Tax Controversies

Dealing with the IRS at all levels is a mainstream part of Caplin & Drysdale's domestic and international tax practice. We routinely handle IRS examinations at the revenue agent level, either directly or behind the scenes as an adjunct to our client's tax compliance department. We also take charge of an IRS examination at the IRS Appeals Office level, preparing a comprehensive written protest and negotiating with the Appeals Officer. Our attorneys regularly deal with the IRS National Office and Treasury Department, preparing ruling requests for our clients, defending our clients' positions in Technical Advice proceedings, and seeking creative solutions to client problems through administrative determinations, revenue rulings, and Treasury regulations. We also assist clients in dealing with ancillary issues relating to a tax dispute, such as financial statement disclosure, tax reserve provisions, and tax return treatment of disputed issues going forward. Through it all, we maintain high professional standards and draw upon our excellent reputation at the IRS, all of which inures to the benefit of our clients. When you add Caplin & Drysdale to your tax controversy team, you maximize your chances for success.

Representative Engagements

1. A New York Stock Exchange company engaged in the life insurance business was audited by a team of agents who took the position that certain insurance reserve practices disqualified the company for treatment as a life insurance company under Subchapter L of the Internal Revenue Code. This was a "make or break" issue for the company.
   
   Result: Caplin & Drysdale assisted the company's tax department and CPA firm during the examination process. Caplin & Drysdale persuaded the District Director to seek Technical Advice from the IRS National Office, prepared a comprehensive Technical Advice brief, and hired outside experts to assist in the discussions with the IRS National Office. Caplin & Drysdale also worked with the company on delicate disclosure and tax reserve issues. After more than two years of discussion and deliberations, the National Office conceded the issue.
    
   
2. A closely-held corporation distributed the stock of a subsidiary to the family shareholders in a transaction intended to qualify as a tax-free spin-off. Several months later, the family shareholders sold their stock in the distributed company for a large sum of money, even though they had previously represented to the IRS in their application for a ruling that they had no plan or intention to sell the distributed stock. The IRS audited the transaction and took the position that the distribution and subsequent sale was a "device" under section 355 of the Internal Revenue Code, thereby causing the distribution to be taxable. The proposed deficiency was over $100 million in tax and interest.
   
   Result: Caplin & Drysdale took charge of the examination and dealt directly with the revenue agent. After spending several months gathering information in this fact-intensive matter, Caplin & Drysdale prepared a comprehensive memorandum to the revenue agent. Several extensive meetings and telephone conversations with the agent ensued. Within a year, Caplin & Drysdale obtained a full concession.
   
   
3. A large estate was audited by the IRS, which proposed tax deficiencies, interest, and penalties in excess of $60 million. The major issue in the case involved the valuation of a closely held business. The IRS had retained a recognized valuation firm and a prestigious New York law firm had advised the estate to settle for $30 million.
   
   Result: On the recommendation of the estate's litigation counsel, Caplin & Drysdale was selected to represent the estate in Tax Court. After taking control of the case, Caplin & Drysdale had the case transferred to the IRS Appeals Office. We retained new valuation experts and prepared a lengthy written Protest. After prolonged negotiations, the case was settled at approximately ten percent of the proposed deficiency.
   
   
4. A foreign corporation with operations in the United States was subjected to a lengthy and extremely contentious examination, covering 10 taxable years, and producing proposed adjustments of more than $250 million, with tax, interest, and penalties in excess of $70 million.
   
   Result: Caplin & Drysdale was brought in towards the end of the examination to help bring closure to the examination and to diffuse the bad feelings between the parties. Caplin & Drysdale then defended the taxpayer at Appeals, won a complete IRS concession eliminating the more than $70 million potential liability, and then secured an Advance Pricing Agreement that minimized the likelihood of future examination controversies.

Our Services

If your company or you, individually, are under examination by the IRS, we can add immeasurably to your defense efforts and, where necessary, take full charge of the examination on your behalf. Call us when:

• You are apprised of the commencement of an examination so that we can advise you on logistics, day-to-day dealings with IRS agents, and handling of sensitive issues
• You need behind-the-scenes assistance with monitoring the examination, providing procedural guidance to your compliance people, and written product responding to legal and sensitive factual questions
• You need a skilled representative to deal directly with the agents and to control the examination
• You anticipate receiving or receive a Notice of Proposed Deficiency ("30-Day Letter), and wish to take the case to the IRS Appeals Office
• You are planning a transaction that requires a ruling from the IRS National Office or are in the midst of an IRS examination that requires Technical Advice from the IRS National Office
• You need favorable IRS or Treasury action in the form of an administrative announcement, revenue ruling, or Treasury Regulation
• You need Competent Authority assistance

Caplin & Drysdale has earned a national reputation for handling criminal tax investigations and sensitive civil audits arising from IRS and Department of Justice investigations involving UBS, HSBC and other banks. Federal agencies continue to focus substantial enforcement resources aimed at US taxpayers who may have failed to declare and report income on foreign bank accounts. Caplin & Drysdale attorneys can assist any such taxpayers, relying on the firm's extensive tax and criminal defense experience.

