Publications

Federal Criminal Tax Charges and DOJ Tax Division Conference Requests

By Caroline Rule
ABA Section of Litigation, Criminal Litigation Committee
December 5, 2019

Always request a DOJ Tax Division conference as soon as it appears that your client may face federal criminal tax charges.

Suppose that you have a client who can afford for you to travel to Washington, D.C., and who

  • is undergoing a sensitive, or “eggshell,” IRS audit that may lead to the matter being transferred from the civil side of the IRS to IRS Criminal Investigation (CI);
  • is already, or is likely to be, under investigation by CI;
  • is the target or subject of a grand jury investigation that may involve tax issues; or
  • is in any other way likely to be the subject of a federal criminal tax investigation.

If this is the case, you should immediately write to the Department of Justice (“DOJ”) Tax Division, Criminal Enforcement Section (“Tax Division”) and request a conference in the event that your client’s matter is referred there.

This is because, unlike all other federal crimes, tax crimes may not be prosecuted by a local U.S. Attorney’s Office without prior approval from the central DOJ. See 28 C.F.R. § 0.70 (authority over “criminal proceedings under the internal revenue laws” is assigned to the Assistant Attorney General, Tax Division); United States Attorneys’ Manual (USAM) § 6-4.200 (1997).

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Lessons Learned from Getting to Not Guilty

By Sharon L. McCarthy and Jay R. Nanavati
For the Defense
December 2019, Vol. 4, Issue 4

Every criminal defense attorney knows that being indicted is a life-changing event for a client. In many cases, white-collar clients have never even been issued a traffic ticket and often are highly respected in their business communities. Yet a federal indictment for most white-collar offenses carries with it the prospect of not only a felony conviction, but prison time, which, in most cases, is determined by the amount of money at issue in the alleged crime. One of the most difficult decisions for the client is whether to accept a plea offer from the government and the certainty of a lower sentence even if only based on acceptance of responsibility, or risk going to trial and face what most certainly will be a higher sentence once the court has heard all of the government’s evidence. Once the client chooses to go to trial, the burden of that decision falls on trial counsel, who must do all that he or she ethically can to provide a vigorous, credible, effective defense of the client before a jury. In this article, we share lessons learned and successful trial strategies from three of our cases, based upon listening closely to our clients with an open mind. Of these cases, two trials ended in acquittal, and one ended in pre-trial dismissal of the indictment.

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Getting Taxpayers' Consent to Disclose or Use Tax return Information Under IRC Section 7216

By Caroline Rule
The CPA Journal
November 2019 Edition

Under Internal Revenue Code (IRC) section 7216 and its concomitant regulations, a tax preparer must obtain the consent of a taxpayer before disclosing or using the taxpayer's tax return information when that consent is required. Section 7216 makes it a crime for any preparer to knowingly or recklessly disclose any information that is furnished to the preparer in connection with preparing a client's tax return, or use tax return information other than to prepare or assist in preparing that return, thus establishing a prohibition on disclosure or use of a taxpayer's tax return information without the taxpayer's prior consent. Treasury Regulations section 301.7216-2 then sets forth a great many instances where disclosure or use is in fact permitted without consent, as discussed in last month's column.

Treasury Regulations section 301.7216-3, discussed in this column, sets forth requirements that appply when a tax return preparer must seek a taxpayer's consent for a disclosure or use not authorized by section 301.7216-2. Section 301.7216-3, as well as Revenue Procedure 2013-14, sets forth additional requirements in connection with consent from taxpayers who file returns in the 1040 series.

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Tax Controversy Corner: Can Taxpayers Rely on Informal Guidance in Attempting to Comply with the TCJA?

By Megan L. Brackney
Journal of Passthrough Entities
September - October 2019 Edition

As Treasury and the IRS implement the Tax Cuts and Jobs Act (“TCJA”) of 2017, it is a good time to consider when taxpayers can rely on informal IRS guidance, such as publications, forms, instructions, and frequently asked questions (“FAQs”) on the IRS’s website. The TCJA is one of the most significant overhauls of the Code in decades, and the interpretation and implementation of many of its provisions are unclear. The IRS has published numerous resources to assist taxpayers with compliance with the new and amended Code provisions, and many taxpayers and practitioners will rely on these unofficial sources while they wait for official guidance, such as Treasury Regulations and Revenue Procedures. It seems intuitive that if you follow the instructions provided by the IRS, you will get the correct tax result, but this is not always the case. It also seems intuitive that if you follow the instructions by the IRS and still get it wrong, you should not be subject to penalties. Taxpayers may be surprised to learn that these results are far from guaranteed, but, as stated by several courts, taxpayers rely on the IRS “at their peril.”

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The Confidentiality of a Client's Tax Return Information: Provisions Tax Preparers Must Remember

By Caroline Rule
The CPA Journal
October 2019 Edition

Internal Revenue Code (IRC) section 7216 and its lengthy regulations govern when a tax return preparer may disclose or use a taxpayer’s tax return information without first obtaining the taxpayer’s consent. Because it is a federal crime to violate section 7216 and its regulations, CPAs should familiarize themselves with these provisions. This column discusses when tax return preparers are permitted to disclose or use tax return information without first obtaining the taxpayer’s consent. A future column will discuss the requirements for obtaining consent when it is necessary.

