TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

In a milestone for cryptocurrency taxation, the recent federal sentencing of Frank Richard Ahlgren III for charges involving the willfully filing of a false tax return marks a pivotal moment in legal-source cryptocurrency income tax enforcement. Hochman Salkin Toscher Perez PC attorneys Sandra R. Brown and Philipp Behrendt shared their insights with Tax Notes, underscoring the implications of this landmark case.

Ahlgren, an early adopter of bitcoin, faced charges for intentionally underreporting capital gains from a $3.7 million bitcoin sale in 2017. The case highlights the challenges and nuances of reporting digital asset transactions in compliance with IRS regulations.

On December 16, 2024, Nathan Richman posted his article “First Traditional Crypto Tax Sentence Draws Attention” for Tax Notes. In his article, he cites Sandra R. Brown and Philipp Behrendt.

Sandra R. Brown observed that the case involved a number of badges of fraud—such as misrepresentation of basis and attempts to obscure transactions—which parallel traditional tax evasion scenarios involving assets like stocks. This comparison underscores the increasing alignment of cryptocurrency enforcement with established tax principles.

Philipp Behrendt emphasized the pitfalls of misjudging the transparency of blockchain technology. Misstating the “basis is problematic, particularly in a transparent market like bitcoin,” he remarked, pointing to the advanced tracing tools employed by IRS Criminal Investigation to uncover discrepancies as was evidenced in Ahlgren’s filings.

The case illustrates how digital assets are reshaping the landscape of tax enforcement, combining traditional fraud indicators with novel investigative strategies. Tax experts predict a rise in cryptocurrency-related prosecutions, these cases set critical precedents for taxpayers and practitioners alike.

The attorneys at Hochman Salkin Toscher Perez PC remain at the forefront of navigating these complexities, and offering unparalleled expertise in defending against tax allegations in the rapidly evolving digital asset space.

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For more information, please contact Sandra R. Brown at brown@taxlitigator.com

For more information please contact Philipp Behrendt at behrendt@taxlitigator.com

We are pleased to announce that Cory Stigile along with Ellen Swain (Franchise Tax Board) and Oksana Jaffe (KPMG LLP) will be speaking at the upcoming Beverly Hills Bar Association Apportioning of Income for Nonresident Individuals webinar, Tuesday, January 7, 2025, 12:20 p.m. – 1:30 p.m. (PST).

This session will provide a substantive analysis of California’s tax system, including the taxation of residents on worldwide income and nonresidents on California-source income. The discussion will focus on the legal frameworks underpinning these rules and the practical steps for addressing cross-border income allocation challenges, including when pursuing the Other State Tax Credit (OSTC) for taxes paid to other jurisdictions.

Key areas of focus will include wage allocation methodologies, the treatment of stock options and restricted stock units (RSUs), the taxation of performers and athletes, and the allocation of trust income. Our experts will review pertinent regulations and landmark case law to clarify the application of these rules and their implications for tax planning and compliance.

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We have the privilege of supporting charitable organizations throughout the year, particularly during the holiday season when needs are even greater. This holiday season, we are committed to giving back to our community by supporting five nonprofit organizations that are improving the world around us, from helping individuals, families and other challenges faced by those around us.

We look forward to supporting our communities in the year ahead.

