Success Stories
Below is a small sample of some of the successes achieved on behalf of clients at other law firms by the attorneys of Diosdi & Liu, LLP. The results portrayed in the success stories were dependent on the facts of that case, and the results will differ if based on different facts.
Select Success Regarding Representation Before the United States Tax Court
Representation of Litigation Attorney before the Tax Court
The client was a trial attorney who self-prepared his own income tax returns. The attorney reported income and deductions from his law practice on Schedule C of his income tax returns. The attorney conducted business at his residence in the San Francisco Bay Area and at an office in Southern California. The attorney deducted the cost of his travel expenses between his primary residence and his office located in Southern California on his tax returns.
The attorney also incurred substantial radio and television advertising expenses. However, rather than paying these expenses directly to radio and television stations, the attorney paid a “third party vendor” who in turn would pay the attorney’s advertisement costs.
The IRS audited two tax returns filed by the attorney. During the audit, the IRS took the position that the attorney failed to disclose $88,265 of taxable income. Since the attorney did not have documentary evidence to substantiate his advertising and lease expenses, the IRS disallowed a significant portion of the expenses paid to the “third party vendor.” The IRS also disallowed all the attorney’s travel expenses on two theories. First, the IRS took the position that the attorney’s principal place of business was not out of his residence in the San Francisco Bay Area, but instead Southern California. At the conclusion of the audit, the IRS proposed to assess $198,289 of additional taxes and penalties.
The attorneys at Diosdi & Liu, LLP petitioned the United States Tax Court and requested a redetermination of the IRS’s proposed assessment. We utilized the client’s bank statements to substantiate his expenses and taxable income. After attempting to settle the attorney’s case on a number of occasions through the IRS trial before the United States Tax Court. Literally on the eve of trial, the attorneys at Diosdi & Liu, LLP negotiated a favorable settlement on behalf of the client in which he would be liable for a tax liability of $34,470. This represented a savings of $163,819 ($198,289 – $34,470 = $163,819) excluding interest from the original IRS proposed assessment or approximately 17 percent of the original IRS proposed assessment.
Representation of Insurance Broker Before the Tax Court
The client was an insurance broker who ran a successful business. The insurance broker reported his income and expenses on two separate Schedule Cs. The insurance broker also owned and rented three real properties. The insurance broker reported his income expenses associated with his rental properties on a Schedule E of his tax return. The insurance broker deducted $47,944, $49,994, and $74,270 as Schedule E non-passive losses related to his real estate activities. The IRS audited the insurance broker’s income tax returns. During the audit, the IRS took the position that insurance broker’s Schedule E losses should be characterized as passive and not deductible against other sources of income. The IRS also claimed that the insurance broker failed to disclose all of his taxable income and was subject to a penalty for a premature distribution of a taxable retirement account. In addition, the IRS disallowed all expenses stated on the insurance broker’s Schedule C. Finally, the IRS proposed to assess $74,165 in accuracy related penalties against the insurance broker. At the conclusion of the audit, the IRS proposed to assess taxes and penalties against the insurance broker in the amount of $474,580. Since the insurance broker did not agree with the IRS’s proposed tax assessment, the tax attorneys at Diosdi & Liu, LLP petitioned the United States Tax Court and requested a redetermination of the IRS’s proposed assessments.
On a number of occasions, the tax attorneys of Diosdi & Liu, LLP attempted to resolve the insurance broker’s tax dispute with the IRS Appeals Division and IRS Chief Counsel’s office. Neither the IRS Appeals Division nor the IRS Chief Counsel’s Office agreed to reduce the proposed audit assessments. Consequently, the attorneys of Diosdi & Liu, LLP tried the insurance broker’s dispute with the IRS before the United States Tax Court. The attorneys at Diosdi & Liu, LLP prevailed at trial and the Tax Court removed the entire $474,580 audit assessment.
Representation of Auto Mechanic before the Tax Court
The client was an auto mechanic. The mechanic reported income and expenses from his business on a Schedule C on his tax return. Many of the mechanic’s substantiating documents were either lost or stolen. The IRS audited the mechanic’s tax return. At the conclusion of the audit, the IRS proposed to assess an additional $680,717 of additional taxes and penalties against the mechanic. The tax attorneys at Diosdi & Liu, LLP petitioned the United States Tax Court and requested a redetermination of the IRS’s proposed assessment. The tax attorneys from Diosdi & Liu, LLP worked hard with the mechanic to reconstruct his business records through bank statements and other substitute evidence. The tax attorneys were able to negotiate a settlement with IRS counsel which reduced the client’s federal tax liability to approximately $233,124. This resulted in a savings of $447,593 ($680,717 – $233,124 = $447,593) or a payment of 32 percent of the original IRS determination.
Representation of Electric Engineer before the Tax Court
The client was a semi-retired electrical engineer. The client purchased a home 1 in California over 50 years ago for $26,000. He lived in the home for many years, when he moved to a home 2 located in California. Soon after moving to home 2, the client rented home 1. The client eventually sold home 1 for $572,000. The client understood that he had 45 days after selling home 1 to identify a property to buy (through an intermediary). The client bought home 3 for $340,000. The client’s son renovated home 3. The client’s son started to live in home 3 and paid monetary rent of $2,200 per month. The client’s son also agreed to maintain and conduct home improvements on home 3. Similar homes in the neighborhood rented for a few hundred dollars more than $2,200 per month. However, the tenant did not maintain or conduct home improvements on home 3.
The IRS took the position that the entire $572,000 of sale proceeds from home 1 should be taxable as ordinary income, not capital gain. The tax attorneys at Diosdi & Liu, LLP filed a petition with the United States Tax Court seeking a redetermination of the IRS’s proposed assessment. The case was ultimately tried before the United States Tax Court. The tax attorneys at Diosdi & Liu, LLP aggressively argued at trial that the sale of home 1 and the acquisition of home 3 was a valid Section 1031 exchange that qualified for nonrecognition treatment. During trial, the tax attorneys at Diosdi & Liu, LLP were able to demonstrate that both home 1 and home 3 were held “for productive use in a trade or business or for investment” within the meaning of Section 1031 of the Internal Revenue Code. For home 3 in particular, it was established that the attorneys at Diosdi & Liu, LLP demonstrated that the client charged the client’s son fair market rent considering the condition of the home. As a result, the court determined that the client qualified for a Section 1031 deferral of taxes on the exchange of properties. This resulted in a significant reduction in the client’s tax liability. The tax attorneys also convinced the court that the boot from the Section 1031 exchange (i.e., the property the client received other than home 3) should be treated as capital gain, not ordinary income. The court determined that the client should only recognize taxable boot from the exchanged transaction to the extent of $198,110.40 instead of $572,000 as determined by the IRS. As a result of the tax attorneys of Diosdi & Liu, LLP aggressive trial representation, the client saved a substantial amount of taxes, interest, and penalties in connection with the exchange of his California real estate.
