Focus on Tax Controversy

MARCH 2017 VOLUME 1, ISSUE 1

to Roth IRAs, were recast as dividends to the shareholders. In this issue: The well-reasoned Sixth Circuit opinion in Summa Holdings, Inc. v. Commissioner1 questioned the legitimacy Sixth Circuit Rules in Taxpayer’s Favor in Form over Substance Claim...... 1 of the substance-over-form doctrine and found that the transactions complied with the Internal Revenue Code in Tax Court Unwilling to Abandon Phantom all respects. Regulations...... 3 Partnership that Lacked Economic Substance Liable for 40 Overview Percent Gross Valuation Misstatement Transaction Structure Penalty...... 5 Summa Holdings (“Summa”) is the parent corporation of a Tenth Circuit Limits Judicial Review Following a CDP group of companies that manufacture industrial products. Hearing...... 7 James Benenson Jr. and a trust for the benefit of his Third Circuit Finds Error in Disclosure of an Attorney’s Email sons, James III and Clement, owned over 99 percent of Given to Grand Jury...... 9 Summa. In 2001, James III and Clement each contributed Tax Shelter Investor Not Liable for Penalties on Distressed $3,500 to newly formed Roth IRAs. Each Roth IRA then Debt Transaction...... 11 purchased shares of JC Export, Inc. (“JC Export”), a newly formed domestic international sales corporation (“DISC”). Sanctions Ordered for Taxpayer’s Failure to Produce Foreign Bank Records...... 13 JC Export Holding, Inc. (“JC Holding”), a newly formed corporation, then purchased the shares of JC Export Tax Court Rejects Eighth Amendment Change to Penalty from the Roth IRAs. As a result, from January 2002 to Statute...... 14 December 2008, each Roth IRA owned 50 percent of JC Elan Pharmaceuticals v. New Jersey Division of Taxation Holding, which was the sole owner of JC Export.2 *** Economic Nexus as a State Income Tax Planning Opportunity...... 16 A DISC is entitled to receive up to $10 million of tax-free DOJ’s Criminal Fraud Section Provides Valuable Guidance commissions from qualified exports in conjunction with on the Evaluation of Corporate Compliance Programs...... 18 an export company. The DISC may pay dividends, which Winston & Strawn’s Tax Controversy and are taxed to its shareholders at their applicable rates.3 Litigation Practice...... 21 Dividends from a C corporation are not taxable to a Roth IRA and the owner of a Roth IRA does not pay tax on gains on withdrawals.4

From 2002 to 2008, Summa transferred $5,182,314 as Sixth Circuit Rules in Taxpayer’s Favor DISC commission to JC Export. JC Export distributed the in Form over Substance Claim entirety of the commissions to JC Holding, which paid 33 percent income tax on the dividend and distributed the On February 16, 2017, the United States Court of Appeals balance as a dividend in each shares to each Roth IRA. for the Sixth Circuit unanimously overturned a June 2015 Tax Court decision that sided with the Commissioner. In the Tax Court decision, a family-owned export company’s 1 848 F.3d 779 (6th Cir. 2017). 2 Id. at 783-84. tax-favorable export commissions, which were contributed 3 26 U.S.C. §§ 991, 995. 4 26 U.S.C. § 408(d)(1).

Attorney advertising materials – © 2017 Winston & Strawn LLP After the Roth IRA contributions, the funds were able to Sixth Circuit Opinion grow and could be withdrawn without additional tax. By On appeal, the Sixth Circuit unequivocally sided with 2008, each Roth IRA had accumulated over $3 million. the taxpayer,8 finding clear compliance with the statutes and their “congressionally sanctioned purposes— Procedural History tax avoidance. . . .”9 The court agreed that there are In 2012, the Commissioner issued notices of deficiency instances where the Commissioner has the power to to Summa, the Benenson family, and the trust for the recast transactions, but found it dispositive that the Code 2008 year in which approximately $1.5 million was expressly authorizes the creation of DISCs, which are transferred to the Roth IRAs. Applying the “substance- essentially shell companies with “no economic substance over-form” doctrine, the Commissioner reclassified the at all,” and Roth IRAs, which are “designed for tax- payments as dividends from Summa to its shareholders, reduction purposes.”10 The court continued that “[b]efore then contributions to the Roth IRAs. As such, the long, allegations of tax avoidance begin to look like efforts commissions would not be deductible to Summa, the at text avoidance.”11 commissions would not be taxable to JC Holding, and the commissions would become dividends to Benenson and Clearly, the taxpayer chose a structure that would reduce the trust. Perhaps more importantly, the Commissioner’s its taxes, which the circuit court found to be within the reclassification of the transaction led to excess Roth IRA taxpayer’s rights. The court queried, “[W]ho is to say that contributions of $1.1 million to James III and Clement. a low-tax means of achieving a legitimate business end is The Commissioner imposed a six percent excise penalty any less ‘substantive’ than the high-taxed alternative?”12 on the excess Roth IRA contribution, and also imposed The court quoted Professor Joseph Isenbergh, who stated: an accuracy-related penalty on Summa. The taxpayers challenged the Commissioner’s determination in Tax Court. When someone calls a dog a cow and then seeks a subsidy provided by statute for cows, the obvious response is that After considering dispositive motions filed by both parties, this is not what the statute means. It may also happen that the Tax Court sided with the Commissioner,5 citing rich people who would not otherwise have cows buy them IRS Notice 2004-8,6 which identifies several abusive to gain cow subsidies. Here, when people say (as they do) transactions between a taxpayer’s existing business and that this is not what the statute means, they are in fact the Roth IRAs, which would subvert the IRA contribution saying something quite different.13 limits. Among the transactions the IRS will challenge are those the substance of which is a payment to the taxpayer, In addition, the court found that the Commissioner is not followed by a contribution by the taxpayer to the Roth IRA. authorized to recast a transaction “just because taxpayers undertook it to reduce their tax bills.”14 The court is in full The Tax Court did not find persuasive taxpayers’ argument favor of tax subsidies, confirming that DISCs are used to that the statutes do not explicitly prohibit Roth IRAs from reduce burdens on exporters and Roth IRAs are used to owning DISCs. Specifically, the Tax Court stated, “Section encourage saving for retirement. 995(g) was enacted in 1988, almost 10 years before the enactment of the Roth IRA provisions. . . . Congress could Lastly, the Sixth Circuit rejected the Commissioner’s not have been aware of the type of abusive transaction position that Congress did not intend for benefits of both involving Roth IRAs at issue here at the time of enactment the DISC and Roth IRA provisions in conjunction with one of section 995(g).”7 In holding for the Commissioner, the another, concluding: Tax Court clearly felt the transaction was abusive, despite being couched within provisions of the Code. 8 848 F.3d at 782. 9 Id. at 781. 10 Id. at 785. 11 Id. at 787. 12 Id. 5 Summa Holdings, Inc. v. Comm’r, T.C. Memo. 2015-119 (2015). 13 Id. at 787 (citing Musings on Form and Substance in Taxation: Federal Taxation of 6 2004–1 C.B. 333. Incomes, Estates, and Gifts, 49 U. Chi. L. Rev. 859, 865 (1982)). 7 Summa Holdings, Inc., T.C. Memo. 2015-119 at 23. 14 Id. at 788.

