Civil Tax Controversies & Trials

Kostelanetz & Fink, LLP, has extensive experience in civil tax controversies and trials.  We regularly represent clients before the Internal Revenue Service in all regions of the country, and before New York State and City tax authorities.  Our firm has the talent and resources to respond to any challenge by tax authorities.  As a result of the firm's many years of practice in this field, our attorneys have a unique familiarity with revenue agencies' practices and personnel.

In addition, the firm regularly represents clients who wish to limit their civil liability for past failures to file accurate tax returns, or who failed to file tax returns.  The firm has negotiated hundreds of voluntary disclosures with the Internal Revenue Service, thereby both avoiding criminal prosecution and limiting civil penalties on behalf of clients with foreign bank accounts worth hundreds of millions of dollars, some of which were held by foreign trusts, foundations, corporations, and nominees, and on behalf of clients who failed to report millions of dollars of income earned from United States businesses and investments.

The firm has also represented scores of taxpayers with alleged abusive tax shelter investments, and has resolved favorably hundreds of millions of dollars in potential liability arising from these investments.

Our objective in tax matters is to resolve issues quickly, efficiently, and successfully.  We seek inventive ways to resolve tax controversies prior to litigation, while always being prepared to take a matter to trial when this is tactically to our client's advantage.  Our experience encompasses all facets of negotiation with tax authorities, and all phases of tax litigation, including responding to audits, summonses and subpoenas, preparing administrative protests and petitions, discovery, depositions, dispositive motions, trials, and appeals.  We also represent clients faced with demands for documents or testimony in connection with examinations of other taxpayers. We can assist with:

  • Employment Tax Defense
  • Defense of Offshore Financial Institutions and Account-Holders
  • IRS Audit Defense
  • Defense of IRS Promoter Investigations
  • Defense of Captive Insurance Programs
  • Tax-Related Internal Investigations
  • Defense of Accountants and Tax Return Preparers
  • Defense of Parallel IRS Civil and Criminal Investigations
  • Tax Whistleblower Representation
  • Passport revocation for seriously delinquent tax debt

Federal Taxes

We handle federal tax matters of public and closely-held corporations, partnerships, and individuals.  Our clients are drawn from all areas of the United States.  We represent taxpayers before the Examination Division, Appeals Office, and Collection Division of the Internal Revenue Service.  Our attorneys frequently try cases in the United States Tax Court, the United States District Courts, and the United States Court of Federal Claims.  We regularly obtain abatements of penalties, acceptances of offers in compromise, and innocent spouse relief.  In addition, we are experienced in handling estate and gift tax matters.

A few examples of the results we have achieved for our clients include:

  • Obtaining a $40 million refund arising from a corporate reorganization for a public corporation.
  • Securing a complete concession from the IRS on a $20 million claim asserted against an investment banker for alleged unreasonable compensation.
  • Completely abating, on innocent spouse grounds, a $13 million tax liability assessed by the IRS.
  • Obtaining an injunction forcing the IRS to refund nearly $500,000, which we proved had been wrongly seized from our client.
  • Winning a decision, after trial, by proving that the cost of the taxpayer's private plane was a deductible business expense, and not an improper hobby loss.
  • Negotiating an IRS concession in Tax Court, after bringing a separate district court action challenging the IRS' improper use of grand jury materials in the taxpayer's audit.
  • Winning an IRS concession regarding the value of papers donated to the Library of Congress under the will of a legendary Broadway performing artist and producer.
  • Persuading the IRS to accept an estate's valuation of a lifetime body of work produced by the decedent, an internationally-renowned fine artist.
  • Successfully defending an estate and its executor against penalties asserted by reason of the executor's omission of several million dollars in assets from the estate tax return.
  • Persuading the IRS that decedent, by placing stock certificates with bearer stock powers into a jointly-held safe deposit box, had made a completed gift, thereby saving the estate more than $4 million in estate taxes.

New York State and City Taxes

Along with our national federal tax practice, Kostelanetz & Fink, LLP, represents corporate and individual clients in connection with state tax issues including corporate franchise, sales, payroll, and personal income taxes.  The high rate of taxes imposed by New York State and City frequently drives taxpayers to seek to change their residence.  These attempts are often challenged by the authorities.  We have extensive experience in litigating these issues and have successfully defended many individuals in residency cases.

Examples of state and city tax matters handled by the firm include:

  • Persuading New York State that nearly one hundred computer operators of a Wall Street firm were independent contractors rather than employees, thus saving the firm millions of dollars in unpaid employment taxes and penalties.
  • Winning concessions from New York State that three officers of a nationally-known chain of fitness clubs were not personally liable for more than three million dollars in unpaid sales taxes.
  • Proving at trial that a businessman who lived in New Jersey but owned an apartment and operated a business in New York was not a resident of New York for tax purposes because he did not maintain the apartment as a "place of abode."
  • Winning a decision at trial that monetary advances to a lawyer from his closely-held real estate corporations were loans rather than compensation, and that the lawyer was not liable for penalties for failing to file tax returns.
  • Securing a victory at trial for the wife of an investment banker by proving that she was an "innocent spouse" and therefore not liable for substantial taxes due on the couple's joint returns.