Tax Controversy and Disputes Practice
Our tax controversy group handles all types of tax disputes and necessary actions pertaining to the outcomes of those disputes. We are constantly evolving in response to, and in anticipation of, federal and state tax laws, and the interpretation of these laws by revenue departments.
The tax code is complex, and taxing authorities and revenue departments seek to enforce the law using subjective interpretations of the code. We are adept at defending your position and advising you on the best possible strategy to obtain successful results.
Any complete tax controvery and disputes practice covers every nuance of civil tax law and litigation. We know that tax disputes often begin with unfiled tax returns, audits or penalty assessments, and collection representation, a service we provide, is sometimes needed.
For over 30 years, Moskowitz LLP has helped clients respond to the Internal Revenue Service (“IRS”), California State Franchise Tax Board (“FTB”), California State Board of Equalization (“BOE”), California State Employment Development Department (“EDD”), and various related taxing agencies, including but not limited to, Workers Compensation and Department of Insurance matters. We devise creative ways to resolve disputes. Taxpayers that effectively prepare themselves for these disputes have a better chance of achieving the best result.
We are tax lawyers, and our approach to tax dispute representation and collection representation is unique and effective. For instance, we utilize in-house certified public accountants, enrolled agents and investigators to provide you with complete representation. Our tax lawyers leverage the expertise of other Moskowitz LLP professionals to put the law on your side. Although many service providers claim they can assist with tax controversy matters, we are successful in achieving results with our tested methods.
Our tax controversy practice is comprised of the following areas:
Tax Collection Representation
We routinely help clients devise delinquent tax liability strategies with the main goal of resolving a tax dispute with authorities. For example, you will receive a bill from the IRS if you do not pay your taxes in full. This bill initiates a collection process, which only ends when you pay in full, the government agrees to another settlement, or the taxing agency can no longer legally collect the tax (e.g. the statute of limitations has run). In addition to the tax bill, various penalties and interest will accrue.
Enforced collection activity can include, but is not limited to, Tax Lien, Wage or Bank Levies, Account Receivable Levy, Property Seizure and Offsetting of a Refund, the government going to your customers and ordering them not to pay you (and pay them instead), and more. These levies can have a devastating effect on most taxpayers. Loss of wages, seizure of bank or investment holdings, liquidation of retirement savings and seizure of cars or houses and other non-cash assets for sale at auction are all possible.
Due Process Hearing
Ultimately, the government has the right to seize your assets to satisfy any tax liabilities. For example, the IRS can place tax liens against and/or seize or sell your real property and levy your bank accounts. The IRS can also seize your earnings to satisfy your or your spouse’s tax liability. Some individuals are then unable to satisfy their rent/mortgage and/or automobile payments and/or purchase groceries.
Before the IRS can do any of the above, the taxpayer must be offered the opportunity to request a Collection Due Process hearing before the IRS Office of Appeals. Taxpayers can make an appeal to the United States Tax Court if the IRS has abused its discretion.
A Collection Due Process hearing is available before the IRS Office of Appeals if a taxpayer receives the following notices:
- Final Notice - Notice of Intent to Levy and Notice of Your Right To a Hearing
- Notice of Jeopardy Levy and Right of Appeal
- Notice Of Levy On Your State Tax Refund - Notice To A Hearing
The request for a hearing must be made within thirty days (30) of the date of the notice. Otherwise, the IRS can then proceed with an “enforced collection” action. If a taxpayer timely requests a “Collection Due Process Hearing,” “enforced collection” actions by the IRS will stop (pending the CDP hearing and/or during the Tax Court proceeding(s)).
During the hearing, a taxpayer can raise the following issues:
- Any appropriate spousal defenses, such as a claim for innocent spouse relief
- Challenges to the appropriateness of a filing of a Notice of Federal Tax Lien/Levy
- Offers of collection alternatives
- Challenges to the existence of the liability specified on the notice, if qualified
After the IRS Office of Appeals has considered the case, they will issue a “Notice of Determination” setting forth the decision of the Office of Appeals and advising the taxpayer of their right to seek judicial review within thirty days of the date of the notice. The taxpayer may file an action within the thirty-day period in the United States Tax Court if an abuse of discretion case can be made.
Following are three successful resolutions handled by Moskowitz LLP*:
*Example 1: The IRS assessed a married couple a federal tax liability of $132,142 resulting from an audit of their tax returns. The IRS filed a tax lien on the couple's home for the amount assessed and sent them a Notice of Intent to Levy for the balance due. The couple hired us, and we filed a timely request for a Collection Due Process hearing, along with a petition contesting the liability in the United States Tax Court. Through extensive negotiations, we convinced the IRS to adjust the couple's federal tax liability from $132,142 to $0.
