One Big Beautiful Bill Tax Act – How Can You Benefit?

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Focus: Taxability Of Social Security Benefits and Tax Deduction For Seniors  

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.

OBBBA introduces a temporary tax deduction for seniors aged 65 and older, potentially reducing or eliminating taxes on Social Security benefits for many, but it does not eliminate Social Security taxation entirely. This new deduction is in addition to the existing standard deduction and any age-based deductions. According to the Council of Economic Advisors, 88% of retirees who receive Social Security benefits will pay no tax on their benefits under OBBBA because of their total deductions exceeding their taxable Social Security benefits.

Prior Law – Partial Taxability Of Social Security Benefits

A taxpayer is subject to tax on a portion of his or her social security benefits only if the sum of the taxpayer’s modified adjusted gross income (“MAGI”) plus 50% of the social security benefits the taxpayer received exceeds a “base amount” determined by the taxpayer’s filing status. Married taxpayers who file a joint return must combine their incomes and benefits to figure whether any of their combined benefits are taxable, even if only one of the spouses received social security benefits.  This rule is referred to as the “income test”.

A taxpayer’s MAGI is essentially adjusted gross income (“AGI”) adjusted for certain items, the most common being an increase by the amount of any tax-exempt interest not included in AGI.

The “base amount” is:

(1)        $32,000 if the taxpayer is married filing jointly;

(2)        $0 if the taxpayer is married filing separately and lived with his or her spouse at any time during the tax year; or

(3)        $25,000 in any other case.

So for taxpayers who are filing married jointly, none of the social security benefits would be taxable where the sum of the taxpayer’s modified adjusted gross income (“MAGI”) plus 50% of the social security benefits the taxpayer received is less than or equal to $32,000.  For taxpayers who are single, the non-taxable threshold is $25,000.

For taxpayers exceeding thresholds above, under the income test you can expect to include at least 50% of the taxpayer’s social security benefits as income and in some cases, a taxpayer may have to include in income up to 85% of such benefits.

Prior Law – Additional Amount For Seniors Over The Standard Deduction Amount  

Regardless of whether a portion of social security benefits are taxable, an individual taxpayer is entitled to a higher standard deduction if the individual is age 65 or older at the end of the year and does not itemize deductions.  This amount is adjusted for inflation in each year and for tax years beginning in 2025, the additional standard deduction amount for the aged is $1,600. This amount is increased to $2,000 if the individual is unmarried and not a surviving spouse.

An individual is considered 65 on the day before his or her 65th birthday. Therefore, individuals who were born before January 2, 1960, can take the additional standard deduction for the aged for 2024. Individuals who were born before January 2, 1961, can take the additional standard deduction for age for 2025.

On a joint return, if both spouses are age 65 or older, both are entitled to an additional standard deduction for the aged. A married taxpayer who files a separate return can take the higher standard deduction for a spouse who is age 65 or older if the taxpayer can claim a personal exemption for the spouse because the spouse had no gross income and another taxpayer cannot claim the spouse as a dependent.

Current Law – Partial Taxability Of Social Security Benefits

OBBBA does not exempt Social Security benefits from taxation and the income test will still apply, but it does provide an additional deduction for seniors. The prior law computations for income testing discussed above still apply.

Current Law – OBBBA Senior Tax Deduction

OBBBA provides a new enhanced $6,000 deduction for individuals aged 65 and older, and a $12,000 deduction for married couples filing jointly, starting in 2025. This new deduction takes place regardless of whether the senior itemizes or takes the standard deduction.

But Beware……

OBBBA senior tax deduction is phased out for higher earners, with the full amount available for single filers with a Modified Adjusted Gross Income (“MAGI”) of up to $75,000 and for married couples filing jointly with MAGI up to $150,000. The application of the phase-outs will completely eliminate the deduction at $175,000 for single filers and $250,000 for joint filers. Also, keep in mind that this deduction is not a blanket exemption. While the deduction can significantly lower taxes for many, it does not eliminate Social Security taxation for everyone due to the pre-existing income test. Also this senior deduction is temporary, currently set to expire in 2028, unless extended by Congress.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It is advisable to consult with a tax professional to understand how these tax deductions might affect your situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

One Big Beautiful Bill Tax Act – How Can You Benefit?

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Focus: Deduction For Tips and Overtime Earnings From Income Tax

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.

One of the provisions of the OBBBA provides federal income tax deductions for a portion of an eligible worker’s tips and overtime earnings. Both deductions are temporary and are set to expire after the 2028 tax year.

Prior Law

All income is subject to federal income taxes except as provided otherwise under the Internal Revenue Code.  There is no distinction from worker’s tips or overtime earnings.  In addition, worker’s tips and overtime earnings are subject to Social Security and Medicare taxes (as well as state and local taxes).

New Law – Deduction for overtime pay

OBBBA creates a temporary deduction from gross income for premium pay for overtime hours worked. This means that if you earned $1,000.00 in overtime wages, that you could be able to claim as a deduction $1,000.00 this essentially exempting this income from federal taxation.

New Law – Deduction for tips

OBBBA creates a separate deduction for tipped workers, allowing them to deduct up to $25,000 of qualified tips earned.