© 2017 Winston & Strawn LLP 2 [The Commissioner] may be right that permitting these Benenson and the trust have related appeals pending in DISC–Roth IRA arrangements amounts to dubious tax the First Circuit and Second Circuit. policy. But the substance-over-form doctrine does not give the Commissioner a warrant to search through the Internal – Kevin J. Platt Revenue Code and correct whatever oversights Congress happens to make or redo any policy missteps the legislature happens to take.15

The Sixth Circuit concluded with a stinging rebuke to the Tax Court Unwilling to Abandon Commissioner, stating, “The last thing the federal courts Phantom Regulations should be doing is rewarding Congress’s creation of an intricate and complicated Internal Revenue Code by In a recent decision, 15 West 17th Street, LLC v. closing gaps in taxation whenever that complexity creates Commissioner, the Tax Court held that Section 170(f)(8) them.”16 “This is one of the most taxpayer favorable judicial (D), which authorized, but did not command, the Secretary doctrine cases that I can remember in years,” Lawrence M. to promulgate regulations that would provide taxpayers Hill, partner, Winston & Strawn LLP, New York, told Wolters an alternative method to substantiate their charitable Kluwer.17 Hill added: “The Sixth Circuit criticized the IRS for contributions, was inoperative because the Secretary seeking to apply the substance over form doctrine, where did not exercise his discretion to issue regulations under the form of the transaction was expressly authorized by subparagraph (D).20 The Tax Court concluded that the the Internal Revenue Code. The court was attentive in Secretary’s authority to issue regulations was permissive, grasping what many courts in the past have inexplicably rather than mandatory, and because subparagraph (D) failed to focus on: that ‘Form is substance’ when it comes was not self-executing, it had no operative effect in the to the law.” “This is persuasive precedent for other absence of the discretionary regulations. Judge Lauber’s statutorily sanctioned tax-favored investment structures, decision begs the question: Had this case involved a such as, for example, those seen in the insurance Code provision with a mandatory delegation of rulemaking context.”18 authority, rather than a discretionary delegation, would the Tax Court have found it to be self-executing and would the The Sixth Circuit’s opinion is a favorable win for the Tax Court have crafted “phantom regulations” in order to taxpayer, and the court challenged the fundamental apply that Code provision? Could it have done this in the legitimacy of the substance-over-form doctrine in wake of the Supreme Court’s decision in Mayo Foundation light of the “highly reticulated Internal Revenue Code, for Medical Education & Research v. United States?21 which uses language, lots of language, with nearly mathematical precision.”19 The court struck a blow against Background the Commissioner’s attempt to recast a transaction that The term “phantom regulations” refers to regulations complied with the letter of the Code. But, the court also created by the courts, where the Secretary has failed to found that the Code provisions at issue were specifically promulgate regulations in accordance with his authority enacted for tax-avoidance. There are certainly other to do so under certain Code provisions. Initially, this taxpayer-friendly provisions within the Code that permit practice was limited to taxpayer-friendly statutes, where tax-advantaged transactions. Summa leaves unanswered the lack of regulations would deprive the taxpayer of a the question whether the substance-over-form doctrine congressionally intended benefit; however, it has since should properly apply to transactions where taxpayers expanded.22 apply Code provisions to structure their transactions in unanticipated tax-reducing ways. It should be noted that Since the Supreme Court’s decision in Mayo Foundation,

15 Id. at 790. 16 Id. at 790. 20 147 T.C. No. 19 (2016). 17 Federal Tax Weekly, Feb. 23, 2017, at 87. 21 131 S. Ct. 704 (2011). 18 Id. 22 Gall, Phantom Regulations: The Curse of Spurned Delegations, 56 Tax Law. 413, 19 Id. at 788. 414 (2002).

