TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

We are pleased to announce that Michel R. Stein will be speaking at the upcoming 11^th Annual Florida Tax Institute  3-Day Conference on the on the topic of “Audits and Tax Controversy Update” on Wednesday, February 14, 2024, 2:15 p.m. – 3:15 p.m. (EST), along with co-panelists Fred Murray (IRS Special Counsel), Eric Cerelli (IRS Field Director for Global High Wealth), Judy McNamara (IRS Field Director for International Individual Compliance) and Niles Elber (Caplin & Drysdale).

The IRS continues to prioritize examinations of high-wealth individuals and inbound and outbound investment and business transactions, as well as collection of outstanding tax liabilities of these taxpayers. The reviews are expected to include the individual tax return of the sophisticated taxpayer as well as related partnerships, foundations, trusts, retirement plans, and other business structures. The IRS also has reaffirmed its interest in cross-border activities with the announcement of new campaigns targeting Nonresident Aliens who receive rental income from U.S. real property; FIRPTA compliance in connection with the withholding of tax and reporting obligations on the disposition of U.S. real property interests; and the U.S. activities of financial service entities and whether foreign investors participating in “inbound” lending transactions were engaged in a U.S. trade or business and generated income effectively connected with a U.S.-situs lending trade or business. Examination of partnerships and other flow-through entities are in themselves a focus of a number of examinations. The panel will discuss current developments and their implications for high wealth foreign and domestic taxpayers.

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In two recently issued decisions, the U.S. Tax Court reaffirmed the validity of the so-called “Cohan Rule” that allows the Court to estimate the amount of a taxpayer’s deductible expenses so long as the taxpayer clearly shows that he or she incurred the expenses and the Court has a reasonable basis for making such an estimate. On December 28, 2023, and January 3, 2024, the Tax Court issued Villa v. Commissioner, T.C. Memo 2023-155, and Alvarado v. Commissioner, T.C. Memo 2024-1, both of which explained that, while the Cohan Rule may not be invoked to estimate expenses covered by the strict substantiation requirements of I.R.C. § 274(d), the Rule does allow the Court to estimate otherwise unsubstantiated costs of goods sold. The burden of proof, however, remains upon the taxpayer, and any inexactitude in the amount of unsubstantiated deductions will be held against the taxpayer.

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We are pleased to announce that Steven Toscher, Michel Stein and Cory Stigile will be speaking at the upcoming Strafford webinar “Navigating IRS Corporate and High-Income Taxpayer Audits: Key Areas of Focus for Examinations, Pitfalls to Avoid” Thursday, February 1, 2024, 10:00 a.m. – 11:30 a.m. (PST).

The IRS has rolled out its plan for increased examinations and collection efforts specifically focused on high-income taxpayers, partnerships, and promoters. In addition, other enforcement initiatives will focus on compliance issues involving digital assets, reporting of offshore accounts, the use of offshore structures, and collection of back taxes owed by certain individual taxpayers.

The increase in funding under the Inflation Reduction Act has allowed the IRS to tap into the use of artificial intelligence and other new technologies to detect tax evasion, identify compliance threats, and improve case selection. This will certainly result in a high number of audit letters, civil and criminal investigations, and enforced compliance for some high net worth individuals and companies.

Tax professionals must identify critical issues for taxpayers who may be subject to IRS examination and implement strategies for managing these audits and minimize potential tax liability and penalties.

Listen as our panel discusses recent IRS enforcement actions, current challenges facing taxpayers, tactics to avoid penalties, and key areas of focus where the IRS has detected abuse, as well as offer concrete suggestions on managing IRS examinations and collection efforts, taxpayer rights, and other critical items.

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.  

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Congratulations to Sandra R. Brown and Hunter Keaster for being featured on the December 2023 cover of the Los Angeles Lawyer Magazine. Sandra and Hunter are highlighted for their article “Closing the Gap” which analyzes the IRS’s Strategic Operating Plan for improving taxpayer services and reducing the tax gap through stricter enforcement with the current $60 billion in funding provided by the Inflation Reduction Act. 

