Success Stories

Choosing a lawyer may be one of the most important decisions you will ever make. When success is your only option, base your decision on the experience and past results achieved by the lawyers you are considering. We welcome you to compare the experience and litigation results of the attorneys of Diosdi Ching & Liu, LLP with other tax attorneys.*

SUCCESS STORIES BEFORE THE UNITED STATES TAX COURT

The attorneys of Diosdi Ching & Liu, LLP, worked at other law firms prior to establishing Diosdi Ching & Liu, LLP. Below is a small sample of some of the successes achieved on behalf of clients at other law firms by the attorneys of Diosdi Ching & Liu, LLP. Diosdi Ching & Liu, LLP does not offer any guarantee of case results. Each legal matter is comprised of unique issues and our past success does not guarantee similar results.

IRS Concedes Insurance Broker’s Tax Court Case After Litigation

The individual was a successful insurance broker. The insurance broker deducted $47,944, $49,994, $66,411, and $74,270 as Schedule E non-passive losses related to four rental properties for four separate tax years. The Internal Revenue Service disallowed all the real estate deductions claimed on Schedule E and claimed that the insurance broker was not a real estate professional. The case was litigated before the United States Tax Court and Internal Revenue Service district counsel was convinced to concede the case.

Settlement Results in $233,124 Savings for Taxpayer

An auto mechanic was assessed a proposed tax liability of $680,717. A petition was filed before the United States Tax Court and requested a re-determination of the Internal Revenue Service proposed assessment. A settlement was negotiated with Internal Revenue Service district counsel which reduced the federal tax liability to approximately $233,124. This resulted in a savings of $447,593 ($680,717 – $233,124 = $447,593).

Successful Litigation of Section 1031 Exchange

A semi-retired engineer purchased a house for $26,000. He lived in the house until he moved. Soon after moving, the semi-retired engineer rented the house. The semi-retired engineer later sold the house for $572,000. He understood that pursuant to a Section 1031 exchange, he had 45 days after selling the house to identify a property to buy (through an intermediary). the semi-retired engineer purchased another house for $340,000 within the requisite 45 days and rented the new home to his son. The Internal Revenue Service audited the semi-retired engineer’s individual income tax return and proposed to assess $572,000 of ordinary taxable income against the semi-retired engineer from the sale of the original home. The case was litigated before the United States Tax Court. During trial, it was demonstrated that the sale of the original house and the purchase of the new house was a valid Section 1031 exchange that qualified for nonrecognition treatment. The Tax Court was convinced during trial that the sale of the original house qualified for a Section 1031 exchange and the boot from the Section 1031 exchange (i.e. the property received other than the new house) should be treated as capital gain, not ordinary income.

IRS Concedes $115,659 Tax Liability

A Life Insurance Agent with a large national insurance company was assessed a proposed income tax liability of $115,659. The Life Insurance Agent entered into an agreement to purchase a book of business from a third party for $1,900,000. Pursuant to Internal Revenue Code Section 197, the Life Insurance Agent capitalized the cost of goodwill and ratably amortized the goodwill over a 15 year-period. The Internal Revenue Service disallowed this deduction during an audit. The United States Tax Court was petitioned and a request for a re-determination was made on behalf of the Life Insurance Agent. After the petition was filed with the Tax Court, district counsel was convinced to concede the entire $115,659 tax liability.

IRS Convinced to Reduce $4,509,468 Tax Assessment to only $300

A food distribution corporation was audited by the Internal Revenue Service for three consecutive tax years. At the conclusion of the audit, the Internal Revenue Service proposed to assess an additional $4,509,468 of additional taxes and penalties against the corporation. The United States Tax Court was petitioned and a redetermination was requested on behalf of the corporation. After the petition was filed with the Tax Court, as of result of the corporation’s detailed records, district counsel was convinced to reduce the $4,509,468 assessment to only $300.

Taxpayer Saves $2,553,405

A former medical doctor was assessed an income tax liability of $5,744,380 for three consecutive tax years by the Internal Revenue Service. Not only did the Internal Revenue Service assess an income tax liability of $5,744,380 against the medical doctor, the Internal Revenue Service also attempted to collect this assessment from the medical doctor. An administrative procedure known as Collection Due Process Hearing was filed with the Internal Revenue Service to contest the $5,744,380 liability. Through the Collection Due Process Hearing, a request was made for an audit reconsideration of the Internal Revenue Service assessment. Once it became apparent that the Internal Revenue Service was not going to voluntarily reduce the assessment, the United States Tax Court was petitioned. The United States Tax Court was asked to grant the medical doctor a trial de novo on the theory that the Internal Revenue Service abused its discretion in making the $5,744,380 assessment. Prior to trial, the case was settled with the Internal Revenue Service to reduce the $5,744,380 assessment to $3,190,975. This represented a savings of $2,553,405.