© 2017 Winston & Strawn LLP 3 it has been argued that no Code section that calls for executing in the absence of regulations.27 Without this unissued regulations is self-executing and that the subparagraph, the only allowable form of substantiation use of phantom regulations is inappropriate.23 In Mayo was a CWA under subparagraph (A). However, the Tax Foundation, the Supreme Court expressly stated that there Court was not ready to dismiss the use of phantom was no reason “to carve out an approach to administrative regulations full stop. Acknowledging that courts have review good for tax law only.”24 This meant that courts struggled with the proper way to interpret Code sections should not apply a different set of rules to tax disputes than with absent regulations, the Tax Court explained that it applies to other types of cases. Accordingly, because pursuant to the Administrative Procedure Act, a court’s phantom regulations are not used in other cases, a court usual role is to review, not create, regulations.28 However, cannot employ them in the tax law context. the court goes on to state that in instances where Congress has made it clear that a particular tax benefit or One might be concerned with this conclusion, since Code treatment should be available, there is legitimate concern sections and regulations are not always taxpayer-adverse. when the Secretary prevents such an outcome by failing to In many instances, Code sections reference regulations issue regulations.29 This is known as “spurned delegations” to be promulgated that are advantageous to the taxpayer. and it is exactly the scenario which gave rise to the use The Code section at issue in 15 West 17th Street, LLC v. of phantom regulations in the first place.30 In its analysis, Commissioner is one such example. the Tax Court placed the Code sections which referenced Treasury regulations into two categories: those borne out 15 West 17th Street, LLC v. Commissioner of delegations of mandatory or permissive rulemaking On December 22, 2016, in 15 West 17th Street, LLC v. authority.31 Commissioner, the Tax Court held that a donor could not use a donee organization’s amended return as a Mandatory delegations are those which require “the way to circumvent the substantiation requirements of Secretary to issue regulations that achieve a particular the charitable contribution deduction, which require a result or apply a particular rule.”32 Generally, this language contemporaneous writing acknowledgment (“CWA”) at comes in the following form: “the Secretary shall prescribe the time of the gift.25 The taxpayer argued that Section regulations.” Most of the cases that deal with such 170(f)(8)(D) nullified the CWA requirement of Section mandatory delegations are taxpayer-friendly, i.e., they 170(f)(8)(A) so long as the donee organization included involve Code sections providing a tax credit, deduction or information regarding the contribution on its own return. other benefit.33 In these situations, the courts have found The Commissioner took the position that subparagraph the Code sections to be self-executing in the absence (D) was inoperative, making subparagraph (A) and the of regulations in order to avoid the spurned delegations CWA the only allowable forms of substantiation, since scenario described above.34 With respect to taxpayer- subparagraph (D) only allowed this alternative form of unfriendly provisions, the Tax Court explained the usual substantiation “on such form and in accordance with such approach is to determine whether Congress directed regulations as the Secretary may prescribe,”26 and since no such regulations had been promulgated. 27 15 West 17th Street, LLC, 147 T.C. No. 19 at 18 (2016). 28 Id. at 10. Tax Court’s Analysis 29 Id. The Tax Court agreed with the Commissioner, concluding 30 See Phillip Gall, Phantom Tax Regulations: The Curse of the Spurned Delegations, that Section 170(f)(8)(D) set forth a discretionary delegation 56 Tax Law. 413 (2003); see also Amandeep Grewal, Substance over Form? Phantom Regulations and the Internal Revenue Code, 7 Houston Bus. & Tax. J. 42 of rulemaking authority, which meant that it was not self- (2006). 31 Id. at 10. 32 Gall, supra at 415. 33 Grewal, supra at 46. 23 Grewal, Mixing Management Fee Waivers with Mayo, 16 Fla. Tax. Rev. 1, 3 (2014) 34 See Occidental Petroleum Corp. v. Comm’r, 82 T.C. 819, 829 (1984) (“the failure (“Mayo suggests that phantom tax regulations have evaporated. That is, in line to promulgate the required regulations can hardly render the new provisions . . . with general administrative law authorities, tax statutes that call for regulations inoperative.”); First Chicago Corp. v. Comm’r, 88 T.C. 663, 676 (1987) (the Secretary necessarily lack effect until regulations are issue.”). has “failed to carry out the mandate imposed upon him by the Congress’ . . . . 24 131 S. Ct at 713. [making the Court obligated] to act in his place.”); Estate of Maddox, 93 T.C. 228, 25 15 West 17th Street LLC v. Comm’r, 147 T.C. No. 19 (2016). 233 (1989) (Congress “directed (not merely authorized) the Secretary to prescribe 26 Section 170(f)(8)(D). regulations.”).

© 2017 Winston & Strawn LLP 4 the Secretary to determine “whether” a particular tax Conclusion treatment should apply or “how” such treatment should In the wake of 15 West, a question remains as to be implemented.35 If the “whether” question was resolved whether any Code section which references unissued by the statute alone, and such future regulations would regulations can be self-executing. Based on the Tax merely address a means of “how” to implement the statute, Court’s exhaustive analysis in this opinion, it would seem then the statute was considered to be self-executing.36 the majority of the Tax Court believe that there can be such self-executing provisions and that crafting phantom On the other hand, delegations of permissive rulemaking regulations is permissible, at least for those provisions authority include no such mandate.37 They usually take the categorized as mandatory delegations of rulemaking form “the Secretary may prescribe regulations” or “under authority. However, some, including Judge Holmes, feel such regulations as the Secretary may prescribe”; however, that after Mayo Foundation, the crafting of such phantom they come in many other verbal forms, including “in such regulations is inappropriate. manner, in such form and within such time as the Secretary may by regulations prescribe” or “to the extent provided in – Sara J. Monzet regulations prescribed by the Secretary.”38 In these cases, the courts generally have been unwilling to find these Code sections self-executing in the absence of regulations.