Wishing you a Joyful Holiday Season Filled with Peace and Gratitude

Person-Centeredness, Passion, Honesty, Respect, and Full Engagement. The Tierra del Sol Foundation was founded in Sunland, CA, in 1971. Originally conceived by parents as an alternative to institutional care, Tierra began as an early demonstration of self-advocacy. The founding parents were determined to raise their sons and daughters as permanent members of their families, rather than abandon them to the State. The notion was simple; all people have gifts, and our community is richer when all our citizens are valued for their contributions. We have never lost these important principles.
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The Housing Rights Center (HRC) is the nation’s largest non-profit civil rights organization dedicated to securing and promoting Fair Housing. HRC was founded in 1968, the same year that Congress passed the Fair Housing Act. Our mission is to actively support and promote freedom of residence through education, advocacy, and litigation, to the end that all persons have the opportunity to secure the housing they desire and can afford, without regard to their race, color, religion, gender, sexual orientation, national origin, familial status, marital status, disability, ancestry, age, source of income or other characteristics protected by law.
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The Vets Count Scholarship was launched in 2016 to assist our active military personnel, veterans and their families who may be pursuing financial programs to assist them in achieving their educational and career goals. Seeking an education during or after military service can be challenging for many reasons, especially considering the financial burden that comes with going back to school. Our main goal is to help remove this financial barrier and assist our veterans and their families.
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The Tax Justice, Diversity, Equity, and Inclusion (JDEI) Fund is a permanent endowment within the American Bar Association Fund for Justice and Education (FJE). Investment revenue from the JDEI Fund will provide funding for Section’s diversity, equity and inclusion initiatives including direct funding for the Argrett Fellowship.
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NCIA provides integrated, personalized services for people with disabilities or societal disadvantages. We are dedicated to empowering people to build fulfilling lives and stronger communities through unconditional support.
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Philipp Behrendt was recently quoted in Lee A. Sheppard’s Tax Notes Federal’ article, “Crypto Tax and Deregulation Outlook” (TAX NOTES FEDERAL, VOLUME 185, DECEMBER 9, 2024). The article discusses he IRS’s interpretation of staking rewards and the complexities surrounding failing cryptocurrency platforms.

Commenting on Rev. Rul. 2023-14, Behrendt remarked, “This is certainly a harsh result for affected users, but it aligns with IRS interpretation of staking rewards as being reportable upon receipt. Thus, it only affirms IRS prior guidance.” He acknowledged, however, that this interpretation is being challenged in court, particularly in Jarrett v. United States (M.D. Tenn.) and could face legislative changes in the future.

Behrendt also identified a potential “grey zone” in the guidance, stating: “In cases involving failing platforms, such as those in bankruptcy or facing operational challenges, there could often be a window where account holders face de facto restrictions due to factors like technical issues, withdrawal delays, or system instability.” He explained that these practical realities may significantly impair taxpayers’ ability to transfer or withdraw staking rewards before an official freeze.

Addressing the difference between brokered and direct staking, Behrendt highlighted the unique tax implications of each:

• Direct Staking: Taxable upon validation, as the staker directly manages technical aspects like wallet management and node operation.
• Brokered Staking: Governed by platform terms and conditions, which can influence when rewards are available for withdrawal or under the staker’s control.

Philipp Behrendt’s expertise in navigating the intersection of tax law and cryptocurrency continues to provide valuable insights into emerging regulatory challenges and taxpayer concerns.

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For more information, please contact Philipp Behrendt at behrendt@taxlitigator.com

We are pleased to announce that Steven Toscher, Michel R. Stein and Cory Stigile will be speaking at the upcoming CalCPA IRS Exams for High Wealth Individuals and Partnerships webinar, Tuesday, December 10, 2024, 9:00 a.m. – 10:30 a.m. (PST).

Learn strategies to minimize risk from Global High Wealth Group audits Master techniques in handling and advising clients examined by the Global High Wealth Group. We anticipate that attendees will: Better understand the “Wealth Squad” examination process. Know what foreign and domestic audits issues will be scrutinized during a “Wealth Squad” examination Decipher “Wealth Squad” document requests and summonses. More easily identify key strategies to minimize exposure from a “Wealth Squad” examination. 

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On April 17, 2023, Cory Stigile and Michael Greenwade blogged about the Tax Court’s decision in Farhy v Commissioner, 160 T.C. 399 (2023), holding that the IRS lacks the authority to assess or administratively collect penalties under IRC §6038(b) for failure to file Form 5471. On May 3, 2024, the D.C. Circuit reversed the Tax Court and held that the IRS is authorized to assess and administratively collect such penalties. Farhy v Commissioner, 100 F.4th 223. In the wake of the D.C. Circuit’s decision, the IRS moved the Tax Court to reconsider its opinion in Mukhi v Commissioner, 162 T.C. No. 8 (April 8, 2024), which followed its earlier Farhy decision. On November 18, 2024, the Tax Court issued its opinion granting the motion for reconsideration and, on reconsideration, reaffirmed its holding that the IRS lacks authority to assess and administratively collect the IRC §6038(b) penalty. Mukhi v Commissioner, 163 T.C. No. 8.

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For more information please contact Robert Horwitz at horwitz@taxlitigator.com.