Representation of Investment Advisor before the Tax Court
The client was an investment advisor and a life insurance agent with a large national insurance company. The client reported his income and expenses on a Schedule C. The client entered ito an agreement to purchase a book of business from a third party for $1,900,000. Pursuant to Internal Revenue Code Section 197, the client capitalized the cost of the goodwill and ratably amortized the goodwill over a 15-year period. This resulted in the client claiming a deduction of $126,667 on a Schedule C of his tax return. The client also claimed a deduction of $126,617 for supplies, telephone usage, and computers. The IRS audited the client’s income tax return. During the audit, the IRS disallowed the Schedule C deductions claimed by the client. At the conclusion of the audit, the IRS proposed to assess an additional $115,659 of taxes and penalties.
The attorneys at Diosdi & Liu, LLP petitioned the United States Tax Court and requested a redetermination of the IRS’s proposed assessment. After the attorneys at Diosdi & Liu, LLP petitioned the Tax Court, they reconstructed the client’s documentation in order to provide compelling evidence that he was entitled to all the deductions disallowed by the IRS. The attorneys of Diosdi & Liu, LLP were able to convince counsel representing the IRS to concede the entire proposed $126,617 proposed liability assessed during the audit.
Representation of a Food Distribution Corporation before the Tax Court
The clients operated a very busy food distribution corporation. The IRS audited the clients’ corporation and individual income tax returns. The clients had detailed records substantiating the income and expenses stated on their tax returns. However, the clients’ records were voluminous and were stored on a number of industrial pallets. In order to properly audit the clients’ corporate books and records, the IRS examiner would have had to spend a number of days if not weeks reviewing the clients’ business records. Instead of carefully reviewing the clients’ business records, the IRS auditor made a number of demands for specific documents which the clients could not provide. When the clients could not provide the documentation demanded by the IRS auditor, the examiner closed the audit and proposed to assess an additional $4,509,468 of additional taxes and penalties against the clients.
The attorneys at Diosdi & Liu, LLP petitioned the United States Tax Court on behalf of the clients and demanded a redetermination of the IRS proposed assessment of an additional $4,509,468. After the tax attorneys of Diosdi & Liu, LLP petitioned the United States Tax Court, they met with attorneys representing the IRS. The tax attorneys of Diosdi & Liu, LLP convinced IRS counsel to assign a new auditor to this case. The auditor was willing to travel to the clients’ business location and review the clients’ voluminous books and records. The tax attorneys at Diosdi & Liu, LLP met with the new IRS auditor at the clients’ place of business. After numerous all day meetings, the tax attorneys at Diosdi & Liu, LLP convinced the IRS to reduce the proposed $4,509,468 assessment to only $300. The attorneys of Diosdi & Liu, LLP entered into a stipulated decision with IRS counsel that was lodged with the Tax Court stating that the clients only owed $300 instead of $4,509,468.
Representation of a Medical Doctor before the Tax Court
The client was a former medical doctor that ran a very busy medical practice. The IRS auditor audited the clients’s tax returns. The auditor double counted income and improperly disallowed many expenses the client substantiated in the audit. The IRS closed the audit and assessed an additional $5,744,380 of taxes and penalties against the client.
The Internal Revenue Code requires that the IRS to issue a statutory notice of deficiency before finalizing an income tax liability. A statutory notice of deficiency provides a taxpayer with an opportunity to petition the United States Tax Court and request a redetermination of an IRS audit determination. The client told the tax attorneys at Diosdi & Liu, LLP that he never received a statutory notice of deficiency from the IRS.
In order to determine if the IRS issued to the client a statutory notice of deficiency, the tax attorneys at Diosdi & Liu, LLP utilized a federal law known as the Freedom of Information Act (“FOIA”). FOIA is a law that gives individuals the right to access information from the federal government. Specifically, the FOIA provides that any person has a right, enforceable in court, to obtain access to federal agency records. The IRS is a federal agency subject to FOIA.
Through a FOIA request, the tax attorneys at Diosdi & Liu, LLP obtained a copy of the IRS auditor’s file. Key documents of interest in this case were the auditor’s notes and work papers indicating how the auditor made her determination in the audit. This valuable information assisted the tax attorneys of Diosdi & Liu, LLP to determine that her assessments were incorrect. Through the FOIA, the tax attorneys of Diosdi & Liu, LLP determined that the IRS prepared a notice of deficiency. However, after a close analysis, the tax attorneys of Diosdi & Liu, LLP determined that the IRS could not prove that a statutory notice of deficiency was ever delivered to the client.
After discovering that the IRS could not prove that they issued to the client a statutory notice of deficiency, the tax attorneys of Diosdi & Liu, LLP timely requested an administrative process with the IRS known as a Collection Due Process Hearing. Through the Collection Due Process Hearing, the attorneys of Diosdi & Liu, LLP attempted to administratively contest the audit determination. During the Collection Due Process Hearing, the IRS refused to reduce the auditor’s additional tax and penalty assessment. Once it became apparent that the IRS was not going to voluntarily reduce the auditor’s assessment, the tax attorney of Diosdi & Liu, LLP petitioned the Tax Court to contest the auditor’s assessment. The tax attorneys of Diosdi & Liu, LLP asked the United States Tax Court to grant the client a trial de novo on the theory that the IRS abused its discretion in making an assessment against the client without issuing a statutory notice of deficiency. Prior to trial, the tax attorneys of Diosdi & Liu, LLP and counsel representing the IRS reached an agreement to reduce the client’s federal tax liability to $3,190,975. This resulted in a savings of $2,553,405 ($5,744,380 – $3,190,975 = $2,553,405) from the IRS auditor’s assessment.
Representation of Small Business Owner before the Tax Court
The client was a small business owner who reported his income and expenses on Schedule C of his tax return. The IRS audited the client’s income tax returns. Since the client was not able to substantiate the expenses claimed on the Schedule C of his tax returns, the IRS proposed to assess an additional $199,246 in taxes and penalties. The tax attorneys of Diosdi & Liu, LLP petitioned the United States Tax Court and requested a redetermination of the IRS’s proposed $199,246 assessment. The tax attorneys of Diosdi & Liu, LLP reviewed all of the client’s bank statements and credit card records. Through the bank statements and credit card records, the tax attorneys of Diosdi & Liu, LLP were able to recreate the substantiation necessary to prove a significant number of the deductions disallowed by the IRS during the audit. The tax attorneys of Diosdi & Liu, LLP entered into a stipulated decision lodged with the Tax Court stating that the client owed $32,408 instead of $199,246. This represented a savings of $166,838 ($32,408 – $199,246 = $166,838).