Negotiated Settlement Saves Taxpayer $166,838

A small business owner who reported his income and expenses on a Schedule C was assessed a proposed tax liability of $199,246 for two consecutive tax years as a result of an Internal Revenue Service audit. The United States Tax Court was petitioned on behalf of the small business owner. Prior to trial, the case was settled for $32,408. This represented a savings of $166,838.

IRS Concedes Erroneously Assessed Tax Liability of $247,513

A owner of a restaurant was proposed an additional tax liability of $247,513 as a result of an Internal Revenue Service audit. Many of the individuals that dined at the restaurant paid their bill by credit card. These individuals included a tip to their waiter and waitress on the same credit card bill. The Internal Revenue Service auditor erroneously included in the restaurant’s taxable income the tips paid by its patrons to waiters and waitresses. The United States Tax Court was petitioned on behalf of the restaurant owner. Prior to trial, district counsel representing the Internal Revenue Service conceded the entire $247,513.

IRS Persuaded to Rescind Entire $628,243 Assessment and Refund $41,028 to the Taxpayer

The Internal Revenue Service assessed $628,243 against a small business owner. The Internal Revenue Service attempted to collect this assessment through enforced collection actions such as garnishments and levies. The Internal Revenue Service did not advise the small business owner why they believed that the small business owner owed the $628,243. An administrative hearing known as a Collection Due Process Hearing was filed with the Internal Revenue Service on behalf of the small business owner. The purpose of requesting a Collection Due Process Hearing was to determine the reason why the Internal Revenue Service assessed the $628,243. The Internal Revenue Service refused to state why they assessed an additional $628,243 in tax liability. The United States Tax Court was petitioned. The Tax Court petition filed on behalf of the small business owner demanded that entire $628,243 assessment be removed. District counsel representing the Internal Revenue Service voluntarily agreed to rescind the entire $628,243 assessment and refund an additional $41,028.

Successful Audit Representation Reduces Proposed Tax Assessment from $914,664 to $178,164

A shipping company was audited by the Internal Revenue Service. The shipping company had detailed records substantiating the income and expenses stated on its tax returns. However, the shipping company’s records were voluminous. It would have taken the Internal Revenue Service auditor weeks to properly review all the business’s records. Instead of properly reviewing all the shipping company’s records, the Internal Revenue Service auditor proposed to assess an additional income tax liability of $914,664 against the shipping company. The United States Tax Court was petitioned on behalf of the shipping company. After the United States Tax Court was petitioned, district counsel representing the Internal Revenue Service was convinced to randomly sample the shipping company’s business records instead of reviewing all the documents. The Internal Revenue Service was convinced to reduce the proposed assessment from $914,664 to $178,164.

Inventive Strategy Significantly Reduces Taxpayer’s Tax Liability

An individual owned and operated a number of nursing homes. The individual sold the nursing homes. The Internal Revenue Service audited the individual’s individual income tax returns for multiple tax years. The Internal Revenue Service claimed that the individual failed to properly disclose the nursing homes on the individual’s income tax returns. At the conclusion of the audit, the Internal Revenue Service proposed to assess an additional $764,823 against the individual. The Internal Revenue Service also proposed to assess civil fraud penalties against the individual.

The United States Tax Court was petitioned on behalf of the individual. The petition alleged that the Internal Revenue Service was foreclosed from assessing additional taxes and penalties against this individual since the statute of limitation had expired. Once the case was docketed for trial, district counsel named Special Agents from Internal Revenue Service as witnesses at trial. A motion to exclude the Special Agents from trial was granted by the court. The case presented a very difficult challenge. On the one hand, a compelling argument could be made at trial to eliminate or reduce a huge proposed assessment. On the other hand, litigating the case exposed the client to criminal prosecution.

To resolve this problem, the National Office of Chief Counsel agreed to be bound by a case pending before the United States Supreme Court. The case was Home Concrete & Supply, LLC v. United States, 132 S. Ct. 1836 (2012). The period of time in which the Internal Revenue Service could make an assessment of a tax liability was also at issue in this case. By agreeing to be bound by Home Concrete & Supply, LLC, the individual was able avoid a hazardous trial and still raise the statute of limitations as a defense. This strategy paid off because the government did not prevail in the statute of limitations issue in Home Concrete & Supply, LLC. As a result, district counsel representing the Internal Revenue Service agreed to significantly reduce the proposed tax liability.

