Tax Planning, Compliance & Controversy

An internal investigation neutralizes federal accusations against a New England business

When the part owner of a business in New England was suspected of money laundering, the federal government went after him hard with a forfeiture petition. We took the time to figure out how our client’s business made money and then sat him down in front of the U.S. Attorney, FBI and the IRS. Our client explained how his business worked, and everybody’s jaw dropped. The matter was resolved favorably for our client.

Substantiating business expenses for an IRS audit

An author turned to us for help when she was audited for her home office and research expenses. The IRS said that nothing she claimed was deductible. In response to the IRS, we compiled bank statements, pictures, receipts and other documentation. We organized everything into a single package and presented it to the IRS, which agreed with our position that the claimed expenses were allowable. This was an especially rewarding case because we were able to fully substantiate a somewhat unorthodox approach to deducting these expenses.

An assessment substantially reduced after correcting a faulty methodology

Our client, a dual U.S.-foreign citizen, made a voluntary disclosure of her U.S. income tax liabilities through the IRS Offshore Voluntary Disclosure Initiative (OVDI). The original agent assigned to her case proposed an additional tax assessment of several hundred thousand dollars. We conducted a comprehensive review of the amended tax returns and the client’s foreign tax returns. In our argument to the IRS, we showed that the methodology and the proposed assessment were erroneous based on the amount of foreign taxes paid and the applicable tax treaty. As a result, the IRS substantially reduced the client’s proposed tax assessment and, following her “opt out” of the OVDI, waived all accuracy-related penalties and refunded the taxes that she overpaid for closed tax years.

An all-encompassing corporate income tax audit concluded with a “no change” letter

A tax return preparer attempted to file an extension for one of his corporate clients, but instead filed a return listing zero income and expenses for a particular tax year. After comparing this return with the credit card payments reported on Forms 1099-K for that year, the IRS subjected the taxpayer to a comprehensive audit of all income and expense items that the company attempted to report on an amended income tax return. The auditor told us that the preparer sent him a box of unsorted documents and that he had no idea where to start. We asked him to return the box to us so that we could organize and re-present the material in a cohesive way. By establishing consistency between the company’s financial records and copies of all the invoices for each expense category, we were able to obtain the best possible result for our client—a “no change” letter.

An invoicing investigation uncovers widespread fraud

When we were hired by a Massachusetts manufacturer after the HR director of the company realized that invoices were being padded, we investigated who was involved and determined how we were going to prove it. As we proceeded to investigate the client’s allegation of fraudulent invoice and expense practices, we began to unravel a widespread scheme involving several employees. Our report to the client could have served as an indictment. It resulted in several employees being terminated with cause and saved the client hundreds of thousands of dollars annually.

Advised an out-of-state engineering firm on multi-jurisdiction tax issues

A client headquartered and incorporated outside of Massachusetts recently established an office and registered to do business here as a foreign corporation. Several of the shareholder/employees who would be working here were residents of other New England states.  The Bowditch team drafted an advisory for the employer describing payroll tax obligations as well as potential tax reporting and liability issues with respect to each shareholder/employee in each jurisdiction.

Other experience

• National digital marketing company in a tax controversy involving sales tax audit and employee classification issues. Identified the appropriate structure to minimize tax burden.
• The simultaneous sale of a southeastern Massachusetts elder care services corporation to a competitor with the resolution of past due taxes owed to the IRS, Massachusetts Department of Revenue (“DOR”), and Massachusetts Department of Unemployment Assistance (“DUA”). We were able to resolve the crushing debts owed to the tax authorities, the sale of the client’s assets for fair market value, and eliminate any pass through tax liabilities to the client’s shareholders.
• Partners of a multi-tiered commercial real estate development at the Massachusetts Appellate Tax Board (“ATB”) who allegedly failed to report certain cancellation of debt as income to the partnership. We successfully showed DOR counsel why the cancelled debts were not income to certain partners resolving the matter for a nominal sum before incurring the costs of trial preparation.
• In a series of cases docketed in the United States Tax Court as Spanish Village Realty Group, Joseph Irom, TMP v. Commissioner, USTC Docket 27502-07; Prince Manor Apartment Associates, David Kraus, Partner v. Commissioner, USTC Docket 23574-06; and Regency Plaza Associates, Auchter, TMP v. Commissioner, USTC 7150-08 and 7197-08; we successfully challenged notices of deficiency to the partners of these real estate commercial development projects, totaling more than $8 million, and won refunds for those who originally paid the IRS assessments after discovery revealed substantial errors by the IRS in their calculation of income following the bankruptcy proceedings of each of these partnerships.
• Negotiated the wind-down and resolution of a company saddled with crushing tax debts owed to IRS and DUA that resulted from the 2008 recession and organized the formation of a new business allowing the promoters to continue in business.
• Advice and counsel to clients, board members of a local bank, in response to a variety of questions including matters such as income tax basis of OREO property acquired, treatment of loan loss reserves, compensation of bank executives, and retirement plans.
• Significant net-worth client, including a high seven-figure income, in an income tax audit before the IRS Worcester office.  The audit raised a number of issues, including substantial capital gains, installment sale income and charitable contributions arising out of the client’s multi-million dollar payout from the sale of the client’s former employer.  The engagement required representation before several audit conferences and intensive document production and resulted in a “no change” report issued to the client.