The Firm represents clients in all phases of the civil and criminal tax controversy and litigation process. Some of the more frequent types of matters that arise are listed below with a brief description:
Civil tax cases are generally initiated through the issuance of a letter by a taxing authority, (e.g., the IRS, Franchise Tax Board, or the State Board of Equalization) notifying a taxpayer of the beginning of an examination or audit. It is at that first stage in the process when the Firm can step in to make a difference in the outcome of the case. If the audit does not conclude in a manner that is agreeable to the client, the Firm will take the necessary steps to appeal the case administratively to the next level of review within the taxing authority, and beyond, including mediation if that option is advisable. In the event a satisfactory resolution is not attainable, the Firm has the ability to litigate the matter in court.
These types of audits are so classified because of the sensitive nature of the issues that may be lurking just under the surface that have not yet been discovered by the taxing authority. It is important to have sophisticated legal counsel that understands the tensions that are at play in these types of cases, including balancing the requirement to cooperate with the need to avoid relinquishing one’s Fifth Amendment protections against self-incrimination. And these types of matters call for different strategies depending on the nature of the potential issues. For example, it may make sense for legal counsel to stay in the background and not surface during the audit, or for strategic reasons the attorney should make his or her involvement known to the auditor. There is no “one-size-fits-all” approach; each case must be handled on its own facts with guidance from experienced legal counsel.
The choice to litigate in court is not an easy one, and it requires a significant amount of time, effort and resources. For these reasons, the Firm seeks to avoid where possible the need to initiate proceedings in court, but there are cases where litigation is necessary. In a federal tax case, litigants are faced with having to choose one of three forums in which to litigate. That decision is dependent on numerous factors, such as legal precedent, existence of a prepayment requirement, expertise of the judge, availability of a jury, etc. These are points that must be carefully considered, along with a host of other issues. In addition, there are a number of different types of litigation matters that may be initiated by the United States or a taxpayer. For example, the United States may initiate a suit to reduce assessments to judgment, foreclose tax liens, or obtain the return of erroneous refunds. Taxpayers can institute suits for refund, wrongful levy, or to challenge the 100 percent penalty imposed against responsible officers of entities for the trust fund portion of payroll taxes. Each of these types of proceedings has its own challenges and pitfalls.
A criminal tax case can arise in a variety of different ways but once it is initiated it is generally led either by a Special Agent from the IRS’s Criminal Investigation Division (“CID”) working alone, or by a federal prosecutor through the use of a grand jury with the assistance of a CID Special Agent. If there is enough evidence, the investigation will usually conclude with the issuance of an indictment or other charging document in which the United States government officially seeks to convict a taxpayer of one or more crimes. Followed to its conclusion, a criminal case will require navigation through a series of issues, such as a taxpayer’s status as a witness, subject, or target, whether to make a proffer, plea negotiations, pre-trial issues, trial, sentencing and appeals. With a conviction rate in excess of 93 percent in criminal tax matters, the federal prosecutors that are pursuing taxpayers must be taken seriously, and it is essential that a taxpayer hire qualified legal representation.
The initiation of a bankruptcy proceeding will not necessarily bring a halt to tax controversy and litigation matters. Depending on a variety of factors, the IRS may continue to pursue the assets of a taxpayer that has a case pending in a United States Bankruptcy Court, or the representative of the bankruptcy estate may seek to initiate an action against the United States. There are a host of unique legal and strategic considerations to dealing with the IRS in bankruptcy court, and the bankruptcy statutes are structured in such a way as to allow for the initiation of full scale litigation with a trial, witnesses, and discovery (e.g., depositions and document production). As such, it is imperative that a taxpayer dealing with tax controversy issues in the context of a bankruptcy proceeding hire legal counsel adept at handling matters involving these two distinct disciplines.
