Lawyers, tax or otherwise, understand that privileged information must be protected to encourage a full and frank dialogue between clients and their attorneys. Tax information, in particular, contains some of the most private information for both individuals and businesses. Gray Reed attorneys Joshua D. Smeltzer, David Gair and Larry Jones recently published an article in the Journal of Tax Practice & Procedure (a quarterly scholarly journal published by CCH Inc.) examining privilege before a dispute arises through litigation in court. A reprint of the article is available here.
Field examinations involve returns with more complex issues, thereby requiring examination by someone more knowledgeable in the field of accounting and the Internal Revenue laws. Field examinations are conducted by Revenue Agents and are normally performed at the taxpayer’s place of business where the Revenue Agent can examine the taxpayer’s books and records and decide on the taxpayer’s correct taxable income and correct tax liability. The Revenue Agent is supposed to make an appointment with the taxpayer at a time and place that will be convenient for the taxpayer. The arrangement of the time and place can be done by telephone; however, the telephone contact cannot be used to verify items appearing on the income tax return. Continue Reading Field Examinations with the IRS
Several 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
While dealing with the IRS generally involves submitting documents or legal authority to support a client’s position, in most cases the element of negotiating is present. Negotiating becomes particularly important in dealing with the IRS where documentation may not exist, or the law is in the gray area. Most practitioners will find that when dealing with the Examination Division, Appeals Office, and Collection Division, negotiating skills and techniques are helpful in resolving issues in favor of the client.
Almost everything is negotiable–even when dealing with the IRS. Negotiating face to face with someone is generally more effective than negotiating over the telephone. Accordingly, it is good policy to always arrange a meeting with the representative of the IRS.
In all levels of negotiations there is no substitute for preparation. This includes knowing the facts of your case, the Internal Revenue Code, the Regulations, Internal Revenue Rulings and Procedures, the Internal Revenue Manual, Circular 230 and other ethical requirements. Also, you should have a network of other professionals with whom you can discuss your case.
The following are general negotiating tips which, if followed, should give you a greater chance of success in dealing with the IRS: Continue Reading Tips for Negotiating with the IRS
“No problem can withstand the assault of sustained thinking.”
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)
Understanding the IRS and the tax laws is very difficult and confusing. When a taxpayer has a tax controversy matter with the IRS, selecting a tax attorney may be just as confusing and complicated. Not all attorneys are created equal when it comes to the tax laws and representing clients before the IRS. Dealing with the IRS can be risky and confusing for someone, including an attorney, if that person is not familiar with IRS procedure. Clients seeking a tax attorney when they are having problems with the IRS must be careful to select someone who understands this unique area of the law. Challenging the IRS requires an attorney with special expertise and experience. Continue Reading How to Select a Tax Attorney
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 they sent out previously — all of that stuff generates data,” he said. “The IRS can then use that data to decide what indicators are available to narrow the field.” Smeltzer was referring to some 10,000 letters the IRS sent to cryptocurrency users in 2019, warning them to fulfill their tax obligations.
A full copy of the article is available here.
A new client presents a great opportunity, but there is also great risk that the relationship will not be a good fit. If the client is not a good fit it will be bad for both sides and result in hurt feelings, damaged reputation or worse. Here are some steps for conducting successful interviews with potential clients. Continue Reading Tax Practice Pointer: Potential Client Interview
Litigation in all forms is becoming extremely expensive to clients. This is not only because of legal fees, but also because of the penalties and interest that continue to accrue when dealing with the IRS. Continue Reading The Cost of Litigating Against the IRS
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 the Northern District of California recently reminded the IRS of this principle. Statements in the court’s recent order allowing the summons provide hope for cryptocurrency investors who are worried about their private information being included in the broad net the IRS is casting in an effort to encourage tax compliance.
To read the full article, as published by Law360 (subscription required), click here.