Representation of Small Business Owners before the Tax Court
The clients owned a small business and reported their income and expenses on a Schedule C on their tax return. The IRS audited the clients’ tax return. During the audit, the IRS alleged that the clients failed to report all their taxable income. The IRS also disallowed much of the deductions claimed on the clients’ Schedule C. At the conclusion of the audit, the IRS proposed to assess an additional $206,219 in additional taxes and penalties. The tax attorneys at Diosdi & Liu, LLP represented the clients before Tax Court and the case was tried. Prior to trial, the tax attrneys of Diosdi & Liu, LLP convinced the attorneys representing the IRS to reduce the IRS proposed tax assessment to $133,308 instead of $206,219. This represented a savings of $92,911 ($133,308 – $206,219 = $92,911) prior to the case being tried.
Representation of Restaurant Owner before the Tax Court
The client was an owner of a successful restaurant. The client reported his income and expenses on a Schedule C of his tax return. Many of the individuals that dined at the client’s restaurant paid their bill by credit card. These individuals included a tip to their waiter and waitress on the credit card bill. The IRS audited the client’s tax return and erroneously included in the restaurant’s taxable income the tips paid by its patrons to wait staff. At the conclusion of the audit, the IRS proposed to assess an additional $247,513 in taxes and penalties against the client. The tax attorneys of Diosdi & Liu, LLP petitioned the United States Tax Court and requested a redetermination of the auditor’s proposed tax and penalty assessment. After the tax attorneys of Diosdi & Liu, LLP petitioned the Tax Court, they were able to reconstruct the client’s records to take into account the tis that the IRS incorrectly classified as taxable income. As a result of the ability of the tax attorneys of Diosdi & Liu, LLP to reconstruct the client’s taxable income, the tax attorneys of Diosdi & Liu, LLP were able to convince counsel representing the IRS to concede the entire $247,513 proposed assessment.
Representation of Software Installer before the Tax Court
The client was self-employed as a software installer. The software installer incurred business expenses for car and truck, legal and professional, depreciation, meals and entertainment, travel, legal and professional, taxes and licenses, supplies, commissions, other expenses, utilities, repairs and maintenance, insurance, and cost of goods. The IRS audited the client’s tax returns. During the audit, the client was not able to provide documentary evidence to substantiate her business expenses. At the conclusion of the audit, the IRS proposed to assess an additional income tax liability of $486,956 against the client.
The tax attorneys of Diosdi & Liu, LLP petitioned the Tax Court and requested a redetermination of the IRS auditor’s determination that the client owed an additional $486,956 of taxes. In this case, the software installer had little in the way of direct evidence such as receipts, logs, or credit card statements to prove her business expenses. The software installer also had little in the way of indirect evidence available to substantiate her business expenses such as bank statements or corroborating witness testimony. This made the resolution of this case difficult. In the case, the tax attorneys of Diosdi & Liu, LLP informed counsel representing the IRS that they intend to request the trial court to consider assisting the software installer in proving expenses with the so-called Cohan rule. Under the Cohan rule, a court is permitted to approximate the amount of a deduction based upon all of the available evidence such as testimony of a taxpayer. Even though the software installer did not have much in the way of direct or circumstantial evidence to prove the deductions claimed on her tax return, the tax attorneys of Diosdi & Liu, LLP were able to create enough of a litigation hazard to IRs counsel to settle the case. The IRS counsel agreed to a stipulated settlement filed with the court in which the software installer would owe $269,980 instead of $486,956. This represented a savings of $216,976 ($486,956 – $269,980 = $216,976).
Refund Case in Tax Court
The IRS assessed $628,243 against the clients. The IRS sought to collect this assessment through enforced collection actions such as income levies and tax liens. The IRS did not tell the clients why they believed that the clients owned $628,243 in additional taxes. The tax attorneys requested an administrative hearing known as a Collection Due Process Hearing. The purpose of requesting the hearing was to contest the $628,243 tax liability. The IRS refused to remove the $628,243 assessment through the Collection Due Process. Thus, the tax attorneys at Diosdi & Liu, LLP petitioned the United States Tax Court and contested the assessment. As the tax attorneys at Diosdi & Liu, LLP petitioned the Tax Court, the IRS voluntarily removed the $628,243 tax assessment. Not only did the IRS remove the $628,243 assessment, the IRS agreed to refund the clients an additional $41,028.
Representation of a Military Veteran Which the IRS Incorrect Characterized his Pension as Taxable Income in Tax Court
A military veteran served on active duty in the United States Navy during the Vietnam war. While serving his country, the veteran was exposed to Agent Orange which resulted in the development of an aggressive form of cancer, diabetes, and a number of other illnesses. The veteran received a military retirement pension from the Department of Defense. The veteran did not include the Department of Defense pension on his tax returns as taxable income. The Internal Revenue Service audited the veteran’s tax returns and took the position that the Department of Defense pension was fully taxable. The United States Tax Court was petitioned and a redetermination was requested on behalf of the veteran. The Internal Revenue Service District Counsel was convinced that the auditor failed to consider Internal Revenue Code Section 104(a)(4). This Internal Revenue Code provides an exclusion from gross income for amounts received as a pension for personal injuries or sickness resulting from active service in the armed forces. Internal Revenue Service District Counsel agreed to enter into a stipulated decision that the veteran’s Department of Defense pension was not taxable.
Representation of Shipping Company before the Tax Court
The client operated a very busy trucking shipping corporation. The IRS audited the client’s corporate income tax returns. The client had detailed records substantiating stated on its tax returns. The client records were voluminous and were stored on a number of industrial pallets. In order to properly audit the client’s corporate books and records, the IRS examiner would have had to spend weeks examining the client’s records. Instead of examining the client’s books and records, the examiner made a number of unreasonable requests. When the client could not comply with these unreasonable requests, the examiner proposed to assess an additional $914,664 of additional taxes and penalties against the client.