But beware on the deduction for overtime pay …

OBBBA caps the deduction for overtime earnings at $12,500 (or $25,000, in the case of a joint return) for all employees. For higher earners, the allowable deduction is reduced by $100 for each $1,000 by which the employee’s gross income exceeds $150,000 (or $300,000, in the case of a joint return). That would mean for an individual worker, this deduction would be completely phased out upon the employee’s gross income exceeding $275,000.  Keep in mind that this deduction applies only to the premium compensation paid more than an employee’s regular rate of pay. If Federal law such as Section 7 of the Fair Labor Standards Act established a worker’s premium pay, then such premium compensation paid more than an employee’s regular rate of pay also qualified.  However, if such premium compensation is paid under some state-law requirements or under come collective bargaining agreement, such premium pay does not qualify for the deduction. The overtime deduction also does not apply to qualified tips.

But beware on the deduction for tips …

Similarly to the overtime deduction, the allowable deduction for tipped earnings is reduced by $100 for each $1,000 by which the tipped worker’s gross income exceeds $150,000 (or $300,000, in the case of a joint return). Only tips that are paid voluntarily by the customer or client, not subject to negotiation, may be deducted as qualified tips. Tips received under tip-sharing arrangements also count as qualified tips; however, earnings from mandatory service charges assessed automatically to customers are not deductible as qualified tips.

Furthermore, the deduction is available only for tips earned in “traditionally and customarily tipped industries.” This means the hospitality industry (restaurants and hotels), and other businesses where tips are common (such as nail or hair salons). It remains to be seen to what extent anyone who renders services could claim qualified tips; therefore, to provide clear guidance as tips received under tip-sharing arrangements count as qualified tips, the Treasury Secretary is required to publish within the next 90 days, a list of occupations that have customarily and regularly received tips on or prior to December 31, 2024.

OBBBA also includes an employer tax credit for Social Security taxes paid on all qualified tips which under prior law was applicable only to food or beverage service employees but now this credit extends to all employees that customarily receive tips in all industries such as in the industry of beauty services (i.e., hair care, nail care, and spa treatments).

This deduction also applies to individuals who are not statutory employees but who earn tips during a trade or business. The tip deduction only applies to the extent that the income from that trade or business (including tips) exceeds the full sum of allowable deductions (not counting the tip deduction) allocable to that trade or business.  In another words, to the extent that the tip deduction would result in a loss in your business, you would not be able to claim the full tip deduction amount.

Impact on employers

Starting with the 2025 tax year, employers are required to separately report on Form W-2 the portion of the employee’s pay that is For qualified overtime compensation and the employee’s qualifying tip-earning compensation. non-employees, businesses must publish a statement identifying the portion of payments made to the individual that are designated as cash tips, as well as the individual’s qualifying tip-earning occupation.

There is a transition rule for the 2025 tax year that permits employers to approximate a separate accounting of amounts designated as cash tips by any reasonable method specified by the IRS. Our office will be on the lookout for the IRS’ announcement on this and we will share this information when it becomes available.

If you are an employer using a payroll service, you should check with your service provider on what information they need to accurately report on the 2025 Form W-2 each employee’s qualified overtime compensation and qualifying tip-earning compensation.  Also, where the employer filed 2025 quarterly employment tax returns (Form 941) without claiming a tax credit for Social Security taxes paid qualified tips, amended employment tax returns should be prepared and filed to claim these overpaid amounts.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It is advisable to consult with a tax professional to understand how these tips and overtime deduction changes might affect your specific tax situation, especially if your income relies on tips and/or overtime or you are an employer. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

One Big Beautiful Bill Tax Act – How Can You Benefit?

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Focus: Getting The Most Of The Increase In Deduction For State And Local Taxes

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.

One of the provisions allows for individuals to claim a higher Deduction For State And Local Taxes or as they are commonly referred to as the “SALT deduction.”  The SALT deduction permits individuals to deduct as an itemized deduction on their federal individual income tax returns either (1) their state and local income taxes or (2) their state and local general sales taxes. On top of that, individual are also allowed to deduct their real estate taxes.  However, no deduction for all these taxes shall be allowed in excess of the statutory cap.

Prior law

The Tax Cuts And Jobs Act of 2017 (“TCJA”) had capped the SALT deduction at $10,000 ($5,000 for married individuals filing separately) from 2018 through 2025. Prior to 2018, there was no overall limit on the SALT deduction, although its value could be reduced for some high-income earners due to the Alternative Minimum Tax (“AMT”) and the phase-out limitation on itemized deductions.

New law

OBBBA raises the SALT deduction limit to $40,000 ($20,000 for married individuals filing separately) starting in 2025, with a 1% yearly increase through 2029, before reverting to the statutory cap $10,000 ($5,000 for married individuals filing separately) in 2030. What this means is that starting in 2025, individuals can deduct up to an additional $30,000 ($15,000 if married individual filing separately) in State And Local Taxes.  OBBBA also preserved the use of pass-through entity (“PTE”) tax workarounds, allowing business owners in high-taxes states (like California and New York) to utilize their flow-through entities to pay and deduct these State And Local Taxes without being subject to the SALT deduction cap.

