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Joshua Smeltzer is a former litigator for the U.S. Department of Justice Tax Division. He uses this first-hand knowledge to advise and defend individuals and businesses in a variety of challenging tax controversies before the IRS and federal court.

All kinds of penalties are being assessed by the Internal Revenue Service (IRS) against taxpayers, and more can be expected in the future.  In 1954 there were 13 penalties in the Internal Revenue Code, and now there are more than 150. Taxpayers should not overlook the opportunity to request the IRS to abate penalties.  The IRS abates many penalties for reasonable cause.
Continue Reading Asking the IRS to Abate Penalties

3D illustration of a rubber stamp with the word compromise printed on a brown paper with the text party one and twoOnce the IRS makes an assessment against a taxpayer, the taxpayer will receive several notices before the IRS takes enforced collection action.

Notice of Intent to Levy

This is the notice that is required before the IRS can levy and seize a taxpayer’s assets.

Some form of response should be sent with respect to these notices.  The response, along with a copy of the notice, should be sent by certified mail, return receipt requested, using the envelope provided by the IRS. The purpose in sending a response is so that it will show that the taxpayer is concerned about the taxes and is not ignoring them.
Continue Reading Negotiating with the IRS Collection Division

Football penalty flagThe IRS is vigorously litigating cases involving conservation easements they believe are abusive.  One such case was Plateau Holdings, LLC v. Comm’r, T.C. Memo 2020-93 (Plateau I). In that case the Tax Court denied the entire deduction claimed based on a determination that the $25,449,000 value claimed was actually $2,691,200. A 40 percent penalty applied to the overvaluation amount (i.e. $22,757,800). In a subsequent action, Plateau Holdings, LLC v. Comm’r, T.C. Memo 2021-133 (Plateau II), the IRS also sought a 20 percent penalty for negligence on the lower valuation amount denied because the easement deed failed to protect the conservation purpose in perpetuity.  However, the taxpayer wasn’t required to pay the 20 percent penalty because the Tax Court concluded they were entitled to a defense against that penalty for acting with reasonable cause and in good faith.
Continue Reading Recent Tax Court Case Outlines Factors Taxpayers can use to Avoid Negligence Penalties

Concept of decision or choice using a wooden boardwalk in dense forest in Great Dismal SwampOn November 30, 2021, the Fifth Circuit parted ways with the taxpayer friendly decision of the Ninth Circuit that non-willful penalties are capped at $10,000 per FBAR filing instead of the $10,000 per unreported bank account argued by the government. District courts in New Jersey, Connecticut, and Texas had all ruled in the taxpayer’s favor that non-willful penalties were capped at $10,000 per form.  In United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), the Ninth circuit reversed the district court’s per-account determination and made the per-form cap the law within the 9th Circuit. United States v. Bittner, No. 20-40597 (5th Circuit), was on appeal from a taxpayer friendly decision reducing the $2.7 Million dollar penalty to $50,000 based on a $10,000 per form cap on non-willful FBAR penalties.  Although not guaranteed, it appeared that the momentum was in the taxpayer’s favor for an affirmance of the reduction.  However, the Fifth Circuit reversed the favorable district court decision and held that the “$10,000 penalty cap therefore applies on a per-account, not a per-form basis.”
Continue Reading Non-Willful FBAR Penalties Will be Much Higher in the Fifth Circuit

Safely mailing an application for ballot for 2020 election at a  drive-up mailbox at the US Post OfficeDeadlines are important in legal matters, especially when it relates to tax issues.  There are estimated tax deadlines, tax return filing deadlines, and a host of deadlines if a return is audited and any adjustments are challenged. Once you get to court in a tax dispute – more deadlines. Anytime a taxpayer misses a deadline they usually lose some portion, if not all, of the rights associated with that deadline. Imagine, however, that a taxpayer attempts to meet the deadline by mailing a document that the IRS claims they never received.
Continue Reading The Dangers of Improper Mailing to the IRS

Close-up Of A Pink Piggybank With Eyeglasses And Calculator On Wooden DeskSeveral abusive tax shelters in the 1970s and 1980s caused Congress to enact rules to prevent taxpayers from deducting losses when a taxpayer doesn’t materially participate in the activity.  These passive loss rules apply to individuals (including partners and S Corp shareholders), trusts, estates, personal service corporations and sometimes closely held corporations. In short, these rules are a wide net that catches a lot of businesses and can impact a lot of taxpayers.  If an activity is determined to be a passive activity it may not only effect the losses claimed but could trigger a 3.8 percent increase from the net investment income tax. Knowing the passive activity rules, and how they apply, can help avoid a dispute or streamline arguments if the IRS questions business activities.  
Continue Reading Understanding IRS Rules on Passive Activity Losses

Expensive laboratory tests and analyzes. From pipette drops feces with symbol of money dollars into test tube.“No problem can withstand the assault of sustained thinking.”

— Voltaire

Businesses are started with good ideas and a lot of hard work. Companies are sustained by applying that same hard work to the challenges and problems they face along the way.  The Internal Revenue Code benefits businesses for dedicating funds to the pursuit of new and improved business components. Section 41 of the Internal Revenue Code provides a tax credit of 20 percent of a taxpayer’s Qualified Research Expenses (QREs) over a base amount related to previous research expenses.  Essentially, it rewards taxpayers for increasing the amount of money they spend on research and development to improve of develop new business components that will benefit the economy and their customers. However, as with any tax benefit, there are strings attached.  In order to qualify, taxpayers must meet a four part test and certain identified expenses don’t count. Also, the IRS has scrutinized these credit claims regularly during audit and, if necessary, forced taxpayers into court to defend their claims. Preparation and documentation is key to surviving IRS scrutiny and, if necessary, prevailing in any subsequent litigation.
Continue Reading The Tax Benefits of Research and Development Expenses (IRC Section 41)

Joshua Smeltzer was recently quoted by Law360 in an article on cryptocurrency enforcements:

“The John Doe summons is probably one of the most powerful tools the government has,” Joshua Smeltzer, counsel at Gray Reed, told Law360.

 “Every time the IRS gets information from John Doe summonses, or from audits, or from the threatening letters that

One of the most powerful tools in the Internal Revenue Service arsenal is the John Doe summons. However, as we all learned from Spider-Man, with great power comes great responsibility.

Although it ultimately approved an IRS request to serve a summons for information on the popular cryptocurrency exchange Kraken Inc., the U.S. District Court for

Hour glass on calendar concept for time slipping away for important appointment date, schedule and deadlineThe multiple rounds of stimulus checks as part of the COVID-19 relief legislation may have people believing that mail from the IRS is not always bad news. However, aside from isolated situations, most people still flinch at the sight of a letter from the IRS. If the IRS sends you a tax bill, the process and timing of the response is very important.  Here are some tips for how to handle an IRS notice or tax bill.
Continue Reading How to Handle IRS Notices and Tax Bills