The tax system of the United States is often described as one of “voluntary compliance.”  However, there is little about the filing of required tax returns and paying amounts legally due that is truly voluntary.  The reality is taxpayers have a “legal duty” to comply with U.S. tax laws.  It is no great secret that hundreds of thousands of Americas do not file their tax returns each year.  In 2020, the IRS renewed its focus on those classified as high-income non-filers, defined by the IRS as taxpayers whose income equals or exceeds $100,000 during a tax year and fail to file an income tax return with the IRS.   In this article, Robert and Sandra discuss the impact high-income non-filers have on the “Tax Gap” and the tools the IRS has to collect financial information about these non-compliant individuals. 

Click Here for article.

Robert S. Horwitz is a Principal at Hochman Salkin Toscher Perez P.C., former Chair 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. Additional information is available at http://www.taxli

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. 

Hochman Salkin Toscher Perez, P.C. was proud to be part of the team which represented the American College of Tax Counsel as amicus curiae in this very important attorney client privilege case seeking review in the United States Supreme Court.  

Great Job Robert Horwitz and Lacey Strachan

Click Here for Article.

We are pleased to announce that Steven Toscher, Sandra Brown and Jonathan Kalinski will be speaking at the upcoming CalCPA webinar, “Cannabis Tax Examination Issues” on Tuesday, September 28, 2021, 9:00 a.m. – 10:00 a.m. (PST).

The sale and distribution of cannabis for recreational or medical use is a powerful economic engine generating billions in annual revenue, with over 40 states and the District of Columbia having some form of legalization of the substance. Despite state relaxation of marijuana prohibition laws, regulated cannabis businesses can be subject to hefty tax assessments and penalties without careful planning.

Under Section 61, businesses must report all gross income from whatever source it is derived. However, under Section 280E, cannabis businesses cannot deduct rent, wages, and other expenses unless it is for the cost of goods sold (COGS), resulting in a substantially higher tax rate than other companies on their income. The IRS issued guidance to its agents on conducting audits of cannabis businesses giving IRS agents the authority to change a cannabis business’ accounting method. Under Section 280E, certain costs are not included in COGS. Thus, they remain non-deductible for income tax purposes.

As more states legalize cannabis and make available licenses to grow, manufacture, distribute, and sell cannabis, the IRS has increased cannabis tax audits, which could result in unbearable tax liabilities.

Listen to our panel discuss recent IRS enforcement actions involving Cannabis Tax audits and examinations, including the IRS’s use of summons enforcement in this area and tax professional strategies.

Click Here for more information.

Posted by: Steven Toscher | September 9, 2021

UCLA 37th Annual Tax Controversy Institute – October 21, 2021

We are pleased to welcome everyone back to an in person meeting for the 37th UCLA Extension Tax Controversy Institute which will be on held on October 21st, at the Beverly Hills Hotel in Beverly Hills, California. For those who wish to attend remotely, we will also be providing that option. We have another great line up of esteemed panelists and government speakers who will be presenting on a full range of current tax controversy issues. We are also are pleased to be presenting the Bruce I. Hochman Award to the Honorable Juan F. Vasquez, U.S. Tax Court. I am honored this year to Co-Chair the Institute with my partner, Sandra R. Brown.

Our amazing line up of “can’t miss” programs will include – 

A Keynote from Commissioner Charles P. Rettig 

IRS Collection in the 21st Century with Darren Guillot, Commissioner, Small Business/Self Employed (SB/SE) Collection, IRS 

Post-Covid IRS Examination with Timothy Bilotta, Acting Director, Southwest Area Small Business/Self Employed Field Examination, IRS  

IRS Promoter, Enforcement Actions & Penalties with Lois E. Deitrich, Acting Director of the new IRS Office of Promoter Investigations

In Search of Virtual Currency, with Ryan Korner Special Agent in Charge, IRS Criminal Investigation Los Angeles Field Office 

Getting ready for the New Fraud Frontier with Damon Rowe, Executive Director IRS Office of Fraud Enforcement, James Lee, Chief, IRS Criminal Investigation, Nathan Hochman, Former Assistant Attorney General DOJ Tax Division, and Alexander Robbins, Assistant U.S. Attorney, CDCA  

Click Here for Registration information. You do not want to miss this program. 