*Example 2: The IRS audited a couple's tax return and assessed a federal tax liability of $139,163. The IRS sent the couple a Notice of Intent to Levy for the assessed liability. The couple hired us, and we filed a timely request for a Collection Due Process hearing in response to the levy notice, and ultimately filed a petition contesting the liability in the United States Tax Court. Through extensive negotiations, we convinced the IRS to adjust the couple's federal tax liability from $139,163 to $42,888.
*Example 3: We first negotiated a deferral or hold on collections giving our clients time to attempt to obtain alternative financing to pay off the liabilities. When financing was denied, and after that deferral expired, we entered negotiations with the California taxing authority – FTB - for an Offer in Compromise (“OIC”). The FTB settled the liability for a lump sum payment of $50,000, which represents a reduction of total liability by $183,000.
*Disclaimer - The results of the cases portrayed in the above examples were dependent on the facts of those cases, and the results of those cases will differ if based on different facts. As such, depending on the facts and circumstances of your case, your results may vary. No guarantees, predictions, or actions should be inferred from these actual cases. In addition, no representations are made that these actual cases are typical.
OIC & Installment Payment Agreements
In certain cases, the filing of a Collection Due Process Hearing allows us to negotiate an OIC or an Installment Payment Agreement and raise certain defenses regarding the IRS assessment against you. At the conclusion of the Due Process hearing, the IRS will issue their findings in a letter entitled "Notice of Determination." Our office can file a petition with the United States Tax Court to review the Collection Due Process hearing if we believe the IRS abused its discretion.
If your matter is still not resolved, or you still have a tax debt you cannot afford to pay and missed your opportunity for a Collection Due Process hearing, or dispute the amount owed, then it may be possible to resolve your outstanding tax liabilities through an OIC.
An OIC is an agreement, between the taxpayer and the IRS or state taxing agency, to settle assessed liabilities for less than full payment. The IRS permits Offers in Compromise to be filed under these circumstances:
- Doubt as to Liability (You don’t owe the tax because of a legal reason)
- Doubt as to Collectibility (You don’t have the income or assets to pay)
- The OIC would promote effective tax administration (it would be “unfair” for you to pay)
The most frequent OIC submitted to the IRS is under “Doubt of Collectibility.” Under this program, the taxpayer must demonstrate that they have insufficient assets to satisfy the tax debt and/or their income is within the IRS' prescribed guidelines.
We believe that a taxpayer considering an OIC needs experienced attorney advice and representation. The OIC application process generally requires the taxpayer to submit a substantial amount of financial information and documentation under penalties of perjury. An OIC including false information can result in a referral for criminal investigation, which can result in a felony criminal conviction. To that end, the documents may be discoverable for use in other types of proceedings, civil and family law cases, or other government investigations. Further, an OIC may be detrimental to your overall goal. For instance, it could extend Statutes of Limitations on Collections, subject you to probation requirements, and/or may necessitate other unwanted stipulations.
After the IRS agrees to process the OIC, the next step is to reach a settlement with the OIC evaluation agent. This typically requires submission and re-submission of additional documentation, persuasive arguments to your favor, and intense negotiations. A rejected OIC can be successfully appealed. We strive to negotiate the best acceptable agreement for your interests.
If you do not qualify for, or the IRS rejects, an OIC, then your next best option may be an Installment Payment Agreement, which allows you to make monthly payments to the taxing agencies to satisfy your tax liabilities. The monthly payment is determined by a number of factors, including but not limited to, your outstanding liability or what the government believes you can pay. As a general rule, enforced collection actions will cease while you are in Installment Payment Agreement status.
Federal Law generally has a ten-year statute of limitations, from the date of assessment to collect the taxes, with certain possible modifications and/or circumstances that can extend this period. Entering into an Installment Payment Agreement with the IRS right before the statute of limitations runs sometimes prevents the IRS from collecting a taxpayer's entire tax debt before the liability has been paid in full. Our law firm reviews IRS records to properly advise clients on how to potentially use the statute of limitations to their advantage.
Our experienced attorneys may be able to negotiate a Hardship Deferral when clients do not qualify for an OIC and cannot afford to make minimal monthly payments under an Installment Payment Agreement. No payments are required, and all enforced collection activity will cease, once a Hardship Deferral is negotiated. The taxing agency may periodically review the taxpayer's financial picture. In some cases, the amounts owed to the IRS will "expire" once the statute of limitations on collections runs.
When we represent you in collections matters, we:
- Get to know you and, when applicable, the officers and owners of your company to provide the most comprehensive representation
- Help to determine the most advantageous procedural route - settlement, conference, administrative hearing, OIC or litigation
- Guide the controversy through the administrative appeals and/or litigation when issues are not resolved via audit
Moskowitz LLP maintains the highest level of professional standards, encourages continuing education and researches Tax Controversy/Dispute trends.