In a concurring opinion, Judge Holmes leaves the door Partnership that Lacked Economic open for the Tax Court to consider the appropriateness Substance Liable for 40 Percent Gross of phantom regulations, citing Mayo Foundation and highlighting that this case is another example of tax laws Valuation Misstatement Penalty “wandering away from general principles of administrative On March 14, 2017, the United States Court of Appeals law” and explaining that “this body of tax law [is] is for the Federal Circuit affirmed a Court of Federal Claims apparently blissful disregard for the APA.”39 decision that sustained the IRS’s disallowance of $50 million in partnership losses and the imposition of valuation There have also been a few circuit court opinions that have penalties on Russian Recovery Fund Limited (“RRF”), been unwilling to cross the boundary into the legislative which was acting through its tax matters partners Russian arena. In Hillman v. Commissioner,40 the Fourth Circuit Recovery Advisers L.L.C. (“RRA”) and Bracebridge Capital, reversed the Tax Court’s determination that a statute was L.L.C. (“Bracebridge”).43 Among other issues, the court self-executing in the absence of regulations, concluding determined that there was not a bona fide partnership and that the inequity created by the lack of regulations was one the relevant transaction lacked economic substance. that “only the Congress or the Secretary (as the holder of the delegated authority from Congress) has the authority Background to ameliorate.”41 More recently, in Summa Holdings v. Bracebridge, a management company, created RRF, a Commissioner, the Sixth Circuit reversed a Tax Court hedge fund, and managed FFIP, L.P. (“FFIP”), another determination that a taxpayer’s combined use of DISC and fund. All three entities—Bracebridge, RRF, and FFIP—were Roth IRA Code provisions circumvented the contribution partnerships. Nancy Zimmerman was a direct partner of limits for high earners, stating, “[i]f Congress sees DISC- FFIP, and FFIP became a direct partner of RRF as part of an Roth IRA transactions of this sort as unwise or as creating attempt to attract investors. an improper loophole, it should fix the problem.”42 Believing that she could profit from devalued Russian 35 15 West 17th Street, LLC, 147 T.C. No. 19 at 11 (2016). debt, Ms. Zimmerman entered into a series of transactions 36 Id. at 11-12. with two foreign partnerships of Tiger Management, LLC 37 Id. at 13. 38 Id. at 13-14. (“Tiger”), a large manger of hedge funds. The two foreign 39 Id. at 18-19. 40 Hillman v. Comm’r, 263 F.3d 338 (4th Cir. 2001). 41 Id. at 343. 43 See Russian Recovery Fund Ltd. v. United States, 2017 WL 977033 (Fed. Cir. Mar. 42 Summa Holdings, Inc. v. Comm’r, 848 F.3d 779 (6th Cir. 2017). 14, 2017).

© 2017 Winston & Strawn LLP 5 partnerships were looking to offload credit-linked notes denominator” throughout the transaction: The bank helped (“CLN”) tied to Russian sovereign debt—the CLNs had lost Tiger acquire the Russian assets, it orchestrated and nearly all of their value when the Russian ruble collapsed assisted with Tiger’s transaction with RRF and FFIP, and in August 1998. it played an essential role in helping RRF sell the CLNs to General Cigar. In addition, Tiger held its partnership Deutsche Bank orchestrated the series of transactions interest for only two weeks, and its employees were beginning in May 1999. First, Tiger’s two foreign discussing selling the interest before the transaction partnerships transferred CLNs to RRF in exchange for with RRF had even occurred. Tiger also refused to sign an ownership interest in RRF. Then, on June 3, 1999 the standard subscription agreement stating that “the (i.e., approximately two weeks after the first transaction Shares subscribed for hereby are being acquired . . . for between RRF and Tiger), Tiger sold its partnership shares investment purposes only . . . and not with the view that in RRF to FFIP for a discounted amount. On June 22, 1999, any resale or distribution thereof. . . .”48 Furthermore, the RRF sold the majority of the Tiger CLNs to General Cigar court noted that independent of the tax consequences, Corporation (“General Cigar”) for cash and shares. Finally, the transaction “made no sense as investment”—the in 2000, RRF sold the remaining portion of the Tiger CLNs transaction neither diversified Tiger’s investment portfolio on the open market. RRF subsequently allocated a loss of nor provided Tiger with additional expertise. over $49 million to FFIP on its 2000 tax return, and FFIP reported losses for 2000 and 2001 tax years, most of which The circuit court also rejected RRF’s arguments that the were attributable to the losses claimed by RRF in 2000. Court of Federal Claims had “eschewed the time-tested and congressionally mandated standard for determining In 2005, the IRS issued a Notice of Final Partnership partnership formation in favor of its own test”;49 indeed, the Administrative Adjustment to RRF disallowing court explained that the Court of Federal Claims properly approximately $50 million of losses that RRF had claimed focused upon the parties’ “true intent” as required under for the 2000 fiscal year and imposing a 40 percent penalty Culbertson. RRF argued that Congress had preempted on underpayment. Culbertson, but the court rejected that RRF’s citation to a “general statement”50 and noted that Culbertson is Tiger Was Not a Bona Fide Partner in RRF valid precedent until it is overruled by either Congress The federal circuit court framed the question of whether or the Supreme Court. The court also dismissed RRF’s the partnership between Tiger and RRF had bona fide argument that the Court of Federal Claims incorrectly intent by citing Commissioner v. Culbertson.44 The court focused upon Tiger’s unilateral intent because Culbertson then rejected RRF’s argument that the focus of the explicitly requires that “both parties must intend to form a Culbertson test is “‘not . . . objective’; it is the parties’ ‘true partnership.”51 Finally, the court rejected RRF’s argument intent.’”45 And “[t]he parties’ ‘true intent’ is evaluated by that it had merely used the tax laws to its advantage; ‘considering all facts.’”46 The court proceeded with its rather, the court concluded that the Court of Federal factual inquiry by affirming that the Court of Federal Claims Claims had properly determined that RRF’s and Tiger’s did not err in its conclusion that Tiger did not intend to “‘sole intent’ was manipulating the tax code.”52 become a partner in RRF; rather, “both [Tiger and RRF] knew before the first transaction that Tiger would sell The Transaction Lacked Economic Substance its CLNs for cash and that RRF would obtain CLNs with The court further concluded that even if a bona fide massive built-in losses.”47 partnership had existed, RRF’s transaction with Tiger lacked economic substance. The court explained that four The court emphasized several facts in support of its of the five principles guiding its analysis of the economic conclusion. First, Deutsche Bank was a “common substance doctrine were relevant. First, the law does not

48 Slip Op. at 8 (citing RRF II, 122 Fed. Cl. at 607). 44 337 U.S. 733 (1949). 49 Slip Op. at 9 (citing Appellant’s Br. at 40). 45 Id. at 742. 50 Horn v. Comm’r, 968 F.2d 1229, 1231 (D.C. Cir. 1992). 46 Id. at 743. 51 Slip Op. at 10 (emphasis omitted) (citing Culbertson, 337 U.S. at 742). 47 Slip Op. at 7. 52 Slip Op. at 10 (citing RRF II, 122 Fed. Cl. at 621).