But Beware …

The $40,000 ($20,000 for married individuals filing separately) SALT deduction cap starts to phase out once modified adjusted gross income (“MAGI”) exceeds $500,000. This cap amount decreases as your MAGI increases beyond $500,000 with a complete reversion to a SALT deduction cap to $10,000 ($5,000 for married individuals filing separately) once MAGI reaches $600,000. MAGI is essentially adjusted gross income (“AGI”) with some tax breaks added back in. Even with the $30,000 increase in the SALT deduction cap, individuals in high-tax states may still have more in State And Local Taxes paid than what is deductible with IRS so it makes sense to see if you can qualify for a PTE tax workaround.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It is advisable to consult with a tax professional to understand how these SALT changes might affect your specific tax situation, especially if your income is near the phase-out threshold. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Senate Confirms Trump’s Pick For IRS Commissioner – Billy Long. What Could This Mean To The Future Of IRS Tax Enforcement?

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On June 12, 2025, the Senate confirmed President Donald Trump’s nomination of former U.S. Rep. Billy Long of Missouri to be Internal Revenue Service commissioner, clearing the path for him to begin a term that will end in November 2027.

While the waiting for the Senate to confirm Billy Long, President Trump had promoted Gary Shapley as the new acting IRS Commissioner replacing Melanie Krause, who resigned from her role as acting IRS commissioner over a deal to share immigrants’ tax data with Immigration and Customs Enforcement to identify and deport people illegally in the U.S. But just 3 days in this position, President Trump replaced Shapley with Michael Faulkender.

It should be noted that “acting” personnel positions do not require approval by the Senate as such appointments are temporary and the permanent position is to be filled by someone else who is subject to approval by the Senate.

Danny Werfel, previously served as IRS commissioner during the Biden Administration until resigning January 20, 2025.  Billy Long will be the sixth person to lead the IRS this year and the 51th person to hold that title.

Difference In Backgrounds Between The Former And Current IRS Commissioner

Danny Werfel, who previously served as IRS commissioner until resigning January 20, 2025 held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed to be the next IRS Commissioner, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

Supreme Court Reverses IRS Loss Giving The IRS A “New Tool to Avoid Accountability”

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Tax levies are the way that the Internal Revenue Service gets your immediate attention. What they are saying is … We have tried to communicate with you but you have ignored us.

Tax Levies Are Different Than Tax Liens

Levies are used to seize your wages (commonly referred as garnishment) and whatever other assets you have: Checking accounts, savings accounts, autos, stocks, bonds or anything else that you own. If you have more in the bank than you owe, the IRS will only take that amount to satisfy your liability, leaving the rest for you.

A levy is different from an IRS lien. A lien is a claim used as security for the tax debt, while an IRS levy actually takes the property to satisfy the tax debt. Not only can the IRS seize and sell assets that you hold, the IRS can also levy property that is yours but held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

Procedure IRS Must Follow Before Starting Levy Action

Before the IRS can issue an initial round of levies, the IRS must issue a “Final Notice of Intent to Levy and Notice of Your Right To a Hearing” (i.e., “Final Notice”) to the taxpayer, allowing up to 30 days from the date of the Final Notice to pay in full or to find another solution.

If the IRS levies your state tax refund, you would receive a “Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing.” Ignoring these notices will only make matters worse.

Once the 30 days have passed, the IRS does not have to give any further notice before seizing your assets, including your checking accounts, savings accounts, and your wages.

A timely filing within 30 days of the date on the Final Notice for a Collection Due Process (“CDP”) hearing can stop the IRS’ ability to start levies and have your case handled by the Office Of Appeals.  Instead of an official in Collections handling your case, an independent official in the Office Of Appeals will adjudicate your case.

Some of the issues on appeal may include:

  • You paid all you owed before the IRS sent the levy notice,
  • The IRS assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
  • The IRS made a procedural error in an assessment,
  • The time to collect the tax (called the statute of limitations) expired before IRS sent the levy notice,
  • You did not have an opportunity to dispute the assessed liability,
  • You wish to discuss the collection options, or
  • You wish to make a spousal defense.

At the conclusion of the hearing, the Office of Appeals will issue a determination. If the taxpayer does not agree with the determination, the taxpayer has up to 30 days after the determination letter date to bring a lawsuit in U.S. Tax Court to contest the determination.

What Happens If You Fail To File An Appeal?

If you decide to do nothing or fail to timely file a request for a CDP Hearing, the levy will commence immediately and will end when:

  • The levy is released,
  • You pay your tax debt, or
  • The time expires for legally collecting the tax.

If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This period allows the taxpayer time to solve any problems from the levy. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. If the IRS made a mistake by levying your bank account and you incurred bank charges because of the erroneous levy, you may be entitled to a reimbursement from the IRS by filing a claim with the IRS within one year after your bank charged you the fee.

How Collection Appeals Are Handled By The U.S. Tax Court.