There are a number of taxpayers that have either failed to file or made significant mistakes on their tax returns. Under certain circumstances, those taxpayers may be able to file original or amended tax returns voluntarily to correct those prior indiscretions. If done properly, these types of voluntary disclosures will almost guarantee that a taxpayer will avoid the initiation of an IRS criminal investigation. However, penalties are likely to be imposed. It is imperative that qualified legal counsel be engaged to oversee and guide the process, and to work with the tax return preparer to ensure that the voluntary disclosure is properly made.
One of the IRS’s primary tools for gathering documents is known as the administrative summons, which is essentially a formal request by the IRS to a taxpayer or third party for the gathering and production of documents. If a taxpayer does not fully, completely, and timely respond to a summons, the IRS will refer the matter to the Department of Justice, Tax Division, to initiate a proceeding in federal district court to enforce the summons. Enforcement culminates in an order from the court requiring the taxpayer to respond to the document requests. Failure to respond can lead to contempt of court and a number of other less than pleasant consequences. But, for those taxpayers that receive a summons, there are a number of steps one can take to avoid court litigation, or, if litigation is unavoidable, position oneself to minimize the potential for a negative outcome. Taxpayers are best served in these types of proceedings by engaging competent legal counsel.
Often times in a civil or criminal tax case, a taxing authority will reach out to third parties for information, documents, or testimony. While in some circumstances the danger to the third party of entangling himself or herself in the matter is limited, it is possible that a person may implicate oneself unknowingly or allow the government through its requests to subject the person to unfair burdens. Hiring qualified legal counsel helps ensure that the third party remains in that category and minimizes or avoids the complexities and time-consuming nature of the government’s investigative process. Moreover, unless a third party hires representation, there is no one in the process that has the third party’s bests interests in mind.
Undisclosed foreign bank accounts and other assets have become a priority for the IRS over the recent years, and the agency has created and revised on multiple occasions a voluntary disclosure program that allows taxpayers to come out of the shadows, disclose their offshore assets, prepare and file original or amended forms, pay a penalty of varying amounts depending on one’s circumstances, and avoid criminal prosecution. There is no doubt that the program has been beneficial for those taxpayers with undisclosed accounts. However, the process is rife with dangers and requires legal determinations, including with regard to such matters as making willfulness determinations (which has an effect on the penalty amount), what IRS forms must be filed, how to handle follow-on audits, and whether to disclose at all. A taxpayer must engage qualified legal counsel experienced in tax controversy matters to ensure that decisions are being made carefully and with a full understanding of the legal implications.
Some individuals acquire information regarding the failure of others, such as an employer, to properly report their income to the IRS. When an individual decides to come forward and share with the IRS the information he or she has about another taxpayer, such individual becomes known as a whistleblower. By statute whistleblowers may be awarded a percentage of the tax, penalty and other amounts collected as a result of the information provided to the IRS. The determination of the amount of the award is made by the IRS’s Whistleblower Office. In the event the whistleblower disagrees with the IRS on the basis for or the amount of the award, he or she may have the award reviewed by initiating a proceeding in the United States Tax Court. Legal counsel is a must when navigating the claim filing process, considering confidentiality issues, and in determining the award amount.
For those taxpayers that owe taxing authorities, such as the IRS, back taxes, penalties, and interest, and that have for whatever reason not satisfied those obligations, the taxing authority has the ability to take what is known as enforced collection action. This consists of a variety of measures, such as levying bank accounts, social security payments, or other amounts owed to a taxpayer. It also includes wage garnishment, and the filing of notices of federal tax lien with the secretary of state’s office or a local county recorder, the effect of which is to encumber property located in that jurisdiction. In addition, the IRS or the Department of Justice, Tax Division (through court proceedings), can takes steps to foreclose on and sell real property to satisfy tax debts. However, taxpayers are not powerless to stop enforced collection. In fact there are a number of options at a taxpayer’s disposal that allow for the limiting of these procedures, such as innocent spouse claims, submission of an offer-in-compromise, request for an installment plan, initiation of a collection due process proceeding in the United States Tax Court, and bankruptcy. Each of these options has its own advantages and disadvantages and must be carefully considered for its strategic value as well as its practical implications.