© 2017 Winston & Strawn LLP 6 permit a taxpayer to receive tax benefits from transactions that lack economic reality, and the court emphasized that, according to the factual record, RRF’s and Tiger’s sole intent was to avoid treating the transaction as a sale. Tenth Circuit Limits Judicial Review Second, when a taxpayer claims a deduction, he or she Following a CDP Hearing has the burden of proving that a transaction has economic substance. RRF claimed a deduction for the loss passed On February 21, 2017, the United States Court of Appeals to FFIP and Ms. Zimmerman; however, according to the for the Tenth Circuit in Keller Tank Services II, Inc. v. court, RRF failed to prove the transaction had economic Commissioner, affirmed the Tax Court’s grant of summary substance. Third, the transaction must be viewed judgment to the Commissioner and held that the taxpayer objectively rather than subjectively. The court determined was precluded from challenging the imposition of a that this principle supported the IRS’s position and penalty under Section 6707A at a Collection Due Process emphasized that Tiger sold its RRF shares to FFIP for far hearing because the taxpayer had a prior opportunity less than it had paid only two weeks earlier. Moreover, RRF to dispute the penalty before IRS Appeals.56 Despite the arranged for all of the built-in losses to go to FFIP. Finally, fact that the taxpayer’s challenge to the penalty had not fourth, the transaction analyzed is the transaction that been addressed by any court, the Tenth Circuit agreed gave rise to the alleged tax benefit. The court noted that, with the Tax Court that the taxpayer could not challenge according to expert testimony, Tiger was “gaining nothing” the penalty in a CDP hearing. “This is an alarming rule from the transaction which gave rise to the tax benefit— and ruling that raises serious due process concerns in my RRF’s exchange of shares for Tiger’s CLNs.53 Thus, the view,” said Lawrence M. Hill, partner, Winston & Strawn, as court concluded that the transaction lacked economic reported in CCH, Federal Tax Day.57 substance. Background Gross Valuation Misstatement Penalty Taxpayer Keller participated in an employee benefit The circuit court upheld the imposition of the 40 percent program called the Sterling Benefit Plan (“Plan”), but gross valuation misstatement penalty under Section did not report its participation on its tax return. The IRS 6662(h)(1). The court rejected the taxpayer’s reasonable concluded that the plan was a listed transaction and cause defense under Section 6664(c)(1), noting that the alleged that Keller’s failure to report the Plan violated defense is a “narrow defense” and it is the “taxpayer [who] Section 6707A. The IRS also claimed that Keller took bears the burden of showing this exemption applies.”54 improper deductions on its income tax returns related The Court of Federal Claims had found that the only to its participation in the Plan. Following an audit, the evidence claimed by RRF of any professional advice IRS proposed a $57,781.50 penalty again for Keller was the tax return prepared by Ernst & Young. There under Section 6707A for tax year 2007. Keller filed a were no supporting memos or other form of supporting protest with the Appeal’s Office to seek rescission of the documentation concerning the propriety of claiming the penalty. On June 20, 2013, the Appeal’s Office held a built-in losses. Accordingly, the circuit court upheld the telephone conference with Keller. The Appeal’s Office penalty because tax returns are insufficient to demonstrate reviewed the protest and heard Keller’s arguments, but reliance on professional advice for the reasonable cause concluded that Keller’s participation in the Plan was a exception.55 listed transaction and held that the penalty should be sustained. Thereafter, the case was closed and the IRS – Scott Englert Jr. sent Keller a final notice of intent to levy and of Keller’s right to a CDP hearing under Section 6330. The IRS letter stated that Keller must pay the assessed penalty, or appeal the levy notice by requesting a CDP hearing.

53 Slip Op. at 11 (citing RRF II, 122 Fed. Cl. at 619). 56 848 F.3d 1251 (10th Cir. 2017). 54 Slip Op. at 11. 57 Taxpayer Challenged Promoter Penalty at Appeals, Could Not Raise Liability at CDP 55 See Richardson v. Comm’r, 125 F.3d 151 (7th Cir. 1997). Hearing (Keller Tank Services II, Inc., CA-10), CCH, Federal Tax Day (Feb. 24, 2017).

© 2017 Winston & Strawn LLP 7 Keller requested a CDP hearing, arguing that the penalty Analysis was assessed “without the opportunity to protest the On appeal, Keller argued that Section 6330(c)(2)(B) should determination of the underlying transaction… to be a not preclude his tax liability challenge in a CDP hearing listed transaction.”58 Keller did not seek any collection or the Tax Court when, as here, the taxpayer’s prior alternatives or propose a payment. A CDP officer granted opportunity to dispute its liability was in an administration Keller’s request for a hearing and sent a letter scheduling hearing before IRS Appeals. Specifically, Keller claimed a telephone conference. The CDP office explained that the that Treas. Reg. § 301.6320-1, which specifies that a telephone call would provide an opportunity to discuss conference with the Appeal’s Office is a prior opportunity the reasons Keller disagreed with the collection action under Section 6330(c)(2)(B), is an unreasonable or alternatives to the collection action. But tracking the interpretation of the statute. The Tenth Circuit disagreed language of Section 6330(c)(2)(B), the letter stated, “[y] and held that the Tax Court properly held that Keller was ou are not able to dispute the (underlying tax) liability in precluded from challenging its liability at the CDP hearing your CDP hearing because: Our records show you had under Section 6330(c)(2)(B).62 prior opportunity to dispute the penalty when you had a 6706A Appeals hearing for this tax period.”59 The letter Applying the two-step Chevron test,63 the Tenth Circuit also outlined how Keller could raise the issue of alternative concluded that Section 6330(c)(2)(B)’s reference to a prior collection methods at the CDP hearing and said that if “opportunity to dispute” is ambiguous and that Treas. Reg. Keller did not agree with the CDP’s determination, “(it) may § 301.6320, which includes an IRS Appeals conference appeal the case to the United States Tax Court.”60 During as an opportunity to dispute a tax determination, is a the CDP conference, Keller attempted to contest the tax reasonable interpretation of Section 6330(c)(2)(B). Under liability, but the CDP officer said that Keller was precluded step one of the Chevron test, neither the court nor the from challenging its liability because Keller contested parties disputed that Section 6330(c)(2)(B) does not the penalty under Section 6707A at the Appeals Office define which prior “opportunity” to dispute a tax liability hearing. Because Keller raised no other arguments at the Congress intended to include. Accordingly, the court hearing, the CDP officer sustained the penalty. turned immediately to step two of the Chevron analysis to determine whether Treasury’s interpretation is based on Keller filed a petition with the Tax Court to challenge a permissive construction of the statute. Section 6330(c) its liability for the penalty. The IRS moved for summary (2)(B) provides “the person may also raise at the hearing judgment and asserted that Keller was precluded from challenges to the existence or amount of the underlying contending its liability under both Sections 6330(c)(2) tax liability for any tax period of the person did not receive (B) and 6330(c)(4)(A). The Tax Court granted summary a statuary notice of deficiency for such tax liability or did judgment to the Commissioner and sustained the levy not otherwise have an opportunity to dispute such tax against Keller.61 The Tax Court determined that Section liability.”64 Focusing on the text, the court said: 6330(c)(2)(B) precluded Keller from challenging its underlying liability because Keller was offered a prior Because the tax liability in this case is a penalty and not opportunity to dispute its liability in its hearing before the a deficiency, the key language is “did not otherwise have Appeals Office. The Tax Court further held that Treas. an opportunity to dispute such tax liability.” Nothing on Reg. § 301.6320-1(c)(3) was a reasonable interpretation the face of this text excludes an administrative proceeding of Section 6330(c)(2)(B). Keller filed two motions for from an “opportunity to dispute” a tax penalty. And nothing reconsideration, which the Tax Court denied, and timely suggests that reading “opportunity to dispute” to include an appealed the Tax Court’s order to the Tenth Court of administrative proceeding is unreasonable. The text of the Appeals. statute therefore supports the reasonableness of the Treas. Reg. § 301.6330-1(c)(3)’s interpretation of (c)(2)(B).65

