TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

The Internal Revenue Service (IRS) recently issued Notice 2025-7 on December 31, 2024, providing temporary relief for taxpayers who sell, dispose of, or transfer digital assets held in the custody of brokers. This notice addresses challenges taxpayers face in adequately identifying specific units of digital assets during sales, dispositions, or transfers, particularly when brokers lack the necessary technology to process such identifications. The Notice applies to sales, dispositions, or transfers that occur between January 1 and December 31, 2025.

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

On December 23, 2024, the U.S. District Court for the Southern District of New York authorized the IRS to issue “John Doe” summonses targeting individuals who may have used the services of Trident Trust Group (“Trident”) or related entities to conceal foreign assets or income. This order marks the continued efforts in the IRS’s campaign to uncover offshore tax evasion and demonstrates its aggressive push to enforce compliance by U.S. taxpayers who used foreign accounts and entities to hide income.

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For more information, please contact Steven Toscher at toscher@taxlitigator.com

For more information, please contact Michel Stein at stein@taxlitigator.com

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

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

In a recent Tax Notes article by Mary Katherine Browne (published December 31, 2024), the spotlight is on the cryptocurrency industry’s legal challenge to the IRS’s newly finalized decentralized finance (DeFi) broker reporting regulations. The article, titled “Crypto Industry Seeks to Strike Down DeFi Reporting Regs,” delves into the case of Blockchain Association v. IRS, where three DeFi advocacy groups allege that the regulations constitute an unlawful overreach by the government.

The final regulations, issued on December 27, 2024, expand the definition of a broker under Section 6045 to include front-end service providers in DeFi transactions. Critics argue that this interpretation imposes burdensome compliance obligations that are incompatible with blockchain technology’s decentralized nature.

Among the legal experts quoted in the article, Philipp Behrendt of Hochman Salkin Toscher Perez P.C. offered a critical perspective on the regulations’ implications. Behrendt described the IRS’s decision to classify front-end services as brokers as “surprising and bold,” noting that it deviates from traditional brokerage concepts.

“By attempting to impose a centralized reporting framework on inherently decentralized systems, the regulation undermines the core innovation of DeFi: the elimination of intermediaries,” Behrendt explained. He further warned that the rule threatens the viability of U.S.-based DeFi platforms, potentially forcing them offshore or out of business altogether.

Behrendt also pointed out the privacy concerns raised by the new rules. “Connecting personal identities to transactions on the blockchain, which are pseudonymous, would reveal vast troves of personal information to the world, including whom people bought digital assets from and sold them to,” he said.

The Tax Notes article highlights how the lawsuit challenges the regulations on several grounds, including statutory overreach and violations of the Fourth and Fifth Amendments. Behrendt emphasized that the recent Supreme Court decision in Loper Bright Enterprises Inc. v. Raimondo bolsters the plaintiffs’ case, as it curtails deference to regulatory interpretations of ambiguous statutes.

Behrendt finds it somewhat surprising that the lawsuit acknowledges that cryptocurrencies such as Bitcoin are “digital representations of value.” “This is somewhat surprising, given that the statutory language defining ‘digital assets’ as representations of value is not entirely clear. Cryptocurrencies, particularly non-stablecoins, usually do not represent anything; they have intrinsic value but do not inherently ‘represent’ value,” Behrendt said.

As legal battles shape the future of DeFi and digital asset regulation in the United States, the field of digital asset taxation is set to undergo further transformation under the new administration and ongoing legal challenges.

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

We are pleased to announce that Dennis Perez, Michel R. Stein and Robert S. Horwitz will be speaking at the upcoming CalCPA Federal and State Residency Issues webinar, Tuesday, January 14, 2025, 9:00 a.m. – 10:30 a.m. (PST).

This webinar will guide tax professionals and advisers on the latest IRS examination guidance on U.S. residency and California residency issues The panel will discuss federal and state tax residency rules, California residency issues, income allocation issues in the residency context, managing residency audits, and best practices for advising clients who are considering leaving California. The IRS LB&I unit has issued examination guidance focused on taxpayer residency. California state tax residency rules, and an increase in residency audits and enforcement require tax professionals to know state residency and income allocation issues, so they can properly advise their clients when these issues arise.

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For more information, please contact Dennis Perez at perez@taxlitigator.com

For more information, please contact Michel Stein at stein@taxtlitigator.com

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

We are pleased to announce that the USC Gould School of Law 2025 Tax Institute will take place on January 27-29 at the Sheraton Grand Hotel, Los Angeles.