The tax attorneys petitioned the Tax Court on behalf of the client and demanded a redetermination of the IRS proposed assessment. After the tax attorneys of Diosdi & Liu, LLP petitioned the Tax Court, they met with the attorneys representing the IRS. The tax attorneys at Diosdi & Liu, LLP convinced IRS counsel to assign a new auditor to the case. The tax attorneys at Diosdi & Liu, LLP met with the new IRS auditor. After numerous meetings, the tax attorneys at Diosdi & Liu, LLP convinced the IRS to reduce the $914,664 assessment to $178,164. Afterwards, the tax attorneys of Diosdi & Liu, LLP entered into a stipulated decision with IRS counsel that was lodged with the Tax Court stating that the client owed $178,164 instead of $914,664. This represented a savings of $736,500 ($914,664 – $178,164 = $736,500).
Representation of Client Operating Nursing Homes before the Tax Court
The clients owned and operated nursing homes. The clients sold a number of nursing homes. The sale of the nursing homes was not properly disclosed on the clients’ tax returns by the client’s tax return preparer. The IRS audited the clients’ tax returns. During the audit, the IRS determined that not only did the clients fail to properly report the sale of the nursing homes, the IRS also discovered that the clients failed to disclose other sources of income and could not substantiate gambling expenses. At the conclusion of the audit, the IRS proposed to assess an additional $764,823 in additional taxes and penalties. The tax attorneys of Diosdi & Liu, LLP petitioned the Tax Court and requested a redetermination of the proposed assessment. The attorneys of Diosdi & Liu, LLP took the position that the statute of limitations on assessments expired on a sizable portion of the IRS’s proposed assessment and therefore the IRS should be foreclosed from assessing much of the IRS proposed assessments.
Prior to trial, the attorneys from the IRS advised the tax attorneys of Diosdi & Liu, LLP that they invited Special Agents from the IRS Criminal Investigation Division to attend the trial. The IRS was basically attempting to build a criminal tax case from the ongoing litigation before the Tax Court. The tax attorneys of Diosdi & Liu, LLP lodged a motion asking the Tax Court to issue an order prohibiting any Special Agents from attempting the client’s trial. The Tax Court granted the motion. This case presented a very difficult challenge for the tax attorneys of Diosdi & Liu, LLP. On one hand, the tax attorneys of Diosdi & Liu, LLP believed they had a compelling argument to eliminate a sizable portion of the proposed tax deficiency by litigating this case. On the other hand, litigating this case puts the clients at heightened risk of criminal tax prosecution.
To resolve this dilemma, the tax attorneys of Diosdi & Liu, LLP came up with a creative solution. The tax attorneys of Diosdi & Liu, LLP convinced IRS counsel and the National Office of Chief Counsel to be bound by a case pending before the United States Supreme Court. In the case pending before the Supreme Court, the litigants raised the same statute of limitations defenses as did the tax attorneys of Diosdi & Liu, LLP in the present case. By agreeing to be bound by the Supreme Court case, the tax attorneys of Diosdi & Liu, LLP saved the clients from participating in a risky trial. However, the clients were still able to litigate their statute of limitations defense by proxy before the United States Supreme Court. The strategy paid off because the United States Supreme Court agreed with the statute of limitations defense. The case concluded with a stipulated decision lodged with the Tax Court in which the clients owed less than one-half of the IRS’s proposed assessment.
Representation of Engineering Firm before the Tax Court
The client operated an environmental engineering firm. The client reported his income and expenses on a Schedule C. The client’s income tax returns were audited by the IRS. The client represented himself through the audit and made a number of inaccurate statements to the IRS auditor. The IRS disallowed a number of expenses claimed by the client and the auditor alleged that the client failed to disclose all of his taxable income. At the conclusion of the audit, the auditor proposed to assess civil fraud penalties against the client. Since the client lied to the auditor, the auditor threatened to refer the case to the IRS Criminal Investigation Division. At the conclusion of the audit, the IRS proposed to assess an additional $166,138 of additional taxes and penalties against the client.
The tax attorneys at Diosdi & Liu, LLP petitioned the Tax Court and requested a redetermination of the IRS proposed assessment. The tax attorneys of Diosdi & Liu, LLP retained the services of a psychiatrist to determine why the client was not truthful with the IRS. The psychiatrist determined that the client had suffered a traumatic brain injury decades before the audit. This injury impaired the client’s cognitive abilities and likely caused the client not to be truthful with the IRS. Having the client diagnosed with the traumatic brain injury allowed the tax attorneys of Diosdi & Liu, LLP to negotiate the removal of the civil fraud penalty. The tax attorneys of Diosdi & Liu, LLP were also able to prevent this case from being referred to the Criminal Investigation Division of the IRS. At the conclusion of this case, the tax attorneys of Diosdi & Liu, LLP entered into a stipulated decision that was lodged with the Tax Court in which the client saved $70,127.
The Gift Tax Litigation
A real estate professional’s mother gifted her two parcels of property in the San Francisco Bay Area to her. The parcels of property were valued on gift tax returns. The Internal Revenue Service audited the gift tax returns. At the conclusion of the audit, the auditor proposed to assess an additional gift tax liability of $1,869,604. A petition was filed with the United States Tax Court and a redetermination was requested of the proposed assessment. Prior to trial, a settlement was negotiated with District Counsel representing the Internal Revenue Service. At the conclusion of the case, the parties lodged a stipulated decision with the Tax Court which stated that there was only $562,500 of additional gift taxes owed. This represented a savings of $1,307,104 from the Internal Revenue Service’s original assessment of $1,869,604.
Select Stories Regarding Selection Cases Representation before the United States Federal Court of Claims
Representation of Client that Received a Settlement before the Court of Claims
Below are the facts of a very sad and frightening story that ultimately became a tax controversy that was litigated before the Court of Federal Claims. The client went to bed at approximately 10:00 pm on the night in question. At approximately 11:00 pm that night, the client was awoken by his father. The client’s father told him that there was “someone here.” The client then exited his bedroom when he heard what sounded like numerous people moving about the house.The client also heard his mother arguing with an unknown person.
Fearing for his safety and that of his parents, the client grabbed the pistol that he kept next to his bed. The client then exited his bedroom and peered around the corner of the linen closet where he could see into the hallway. The client had his weapon in his right hand and pointed the gun at the floor. The client saw the outline of two individuals dressed in dark clothing positioned down the hallway where it intersected with the entranceway. In an attempt to scare away the unidentified intruders, the client issued a verbal warning by stating that he has a gun. As the client’s eyes adjusted to the light in the hallway, the client visually identified the intruders as police officers and he immediately dropped his weapon on the floor. The officers never identified themselves to the client as law enforcement personnel.