Contrary to public perception, IRS Appeals Officers at the Office of Appeals generally have more discretion than do the judges of the U.S. Tax Court to resolve IRS collection actions.  That is because when the Tax Court reviews a discretionary determination of the IRS Office Of Appeals, it will only change that action when it is convinced the IRS Appeals Officer’s decision was made with an “abuse of discretion.”

In a collection appeal, Appeals Officers will collect any new information from the taxpayer and refer the work-up back to the originating collection function.  For example, if a taxpayer in a collections hearing wants the IRS to release or withdraw a levy on the basis that the IRS accept an Offer In Compromise (“OIC”), Appeals will not decide whether the IRS should accept the OIC.  Instead, the Appeals Officer sends the OIC to the IRS unit that processes all OIC’s and that Unit will make the decision.  Only if the taxpayer then disagrees with that decision does the Appeals Officer review it.

In such an example the taxpayer still benefits from a more expediated review of the OIC than if the OIC was directly filed with the IRS OIC Unit.  Also, the taxpayer now has someone accountable at the IRS who can oversee the consideration and processing of an OIC which is especially valuable considering that it is common for the IRS OIC Unit to make errors that are not in favor of the taxpayer.

Of course, Appeals will still consider hazards of litigation in resolving issues which for a CDP Appeal allows a taxpayer to subsequently appeal to the U.S. Tax Court and that is where we turn to a recent decision by the U.S. Supreme Court.

Impact Of A Recent U.S. Supreme Court Ruling.

The U.S. Supreme Court ruled on June 12, 2025 in the case of Commissioner of Internal Revenue v. Zuch, No. 24-416, that the U.S. Tax Court did not have jurisdiction to review a New Jersey woman’s collection dispute with the IRS after the IRS stopped going after her unpaid taxes.

In 2010 and 2011, while still married, Jennifer Zuch and Patrick Gennardo made two estimated tax payments totaling $50,000 for their 2010 taxes, without specifying how to allocate the payments between them. In September 2012, after filing separate tax returns, Gennardo reported owing $385,393 while Zuch reported an overpayment. The IRS applied the entire $50,000 in estimated payments to Gennardo’s liability. When Zuch later filed an amended return reporting additional income and claiming her share of the $50,000, the IRS assessed the additional tax but did not credit her for any portion of the estimated payments, even after Gennardo filed his own amended return indicating the payments should be allocated to Zuch.

In August 2013, the IRS notified Zuch of its intent to levy her property to collect approximately $36,000 in unpaid 2010 taxes. During the ensuing CDP hearing, Zuch challenged her underlying tax liability, arguing she was entitled to credit for the estimated payments. Meanwhile, over several years while Zuch was disputing her 2010 liability, the IRS repeatedly took her tax refunds from other years and applied them to what it calculated as her 2010 liability, eventually reducing the balance to zero by April 2019.

The case went through the U.S. Tax Court, which initially denied summary judgment and remanded to the IRS Office of Appeals. When the balance was reduced to zero through the IRS’s seizure of Zuch’s later tax refunds, the Tax Court dismissed the case as moot. The U.S. Court of Appeals for the Third Circuit reversed, holding that the IRS cannot eliminate Tax Court jurisdiction over a disputed tax liability simply by seizing a taxpayer’s refunds to cover the contested debt.  The Supreme Court reversed stating that given that the outstanding liability is zero and there is no levy for the IRS to maintain, the taxpayer cannot get any relief from the Court including contesting the manner that the IRS reduced the liability to zero.

It is notable that Justice Gorsuch who was the sole dissenting justice, argued that the court’s ruling endorses a view of the law that gives the IRS a “roadmap for evading Tax Court review and never having to answer a taxpayer’s complaint that the IRS has made a mistake.”

What Should You Do?

The decision by the U.S. Supreme Court makes it more difficult for taxpayers to seek relief in U.S. Tax Court from IRS Collection actions.  Therefore, it is essential that if you owe the IRS and are facing potential collection action, that you engage tax counsel early on so that you have the best chance to get the most favorable result in the Office Of Appeals.   You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

How Can The Reductions In IRS Workforce Impact You?

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As we all have to file tax returns, pay taxes and be subject to enforcement of the tax laws, now is the time to prepare and seize opportunities to save.

Reductions In IRS Workforce

Since January 2025, there have been several executive orders to reduce the size of the federal workforce.

According to a report issued by the Treasury Inspector General For Tax Administration issued May 5, 2025, in February 2025, the IRS had approximately 103,000 employees. Since then, more than 11,400 IRS employees either received termination notices as probationary employees or voluntarily resigned, representing an 11% reduction to the agency’s workforce.

Specifically:

  • 7,315 probationary employees received termination notices.
  • 4,128 employees were approved to accept the Deferred Resignation Program (an additional 522 employees are pending approval).

 

Source: Treasury Inspector General For Tax Administration Report issued May 5, 2025.

Advantages To Filing A 2024 Tax Return – Getting Money Due To You

Most people must file a federal tax return. Some people with a lower income are not required to file. However, these individuals should still consider filing for a refund of federal income tax withheld and especially if they are also eligible for certain tax credits, like the earned income tax credit.

