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Kovel Protections Upheld | Government Loses Aggressive Arguments for Waiver of Privilege for Controversy Advice

On October 27, the US District Court for the District of Minnesota issued an opinion in United States v. Adams, No. 0:17-cr-00064-DWF-KMM (D. Minn. Oct. 27, 2018), addressing attorney-client privilege issues relevant to accountants working alongside tax attorneys. The court adopted a narrow, nuanced view of the waiver that applies when the taxpayer discloses an accountant’s work to the Internal Revenue Service (IRS) by filing an amended return. In Adams, the taxpayer is facing a 17 count superseding indictment in which the government alleges he spearheaded a scheme to defraud investors in two companies and to embezzle corporate funds for his personal benefit. In late 2017, the government added three counts of tax evasion to the indictment, alleging that amended returns the taxpayer filed in late 2011 for the 2008, 2009 and 2010 tax years were willfully false under IRC § 7206(1). The addition of the tax evasion charges is significant for the government’s...

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Inaugural Seattle Tax in the City® | Highlights and Takeaways

McDermott extended its popular Tax in the City® program to Seattle, with a meeting on October 12 at the Amazon headquarters. McDermott established Tax in the City® in 2014 as a discussion and networking group for women in tax aimed to foster collaboration and mentorship, and to facilitate in-person connections and roundtable events around the country. One of the most attended Tax in the City® events to date, the meeting featured a CLE/CPE presentation about Privilege and the Ethics of Social Media by Cate Battin, Kristen Hazel and Jane May, followed by a roundtable discussion led by Elizabeth Chao, Britt Haxton, Sandra McGill and Diann Smith. Here’s what we covered at Seattle’s Tax in the City®: Privilege Update: Practice discipline with your privileged documents so as to minimize the risk of an inadvertent disclosure. For example, affirmative reliance on an opinion to avoid penalties could waive privilege. Ethics Case Studies: We walked through case studies...

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A 360-Degree View: August and September 2017

Upcoming Tax Controversy Activities in September: September 13, 2017: Tom Jones is presenting an update on Captive Tax in Charleston, South Carolina, at the South Carolina Captive Insurance Association Annual Conference. September 14, 2017: Robin Greenhouse and Kristen Hazel will be speaking at McDermott Will & Emery’s Tax in the City®: A Women’s Tax Roundtable meeting in New York City about tax ethics. September 18, 2017: Justin Jesse is speaking at the PLI Basics of International Taxation session in San Francisco about “Tax Concerns for US Persons Investing or Operating Outside of the US (Outbound Investments) – Active Business Operations.” Wrapping up August:. Our August 2017 blog posts are available on taxcontroversy360.com, or read each article by clicking on the titles below. To receive the latest on tax controversy news and commentary directly in your inbox as they are posted, click here to subscribe to our email list. August 3, 2017: Tax Court...

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John Doe Intervenes in Virtual Currency Summons Enforcement Case

The Internal Revenue Service (IRS) has broad authority under Internal Revenue Code (IRC) Section 7602 to issue administrative summonses to taxpayers and third parties to gather information to ascertain the correctness of any return. If the IRS does not know the identity of the parties whose records are covered by the summons, the IRS may issue a “John Doe” summons only upon receipt of a court order. The court will issue the order if the IRS has satisfied the three criteria provided in IRC Section 7609(f): The summons relates to the investigation of a particular person or ascertainable group or class of persons, There is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and The information sought to be obtained from the examination of the records (and the identity of the person or persons with respect to whose liability the summons is issued) is...

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Ethics in Tax Practice

On November 17, 2016, John Woodruff and Laura Gavioli gave a presentation to the Houston Chapter of the Tax Executives Institute (TEI) regarding the contours of privilege and work-product protection for in-house tax practitioners. Joining them on the panel were Paul Broman of BP and Susan Musch of Sasol. The group addressed potential waiver concerns over the life of a tax case, spanning from the reasons, pre-transaction, that a company may obtain a tax opinion to audit defense. McDermott greatly appreciates its relationship with TEI’s Houston Chapter and the opportunity to speak on these topics, which are of heightened interest in today’s tax enforcement environment.

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Facebook Battles IRS In Summons Enforcement Case

Facebook is in a protracted battle with the IRS related to its off-shoring of IP to an Irish affiliate. Read more here. The IRS issued an administrative summons for the documents, and Facebook has refused to comply with the summons. The IRS is asking the court to enforce the summons and force Facebook to turn over the requested documents. The court agreed that on its face, the summons was issued for a legitimate purpose. Facebook will now have to tell the court why it refuses to turn over the documents. Review the court order here. Assumedly, Facebook is asserting that it is not required to disclose the requested materials based upon a claim of privilege. The case demonstrates that the IRS is aggressively seeking documents and information from taxpayers and their representatives in cases involving international tax issues.

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IRS Finalizes Controversial Regulations Allowing Contractor Participation in Examinations

On July 12, 2016, the Internal Revenue Service (IRS) finalized regulations allowing third-party contractors (i.e., outside economists, engineers, consultants and attorneys) to participate in audits of taxpayers.  The regulations are not limited to allowing outside parties to review taxpayers’ books and records, but extend to the full participation in summons interviews.  The final regulations replace proposed and temporary regulations issued in 2014. The IRS’s position is highly controversial and several organizations submitted comments arguing against finalization of the regulations.  Additionally, the IRS’s position was the subject of a dispute between Microsoft and the IRS relating to the IRS's use of the law firm of Quinn Emmanuel in an audit of Microsoft’s transfer pricing.  It appears highly likely that taxpayers will challenge the validity of the final regulations in court, and at some point a court will be required to decide the issue.  In the wake of...

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