58 Id. at 1264. 62 Id. 59 Id. 63 Chevron, U.S.A., Inc. v. Nat’l Res. Def. Council, Inc., 467 U.S. 837, 841-44 (1984). 60 Id. 64 Section 6330(c)(2)(B). 61 Id. at 1265. 65 848 F.3d at 1272.

© 2017 Winston & Strawn LLP 8 In addition to the text of (c)(2)(B), the Tenth Circuit looked is no final decision on the merits and there is no potential at the statute’s broader context, (c)(4)(A), which prohibits argument that the IRS Appeals Officer abused his or her taxpayers from raising an issue at a CDP hearing that discretion in arriving at the settlement offer. It is merely was raised and considered in a judicial or administrative a nonbinding, relatively informal, conciliation conference forum. Based on the statute’s broader context, the with an employee of the adversary, in this case an IRS court determined that “[i]t is reasonable to conclude employee, whose job is to attempt to, but is not required that Congress regarded an administrative hearing as to settle the case. To consider this an administrative adequate to preclude CDP hearing consideration under hearing, is like considering a defendant’s settlement (c)(2)(B) as well.”66 The court also found the Tax Court’s meeting with the plaintiff, in civil litigation, a hearing. It is reasoning in Lewis v. Commissioner67 persuasive. In not. To preclude a taxpayer from seeking redress in court Lewis, the court said that it would be “possible to interpret after an IRS Appeals conference prevents them from ‘otherwise have an opportunity to dispute’ to refer to obtaining judicial review of the legal merits of the IRS’ tax those situations where a taxpayer was afforded one or assessment. This to me infringes upon their constitutional the other, nondeficiency, avenues for prepayment judicial rights. If there is no ability to go to Tax Court after such a review.”68 “But, after pointing out several problems with determination and the amount of the assessable penalty is this interpretation, the court concluded it was “unlikely that exorbitant, so that they could not pay the penalty and sue this was Congress’s intent.” 69 for a refund, this could result in a deprivation of property without due process.”71 The court rejected Keller’s arguments that Treas. Reg. § 301.6330-1 is an unreasonable interpretation of (c)(2)(B) – Richard A. Nessler because it (1) impermissibly limits the jurisdiction of the Tax Court; and (2) is internally inconsistent. The court said that Keller’s argument failed to establish that the regulation under Chevron was unreasonable or “arbitrary, capricious, or manifestly contrary to the statute.”70 Accordingly, the Third Circuit Finds Error in Disclosure court concluded that Treas. Reg. § 301.6330-1(c)(3)’s of an Attorney’s Email Given to Grand explanation that a prior “opportunity to dispose” includes “a prior opportunity for a conference with Appeals that was Jury offered either before or after the assessment of liability” is On January 27, the U.S. Court of Appeals for the Third a reasonable interpretation of Section 6330(c)(2)(B). Circuit reversed a decision of the District Court for the Eastern District of Pennsylvania in In Re: Grand Jury Matter Lawrence Hill recently commented, “This is a case #3,72 holding that the district court should not have allowed that should warrant ‘en Banc’ review. An IRS Appeals a grand jury investigating the appellant to view an e-mail Conference on the substantive issue of whether a taxpayer that had been sent by the appellant to his accountant is subject to liability, in this case for promoter penalties, is forwarding an e-mail from his attorney, because the e-mail not an administrative hearing in the customary sense. It is in question was protected by the attorney work product not a formal adjudication. There is no administrative law doctrine. The circuit court also ruled that it had jurisdiction judge or finder of fact, for that matter; there is no transcript over the appeal, even though the grand jury had already of the proceedings; there is neither discovery nor viewed the e-mail and returned an indictment. evidentiary rules and, statements made during the process are generally inadmissible under the Federal Rules of Facts and Procedural Background Evidence; there are no witnesses and, therefore, no The disputed e-mail related to the alleged efforts of opportunity to examine or cross-examine witnesses; there the appellant, identified only as John Doe, to conceal his ownership of a company, referred to as Company 66 Id. at 1272. 67 128 T.C. 48 (2007). 68 128 T.C. at 56. 71 Taxpayer Challenged Promoter Penalty at Appeals, Could Not Raise Liability at CDP 69 128 T.C. at 61. Hearing (Keller Tank Services II, Inc., CA-10), CCH, Federal Tax Day (Feb. 24, 2017). 70 848 F.3d at 1274. 72 847 F.3d 157 (3d Cir. 2017).

