In an article published in Forbes by Contributor Stephen J. Dunn, the tax expert and experienced tax attorney discusses the importance of engaging the services of tax attorneys when dealing with a tax controversy.
Dunn begins by describing the term, “tax controversy,” which refers to a contested matter before the IRS, civil or criminal, administrative or judicial. While CPAs are skilled tax return preparers and trained auditors for the benefit of the company they are working for, they are not necessarily the professionals a taxpayer needs to work with when facing a tax controversy.
In a recent case that Dunn highlights, a taxpayer engaged a CPA to represent him in making an OVDP voluntary disclosure in regards to the taxpayer’s foreign accounts. The voluntary disclosure of foreign accounts, a topic that has been at the forefront of IRS tax discussion, as an attempt by the taxpayer to avoid criminal prosecution and to minimize any monetary penalties the taxpayer would otherwise face. While representing the taxpayer, the CPA was unable to gain assurance from the IRS Criminal Investigation Division that the disclosure would not result in the prosecution of the taxpayer. The CPA was also unable to minimize the civil penalties, another one of the primary purposes of the disclosure, as the documentation the CPA submitted to the IRS was not complete. In the midst of all these failings to secure the assurance of the IRS on several levels, the CPA also allowed the IRS to contact and speak to the taxpayer for a large amount of time. Dunn concludes that this may have resulted in the IRS’ determination that there was sufficient evidence to sustain a willfulness penalty against the taxpayer.
This series of steps on the part of the CPA made all the difference. If the OVDP had been correctly submitted and approved, the penalty received would have been 27.5% of the largest balance in the previously undisclosed foreign accounts during the designated period (8 years). For other taxpayers, the penalty is the greater of 50% of the largest balance on the subject accounts during the period or $10,000. If willfulness cannot be proved, the penalty is $10,000.
It is essential to keep in mind that while the IRS is entitled to examine the taxpayer’s books and records, and even the taxpayer’s business location, it is not entitled to examine the taxpayer. Interviews are not required, nor does Dunn encourage them. From his extensive experience as a tax attorney, Dunn has observed that taxpayers, when faced with a nerve-racking interview with the IRS, tend to become “chatty” with the Revenue Officer, sharing information and trying to talk themselves out of problems. Interviews, according to Dunn, are hardly ever beneficial to the taxpayer.
Dunn admonishes taxpayers to be aware that any attorney does not mean the right attorney when it comes to tax controversy issues. Dealing with the IRS can be difficult, and having an attorney with specialized IRS tax law knowledge can make a difference.
Dunn provides the following list for times in which tax counsel is required:
- Complex examination
- Any matter involving the potential for criminal prosecution
- Appeals Office matter
- Collection matter, including levy, installment agreement, currently not collectable posting, bankruptcy, and offer in compromise
- Innocent spouse case
- Asset forfeiture case
- Voluntary disclosure case
- Claim for refund
- Adjustment of assessment
- Penalty relief
To ensure that your tax matters are being handled in the correct manner, contact your experienced tax attorneys at Segal, Cohen & Landis today.
Segal, Cohen & Landis, LLP
9100 Wilshire Blvd., Ste. 601E
Beverly Hills, CA 90212