We have an exceptional line up of speakers and topics this year. The three day Institute covers the most important topics in taxation including corporate, partnership, and estate planning. Additionally, the Tuesday afternoon sessions will cover current topics focused on civil and criminal tax controversy and ethical issues which are important to all tax practitioners.

The Institute is by far one of the best programs in the country for both experienced tax practitioners and those looking to gain more experience in their tax practices.

We are pleased to announce that four of our Principals will be presenting this year. 

Dennis Perez

A New Era of the IRS Assertion and Defense of the Civil Fraud Penalty
January 28, 2025: 4:25-5:25 pm

Sandra R. Brown

Employee Retention Credits: How a Good Idea to Address COVID Became Extraordinary Challenge to the IRS, Practitioners and Business
January 28, 2025: 3:10-4:10 pm

Michel R. Stein

The IRS New Focus on Subchapter K Enforcement, including the Use of the Economic Substance Doctrine – What Does it Mean for Tax Practitioners
January 28, 2025: 2:00-3:00 pm

Jonathan Kalinski

Defending Tax Controversies Du Jour
January 28, 2025: 5:45-6:45 pm

Registration information and the full program can be found here.

We look forward to seeing you. 

Dennis Perez is a Principal of the law firm Hochman Salkin Toscher Perez P.C. and has extensive experience in the representation of clients in civil and criminal tax litigation and in tax disputes and controversies before the Internal Revenue Service and all the California taxing agencies. Mr. Perez was formerly a senior trial attorney with District Counsel, Internal Revenue Service, in Los Angeles, California. Mr. Perez is a Certified Tax Specialist, California State Bar Board of Certification and is also a Fellow of the American College of Tax Counsel. He frequently lectures on advanced civil and criminal tax topics at seminars and before national, state and local bar associations and accountancy groups.

He is a co-author of the BNA Portfolio, Tax Crimes, has served as the Chair of the Los Angeles Lawyer Magazine Editorial Board and is the first recipient of the Los Angeles Lawyer Sam Lipsman Service Award for outstanding service to the Los Angeles Lawyer Magazine. He is past Chair of the Tax Procedure and Litigation Committees of the Taxation Sections of the State Bar of California and the Los Angeles County Bar Association. Mr. Perez is past President of the Alumni Board for the UCLA School of Law and has served as an Adjunct Professor, Golden Gate University, Graduate School of Taxation.

For more information, please contact Dennis Perez at perez@taxlitigator.com

Sandra R. Brown is a Principal of the law firm Hochman Salkin Toscher Perez P.C., where she specializes in criminal tax investigations, grand jury matters, litigation and appeals, as well as representing and advising taxpayers involved in complex and sophisticated civil tax controversies, including sensitive-issue audits and administrative appeals, as well as civil litigation. Prior to joining the firm, Ms. Brown served as the Acting United States Attorney, First Assistant United States Attorney; and Chief of the Tax Division in the Office of the U.S. Attorney, Central District of California.

During her 27 years as a trial lawyer, she personally handled over 2,000 tax cases on behalf of the United States. During her tenure with the government, Ms. Brown received the Internal Revenue Service Criminal Investigation Chief’s Award and the IRS’s Mitchell Rogovin National Outstanding Support of the Office of Chief Counsel Award, the highest recognitions awarded by the IRS to non-IRS employees. 

Ms. Brown obtained her LL.M. in Taxation from the University of Denver, is a fellow of the American College of Tax Counsel, Vice-Chair of the ABA’s Section of Taxation’s Criminal and Civil Tax Penalties Committee, Co-Chair of the UCLA Tax Controversy Institute, Co-Chair of the ABA Criminal Tax Fraud and Tax Controversy Conference, an ABA Loretta Collins Argrett Fellowship Mentor, and is a frequent lecturer and author on tax controversy topics, including international compliance matters. Ms. Brown has been recognized as one of California’s top 100 leading women lawyers and most recently, the recipient of USD School of Law’s Richard Carpenter Excellence in Tax Award and honored at the California Lawyers Association Tax Bar and Tax Policy 2024 Toast to Women in Tax.