© 2017 Winston & Strawn LLP 9 A, from the plaintiffs in a class action lawsuit against ruling.75 The circuit court then granted a request by Doe Company A. During this lawsuit, Doe had stated in a for a rehearing, and ultimately vacated its earlier opinion deposition that he had transferred ownership of Company and issued a new opinion reversing the district court’s A to Company B, which was owned by Doe’s business ruling. While the rehearing was pending, the second associate. Doe’s business associate stated during the grand jury returned a superseding indictment, although litigation that Company A was no longer in business and its investigation into other charges was still ongoing at the had limited assets. The plaintiffs ultimately settled for time of the circuit court’s decision.76 about ten percent of the estimated value of their claims. In the grand jury investigation, the government argued Third Circuit’s Analysis that Doe deliberately misled the class action plaintiffs into The principal issue before the circuit court was whether believing that Doe, who had deep pockets, had transferred the e-mail fell within the crime-fraud exception to the Company A to his business associate, who had limited attorney work product doctrine.77 The attorney work assets, in order to get the plaintiffs to settle for a lower product doctrine generally protects from disclosure legal amount than they would have if they had believed they communications prepared in anticipation of litigation. could reach Doe’s assets. However, under the crime-fraud exception, attorney work product will not be protected from disclosure if there is a During the grand jury investigation, Doe’s accountant reasonable basis to suspect that (i) the lawyer or client was provided to the government Doe’s personal and corporate committing or intending to commit a crime or fraud, and (ii) tax returns, which revealed that Doe reported himself the attorney work product was used in furtherance of that as the owner of Company A during the relevant period. alleged crime or fraud. The accountant also provided an e-mail from Doe to the accountant forwarding an e-mail that Doe had received The circuit court had no trouble concluding there was from his attorney four days earlier. The attorney’s e-mail a reasonable basis to suspect that Doe committed or set forth the steps that Doe would need to take to change intended to commit a crime or fraud.78 In this regard, his records to reflect that Doe’s business associate owned the government had a recording where Doe allegedly Company A. Doe forwarded the e-mail to his accountant bragged about defrauding the class action plaintiffs and with the following message: “Please see the seventh admitted to bribing his business associate to participate paragraph down re my tax returns. Then we can discuss in the fraud. Based on this recording, the circuit court this.”73 The accountant’s recollection was that Doe’s found that the first prong of the crime-fraud exception was attorney later told the accountant to “stand by” for further satisfied. guidance, but never followed up.74 There was no evidence that Doe ever amended his returns or took any action In regard to the second prong, however, the circuit court regarding his attorney’s advice other than forwarding the held there was no reasonable basis to suspect that Doe e-mail. used his attorney’s e-mail in furtherance of the alleged fraud merely by forwarding it to his accountant with a The government sought a ruling from the district court message that he would like to “discuss” it.79 While the that the e-mail could be presented to the grand jury. The attorney’s e-mail included advice on amending Doe’s tax district court granted this ruling and Doe appealed. While returns to reflect that he was not the owner of Company the appeal was pending, the grand jury viewed the e-mail A, there was no evidence that Doe followed this advice in question, returned an indictment, and was discharged. and amended his returns or instructed his accountant to A new grand jury was empaneled, which also viewed the do so. That Doe forwarded the e-mail indicated to the e-mail in question and was considering a superseding indictment when the circuit court issued an opinion holding 75 Id. at 162. that it lacked jurisdiction to review the district court’s 76 Id. 77 The district court had considered the application of both the attorney-client privilege and the attorney work-product doctrine, and held that neither applied. However, the circuit court only addressed the application of the attorney work product doctrine. 73 Id. at 161. 78 Id. at 166. 74 Id. 79 Id.

© 2017 Winston & Strawn LLP 10 circuit court only that “Doe at most thought about using should not have been permitted to view the e-mail would his lawyer’s work product in furtherance of a fraud, but he not automatically entitle Doe to a new trial. In this regard, never actually did so.”80 the government could avoid a retrial by showing the error was harmless. In reaching this conclusion, the circuit court rejected two reasons given by the district court for applying the crime- – Scott A. Malone fraud exception and allowing the e-mail to be presented to the grand jury. First, the district court suggested that Doe followed his attorney’s advice simply by forwarding the e-mail to his accountant. The circuit court dismissed this reason because, as the district court acknowledged, Tax Shelter Investor Not Liable Doe never followed through with amending the returns. for Penalties on Distressed Debt Second, the district court stated that Doe’s failure to follow through was of no consequence as long as Doe intended, Transaction as of the time he forwarded the e-mail, to amend the On February 24, 2017, the United States District Court returns. While the circuit court agreed that evidence of an for Wyoming, in McNeill v. United States, held that a intent to amend the returns at the time Doe sent the e-mail taxpayer who had invested in a distressed asset/debt tax would have been sufficient, the court found no evidence shelter transaction did so based on a good-faith reliance that Doe had ever formed such an intent. on his advisors and was not liable for accuracy-related penalties assessed by the IRS.81 Although the taxpayer Since the circuit court found no reasonable basis to was a former navy commander and chief executive of a suspect that Doe used his attorney’s e-mail in furtherance major corporation, the district court found that he was of the alleged fraud, it held that the crime-fraud exception not knowledgeable or sophisticated about the distressed did not apply and the e-mail thus was protected by the asset/debt transaction, and he relied on the advice of attorney work product doctrine. competent tax advisors who were experts in the design and implementation of the transaction. Following a bench The circuit court also held that it had jurisdiction over the trial, the court found the testimony of the taxpayer to be appeal even though an indictment and a superseding credible, and concluded that the taxpayer sought and indictment had been served on the appellant while the obtained a positive, independent opinion from his tax appeal was pending. Although in many circumstances an advisor, E&Y, and from qualified lawyers that the strategy appeal becomes moot after an indictment is issued, the was compliant and lawful under the partnership provisions circuit court determined that the appeal was not moot in of the Code. Lawrence Hill, a tax partner at Winston & this case because the grand jury investigation was still Strawn LLP, told Bloomberg BNA, that “this is one of the ongoing even after the superseding indictment. more favorable reasonable cause cases in the tax shelter arena that have come down. The court acknowledged that The court’s decision was based in part on judicial the decision was a “close call,” but must have believed efficiency concerns. As the court noted, by the time Doe that the taxpayer was a very credible witness because was indicted, the issue had been fully briefed and argued. other courts have rejected the defense in analogous If the court declined to decide the issue at this time, the circumstances.”82 issue would need to be re-briefed and re-argued in the event that Doe were to be convicted and file an appeal. Background In 2002, the McNeills invested in a distressed asset/ The court also noted, however, that in the event that debt (“DAD”) transaction in the form of a Brazilian account Doe were to be convicted based on the superseding receivable. The DAD transaction was promoted to McNeill indictment, the circuit court’s ruling that the grand jury as a legitimate transaction by others whom McNeill