A 2024 Federal individual income tax return is normally due April 15, 2025, unless you timely file an extension; however, if you are located in a declared Federal disaster area, you could have additional time without the need to file an extension.  A timely filed extension extends the filing deadline to October 15, 2025.  Keep in mind though that this is only an extension to file and not an extension to pay.

Remember, until a tax return gets filed, the IRS cannot work on processing your claim for a refund of any overpayment and for this tax season you should do what you can to accelerate the filing of your 2024 tax return to avoid potential processing delays.

The soonest delay could come from layoffs and resignations of IRS personnel that have already occurred or are anticipated.  Another potential delay is that if Congress does not take action by March 14, 2025 to keep the government running, we could be facing a government shutdown.

Here are four things to consider when determining whether to file a 2024 tax return:

  1. Tax withheld or paid–
  • Did your employer withhold federal income tax from your pay in 2024?
  • Did you make estimated tax payments?
  • Did you get a refund last year, and have it applied to your 2024 tax?

If you answered “yes” to any of these questions, you may be owed a refund. To receive the refund, you must file a 2024 tax return.

  1. Earned income tax credit– This is a tax credit for low- to moderate-income wage earners. It is a refundable tax credit, and the amount depends on the taxpayer’s income and number of children. The credit doesn’t just reduce the amount of tax owed but could also result in a refund. However, once again, to claim the EITC, you must file a return.
  2. Child tax credit– Taxpayers can claim this credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,700 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax. Taxpayers may qualify for the full amount for each child if they earn $200,000 as an individual filer or $400,000 for joint filers. The credit phases out completely for incomes above that threshold.
  3.  American opportunity or lifetime earning credits – Two credits can help taxpayers paying higher education costs for themselves, a spouse or dependent. Even if the taxpayer doesn’t owe any taxes, they may still qualify. You need to complete Form 8863, Education Credits and file it with the tax return.

If you do not qualify for the either of these credits, you may benefit from taking the Tuition and Fees Deduction on your tax return.

Getting Late Filing Penalties Abated

Filing timely is very important because the late-filing and late-payment penalties and interest on unpaid taxes add up quickly. However, in some cases, a taxpayer filing after the deadline may qualify for penalty relief. For those charged a penalty, they may contact the IRS by calling the number on their notice and explain why they couldn’t file and pay on time.

Taxpayers who have a history of filing and paying on time often qualify for administrative penalty relief. A taxpayer usually qualifies if they have filed and paid timely for the past three years and meet other requirements.

An Opportunity For Taxpayers Who Owe The IRS

For people who owe the IRS, keep in mind that generally the IRS has 10 years to collect.  This period of time is referred to as the Statue Of Limitations For Collections.  The running of this Statute is not paused during a government shutdown.  Additionally, with a reduced workforce at IRS or a workface that is overwhelmed with catch-up after coming back from a government shut-down, there is a chance that older liabilities could be written off due to an expired Statue Of Limitations For Collections.

Also, do not think that if you owe the IRS your tax problem will disappear because of the efficiency measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2025, taxpayers who expect to owe for 2024 should have their 2024 income tax returns done now so that the 2024 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2025.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

The take away from this – use the present uncertain circumstances to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Trump’s Pick For Acting IRS Commissioner – Michael Faulkender. What Could This Mean To The Future Of IRS Tax Enforcement?

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While President Trump’s nominee, former U.S. Representative Billy Long of Missouri, to head the IRS is waiting for approval by the Senate, President Trump had promoted Gary Shapley as the new acting IRS Commissioner replacing Melanie Krause, who resigned from her role as acting IRS commissioner over a deal to share immigrants’ tax data with Immigration and Customs Enforcement to identify and deport people illegally in the U.S. But just 3 days in this position, President Trump replaced Shapley with Michael Faulkender.  Faulkender will be the fifth person to lead the IRS this year.

It should be noted that “acting” personnel positions do not require approval by the Senate as such appointments are temporary and the permanent position is to be filled by someone else who is subject to approval by the Senate. If Billing Long is confirmed as the IRS Commissioner, he will be the 51th person to hold that title.

Who Is Gary Shapley?

Mr. Shapley first came into public light as an IRS whistleblower who testified publicly about investigations into Hunter Biden’s taxes claiming he was retaliated against for cooperating in the investigations. In March 2025, Shapley was promoted to Deputy Chief of IRS Criminal Investigations, and another IRS investigator who testified about Biden’s taxes, Joseph Ziegler, was assigned to the Treasury Secretary’s office as a senior adviser for IRS reform.

Shapley and Joseph Ziegler say they were removed from the Hunter Biden case in December 2022 after they told their bosses that the Justice Department and former Delaware U.S. Attorney David Weiss had engaged in a pattern of “slow-walking investigative steps” and delaying enforcement actions in the months before the 2020 presidential election won by Democrat Joe Biden.

Who Is Michael Faulkender?

During Trump’s first term, Faulkender worked at the Treasury Department as assistant secretary for economic policy. He was confirmed in March by the Senate, in a 53-43 party line vote, to be the deputy secretary under Bessent during Trump’s second term.