We are pleased to announce that Sandra Brown along with John Colvin, Monique (Mimi) R. Gabel, Sarah E. Paul and Cliff Scherwinski will be speaking at the upcoming ABA Section of Real Property, Trust & Estate Law eCLE webinar, “Practitioners Guide to IRS High Income/High Wealth Audits” on Wednesday, September 15, 2021, 10:00 a.m. – 11:30 a.m. (PST) | 1:00 p.m. – 2:30 p.m. (EST).

As part of the IRS’s renewed attention to the IRS Global High Wealth initiative and narrowing the tax gap, the IRS has increased its focus on high income non-filers and high wealth taxpayer audits. The IRS’s renewed emphasis on high income non-filers and high wealth taxpayers is a broad focus that manifests itself through the Global High Wealth program, various campaigns and directives as well as normal Exam workloads. This new focus has resulted in parallel civil and criminal investigations in several priority areas. This esteemed panel of current IRS officials, former DOJ Tax attorneys and private practice attorneys will discuss these audits, including the following: Ethical issues for tax practitioners, including representing multiple taxpayers in Exam and the potential impact of a practitioner’s prior role in structuring or promoting transactions subject to Exam scrutiny; Partnership tax audits under the BBA and IRS focus on pass-through tax issues, such as losses and distribution in excess of basis, sale of partnership interests, and self-employment taxes at the partner level; Other issues based areas including micro-captives, conservation easements, private foundations and Malta pension; and Criminal tax issues to consider before and during the audit process.

Click Here for more information.

We are pleased to announce that Michel Stein, and Sandra Brown along with Lois Dietrich, the Acting Director of the IRS’s Office of Promoter Investigations, will be speaking at the upcoming Strafford webinar, “IRS Promoter Investigations, Enforcement Actions, and Penalties: Syndicated Conservation Easements, Micro-Captives” on Tuesday, September 14, 2021, 10:00 a.m. – 11:30 a.m. (PST).

This CLE/CPE webinar will guide tax professionals through new IRS enforcement actions focused on promoters of syndicated conservation easements and micro-captive arrangements. The panel will discuss recent IRS investigations of promoters involved in what the IRS has determined as abusive tax avoidance transactions, navigating the processes involved for examinations, new procedures of the IRS Office of Promoter Investigation, penalties, and key strategies for tax professionals. The panel will also discuss issues involving micro-captives and conservation easement transactions to minimize IRS assessments and audits.

Recently, the IRS announced the new Office of Promoter Investigations to combat abusive tax avoidance transactions. As the IRS expands its operations and enforcement actions, tax professionals and advisers must prepare to defend targeted taxpayers on syndicated conservation easements and micro-captive insurance arrangements.
Over the past year, the crackdown on conservation easement transactions has forced taxpayers, tax counsel, and advisers to recognize critical tax issues in structuring and representing those involved in these transactions. Conservation easements are legally enforceable perpetual land preservation agreements between a landowner and either a government agency or a qualified land protection organization (such as a land trust) to conserve land and its resources. Grantors within these transactions enjoy significant tax benefits if the easement meets IRS approval for a donation.

In addition, the use of captive insurance companies, particularly Section 831(b) “micro-captives,” has come under increased IRS scrutiny as well. The IRS has explicitly recognized micro-captives as a legitimate form of risk protection but has expressed concern that these vehicles are being used more as a wealth transfer device than legitimate insurance.

The popularity of conservation easement transactions and micro-captive arrangements makes them prime targets for promoters and investors seeking to take advantage of their tax benefits. However, the IRS may consider these transactions to be abusive tax avoidance schemes based on their structure, leading to potential IRS audits and investigations.

Furthermore, although the IRS has focused investigations on promoters of syndicated conservation easements and micro-captive insurance arrangements, practitioners and taxpayers should anticipate that the Service will investigate other transactions that they deem abusive tax avoidance practices.

Listen as our panel discusses recent IRS enforcement actions on promoters, navigating the processes involved in abusive tax avoidance transaction cases, and key tax professionals’ strategies.

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 

Click Here for more information.

We are pleased to announce that Michel Stein, Robert Horwitz and Jonathan Kalinski will be speaking at the upcoming CSTC webinar, “Partnership Audit Procedures for Tax Counsel” on Tuesday, September 1, 2021, 10:00 a.m. – 11:40 a.m. (PST).