- Update: September 2011 - IRS collection news:
- Fresh Start Programs:
- Streamlined OIC: Expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less. Hardship procedure for $150 filing fee.
- Streamlined IPAs for Small Businesses: Small businesses with $25k or less in unpaid taxes (an increase from $10k limitation) with 24 months to pay total amount owed. This is available for small businesses that file either as individual or business. For unpaid balance greater than $25K, businesses qualify if they pay down the balance to $25k or less. Need to enroll in Direct Debit Installment Agreement to participate.
- Tax Lien Thresholds & Withdrawals:
- Increased threshold for withdrawing lien from $5k to $10k.
- If taxpayers enter into a Direct Debit Installment Agreement (DDIA) and taxpayers have unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
- Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
- The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
- The IRS will also withdraw liens on existing Direct Debit Installment agreements upon taxpayer request.
- iii. Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.
- Experimental “Field” Collection Program: The IRS is attempting a program for collections similar to that of a field exam (i.e., knocking on taxpayer’s doors and filling out financial forms for them then getting taxpayers to sign it then and there).
Current & Delinquent Tax Preparation
Our Attorneys and Certified Public Accountants (“CPAs”) successfully prepare thousands of current year and delinquent individual income tax returns, corporate tax returns, partnership tax returns, trust tax returns and estate tax returns. As Steve Moskowitz says, “we prepare good, aggressive tax returns within the bounds of the law.” Moskowitz LLP believes in benefiting from every advantage and incentive that the tax law provides.
There are two purposes of the tax law; first is the collection of revenue by the IRS and FTB. Second is a system of economic incentives providing a wide variety of tax deductions and other benefits. We demonstrate benefits to you and how to take advantage of them.
There are significant advantages to having our law firm prepare your tax returns for any years when complicated and/or large or transactions occur.
Delinquent Tax Returns
Willfully failing to file tax returns is a federal and state crime. If you are caught and convicted, you could serve prison time, criminal and monetary penalties, and have a subsequent tax assessment plus substantial civil monetary penalties and interest. Preparing and filing past delinquent tax returns is often the first step in resolving your tax situations, whether it be in light of a criminal or civil investigation or in an effort to avoid one.
Further, many people are subject to enforced collection activity even though they have never filed tax returns. This can happen because the IRS, and any applicable state tax agency, can create a tax return for each year the taxpayer does not file, and then apply taxes, penalties and interest based upon this return; this can be far more than you actually owe. The taxing authorities can then collect via wage seizures, bank levies, and real and personal property seizures. This process can be catastrophic because the government Substitute For Return (“SFR”) will likely fail to account for spousal and child exemptions, home mortgage interest deductions, business expenses, real property and stocks cost basis, and many other deductions and benefits.
As a result, it is common for people who fail to file returns to receive erroneous tax assessments for incredibly large amounts of money. In some situations, a person may be owed a refund even though the IRS or a taxing agency claims a balance is due and, unless a timely claim for a refund is made to the IRS or state taxing agency, the refund is forfeited because of the statute of limitations.
Audits: IRS, FTB, SBE, EDD, Workers Comp
We understand the emotional stress a tax audit, IRS or State, civil or criminal investigation can cause. Immediately contact us if you have been selected for an audit, or you are the subject of an IRS, or other taxing agency, investigation. Our tax lawyers are here to defend your rights and provide an effective defense strategy in any tax audit in anywhere in or outside of the United States.
It is important to have legal representation upon notice of any government audit or investigation. Usually, criminal investigations rely heavily on the admission and evidence, provided by the person, such as the tax return filings or documents submitted in response to a “routine inquiry.” As such, every person in any type of audit may benefit from the representation of an experienced tax attorney.
There are many types of audits in varying degrees including, but not limited to, automated adjustment notices, correspondence audits, office audits, field audits and TCMP audits. Please see our tax controversy/dispute blog for more information on audits.
Examples of Audit representation:
IRS Audit
*The auditor for the Internal Revenue Service alleged that our client had not reported over $300,000 of income. The auditor’s basis for this allegation: our client’s lifestyle. We successfully represented our client by convincing the IRS that the auditor’s allegations had no merit. In addition to the winning the unreported income allegation, we also convinced the IRS to allow an additional $100,000 of bad debts previously omitted from the original tax return.
* Client presented firm with an IRS audit reviewing gross income and disallowing the legal fees related to a civil case (accident) he had deducted as a business expense. We convinced the IRS that the almost $18,000 in legal fees qualified as a business expense despite the facts surrounding the expense falling into a grey area. Further, we were able to demonstrate that the client had no unreported income by accounting practices, including providing a bank deposit analysis.
*A client retained us for audit representation wherein the IRS discovered approximately $400,000 of unreported income. We were able to convince the IRS to not prosecute the case criminally, accept secondary evidentiary documentation as proof of business expenses, and concede the statutory applicable fraud charges.