It is not publicly known why Shapley did not last and the Trump Administration states that Shapley will remain a senior official in the Criminal Investigation Division at the IRS but what should be clear is that there will be big differences in background between the former IRS Commissioner and the next IRS Commissioner.

Difference In Backgrounds Between The Former And Potential Next IRS Commissioner

Danny Werfel, who previously served as IRS commissioner until resigning January 20, 2025 held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed to be the next IRS Commissioner, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

Trump’s Pick For Acting IRS Commissioner – Gary Shapley. What Could This Mean To The Future Of IRS Tax Enforcement?

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While President Trump’s nominee, former U.S. Representative Billy Long of Missouri, to head the IRS is waiting for approval by the Senate, President Trump is reportedly planning to promote Gary Shapley as the new acting IRS Commissioner replacing Melanie Krause, who resigned from her role as acting IRS commissioner over a deal to share immigrants’ tax data with Immigration and Customs Enforcement to identify and deport people illegally in the U.S. It should be noted that “acting” personnel positions do not require approval by the Senate as such appointments are temporary and the permanent position is to be filled by someone else who is subject to approval by the Senate. If Billing Long is confirmed as the IRS Commissioner, he will be the 51th person to hold that title.

Who Is Gary Shapley?

Mr. Shapley first came into public light as an IRS whistleblower who testified publicly about investigations into Hunter Biden’s taxes claiming he was retaliated against for cooperating in the investigations. In March 2025, Shapley was promoted to Deputy Chief of IRS Criminal Investigations, and another IRS investigator who testified about Biden’s taxes, Joseph Ziegler, was assigned to the Treasury Secretary’s office as a senior adviser for IRS reform.

Shapley and Joseph Ziegler say they were removed from the Hunter Biden case in December 2022 after they told their bosses that the Justice Department and former Delaware U.S. Attorney David Weiss had engaged in a pattern of “slow-walking investigative steps” and delaying enforcement actions in the months before the 2020 presidential election won by Democrat Joe Biden.

Difference In Backgrounds Between The Former And Potential Next IRS Commissioner

Danny Werfel, who previously served as IRS commissioner until resigning January 20, 2025 held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed to be the next IRS Commissioner, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

The Threat Of Harvard’s Revocation Of Tax Exemption Status – What Should Other Non-Profit Organizations Learn From This?

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With all the publicity on Harvard University’s continued tax exemption status, any Non-Profit Organization including churches and charities should be aware of their filing and operational obligations to insure preservation of their tax exempt status.

A section 501(c)(3) organization will jeopardize its exemption if it ceases to be operated exclusively for exempt purposes. An organization will be operated exclusively for exempt purposes only if it engages primarily in activities that accomplish the exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities does not further an exempt purpose. A 501(c)(3) organization:

  • must absolutely refrain from participating in the political campaigns of candidates for local, state, or federal office
  • must restrict its lobbying activities to an insubstantial part of its total activities
  • must ensure that its earnings do not inure to the benefit of any private shareholder or individual
  • must not operate for the benefit of private interests such as those of its founder, the founder’s family, its shareholders or persons controlled by such interests
  • must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose, such as a school’s operation of a factory
  • may not provide commercial-type insurance as a substantial part of its activities
  • may not have purposes or activities that are illegal or violate fundamental public policy
  • must satisfy annual filing requirements

In addition to loss of the organization’s section 501(c)(3) exempt status, activities constituting inurement may result in the imposition of penalty excise taxes on individuals benefiting from excess benefit transactions.

A tax-exempt organization that does not file a required annual return or notice for three consecutive years automatically loses its tax-exempt status.  . An automatic revocation is effective on the original filing due date of the third annual return or notice. (Section 6033(j) of the Internal Revenue Code).

Automatic revocation of exemption list

The IRS publishes the list of organizations whose tax-exempt status was automatically revoked because of failure to file a required Form 990, 990-EZ, 990-PF or Form 990-N (e-Postcard) for three consecutive years.

The list gives the name, employer identification number (EIN), organization type, last known address the organization provided to the IRS, effective date of revocation and the date the organization was added to the list. For organizations that applied for and received reinstatement, the list gives the date of reinstatement. The IRS updates the list monthly.

Effect of losing tax-exempt status

If an organization’s tax-exempt status is automatically revoked, it is no longer exempt from federal income tax. Consequently, it may be required to file federal income tax returns (typically Form 1120 if incorporated or Form 1014 if formed as a trust) and pay applicable income taxes.

An automatically revoked organization is not eligible to receive tax-deductible contributions and will be removed from the cumulative list of tax-exempt organizations, Publication 78. The IRS will also send a letter informing the organization of the revocation.

Donors can deduct contributions made before an organization’s name appears on the Automatic Revocation List.

State and local laws may affect an organization that loses its tax-exempt status as well.

Reinstating tax-exempt status

The law prohibits the IRS from undoing a proper automatic revocation and does not provide for an appeal process. An automatically revoked organization must apply to have its status reinstated, even if the organization was not originally required to file an application for exemption.  There are four ways to be reinstated which are outlined in Revenue Procedure 2014-11.