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On December 21, 2023, as part of its ongoing effort to address and combat dubious claims for the Employee Retention Credit (ERC), the IRS unveiled a new Voluntary Disclosure Program aimed at helping businesses rectify errors in previously submitted ERC filings. The new initiative comes in response to growing concerns about the legitimacy of certain claims by employers and aggressive marketing tactics by ERC promoters who misled their customers about the credit. The program is intended to address a taxpayer’s civil liability. Therefore, at this time, it appears that a participant still could face criminal prosecution for a fraudulent ERC claim. Applications under the Voluntary Disclosure Program are due by March 22, 2024.

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Those who commit tax crimes are among the least likely to re-offend, as statistics from the United States Sentencing Commission – the group that drafts the Federal Sentencing Guidelines used by judges to help determine what sentence to impose – have consistently shown. Mostly well-educated, older, and without any prior criminal history, tax offenders almost always are deeply ashamed of having committed their crime and don’t want to see the inside of a courtroom or, even worse, a federal prison, ever again.  

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Steven Toscher, Managing Principal
Hochman Salkin Toscher Perez P.C.
toscher@taxlitigator.com

Founded in 1960, Hochman Salkin Toscher Perez, P.C., is internationally recognized as the preeminent tax law firm on the West Coast. The reputation of the firm for excellence and integrity in the tax community is unparalleled. The firm specializes in federal and state civil and criminal tax litigation, tax controversies and tax disputes with the federal, state, and local taxing authorities and white collar criminal defense, and has received many notable decisions on behalf of its clients before the Federal Appellate Courts, the Federal District Courts, the Bankruptcy Courts, the United States Tax Court, and various state courts, including the California Franchise Tax Board California Department of Tax and Fee Administration
and the California Employment Development Department.

www.taxlitigator.com

We are pleased to announce that Dennis Perez, Michel Stein, and Robert Horwitz will be speaking at the upcoming CalCPA webinar “Federal and State Residency Issues” Tuesday, December 12, 2023, 9:00 a.m. – 10:00 a.m. (PST).

This webinar will guide tax professionals and advisers on the latest IRS examination guidance and state tax law issues regarding taxpayer residency. The panel will discuss federal and state tax residency rules, residency and allocation matters, U.S. income tax treaties, available tax planning techniques, managing nonresident audits, and overcoming state regulatory challenges. Advising taxpayers on issues relating to residency has become even more cumbersome. The IRS LB&I unit has issued examination guidance focused on taxpayer residency and the application of U.S. income tax treaties. State tax residency rules and an increase in state audits and enforcement require tax professionals to become knowledgeable of new state residency and allocation issues to implement effective tax planning strategies for taxpayers.

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We are pleased to announce that in October of this year the 9th edition of the Practicing Law Institutes Deskbook on Internal Revenue Service Practice and Procedure was published. The Deskbook is co-authored by Principal of the firm Edward M. Robbins, Jr. It is a great resource for many issues confronting tax practitioners in everyday practice. For more information on this resource click on the link Here.

We are pleased to announce that the USC Gould School of Law 2024 Tax Institute will take place on January 22-24 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 corporate taxation, partnership taxation and a full day of estate planning. Tuesday afternoon will cover important civil and criminal tax controversy topics and ethical issues 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 three of our Principals will be presenting this year. 

Sandra R. Brown
Defending Employee Retention Credit Examinations and(Criminal) Investigations
January 23, 2024: 2-3:00 pm

Michel R. Stein
Handling High Wealth Taxpayer Examinations –What We Can Expect After the New IRS Inflation Reduction Act Funding
January 23, 2024: 4:25-5:25 pm

Jonathan Kalinski
Employment Tax Controversies, including AB5
January 23, 2024: 6-7:30 pm

Registration information and the full program can be found at the link Here.

We look forward to seeing you.