The IRS Large Business and International Division stated in its most recent Focus Guide that an increase in partnership audits is underway. Tax professionals must identify critical issues for partnerships subject to BBA audit rules and implement strategies for managing these audits and minimize potential tax liability and penalties. The BBA centralized partnership audit regime replaced the Tax Equity and Fiscal Responsibility Act audit procedures and the electing large partnership rules. Under the BBA centralized partnership audit regime, the IRS generally assesses and collects any tax understatement at the partnership level. Under the BBA audit rules, many partnerships are subject to an entity-level audit by default. A partnership is subject to BBA centralized partnership audit rules unless it is an eligible partnership and makes an annual election out of BBA on a timely filed Form 1065. An eligible partnership is one with 100 or fewer partners, all of whom are either individuals, C corporations, or foreign entities treated as a C corporation if it were domestic, S corporations, or estates of deceased partners.

Listen as we present BBA audit procedures, recent IRS enforcement actions, and concrete suggestions on managing BBA audits, taxpayer rights, and other critical items.

Click Here for more information.

We are pleased to announce that Dennis Perez, Michel Stein and Jonathan Kalinski will be speaking at the upcoming CalCPA webinar, “Employment Tax Matters: Worker Classification and AB5″” on Tuesday, August 31, 2021, 9:00 a.m. – 10:00 a.m. (PST).

The IRS increases both civil and criminal enforcement against taxpayers who fail to comply with withholding and remitting 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. The panel will discuss essential techniques to avoid penalties and handling IRS audits stemming from employment taxes. The panel will also address worker classification issues and methods to overcome them, the impact of California AB 5, key considerations for state versus federal compliance, the Government use of injunctions and criminal aspects.

Click Here for more information.

At a recent Stafford webinar on NFTs, Jonathan Kalinski of Hochman Salkin Toscher Perez PC advised practitioners to be cautious in their positions. Just because there is no law on a new cryptoasset question doesn’t mean that the IRS can’t argue that “you should have known better” down the road. Crypto audits are ramping up, but we are still in early stages.

“The place you want to be is to be safe and to be cautious when you’re reporting,” said Kalinski. A purchase of a cryptoasset using another cryptoasset is taxable as barter. Taxpayers have to keep records; the blockchain won’t do it for them. On audit, the taxpayer can’t shrug his shoulders and say it was on the blockchain. “Relying on the exchange is going to get you into trouble,” he said. “Recordkeeping is of the utmost importance.” 

Kalinski foresaw use of cryptocurrency for charitable contributions, which would be contributions of property at FMV. Some crypto assets and NFTs can be valued based on comparable assets. But taxpayers shouldn’t be aggressive because values can be verified eventually. “Old-world rules are not always a perfect fit for new-world technology, but taxpayers should use best practices,” he said.  

Jonathan Kalinski is a principal at 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 has considerable experience handling complex civil tax examinations, administrative appeals, and tax collection matters.  Recently, he has focused on the taxation of cannabis and cryptocurrency.  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.

On July 28, 2021, the Internal Revenue Service (IRS) and the Department of Justice (DOJ) announced that it had obtained a Court Order authorizing summonses for records relating to U.S. Taxpayers who used Panama Offshore Service Providers (POLS) to hide assets and evade taxes.[i]   The issuance of these “John Doe” summonses will permit the IRS to obtain records for individuals who may have used POLS to hide assets from the following 10 specified U.S. couriers and financial institutions: FedEx Ground Package System, Inc., Federal Express Corporation, Corp., DHL Express, UPS Inc., Federal Reserve Bank of New York, The Clearing House Payments Company LLC, HSBC Bank USA, Citibank, Wells Fargo Bank, and Bank of America.  Specifically, the information ordered to be provided includes details on deliveries and electronic fund transfers between POLS and clients of the summoned couriers and financial institutions.

I recently blogged on the IRS’s use of the John Doe summons procedure to obtain information about U.S. taxpayer’s cryptocurrency transactions in the Circle Internet Financial, Inc., and Payward Ventures Inc. d/b/a Kraken John Doe summons cases.[ii]   While historically, the IRS’s use of a John Doe summons was more the exception than the rule, these recent filings, both in scope and numbers, reminiscent of the IRS’s use of John Doe summonses in the 1980’s and 1990’s tax shelter days, suggest that trend may be on the uptick again.   While the legal requirements for obtaining a John Doe summons order are more rigorous than the issuance of a non-John Doe summons, the swath of information the IRS is obtaining in these cases is much broader.  