Without further warning or instruction, the client was blindsided from the left by a police officer. Shortly thereafter, another police officer jumped on the client. The police officer hit the client numerous times. After the beating, the police handcuffed the client and brought him outside where the client was left for an extended period of time in the cold night time air. The client had to ask for medical attention twice before paramedics were finally called. The paramedics transported the client to the emergency room. The client was transported to the emergency room with his hands cuffed to the side rails of a bed. At a later date, the police admitted that the client was subject to an unlawful arrest.
The client filed a lawsuit against the police department. Through mediation, the client was awarded $606,000. The IRS took the position that the award received from the police department was fully taxable. The client paid the entire tax liability assessed by the IRS. After satisfying the entire liability, the tax attorneys at Diosdi & Liu, LLP filed suit in the Court of Federal Claims and demanded a refund of all the taxes paid (along with applicable interest) to the IRS in connection with the lawsuit.
One way to exclude damage awards from taxation is to establish that the cause of action at issue has its origin in a physical injury or physical sickness and the damage award flowed from the injury. The tax attorneys of Diosdi & Liu, LLP took the position that the damage award arose from a tort claim and the award was designed to compensate the client for personal injuries. The Government took the position that the origin of the damage originated from a Constitutional right violation rather than a physical injury. Prior to trial, the tax attorney of Diosdi & Liu, LLP negotiated a settlement with the United States Department of Justice in which the client received a refund of $124,669 from the IRS.
Representation of a Home Builder before the Court of Claims
The clients were in a trade and business of home remodeling. The clients reported their income and deductions on a Schedule C attached to their individual income tax returns. The IRS audited the clients’ tax returns. Since clients’ records were not organized, the IRS disallowed all the deductions claimed on their Schedule C. At the conclusion of the audit, the clients satisfied all the taxes assessed as the result of the audit. The clients then filed a complaint in the Court of Federal Claims seeking a refund of $117,382. The tax attorneys of Diosdi & Liu, LLP organized the clients’ documents and convinced the United States Attorney to accept the entire refund claim. The clients received a refund from the IRS in the amount of $117,382, plus applicable interest.
Representation of Furniture Business Before the Court of Claims
The clients were in the trade or business of selling furniture. The IRS audited the clients tax return and incorrectly determined that a $35,103 bank deposit from a mortgage refinance was taxable income. The IRS agent also incorrectly disallowed a deduction of $7,054 in commission expenses that arose from the clients’ furniture business. The clients satisfied the entire assessment from the audit. The clients filed a complaint in the Court of Federal Claims seeking a tax refund of $20,634 paid to the IRS. Shortly after filing the complaint, the tax attorneys of Diosdi & Liu, LLP filed a Motion for Summary Judgment demanding a refund of $20,634 plus all applicable interest. The United States Court of Federal Claims granted the Motion for Summary Judgment in regards to the $35,103 incorrectly classified as a taxable bank deposit. The United States Attorney ultimately conceded the $7,054 in commission expenses. The IRS issued to the clients a refund in the amount of $20,634 plus applicable interest.
Select Success Stories Involving Representation Before the United States District Courts
Litigation of a Non-Compete Provision before a District Court
The client was an individual that published advice and information regarding alternative medicine. The client entered into a five-year written contract with a medical publisher. The agreement contained a strict non-compete provision. A dispute arose between the parties regarding the enforceability of the non-compete clause. The attorneys of Diosdi & Liu, LLP filed suit on the client’s behalf in a United States district court seeking declaratory relief on the client’s behalf seeking declaratory relief holding the non-compete provision in the agreement as void and unenforceable. The attorneys of Diosdi & Liu, LLP successfully argued before the court that the non-compete provision was overly vague and prejudiced the interests of the public. Not only were the lawyers of Diosdi & Liu, LLP able to convince the court to invalidate the non-compete provision, they successfully motioned the court to order the medical publisher to pay the client’s legal fees associated with prosecuting this action.
Representation of Client Accused of Securities Laws Violations before a District Court
The client was accused by the Securities and Exchange Commission (“SEC”) of violating the registration requirements of the federal securities laws through an unregistered stock offering. The SEC alleged this was a violation of Section 5 of the Securities Act. If proven, the client could have been subject to penalties of more than $1 million. Sections 5(a) and (c) of the Securities Act of 1933 imposes strict liability for which no proof of scienter (fault) is required to hold an individual subject to penalties in connection of an unregistered security.
The SEC sued the client in the United States District Court for the District of Columbia and demanded a jury trial. The attorneys at Diosdi & Liu, LLP represented the client. The client admitted to marketing the unregistered securities. However, the client did not know that the securities at issue were not registered and the seriousness of the offense. Based on the fact that the client innocently marketed unregistered securities, the attorneys at Diosdi & Liu, LLP recognized the danger of ensnaring innocent individuals such as the client into the wide net cast by Section 5. The attorneys of Diosdi & Liu, LLP asked the court to allow a jury to consider lack of scienter or fault in marketing the unregistered securities. The attorneys for the SEC filed a Motion in Limine with the court. The SEC asked the court to strictly interpret Section 5 and exclude any defense associated with the lack of scienter or fault. This created enough litigation hazard for the SEC to propose a very generous settlement offer. The client made a payment to the SEC in the amount of $15,000 to settle the case.
Representation of Semi-Retired Farmer before the District Court
The client was a semi-retired farmer in Iowa. The client sought to make additional money by selling securities. The client sold $150,000 worth of securities to a friend who was located in the State of Washington. Shortly after the securities transaction was complete, the securities became worthless. The individual that acquired the shares from the client sued him in Washington State Superior Court. In order to provide the client with an opportunity for trial by jury which was not available in state court, the attorneys of Diosdi & Liu, LLP removed the case from state court to the Federal District Court for the Western District of Washington State. The attorneys at Diosdi & Liu, LLP took the position that the statute of limitations barred the plaintiff from recovering damages associated with the sale of the securities. During the discovery process, the plaintiff’s attorney attempted to force the client to admit a number of allegations. When the client refused to answer the discovery request, the plaintiff’s attorney filed a motion with the court to compel the client to make an admission. The attorneys of Diosdi & Liu, LLP vigorously defended the client against these hardball litigation tactics and convinced the court to deny the plaintiff’s motion to compel. Not only did the attorneys of Diosdi & Liu, LLP convince the court to deny the plaintiff’s motion to compel, the attorneys of Diosdi & Liu, LLP convinced the court to award the client his attorney’s fees to defend against the plaintiff’s hardball discovery tactics. The attorneys of Diosdi & Liu, LLP ultimately reached a settlement on behalf of the client where he agreed to pay the plaintiff $20,000 rather than the original demand of $150,000.
