypto tax guidance within the next 12 months without going into the details on what this guidance will entail.

Foerster also emphasized the need for greater communication and collaboration between the IRS and the crypto community. Her team engaged with attendees at the event to gather insights and feedback, acknowledging that the crypto landscape is constantly evolving. Furthermore, the IRS is in talks with some of its foreign partners about crypto taxation best practices, indicating a desire to create international standards.

However, it’s not just the IRS that’s looking into the crypto sector.[2] Other bodies, including the US House Financial Services Committee and House Agriculture Committee, are holding joint public hearings to put together legislation to oversee the crypto sector. The legislation will address both securities and commodities regimes and issues that are hard to fix on either side.

Sen. Cynthia Lummis, a panelist during the session, said she looked forward to coordinating those efforts with Rep. McHenry. After last year’s widely acknowledged attempt of a sweeping crypto bill, known as the Lummis-Gillibrand Digital Asset Bill,[3] ran out of time before the legislative session ended, the House of Representatives seems to be the more promising steppingstone for new legislation. Sen. Lummis said if the House moves first on crypto, it would “improve our chances” in the Senate.

It is clear that the US lawmakers have some catch-up to do. On the other side of the ocean, the EU has launched its regulatory sandbox for blockchain projects and recently passed the new crypto licensing regime, Markets in Crypto-Assets, known as “MiCA”. The recent passages of law, however, cannot gloss over that lawmakers all over the world have difficulties in keeping up with the rapid pace the crypto industry is moving, which grows not only in uses but also in complexity from day to day. More guidance on how to report the taxes in this complex industry correctly is necessary and very welcome.

Taxpayers can be assured, though, as the IRS steps up its guidance on how to comply with the tax rules related to virtual assets, it will also increase the enforcement efforts related to virtual assets to ensure compliance. With more clarity on tax reporting requirements, the use of penalties and criminal prosecution will rise as well.  

In conclusion, the IRS’s announcement of new crypto tax guidance is a positive step for the industry, signaling a growing recognition of the importance of cryptocurrencies and the need for clear guidelines. As the sector continues to evolve globally, it’s vital that the tax authorities work closely with the crypto community to establish best practices and with foreign partners to implement international standards. The potential for new legislation and regulations will likely lead to more litigation in court, but taxpayers can take steps now to ensure they are compliant with existing rules and avoid penalties.

[1]              See https://www.coindesk.com/business/2023/04/28/crypto-tax-plan-could-come-in-12-ish-months-says-irs-official/.

[2]              See https://www.coindesk.com/policy/2023/04/28/us-house-will-have-crypto-bill-in-2-months-mchenry/

[3]             See https://www.congress.gov/bill/117th-congress/senate-bill/4356/text.

We are pleased to announce that Edward M. Robbins, Jr. and Jonathan Kalnski will be speaking at the upcoming Beverly Hills Bar Association webinar “IRS International Penalties After Farhy,“ Thursday, May 18, 2023, 12:00 p.m. – 1:30 p.m. (PST).

On April 3, 2023, the United States Tax Court, in Farhy v. Commissioner held that the IRS has no authority to assess and collect penalties under IRC Section 6038(b)(1) and (2), for failing to file Form 5471. For about 15 years the IRS has made foreign reporting penalties a cornerstone of its enforcement. In the last several years, taxpayers have been assessed penalties without any review prior to assessment. The Farhy decision provides hope for taxpayers that change is coming.

Learn what the Farhy case means for foreign penalties, what other penalties the decision might apply to, and how to address previous penalties that might be affected by the Farhy case.

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