*Our clients were facing an extremely aggressive Internal Revenue Service auditor who believed that income was not reported on the income tax return being audited. At one point, the auditor issued a series of summonses demanding that our clients allow him to personally interview them in their home. The auditor wanted to use the summons to interview our clients and search their home. In the course of this dispute, the Internal Revenue Service issued summons after summons, and threatened to file an action in Federal District Court to allow entrance into the residence. We successfully argued that the Internal Revenue Service was treating our client unlawfully, and it was illegal for them to search a home of a taxpayer in this manner.
FTB Audit
SBE Audit - Sales Tax
EDD Audit - California Payroll Tax
Workers Comp Audit - California Payroll Tax
Update: September 2011 - IRS audit news:
- Audit Examinations:
- 2010 Results = Over 34,900 office exams and 36,000 field exams. The 2011 #s are not in yet.
- 2011 Exam Priorities =
- Increased audit coverage
- Abusive transactions
- Unreported Income
- High income/High wealth strategy (multiple Schedules attached to 1040)
- Return Preparer Program
- National Research Program (formerly TCM
The Moskowitz Difference
Along the way to outstanding results, we provide our clients with skilled, aggressive, efficient, and personal service. Audit representation requires a certain degree of toughness from lawyers, along with intimate knowledge of the United States Constitution and Internal Revenue Code and Tax Law. We are experienced and comfortable in a multitude of venues, and offer strategic and cost effective representation. We build a case to your benefit when defending it.
Litigation
Our clients include corporations, business entities, estates, trusts, individuals and nonprofit organizations of all sizes. Regardless of type, our foremost objective is to resolve the controversy before court proceedings are filed, using our thorough understanding of tax concepts, precedent and nuances. We recommend that our clients proceed with litigation only when it is absolutely necessary to achieve the result they want. We will ferociously litigate the tax controversy if it is in the best interest of our client.
We regularly appear before Courts such as, the United States Tax Court, United States Bankruptcy Court, United States Federal Claims Court, various United States District Courts, and the United States Ninth Circuit Court of Appeals to represent clients in trial and appellate litigation. Our team of competent tax litigators has published numerous civil decisions.
Examples:
- Settlement of several hundred, civil tax cases in Tax Court, as well as numerous cases in United States District Court and the Claims Court;
- Representation in federal and state tax audits, including civil adjustments and the potential for civil and criminal assessments and penalties resolved before a reported decision;
- Closing agreements;
- Letter Rulings;
- Claims for refund Litigation
We are mindful that attorney fees involved with tax controversy and disputes affect your bottom line. Our fees are reasonable, and we offer a variety of legal fee solutions including, but not limited to, staged billing, and flat fees.
Tax Aspects of Civil Litigation
We routinely advise clients on taxability of damages, structured settlements, trusts and other provisions in all types of civil litigation, such as employment discrimination, personal injury cases, wrongful death awards, business formation and dissolution, prenuptial/post-nuptial agreements and marital dissolutions.
Innocent Spouse
We have successfully represented numerous clients who have been assessed enormous taxes, penalties and interest as a result of spousal action or inaction.
Most married couples have "joint and severable" tax liability for each spouse’s income tax liabilities, meaning both spouses are responsible for the total tax stated on the joint tax return regardless of who earned the income or took the tax benefits, since they file joint income taxes. The IRS and/or applicable taxing agency can collect the liability for the full amount (plus penalties and interest) reported on the tax return from either spouse, regardless of current marital status, and the government may also collect from a subsequent spouse.
The IRS and/or applicable state taxing agency may grant a spouse relief from paying the tax, penalties and interest if the spouse can prove they did not know, or have reason to know, any unreported income and/or erroneous items stated on the return. The IRS and/or applicable state taxing agency may also grant a spouse relief from paying tax when it would be inequitable to hold them responsible for the deficiency.
We have experience assisting many clients in preventing their future spouses from being subjected to “enforced collection” actions by the IRS and/or state tax agencies for the taxes incurred by the former spouse. Marital laws in many states, such as California, provide that income and property from an individual, whose spouse has delinquent tax liabilities, can be seized to pay their tax debts once they are married. This is true even if the tax liabilities were incurred long before this marriage.
We often help clients stay happily married by protecting one spouse from the other’s mistakes, or a former spouse’s mistake.
For example:
*The State of Washington (“The State”) assessed a business owner approximately $180,000 of state sales tax liability. After making the assessment, the State attempted to collect the tax from the business owner’s former spouse (our client), and issued a tax warrant against her. Before an Administrative Law Judge, Moskowitz LLP demonstrated why and how our client should not be liable for the tax assessment. The Judge agreed, and ruled in our client’s favor.