Contesting an FBAR Penalty Through the Administrative Procedure Act
A retired businessman had an interest in an undisclosed UBS Swiss financial account. The Internal Revenue Service assessed FBAR penalties in the amount of $40,000 in connection with the undisclosed UBS account. However, the Internal Revenue Service refused to provide an adequate reason why the FBAR penalties were assessed.
Administrative Procedure Act (“APA”) Section 555 provides minimal procedural guarantees for “information adjudication,” including that an agency give “[p]rompt notice” when denying any request made in connection with any agency proceeding, and the notice include a “brief statement of the grounds for denial.” Section 555 was utilized to contest the FBAR penalties assessed by the Internal Revenue Service in a United States district court. At the conclusion of litigation, the district court held that the Internal Revenue Service violated Section 555 in assessing FBAR penalties. The court disallowed the Internal Revenue Service from assessing interest and late penalties with respect to the FBAR penalties.
Contesting Wrongful IRS Levy
The client was assessed a multimillion dollar assessment by the IRS. The IRS typically has ten years from the date of a tax assessment to collect a tax liability. More than ten years expired since the date of the multimillion dollar assessment. Despite the fact that more than ten years passed since the date of the tax assessment, an IRS Revenue Officer levied the client to collect the multimillion dollar assessment. The tax attorneys of Diosdi & Liu, LLP filed a complaint in a United States district court seeking declaratory relief from the IRS levy. The tax attorneys of Diosdi & Liu, LLP settled this case with the Department of Justice in which the client received a refund of a significant portion of the monies wrongfully levied by the IRS Revenue Officer.
Contested a Section 6039F 3520 Penalty in District Court
The IRS assessed a Section 6039F penalty in the amount of $1,375,000 against a multinational company for failing to report foreign transfers on a Form 3520. The IRS then assigned a Revenue Officer to collect the Section 6039F penalty. The Revenue Officer used illegal tactics to attempt to collect the penalty. The tax attorneys filed suit in a federal district court seeking declaratory relief from the IRS Revenue Officers illegal tactics. The tax attorneys at Diosdi & Liu, LLP negotiated a resolution with the Department of Justice and the IRS in which the entire $1,375,000 Section 6039F penalty was removed by the IRS.
Contested a Section 6039F Penalty in District Court in a Refund Litigation
The client was wrongfully assessed a Section 6039F in the amount of $94,956.76 for failing to timely report a foreign gift on a Form 3520 to the IRS. The client paid the entire penalty and filed suit in a district court to recover the Section 6039F penalty. The attorneys at Diosdi & Liu, LLP favorably settled this case with the United States attorney without having to proceed to trial.
Forfeiture Representation before the District Court
A wholesale corporation conducted business throughout the world. Unknown to the wholesale business, they conducted business with corporations that laundered money from the sale of narcotics. This resulted in a raid of the wholesale corporation’s premises by agents from the DEA, FBI, and IRS CID. During the raid, Government agents drilled open a safe that was located on the corporation’s premises and seized nearly $500,000 of currency. After the raid, the wholesale corporation was informed by the DEA that it was treating the $500,000 seized from its premises as a forfeiture.
Several of the attorneys now with Diosdi & Liu, LLP worked on this matter. They timely filed an administrative claim with the DEA and the Assistant United States Attorney assigned to this matter. Filing an administrative claim with the federal agency responsible for seizing the currency is a prerequisite for the return of seized currency. The attorneys now at Diosdi & Liu, LLP performed a detailed forensic accounting on behalf of the wholesale corporation to prove that the seized funds were not the fruit of ill-gotten gains. The DEA and the United States Attorney were convinced to return all the seized currency from the premises of the wholesale corporation.
Select Success Stories Regarding Representation before the Bankruptcy Court
A consultant incurred a federal tax liability of $3,931,960. The consultant attempted to resolve this liability through a number of offers in compromises with the Internal Revenue Service. However, the Internal Revenue Service refused to compromise the $3,931,960 liability and instead proceeded with enforced collection actions such as wage levies. As a result of the Internal Revenue Service’s aggressive enforced collection actions, the consultant filed a voluntary petition under Chapter 7 of the Bankruptcy Code to discharge the $3,931,960 federal tax liability. The Bankruptcy Court ordered a discharge of the consultant’s $3,931,960 tax liability. However, the Internal Revenue Service ignored the Bankruptcy Court’s discharge order and continued to proceed with enforced collection actions such as wage levies. A Complaint to Determine Dischargeability of Federal Income Taxes was filed with the Bankruptcy Court. Prior to trial, a stipulated settlement was negotiated with the United States Department of Justice. As per the settlement agreement, the United States Department of Justice agreed to settle the $3,931,960 in exchange for a payment of $400,000.
Select Success Stories Regarding Criminal Cases
Representation before Client Accused of Structuring
The client failed to disclose over $60,000 of taxable income on his federal income tax return. The client went to considerable lengths to avoid the IRS in detecting the unreported income. In particular, the client purchased at least 39 money orders and deposited the money orders into his personal bank account. The IRS discovered the unreported income and the money orders. The IRS Criminal Investigation Division issued a report to the Department of Justice Tax Division recommending that the client be prosecuted for filing false tax returns for two years. The report also recommended that the client be prosecuted for structuring monetary transactions during a three-year period in violation of Title 31, United States Code, Section 5324(a)(3). Structuring has been defined as “to break up a single transaction above a reporting threshold – for the purpose of evading a financial institution’s reporting requirement.”
The relevant reporting in this case was found at 31 U.S.C. Sections 5313 and 5325. Specifically, 31 U.S.C. Section 5313(a) and the regulations promulgated thereunder require a domestic financial institution to file a currency transaction report for any transaction in a currency of more than $10,000. Section 5325 and the regulations promulgated thereunder prohibit a financial institution from issuing certain monetary or group of transactions involving $3,000 or more unless: 1) the financial institution verifies that individual has an account with the institution and records the method of verification in accordance with the regulations or 2) the individual furnishes the financial institution with identification and the financial institution verifies and records that information. It was the Government’s contention that the client violated Section 5324(a)(3) by causing a domestic financial institution to fail to report required under Section 5313(a) or 5325.
Had the Government moved forward with prosecuting the client for the above alleged violations of federal law, the client could have been sentenced to a lengthy prison term and could have been ordered to pay a substantial fine. The attorneys at Diosdi & Liu, LLP met with the United States Attorney and negotiated a plea agreement. The plea agreement called for the client to plead guilty to one count of structuring. The client was sentenced to only one year probation.