Taxpayer Triumphs over IRS’ Civil Fraud Penalty

An individual operated an environmental engineering business. The Internal Revenue Service audited his income tax returns. The individual represented himself through the audit and made a number of inaccurate statements to the Internal Revenue Service auditor. As a result, the auditor proposed to assess civil fraud penalties against the environmental engineer and threatened to refer the case to the Internal Revenue Service Criminal Investigation Division. The United States Tax Court was petitioned on behalf of the environmental engineer and a re-determination was requested regarding the civil fraud penalties proposed to be assessed by the examiner. After the United States Tax Court was petitioned, the environmental engineer was examined by a psychiatrist. The psychiatrist determined that the environmental engineer suffered a traumatic brain injury decades before the audit. This injury impaired the environmental engineer’s cognitive abilities and likely caused the individual to make incorrect statements to the auditor. The psychiatrist issued an expert report which was utilized to remove the civil fraud penalties in this case.

IRS Schooled on Nontaxability of Veteran’s Department of Defense Pension

A military veteran served on active duty in the United States Navy during the Vietnam war. 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 the veteran’s 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.

Fraud Penalties Significantly Lowered

A tax attorney who was also a CPA was audited by the Internal Revenue Service. At the conclusion of the audit, the auditor alleged that the attorney omitted significant amounts of taxable income and proposed to assess civil fraud penalties. The auditor also threatened to refer the case to the Internal Revenue Service Criminal Investigation Division. Since the Internal Revenue Service threatened to assess fraud penalties against the attorney, the attorney’s professional license was in jeopardy. A psychiatrist was appointed to examine the attorney. The psychiatrist determined the attorney suffered from early stages of dementia and the mistakes on the tax returns were the result of a cognitive impairment. The psychiatrist issued an expert report which was utilized to negotiate a reduction in the fraud penalties.

SUCCESS STORIES BEFORE THE UNITED STATES COURT OF FEDERAL CLAIMS

Recovery of Taxation from a Damage Award Against a Municipality

An individual filed a lawsuit in the California Superior Court against a municipality claiming that the police department violated the individual’s Constitutional rights and that the individual suffered a tort-type injury. The individual was awarded $606,000 in damages. The Internal Revenue Service took the position that the entire damage award was taxable. After the assessed tax liability was satisfied in full and an administrative claim for refund was filed with the Internal Revenue Service, a lawsuit was filed on behalf of the individual.

A damage award may be excluded from taxation if the cause of action has its origin in a physical injury or physical sickness and the damage award flowed from that injury. In this case, a position was taken in the lawsuit that the damage award arose from a tort claim and was designed to compensation for personal injuries. Prior to trial, a settlement was negotiated with the United States Department of Justice in which the individual received a refund of $124,669.

Refund of Taxes Obtained on Behalf of a Construction Company

The individual operated a construction company. The Internal Revenue Service audited the construction company and disallowed a number of deductions claimed on a tax return. The Internal Revenue Service assessed an additional $117,382 of additional federal taxes and penalties against the construction company. After the assessed tax liability was satisfied and an administrative claim for refund was filed, a lawsuit was filed on behalf of the construction company. In this case, the construction company’s records were were organized. Prior to trial, a settlement was negotiated with the United States Department of Justice in which the construction company received a refund of $117,382.

When the Internal Revenue Service Erroneously Classified a Refinance as Taxable Income

The Internal Revenue Service audited a small business owner’s tax return. During the audit, the Internal Revenue Service incorrectly determined that a $35,103 bank deposit from a mortgage refinance was taxable income. The Internal Revenue Service assessed $20,634 of additional taxes and penalties against the small business owner. After the assessed tax liability was satisfied and an administrative claim for refund was filed, a lawsuit was filed on behalf of the small business owner. Prior to trial, a Motion for Summary Judgment was filed on behalf of the small business owner. The court granted the Motion for Summary Judgment and ordered the Internal Revenue Service to return the $20,634 incorrectly assessed against the small business owner.

SUCCESS STORIES BEFORE THE UNITED STATES DISTRICT COURTS

The Medical Doctor who Entered into a Contract with a Non-Compete Provision

A medical doctor was a well known publisher. The medical doctor entered into a contract to publish a newsletter with a corporation incorporated in another state. The agreement contained a strict non-compete provision. A contractual dispute arose between the parties regarding the enforceability of the non-compete provision which was ultimately litigated in a United States district court. It was successfully argued that the non-compete provision was overly vague and prejudiced the interests of the public. The court determined that the non-compete agreement was void and the medical doctor was awarded his attorney fees.

Contesting an FBAR Penalty Through the Administrative Procedure Act

A retired businessman had an interest in an undisclosed foreign financial account. The Internal Revenue Service assessed FBAR penalties in the amount of $40,000 in connection with the undisclosed foreign financial 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.