  1. Streamlined retroactive reinstatement

Organizations that were eligible to file Form 990-EZ or 990-N (ePostcard) for the three years that caused their revocation may have their tax-exempt status retroactively reinstated to the date of revocation if they have not previously had their tax-exempt status automatically revoked.

Complete and submit Form 1023 , Form 1023-EZ, Form 1024 or Form 1024-A with the appropriate user fee no later than 15 months after the later of the date of the organization’s Revocation Letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website.

In addition, the IRS will not impose the Section 6652(c) penalty for failure to file annual returns for the three consecutive taxable years that caused the organization to be revoked if the organization is retroactively reinstated under this procedure and files properly completed and executed paper Forms 990-EZ for all such taxable years.

  1. Retroactive reinstatement process (within 15 months)

Organizations that cannot use the Streamlined Retroactive Reinstatement Process (such as those that were required to file Form 990 or Form 990-PF for any of the three years that caused revocation or those that were previously auto-revoked) may have their tax-exempt status retroactively reinstated to the date of revocation if they:

  • Complete and submit Form 1023, Form 1024 or Form 1024-A with the appropriate user fee not later than 15 months after the later of the date on the organization’s revocation letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website.
  • Include with the application a statement establishing that the organization had reasonable cause for its failure to file a required annual return for at least one of the three consecutive years in which it failed to file.
  • Include with the application a statement confirming that it has filed required returns for those three years and for any other taxable years after such period and before the post-mark date of the application for which required returns were due and not filed.
  • File properly completed and executed paper annual returns for the three consecutive years that caused the revocation and any following years.

In addition, the IRS will not impose the Section 6652(c) penalty for failure to file annual returns for the three consecutive taxable years that caused the organization to be revoked if the organization is retroactively reinstated under this procedure.

  1. Retroactive reinstatement (after 15 months)

Organizations that apply for reinstatement more than 15 months after the later of the date on the organization’s revocation letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website may have their tax-exempt status retroactively reinstated to the date of revocation if they satisfy all of the requirements described under the “Retroactive reinstatement (within 15 months)” procedure EXCEPT that the reasonable cause statement the organization includes with its application must establish reasonable cause for its failure to file a required annual return for all three consecutive years in which it failed to file.

In addition, the IRS will not impose the Section 6652(c) penalty for failure to file annual returns for the three consecutive taxable years that caused the organization to be revoked if the organization is retroactively reinstated under this procedure.

  1. Post-mark date reinstatement

Organizations may apply for reinstatement effective from the post-mark date of their application if they complete and submit Form 1023, Form 1023-EZ, Form 1024 or Form 1024-A with the appropriate user fee.

What’s a reasonable cause statement?

A reasonable cause statement establishes that an organization exercised ordinary business care and prudence in determining and attempting to comply with its annual reporting requirement. The statement should have a detailed description of all the facts and circumstances about why the organization failed to file, how it discovered the failure, and the steps it has taken or will take to avoid or mitigate future failures.

Avoid being automatically revoked again – file annual returns

An organization can be automatically revoked again if it fails to file required returns for three consecutive years beginning with the year in which the IRS approves the application for reinstatement. Organizations seeking reinstatement of tax-exempt status after a subsequent revocation are not eligible to use the Streamlined Retroactive Reinstatement Process.

Reinstatement By The IRS Results In The Issuance Of A New Determination Letter

If the IRS determines that the organization meets the requirements for tax-exempt status, it will issue a new determination letter. The IRS also will include the reinstated organization in the next update of Tax Exempt Organizations Search (Pub. 78 database), and indicate in the IRS Business Master File (BMF) extract that the organization is eligible to receive tax-deductible contributions. Donors and others may rely upon the new IRS determination letter as of its stated effective date and on the updated Tax Exempt Organizations Search and BMF extract listings.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes and for non-profit organizations to preserve their tax exempt status. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

 

Florida Woman Pleads Guilty to Conspiring with Family to Hide from the IRS More than $90M In Offshore Bank Accounts

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As reported by the Department Of Justice (“DOJ”) in a press release issued March 10, 2025, Gilda Rosenberg, of Golden Beach, Florida pleaded guilty to conspiring to defraud the United States by, among other things, concealing tens of millions of dollars in undeclared foreign financial accounts, filing false tax returns, and evading taxes.

The DOJ stated that according to court documents and statements made in court, between 2010 and 2022, Rosenberg conspired with two family members to conceal from the IRS more than $90 million in assets and income held in undeclared bank accounts in Andorra, Israel, Panama and Switzerland.

Rosenberg’s family had maintained offshore accounts since the 1970s. By the late 1990s, Rosenberg — who was identified as an owner and an authorized signer on some of the accounts — knew that she and her family members had not disclosed their ownership of these foreign financial accounts to the U.S. government and that they had not paid any taxes on the income earned from the assets in those accounts as was required by law.

Starting in the early 2000s, the family consolidated their assets at accounts with Credit Suisse in Switzerland and the United Kingdom. Family members told Credit Suisse employees that they were U.S. persons and seeking to hide their assets from U.S. authorities. The assets remained at Credit Suisse until 2013, when Credit Suisse closed the accounts because the family members were U.S. persons.