Tax Evasion Case
The client was a real estate investor. The client was accused of failing to report nearly $4 million taxable income. The client was charged with tax evasion. The client entered into a plea agreement with the Department of Justice. The plea agreement called for the client to serve 20 months in federal prison. Prior to sentencing, the attorneys of Diosdi & Liu, LLP filed a motion with the district court for a downward departure of the sentencing guidelines and represented the client in a sentencing hearing. At the sentencing hearing, the sentencing judge agreed to sentence the client to 12 months in prison rather than 20 months.
IRS Criminal Investigation Representation
The client was a sole shareholder of a corporation which manufactures software. The client had a number of employees. As an employer, the client had a legal obligation to withhold taxes on behalf of his employees. In particular, an employer is required to withhold Social Security Tax and Federal Unemployment Tax. The client failed to pay over $1 million of employment withholding tax to the IRS. The client’s case was referred to the IRS Criminal Investigation Division and IRS Special Agents raided the client’s business. The tax attorneys at Diosdi & Liu, LLP convinced the IRS Criminal Investigation Division not to refer this case for prosecution to the United States Attorney. The tax attorneys at Diosdi & Liu, LLP also convinced the IRS to settle the outstanding tax liability owed through extremely favorable payment terms. This allowed the client to remain in business.
Representation of Purchasing Manager in a Wire Fraud Case
The client was a purchasing manager for a large corporation. The client was accused of allegedly accepting bribes in exchange for steering contracts to certain vendors. The client was indicted on two counts of wire fraud in district court. If convicted, the client faced up to 20 years in federal prison. The attorneys at Diosdi & Liu, LLP negotiated a plea agreement in which the client served no prison or jail time.
Forfeiture Case and Criminal Tax Investigation
The client owned a wholesale business and customers located throughout the world. Unknown to the client, it conducted business with a corporation that laundered money from the sale of narcotics coming across the border from Mexico. As a result, agents from the IRS, FBI, and DEA raised the client’s business. During the raid, Government Agents drilled open a safe that was located on the client’s premises and seized nearly $500,000. After the raid, the client was informed by the DEA that it was treating the $500,000 seized from the client’s business as a forfeiture.
There are two types of forfeitures: criminal and civil. In civil forfeitures, assets are seized by the government based on a suspicion of wrongdoing. In contrast, criminal forfeiture is a legal action brought as part of the criminal prosecution of a defendant. The tests to establish the burden of proof are different; in a civil forfeiture case, the test is in most cases whether there is evidence to suggest wrongdoing through a preponderance of the evidence, In a criminal forfeiture case, the test is whether the government can establish beyond a reasonable doubt that property seized was involved in an illegal action or is the fruit of a crime.
In this case, the DEA informed the attorneys at Diosdi & Liu, LLP that is treating the cash seized as a civil forfeiture. This meant that it was up to the attorneys at Diosdi & Liu, LLP to prove that the $500,000 seized was “clean.” The attorneys at Diosdi & Liu, LLP timely filed an administrative claim with the DEA. Filing of an administrative claim with the federal agency that seized the funds is a prerequisite for the return of the seized cash. The attorneys at Diosdi & Liu, LLP also performed a detailed forensic accounting on the client’s business to prove that the seized funds were not the fruit of ill-gotten gains. Through forensic accounting, the firm of Diosdi & Liu, LLP was able to demonstrate that the funds seized were reported on the client’s tax returns. As a result of the attorneys of Diosdi & Liu, LLP satisfying the prerequisite administrative requirements and being able to prove that the money seized was “clean,” the attorneys at Diosdi & Liu, LLP convinced the DEA to return all the funds seized.
The seizure of the funds was the least of the client’s worries in this case. IRS Criminal Investigators and the United States Attorney informed the attorneys at Diosdi & Liu, LLP that they were considering moving forward with a criminal case against the client. The attorneys at Diosdi & Liu, LLP were able to demonstrate to the IRS and Department of Justice that there was no unreported income in this case and the client’s business dealings with the corporation accused of laundering money was unintentional. Consequently, the United States Attorney declined to prosecute the client.
Tax Planning Success Stories
Cross-Border Merger of a High-Tech U.S. Company By a Taiwanese Corporation Through a Forward Triangular Merger
The attorneys at Diosdi & Liu, LLP that represented an individual that owned a successful tech company. A Taiwanese company wished to acquire the clients’ tech company. The tax attorneys at Diosdi & Liu, LLP designed a forward triangular merger transaction that qualified as a tax-free (or, more accurately, tax-deferred) reorganization under Section 368(a)(a)(A) and (a)(2)(D) of the Internal Revenue Code which permitted the client to sell his shares of stock to the Taiwanese corporation without tax recognition.
Cross-Border Merger of a High-Tech U.S. Company By a Singaporean Corporation Through a Forward Triangular Merger
The tax attorneys at Diosdi & Liu, LLP assisted a Singapore Corporation (“SingCo”). SingCo wished to enter into a forward triangular merger and for that it set up a new Delaware entity as New Inc with the purpose of acquiring a U.S. high tech company. The tax attorneys at Diosdi & Liu, LLP advised SingCo how the acquisition transaction may qualify as an eligible merger in order to defer the tax treatment on purchase consideration through shares of SingCo under Treasury Regulation Section 1.367(a).
Provided Cross-Border Tax Planning Advice to a Large Multinational Vehicle Manufacturer
The tax attorneys at Diosdi & Liu, LLP provided tax planning advice to a large foreign vehicle manufacturer on export-related income under the so-called “title passage rule.” The tax attorneys at Diosdi & Liu, LLP also provided the vehicle manufacturer advice on how it can utilize FDII to reduce its U.S. tax liability received from foreign related parties.
Provided Cross-Border Tax Planning Advice to a Large Global Software Company
The client was a global software company that develops navigation and infotainment systems for some of the largest automotive companies in the world. The software company has entered into software integration and license contracts with various U.S. automotive manufactures. The software company is incorporated in a foreign country that has not entered into a tax treaty with the United States and has established a subsidiary in the United States and Germany. The tax attorneys of Diosdi & Liu,. LLP provided the global software company with advice as to how it may potentially utilize the U.S.-Germany income tax treaty to reduce its exposure to U.S. withholding tax.
Provided Cross-Border Tax Planning Advice to Video Game Manufacturer
The client was a foreign corporation incorporated in a jurisdiction that has not entered into a tax treaty with the United States. The video game manufacturer distributes video games and software to the United States. Since the video game manufacturer was incorporated in a country that did not have a tax treaty with the United States, it was subject to a 30 percent withholding tax on any U.S. source royalty income. The tax attorneys provided the video game manufacturer with advice as to how it could reincorporate in a country that had a treaty with the U.S. so the video game manufacturer could avoid U.S. withholding tax on its U.S. royalty income.