Discharge of a Large Federal Tax Liability in 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 consultant received a Chapter 7 discharge order from the Bankruptcy Court. However, the Internal Revenue Service disputed the 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 liability in exchange for a payment of $400,000.

SUCCESS STORIES OF CASES RESOLVED IN THE OFFSHORE VOLUNTARY DISCLOSURE PROGRAM

Representation of an Individual that Failed to Disclose More Than $20 Million in Foreign Financial Accounts to the Internal Revenue Service

An individual failed to disclose more than $20 million dollars in foreign financial accounts to the Internal Revenue Service. The taxpayer retained a large law firm to disclose the undisclosed foreign financial accounts to the Internal Revenue Service through the Offshore Voluntary Disclosure Program (“OVDP”). The Internal Revenue Service assessed an offshore penalty against the individual in the amount of $4,923,073. As a result of zealous representation, one of the attorneys now at Diosdi Ching & Liu, LLP negotiated a reduction of the $4,923,073 penalty to $55,000.

Representation of an Individual that Failed to Disclose More Than $1 Million in Foreign Financial Accounts to the Internal Revenue Service

An individual failed to disclose $1,208,895 in foreign financial accounts to the Internal Revenue Service. The individual elected to participate in the OVDP. Individuals that participate in the OVDP are subject to a 27.5 percent penalty on the highest aggregate account balance. Under the terms of the OVDP, this individual was subject to an offshore penalty of $1,208,895 ($1,208,895 x 27.5% = $332,446). One of the attorneys now at Diosdi Ching & Liu, LLP successfully argued to reduce the 27.5 percent penalty to a 5 percent penalty. Under the 5 percent penalty, the offshore penalty was reduced to $49,274. This resulted in a savings of $283,172 ($332,446 – $49,274 = $283,172).

SUCCESS STORIES REGARDING ESTATE AND GIFT TAX

The Estate Tax Audit

The individual was a executrix of her mother’s estate. The estate consisted of a parcel of unimproved real property. The parcel of unimproved property was valued and disclosed on Form 1041, U.S. Income Tax Return for Estates and Trusts. The Internal Revenue Service audited the estate tax return filed by the executrix and assessed an additional $822,465 in taxes and penalties. One of the attorneys now at Diosdi Ching & Liu, LLP convinced the auditor to reduce the assessment from $822,465 to $315,225.

The Gift Tax Litigation

Parcels of property were gifted to an individual. 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 re-determination 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.

SUCCESS STORIES REGARDING CRIMINAL TAX REPRESENTATION

Forfeiture Representation

A corporation conducted business throughout the world. Unknown to the corporation, it conducted business with an organization that laundered money from the sale of narcotics. This resulted in a raid of the 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 Ching & 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 Ching & 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 was convinced to return all the seized currency from the premises of the wholesale corporation.

Representation of Corporation Referred to Internal Revenue Service Criminal Investigation of Not Satisfying Business Tax Obligations

A manufacturer was accused of failing to pay over $1 million dollars in FICA and FUTA withholdings to the Internal Revenue Service. The case was referred the Internal Revenue Service Criminal Investigation Division and Special Agents raided the manufacturer’s business premises. Internal Revenue Service Criminal Investigation Division was convinced not to refer the case to the United States Department of Justice for criminal prosecution.

SUCCESS STORIES REGARDING INTERNATIONAL TAX

Tax Planning Utilizing a United States-Foreign Country Tax Treaty

A U.S. citizen retiree received a foreign pension. Under U.S. federal tax law, the United States taxes citizens on all worldwide income, including foreign pensions. The attorneys of Diosdi Ching & Liu, LLP cited an article of the U.S.- foreign country tax treaty to exclude some of the foreign pension from U.S. taxation.

Tax Planning Utilizing Tie-Breaker Provision under United States-Foreign Country Tax Treaty

A foreign citizen who was a U.S. tax resident had significant assets located outside the United States. These assets generated substantial annual income. This foreign source income would have resulted in harsh U.S. tax consequences. One potential way to avoid the harsh consequences of foreign source income for U.S. tax purposes is to utilize a treaty “tie-breaker.” Under a treaty tie-breaker, it may be possible for a U.S. tax resident to avoid paying U.S. federal taxes on foreign source income if the U.S. tax resident can successfully establish a closer connection to a foreign country. A tie-breaker provision was provided under the U.S.-foreign country tax treaty. In this case, after a proper disclosure was made to the Internal Revenue Service, the tie-breaker provision under the U.S.-foreign country tax treaty was utilized to avoid recognizing foreign source income for U.S. tax purposes.

*The result of each case is largely affected by the unique facts of that case. Past results are not a guarantee of future success.