When Credit Suisse closed their accounts, the family moved their assets, which were typically titled in the names of nominee entities, to new accounts located at Bank Leumi in Israel, Union Bancaire Privée (UBP) and PKB Privat Bank SA in Switzerland, and an Andorran bank. Rosenberg was documented as the beneficial owner of accounts at UBP and the Andorran bank. She also signed false account opening documents that claimed she was a Colombian resident and not a U.S. citizen.

Rosenberg, as well as her relatives, did not file Reports of Foreign Bank and Financial Accounts (FBAR’s) disclosing their foreign financial accounts, as they were required to do. In addition, Rosenberg and her relatives continued to file false tax returns that omitted income generated by their offshore assets.

In or about 2017, as part of a scheme to continue to evade their U.S. tax and reporting obligations, Rosenberg and the family members divided the family’s assets and signed documents to make it appear that Rosenberg and a relative gifted the offshore assets to another relative after he had renounced his U.S. citizenship. Rosenberg and her relatives then tried to covertly transfer assets to Rosenberg in the United States and to conceal their ongoing and historical tax evasion. To do so, Rosenberg and her relatives, among other things, created fake loan and investment documents to make it appear that transfers to and from Rosenberg were loans and business investments.

From 2010 through 2017, Rosenberg filed false tax returns that did not report income she earned from assets in the account she concealed at UBP. For the 2009 through 2017 tax years, unreported income belonging to Rosenberg and two of her co-conspirators totaled more than $5.5 million, causing a tax loss of $1,927,342.

Rosenberg is scheduled to be sentenced on May 30, 2025. She faces a maximum penalty of five years in prison as well as a period of supervised release, restitution and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

The FBAR Penalty

The Bank Secrecy Act (BSA) requires that a Form FinCEN 114 (formerly Form TDF 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. A taxpayer who non-willfully fails to timely file an FBAR can be assessed a penalty of at least $10,000.00 per year of non-compliance. The IRS has taken the position that this non-willful penalty is assessed on an account-by-account basis. For example, a person whose failure to file an FBAR form is non-willful and has three accounts totaling $50,000 could potentially be assessed the maximum $10,000 penalty for each account, for a total of $30,000 per year, while a person with one account with a balance of $300,000 would pay only one $10,000 penalty per year.  Additionally, like Rosenberg, a noncompliant taxpayer can be looking at criminal prosecution.

What You Must Know About IRS FBAR Penalty Negotiations

  1. The penalties for noncompliance in FBAR enforcement are staggering.

FBAR penalties can be unfair as the penalties are based on the account size and not on how much tax you avoided. This is a stark contrast to other IRS penalties which are based on how much additional tax is owed.  Given this difference you will always have a bigger risk and more to lose when dealing with FBAR penalties.

  1. The two types of FBAR penalties.

The “get off gently FBAR penalty” – If the IRS feels that you made an innocent mistake and “not willfully” ignored to file your FBAR, your “get off gently penalty” will be $10,000 per overseas account per year not reported. To illustrate, if you have five foreign accounts that you failed to report on your FBAR in each of five years, the IRS can penalize you $50,000 per form (as supported by the Bittner and Kaufman cases) or $250,000 if imposed by account regardless of whether you even have that amount sitting in your foreign accounts.

The “disastrous FBAR penalty” – If the IRS can show that you “intentionally” avoided filing your FBAR’s, your minimum “disastrous FBAR penalty” will be 50% of your account value.   Additionally, the IRS may also press for criminal charges and if convicted of a willful violation, this can also lead to jail time. The “disastrous FBAR penalty” can also be assessed multiple times thus wiping out your entire savings.

Under both willful and non-willful penalties “the violation flows from the failure to file a timely and accurate FBAR.

  1. The taxpayer’s burden of proving “reasonable cause”

You are obligated to pay the penalty the IRS deems necessary. The IRS can assume the “disastrous FBAR penalty” and they are not required to prove willfulness. It will be the taxpayer that bears the heavy burden of proving that the taxpayer’s failure to comply was due to reasonable cause and not from “willful neglect.”

  1. Your appeal option.

Having exhausted all administrative remedies within the IRS first, you can then appeal the proposed FBAR penalties to a Federal District Court but for that court to have jurisdiction you must pay the assessments in full and then sue the IRS in a district court for refund. Since coming up with the money may be impossible for most taxpayers, consider hiring an experienced tax attorney to make the most of the IRS appeals process and perhaps avoid the need for litigation.  Keep in mind that in the appeals process, you do not have to pay any FBAR penalty until the end. Second, you can be successful if IRS remedies itself thus making court filings unnecessary. And third, even if the administrative remedies do not yield you success, your tax attorney can attempt to negotiate with the IRS to lower your FBAR penalties without going for a trial.

  1. The Voluntary Disclosure Route.

The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations (1) a streamlined procedure for filing amended or delinquent returns and (2) terms for resolving their tax and penalty obligations.

Taxpayers will be required to certify that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures”) may still use the streamlined procedures.

What Should You Do?

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider making a voluntary disclosure to the IRS. Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.