Provided U.S. Shareholder of a Canadian Corporation Section 962 of the Internal Revenue Code Planning Advice
Our client, a U.S. citizen, owned the majority of shares of a multinational corporation headquartered in Toronto, Canada. The multinational corporation was classified as a controlled foreign corporation (“CFC”) for U.S. tax purposes. A CFC is defined as a foreign corporation in which more than 50% of its total voting power or value is owned by U.S. Persons (U.S. individuals, U.S. trusts, U.S. corporations or U.S. partnerships) who own at least 10% of the combined voting power of all classes of the stock, or at least 10% of the total value of shares of all classes of stock. The client owned the majority of the shares in the Canadian foreign corporation for more than ten years. The Canadian corporation had a large amount of retained earnings that was not taxed in the U.S.
Internal Revenue Code Section 965 imposes a transition tax on a U.S. shareholder’s share of deferred foreign income or retained earnings. As a result of the Canadian corporation’s retained earnings, The client was subject to the transition tax. The transition tax is significantly higher for individual shareholders of a CFC compared to corporate shareholders of a CFC. The tax attorneys at Diosdi & Liu, LLP determined that our client could make a Section 962 to be treated as a corporation for the limited purpose of the transition tax. As a result of making a Section 962 election, the client saved hundreds of thousands of dollars in taxes.
Representation of Clients in International Penalty Cases
Representation of an Individual Wrongfully Assessed a Penalty for Failing to Timely File a Form 3520-A with the IRS
The client was a sophisticated business person that had an interest in a foreign trust during the 2018 calendar year. The client provided all of his financial information to his CPA. The CPA was unaware that the client had to disclose his interest in the foreign trust on Forms 3520 and 3520-A. After the deadline to file Forms 3520 and 3520-A had passed, the client became aware of his filing obligations with the IRS. Once the client became aware that his CPA failed to report his interests in foreign trust on a Form 3520 and 3520-A, the client retained a new CPA to properly report his interest in the foreign trust to the IRS. As soon as the client filed the Forms 3520 and 3520-A with the IRS, the IRS assessed a penalty in the amount of $1,288,442 against the client for the 2018 calendar year. The tax attorneys at Diosdi & Liu, LLP represented the client before an IRS Administrative Appeal and convinced the IRS to remove the entire $1,288,442 penalty assessment
Representation of Individual Wrongfully Assessed a Section 6039F penalty for Failing to Timely File a Form 3520 with the IRS Reporting a Foreign Gift
The IRS assessed a penalty of $2,234,422.50 under Section 6039F of the Internal Revenue Code for failure to file Form 3520 to report receipt of certain foreign gifts against our client. In 2018, our client received a foreign gift of $8,937,690. Our client timely filed Form 4868 (extension) by registered mail. Our client mailed his 2018 Form 1040 with an attached Form 3520 (reporting the foreign gift) to the IRS on October 8, 2019. Even though our client timely filed his Form 3520 for the 2018 tax year, the IRS assessed a maximum penalty of $2,234,422 (which is exactly 25% of the foreign gift of $8,937,690 received by the taxpayer). The IRS should not have never assessed the $2,234,422.50. The tax attorneys at Diosdi & Liu, LLP represented the client before an IRS Administrative Appeal and convinced the IRS to remove the entire $2,234,422.50 penalty assessment.
Representation of an Individual Wrongfully Assessed a Section 6039F Penalty for Failing to Timely Disclose a Foreign Gift to the IRS on Form 3520
Our client was an Associate Professor at a well known university. He has very little knowledge or experience in dealing with U.S. tax laws.The client was born in France. In addition, the taxpayer’s occupation is that of an educator. The taxpayer did not possess a degree in taxation and the taxpayer has not taken a single course, at any level, touching upon U.S. taxation or U.S. tax reporting requirements.
In 2014 and 2015, the taxpayer inherited foreign assets from his mother (a French national). The taxpayer paid inheritance and other taxes on those assets to the French government. The taxpayer self-prepared 2014 and 2015 tax returns and timely filed these returns with the IRS. The taxpayer has always prepared his own tax returns and he has never been audited by the IRS or had any issues with delinquent taxes. After years of self-preparing accurate tax returns, the taxpayer failed to disclose his inheritance on Form 3520 by mistake. The mistake was not intentional or even negligent. The taxpayer was not aware of his 3520 filing obligations. This is because the Form 3520 is not part of his individual income tax return.
In 2018, our client discovered for the first time he should have disclosed the inheritance on an IRS Form 3520. Rather than secreting his mistake from the IRS, he immediately contacted a large law firm based in Miami, Florida. This law firm advised the taxpayer to file delinquent Form 3520s through the IRS Delinquent International Information Return Submission Procedures. Shortly after our client made a submission through the Delinquent International Information Return Submission Procedures, the IRS assessed 3520 penalties against the taxpayer for the 2014 and 2015 tax years in the amount of approximately $100,000.
We ordered a copy of our client’s administrative file from the IRS. The purpose of obtaining the client’s administrative record from the IRS was to determine if the IRS completed with Internal Revenue Code Section 6751. Section 6751 requires the IRS to obtain managerial approval before assessing a penalty. The administrative record was, with two exceptions, completely bare of any evidence that the “initial determination” to assess the 2014 and 2015 3520 penalties were approved “in writing” by the “immediate supervisor” or an “approved higher official.” For the 2014 tax year, the transcript provides “Approval to assess F 3520 CIV PEN on owners SSN, MFT 55/201412 with PRN 668 for $161,692.00 per BU Lead MS.” For the 2015 tax year, the transcript provides “Approval to assess F 3520 CIV PEN on owners SSN, MFT 55, PRN 668 for $58,900.00 per BU Lead MS.” Other than these two cryptic statements, the record did not provide any evidence that “immediate supervisor” or “approved higher official” approved the penalties at issue in the case “in writing.”
Based on the information provided by the IRS, we convinced the IRS to remove the penalties assessed against him for the 2015 and 2016 calendar years.
Representation of a Client Assessed a Section 6039F Penalty for Failing to Timely Disclose a Foreign Gift on a Form 3520
Our client was wrongfully assessed a penalty in the amount of $128,481.76 for failing to timely disclose a foreign gift on a Form 3520 to the IRS. The tax attorneys at Diosdi & Liu, LLP convinced the IRS to not only remove the entire $128,481,76 penalty assessment but to also to provide our client with a refund of $1,218.00.