A quick refresher as to what is a John Doe Summons and when can the IRS use this investigation tool, I note the following: 

A John Doe summons, unlike an individualized summons used in an investigation of a single taxpayer and which the IRS can issue without judicial approval,[iii] permits the Government to obtain information about a large group of unidentified taxpayers where the Government can demonstrate a reasonable belief that the “unidentified” taxpayers are engaged in conduct that may violate U.S. tax laws.[iv]

The Government must meet a three prong test for a Federal Court to grant the right for the IRS to issue a John Doe summons, namely the following:[v]

  1. The John Doe summons relates to the investigation of a particular person or ascertainable group or class of persons;
  2. There is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law; and,
  3. The information sought to be obtained from the examination of the records or testimony (and identity of the person(s) with respect to whose liability the summons is issued) is not readily available from other sources.

The law involving the issuance of John Doe summons was, however, narrowed by the Taxpayer First Act of 2019 (“TFA”), requiring that the Government must also meet a narrowly tailored requirement in the flush language of the statute added as part of the TFA.[vi]  That language requires that the information sought to be obtained in the summons should be narrowly tailored to information that pertains to the failure or potential failure of the group or class of persons to comply with one or more provisions of the internal revenue laws which have been identified. 

The POLS and POLS Group John Doe Summons Case

According to the IRS, POLS is a Panamanian law firm that advertised services including the creation of foundations and corporations as well as offshore financial accounts while promising clients “100% anonymity, privacy and confidentiality.”[vii]   

The IRS believes that U.S. taxpayers who used the services of POLS may have failed to comply with their U.S. tax and reporting obligations. The IRS is investigating U.S. taxpayers who used the services of the POLS Group from 2013 through 2020 “to establish, maintain, operate, or control any foreign financial account or other asset; any foreign corporation, company, trust, foundation, or other legal entity; or any foreign or domestic financial account or other asset in the name of such foreign entity.”[viii]

In light of this information, the government petitioned a federal court in New York for leave to serve John Doe summonses on the 10 entities listed above.  The government also filed a petition in the District of Minnesota asking to allow the IRS to serve a John Doe summons on MoneyGram, a global money transfer and payment services company, as part of the investigation involving POLS.

On July 28, 2021, the federal district court in New York entered the order granting the government permission to issue the 10 summonses.  After entry of the order, the following higher-up government officials were quoted:

U.S. Attorney Audrey Strauss, SDNY:“This action underscores our Office’s commitment to hold accountable those who use offshore service providers to avoid U.S. taxes.  In issuing these John Doe summonses, we continue our joint efforts with the IRS to investigate tax evaders who use foreign financial accounts and sham foreign entities to hide their assets.”

Acting Assistant Attorney General, Tax Division, David A. Hubbert: “The Department of Justice, working alongside the IRS, is dedicated to unearthing the use of foreign bank accounts to evade U.S. taxes.  We will use the many tools available to us, including John Doe summonses like the ones authorized today, to ensure that taxpayers are fully meeting their responsibilities.”

IRS Commissioner Charles P. Rettig: “These court-ordered summonses should put on notice every individual and business seeking to avoid paying their fair share of taxes by hiding assets in offshore accounts and companies.  These records will empower the IRS and the Department of Justice to find those attempting to skirt their tax obligations and ensure their compliance with the U.S. tax laws.”

Conclusion In the IRS’s ongoing efforts to obtain more data to effectuate greater tax compliance and a narrowing of the tax gap, a John Doe summons can be a jackpot of information.  While some of that information will be worked by IRS compliance employees; it is fair to assume that many of these cases will find their way to the desk of an IRS Criminal Investigation special agent. 

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] IN THE MATTER OF THE TAX LIABILITIES OF: JOHN DOES, United States taxpayers who, at any time during the years ended December 31, 2013, through December 31, 2020, used the services of Panama Offshore Legal Services, including its predecessors, subsidiaries, and associate, to establish, maintain, operate, or control any foreign financial account or other asset; any foreign corporation, company, trust foundation or other legal entity; or any foreign or domestic financial account t or other asset in the name of such foreign entity. Case 1:21:mc-00424.


[iii] 26 U.S.C. §7602(a).

[iv] 26 U.S.C. §7609(f).

[v] Id.

[vi] Pub. L. No. 116-25, §1204(a), 133 Stat. 988 (2019).


[viii] United States of America v. John Does, Notice of Filing of Ex Parte Petition for Leave to Serve John Doe Summons, Case No. 0:21-mc-00032.

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