We are pleased to announce that Philipp Behrendt will be speaking at the upcoming Sovos Always on Event Series – The Road to Strategic Tax Compliance/San Diego Complying with New 1099-DA Digital Assets Reporting Requirements seminar, which will take place at the San Diego Wine & Culinary Center on Tuesday, December 10, 2024, 2:45 p.m. – 3:30 p.m. (PST)

This seminar will provide a brief overview of the new 1099-DA requirements for digital asset reporting, covering the broker reporting landscape, implementation timelines, and safe harbor provisions. Following the presentation, Philipp will lead an Ask Me Anything roundtable, giving attendees the opportunity to dive deeper into the complexities of the regulations and share strategies for navigating this evolving compliance area.

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Philipp Behrendt is an Associate at Hochman Salkin Toscher Perez P.C., licensed in California as well as in Germany and assists in advising clients in civil and criminal tax controversies as well as international money laundering investigations stemming from tax avoidance structures. He also focuses on the technical aspects involved in advising voluntary disclosures in connection with DeFis, NFTs, and other crypto assets. Philipp is a Liaison to the Young Lawyer Committee for the ABA Tax Section’s Civil and Criminal Tax Penalties Committee and served on the Beverly Hills Bar Association’s Barristers Board of Governors from 2022 to 2023. Philipp is the Chair of the Beverly Hills Bar Association’s Tax Section, a Liaison.

For more information, please contact Philipp Behrendt at behrendt@taxlitigator.com

Continuing the tradition of our exceptional speakers, we are proud to announce Sandra R. Brown, Edward M. Robbins, Jr., Evan Davis, Cory Stigile, and Sebastian Voth will be covering the following topics at this year’s ABA Tax Section 2024 National Institute on Criminal Tax Fraud and Tax Controversy Conference which will take place on December 12-14, 2024, at the Wynn Las Vegas.

Criminal Tax Enforcement Priorities
Sandra R. Brown

Criminal Tax Workshop
Edward Robbins, Jr.

Presenting and Cross-Examining the Expert Witness
Evan Davis

Tools, Defenses, and Recent Developments in Collection
Cory Stigile

Welcome to the New Era of Tax Enforcement Relating to Partnerships and the Economic Substance Doctrine
Sebastian Voth

On behalf of my Co-Chair Kathy Keneally and Sandra Brown and Frank Jackson who were instrumental in putting together the program, we look forward to seeing you in Vegas. 

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For more information, please contact Sandra R. Brown at brown@taxlitigator.com

For more information contact Edward Robbins, Jr. at EdR@taxlitigator.com.

For more information please contact Evan Davis at davis@taxlitigator.com.

For more information please contact Cory Stigile at stigile@taxlitigator.com.

For more information please contact Sebastian Voth at voth@taxlitigator.com.

We are pleased to announce that Sandra R. Brown, Robert S. Horwitz and Philipp Behrendt have co-authored an article, published in the Fall 2024 issue of the Journal of Tax Practice & Procedure, titled “The Supreme Court’s 2023 Term Creates Uncertainty in the Tax Arena.“

Near the end of its 2023 Term, the Supreme Court issued opinions in three cases that will have a major impact on taxpayers. Only one, Moore, is a tax case. The other two, Loper Bright Enterprises v. Raimondo and Corner Post v. Board of Governors of the Federal Reserve System, are administrative law cases that make it easier to successfully challenge Treasury Regulations. This article will examine the Supreme Court’s opinion in these cases and their potential implications for tax administration.

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For more information, please contact Sandra R. Brown at brown@taxlitigator.com

For more information contact Robert Horwitz at horwitz@taxlitigator.com.

For more information please contact Philipp Behrendt at behrendt@taxlitigator.com

We are pleased to announce that Steven Toscher Michel R. Stein and Robert Horwitz will be speaking at the upcoming Strafford Partnership Basis Shifting: Preparing for Impending Examinations, IRS’ Three-Part Guidance Package webinar, Tuesday, November 26, 2024, 10:00 a.m. – 11:50 a.m. (PST).

This webinar will analyze the Internal Revenue Service’s recently released three-part guidance package targeting related party partnership basis shifting transactions. The panel of esteemed tax attorneys will discuss the impact of these new rules, including offering advice for examining existing related party transfers and preparing for potential audits of these arrangements.

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