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

Michel R. Stein is a Principal at Hochman Salkin Toscher Perez P.C., specializing in tax controversies, as well as tax planning for individuals, businesses and corporations. For more than 25 years, he has represented individuals with sensitive issue civil and criminal tax matters where substantial penalty issues may arise, and extensively advised individuals on foreign and domestic voluntary disclosures regarding foreign account and asset compliance tax matters.  Mr. Stein is a frequent lecturer at national and regional conferences on topics, including Global High Wealth examinations, cryptocurrency, sensitive tax compliance matters, IRS examinations, International tax issues and state and federal residency and worker classification matters.

For more information, please contact Michel R. Stein at stein@taxlitigator.com.

Jonathan Kalinski is a Principal of the law firm of Hochman Salkin Toscher Perez P.C. and specializes in both civil and criminal tax controversies as well as sensitive tax matters including disclosures of previously undeclared interests in foreign financial accounts and assets and provides tax advice to taxpayers and their advisors throughout the world. He handles both Federal and state tax matters involving individuals, corporations, partnerships, limited liability companies, and trusts and estates. Mr. Kalinski is a California Lawyers Association Taxation Section Executive Committee Member and an ABA Loretta Collins Argrett Fellowship Mentor. 

For more information, please contact Jonathan Kalinski at kalinski@taxlitigator.com

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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Cory Stigile is a Principal at Hochman Salkin Toscher Perez P.C., who specializes in tax controversies as well as business and international tax. His representation includes federal and state tax controversy matters, including sensitive tax-related examinations and investigations for individuals, partnerships, limited liability companies, and corporations. His practice also includes complex civil tax examinations, administrative appeals and tax collection proceedings (where he is widely respected for achieving meaningful resolutions of difficult tax collection issues).  He has litigated cases in the U.S. Tax Court, the U.S. District Court, the Court of Federal Claims and the 9th Circuit Court of Appeals. Mr. Stigile is a Certified Specialist, Taxation Law, The State Bar of California, Board of Legal Specialization.  Mr. Stigile is also a CPA licensed in California.  He is an active volunteer with CalCPA and the AICPA, and is the President of PADI Foundation. For more information contact Cory Stigile at stigile@taxlitigator.com.

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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Steven Toscher is a Principal of the law firm Hochman Salkin Toscher Perez P.C., where he 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. Mr. Toscher was the 2018 recipient of the Joanne M. Garvey Award. The award is given annually to recognize lifetime achievement and outstanding contributions to the field of tax law by a senior member of the California tax bar. Mr. Toscher is the 2024 recipient of the prestigious Jules Ritholz Memorial Merit Award presented by the Civil and Criminal Tax Penalties Committee of the Taxation Section of the American Bar Association. The Jules Ritholz Memorial Merit Award recognizes lawyers who have demonstrated outstanding dedication, achievement and integrity in the field of civil and criminal tax controversies. For more information, please contact Steven Toscher at toscher@taxlitigator.com.

Michel R. Stein is a Principal at Hochman Salkin Toscher Perez P.C., specializing in tax controversies, as well as tax planning for individuals, businesses and corporations. For more than 25 years, he has represented individuals with sensitive issue civil and criminal tax matters where substantial penalty issues may arise, and extensively advised individuals on foreign and domestic voluntary disclosures regarding foreign account and asset compliance tax matters.  Mr. Stein is a frequent lecturer at national and regional conferences on topics, including Global High Wealth examinations, cryptocurrency, sensitive tax compliance matters, IRS examinations, International tax issues and state and federal residency and worker classification matters. For more information, please contact Michel R. Stein at stein@taxlitigator.com.

Cory Stigile is a Principal at Hochman Salkin Toscher Perez P.C., who specializes in tax controversies as well as business and international tax. His representation includes federal and state tax controversy matters, including sensitive tax-related examinations and investigations for individuals, partnerships, limited liability companies, and corporations. His practice also includes complex civil tax examinations, administrative appeals and tax collection proceedings (where he is widely respected for achieving meaningful resolutions of difficult tax collection issues).  He has litigated cases in the U.S. Tax Court, the U.S. District Court, the Court of Federal Claims and the 9th Circuit Court of Appeals. Mr. Stigile is a Certified Specialist, Taxation Law, The State Bar of California, Board of Legal Specialization.  Mr. Stigile is also a CPA licensed in California.  He is an active volunteer with CalCPA and the AICPA, and is the President of PADI Foundation. For more information contact Cory Stigile at stigile@taxlitigator.com.