At present, the firm has advised many corporations and individuals worldwide in matters involving the failure to report foreign accounts, the filing of false or incomplete tax returns, unfiled FBAR forms, unreported trust, foundation or corporate structures, problematic estate and gift tax matters arising from undeclared assets, and the failure to file tax returns over an extended period of time. We also advise bankers, financial advisors, lawyers and other persons who may be involved in this growing area of tax enforcement.

The firm also has a robust practice in the area of voluntary disclosures resulting from undeclared offshore accounts. It currently handles over 400 voluntary disclosure matters on behalf of clients with undeclared accounts at UBS, HSBC, Julius Baer and other financial institutions located throughout the world.

For assistance, please contact one of our attorneys: Mark D. Allison, Niles A. Elber, Mark E. Matthews, Scott D. Michel, Cono R. Namorato, Michael G. Pfeifer, Christopher S. Rizek, and H. David Rosenbloom.

For more information, please visit the following links:

Recent Media on IRS Crackdown on US Taxpayers with Undeclared Offshore Accounts 

• U.S. Enlists 5 EU Nations in Offshore Tax Crackdown
• After Wegelin Bank's Indictment, Who's Next?
• IRS Watchdog Accuses Agency of "Bait-and-Switch"
• Law to Find Tax Evaders Denounced
• Taxpayers With Overseas Accounts Seethe at Penalties

Relevant Press Releases

• WikiLeaks' Release of 2,000 Foreign Bank Accounts to Spell Tax Complications for Undeclared Account Holders
• IRS Seduces Offshore Account Holders
• Countries in Europe and Asia Agree to Modify Treaty Provisions: Profound Implications for Noncompliant U.S. Taxpayers with Foreign Accounts

Relevant Articles

• Offshore Tax Enforcement, Voluntary Disclosure, And Undeclared Foreign Accounts
• OVDI Is Over — What's Next for Voluntary Disclosures?
• Unreported Gifts of Real Property: Time for a Voluntary Disclosure?
• FATCA & Foreign Bank Accounts: Has the U.S. Overreacted?
• Final Rules & New FBAR Form Issued
• IRS Seeks Names of U.S. Account Holders at HSBC (India)
• Indictment of Offshore Account Holder Portends a New Round of Aggressive Enforcement
• IRS's Voluntary Disclosure Program for Offshore Accounts: A Critical Assessment After One Year
• Undeclared Foreign Accounts—Voluntary Disclosures and FBARs After the IRS Settlement Initiative
• Voluntary Disclosure Key to Addressing Offshore Tax Cheats, Practitioners Say
• IRS Issues Revised Foreign Account Reporting Form
• The IRS's New Whistleblower Program – Another Enforcement Alert for International Business
• Voluntary Disclosure Becomes a Necessity

Representative Engagements

We have handled audits, investigations and voluntary disclosures involving undeclared foreign bank accounts in a wide range of circumstances.

• Handled all types of cases in various stages under the IRS settlement initiative.
  
  
• Advised and assisted many American taxpayers and their families in completing voluntary disclosures regarding previously undeclared foreign assets, including appropriate foreign bank account reports and repatriation of assets.
  
  
•  Represented major corporations that had been paying selected employees through offshore accounts or otherwise "off the books," and successfully guided the companies through the voluntary disclosure process.
  
  
• Advised numerous U.S. taxpayers on the proper procedure for making a voluntary disclosure in order to avoid criminal prosecution in situations where they had omitted income or inflated deductions on their prior returns.
  
  
• Advised a variety of taxpayers who, for whatever reason, had failed to file tax returns for a period of time and then wished to correct their prior omissions and avoid the worry of being discovered by the IRS.
  
  
• Helped taxpayers avoid criminal prosecution when the IRS has commenced an examination of a taxpayer's returns but has yet to discover what the taxpayer knows to have been serious prior inaccuracies or omissions