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The Death Knell for SALT Cap Workarounds? Treasury's Final Regulations Uphold the $10,000 Cap

By Kevin M. Flynn
The CPA Journal
September 2019 Edition

The itemized deduction for state and local taxes (SALT) under Internal Revenue Code (IRC) section 164 had long provided relief to taxpayers residing in high income and property tax states such as New York, New Jersey, and Connecticut. It assured these taxpayers that their federal tax obligation would only be computed after a reduction for the state and local taxes that they paid, subject to the application of the alternative minimum tax and the itemized deduction limitation. The SALT deduction meant that the IRS could not impose a double tax on that portion of a taxpayer’s income that had been paid in taxes to state and local taxing authorities.

On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act (TCJA), which represents the most significant overhaul of the country’s tax laws since the Tax Reform Act of 1986. A major component of the TCJA was a $10,000 per calendar year cap on an individual’s aggregate deduction for state and local income, property, and sales taxes [IRC section 164(b)(6)]. This limitation applies to tax years beginning after December 31, 2017, and ending before January 1, 2026.

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The Real Estate Trade or Business Exception from IRC Section 163(j)

By Yoram Keinan
The CPA Journal
August 2019 Edition

The scope of the exception for taxpayers engaged in a real estate trade or business from the harsh consequences of Internal Revenue Code (IRC) section 163(j) remains uncertain, even in the aftermath of the issuance of proposed regulations under that section. In particular, the scope and definition of what constitutes “real estate trade or business” remains unclear, and the reference to the same definition under IRC section 469 [which is unrelated to section 163(j)] is equally unhelpful. This article lists several activities that have been previously treated by courts and the IRS as “real estate trade or business” under section 469, and thus should equally apply to section 163(j).

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Marital Privileges

By Caroline Rule
The Journal of the Section of Litigation
Vol. 45 No. 4 Summer 2019

Marriage is perplexing, and the marital privileges even more so. Contradictory views determine when they apply and what they protect. In many states, statutes, rather than case law, govern, but federal law leaves it to the courts, which sometimes results in conflicting decisions among the circuits.

There are two quite different and separate safeguards for spouses. One is the confidential marital communications privilege, which, with some exceptions, allows a spouse to refuse to testify about, or produce documents evidencing, any confidential communication made during a marriage and allows the other spouse to prevent that testimony or document production.

The other privilege is the adverse spousal witness privilege, which applies in criminal proceedings and allows one spouse to refuse to testify against the other spouse. This privilege belongs only to the non-defendant spouse, however. Unless the defendant can invoke the confidential marital communications privilege, she cannot prevent her spouse from testifying against her if he decides to do so. This form of the privilege applies only while the marriage exists. And numerous states have repealed the adverse spousal witness privilege entirely.

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Tax Controversy Corner: The Internal Revenue Code Injunction Statutes

By Megan L. Brackney
Journal of Passthrough Entities
May - June 2019 Edition

Under the injunction statutes in the Internal Revenue Code, the U.S. government has broad discretion to seek—and the federal courts to order—the injunction of the preparation of false or fraudulent returns, as well as the aiding and abetting of false tax returns, and the promotion of abusive tax shelters. This power includes enjoining persons and businesses from engaging in specific conduct, and other equitable remedies, such as requiring preparers and promoters to turn over their clients’ identities, notify their clients of the injunction, and disgorgement of fees. The injunction statutes provide a powerful civil enforcement tool for the Department of Justice and the IRS. In many ways, the injunction action is a much worse consequence for a tax promoter or preparer than civil penalties because the action is part of the public record (unlike the results of a preparer or promoter audit, which would be subject to taxpayer confidentiality under Code Sec. 6103), and the court may shut down the preparer’s practice altogether. This column discusses the injunction statutes and two recent cases filed against alleged tax shelter promoters.

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On Congressional Subpoenas to Accounting Firms

By: Brian P. Ketcham
The CPA Journal
July 2019 Edition

Recently, a midsize accounting firm that had prepared financial statements and reports for President Donald Trump and various entities associated with him for many years received a subpoena from the House of Representatives Committee on Oversight and Reform seeking a broad array of documents and communications regarding the firm’s work in that capacity. The subpoena, which seeks six years of personal and corporate financial records, may lead to troubling precedent and a sharp increase in broad subpoenas to accounting firms in all manner of cases. Indeed, although the subpoena itself is not yet publically available, a letter from Elijah Cummings (D-Md.), the chairman of the Oversight Committee, to the chairman and CEO of the accounting firm can be found online, and excerpts from the subpoena are quoted in publically filed court documents. The subpoena, if ultimately enforced, will have a chilling effect on the relationship between taxpayers and their accountants.

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