81 McNeill v. United States, No. 14-cv-00172 (D. Wyo. Feb. 24, 2017). 80 Id. 82 Daily Tax Reports (BNA Bloomberg), Feb. 27, 2017.

© 2017 Winston & Strawn LLP 11 trusted or came to trust. The government audited the resulted in the penalty and the taxpayer acted in good McNeills’ 2002 joint tax return and concluded that the faith in taking that position. The taxpayer has the burden DAD transaction was an illegal tax avoidance transaction, to prove that the Commissioner’s accuracy-related penalty resulting in a phony $20 million loss. As a result, the determinations under Section 6662 are incorrect, and IRS assessed the McNeills approximately $7.75 million, bears the burden of proof on its reasonable cause and representing tax, interest, and accuracy-related penalties, good faith defense. The district court, after a review of which the McNeills paid in full. Thereafter, the McNeills the facts, concluded that the McNeills had satisfied their made a refund claim of the penalty and interest amount. burden and granted the taxpayers’ petition for refund The McNeills argued that they had “reasonable cause” for of the penalties and interest. The court found McNeill’s the position they took and they filed their joint tax return testimony credible and made the following findings of fact: in “good faith.”83 The IRS did not respond to their refund claim, so the McNeills filed a petition for refund of penalties • Prior into entering into the DAD transaction, E&Y looked with the federal district court in Wyoming. into the DAD transaction strategy at McNeill’s request, obtained information about it from BDO, and reviewed McNeill, a former Commander of a nuclear submarine in a variety of documents to implement the strategy. the United States Navy, was the chairman of the board and In addition, E&Y prepared tax projections, which CEO of Exelon, until he retired in 2002.84 Under the terms anticipated a $20 million loss. E&Y managed the basis- of McNeill’s separation agreement with Exelon, he realized build required for the anticipated 2002 loss. Moreover, approximately $66 million in gross income. In 2002, McNeill testified that he expected E&Y to ask questions McNeill, who was interested in investment opportunities necessary to form its opinion about whether the strategy with positive tax benefits, discussed investment options worked under the tax laws. with his advisors at E&Y. During his discussion with E&Y, McNeill, through the recommendation of a colleague, • McNeill obtained a favorable legal opinion written by the began inquiring into distressed debt opportunities, De Castro, West law firm, which blessed the tax aspects which led him to the BDO accounting firm. At a meeting of the DAD transaction. in November 2002, BDO explained the structure of the DAD transaction and how it could be used to generate a • Before signing their 2002 joint tax return, no one told large loss with little economic outlay. BDO explained that McNeill that taking the $20 million loss on his 2002 tax if debt is “distressed debt” (i.e., debt with low collection return would be illegal or against the tax code. potential), like the Brazilian accounts receivable, it will have a high face value, but a low fair market value. BDO • None of McNeill’s advisors mentioned the sham suggested to McNeill that he enter into a DAD transaction transaction doctrine, the economic substance doctrine, – the idea was to use a series of partnerships and sets of or the step transaction doctrine, or any other anti-abuse transactions to eventually transfer to the McNeills losses doctrines or provisions. that foreign debt holders had already suffered by the way of the distressed debt, so that the McNeills could claim • There was no evidence in the record to suggest anyone their losses and deductions against the high severance from E&Y advised McNeill that the partnerships could package income expected in 2002.85 be disregarded under any of the anti-abuse doctrines or provisions discussed in the De Castro opinion. Analysis of Reasonable Cause Defense The district court’s analysis began with a review of Section • The De Castro opinion concluded that the DAD 6664(c)(1), which provides that the accuracy-related transaction (and partnerships) would survive the penalty shall not be imposed if the taxpayer establishes application of any anti-abuse doctrine. there was reasonable cause for the tax position that • No advisor alerted McNeill about the importance of a profit motive, business purpose, and economic substance 83 See Section 6664(c)(1). 84 Slip Op. at 4. underlying the partnerships and DAD transaction. 85 Slip Op. at 5-8.

© 2017 Winston & Strawn LLP 12 • McNeill was sophisticated in business. However, he did October 4, 2010, seeking “[a]ny and all records created, not appear to have understood the transaction’s design obtained, and or maintained from October 5, 2005, to and implementation to exploit the tax code’s partnership the present that are in [Respondent’s] care, custody, or provisions. control relating to foreign bank accounts in which she maintained a financial interest.”88 In 2013, the district • The fact that McNeill signed a representation letter court had issued a compulsion order which directed drafted by De Castro, which contained representations Respondent to produce records related to foreign or assumptions that were not true, did not destroy bank accounts consistent with the Bank Secrecy Act’s McNeill’s reasonable cause and good faith. recordkeeping requirements. In response, Respondent made a single production consisting of two documents. In addition, the IRS argued that the McNeills cannot In December 2015, a year following Respondent’s rely on E&Y’s advice because E&Y’s engagement letter production, the Government received documents from the specifically states E&Y is not providing tax or legal advice, Liechtenstein government in connection with its ongoing and all advice must be in writing. The district court was investigation. The Liechtenstein documents revealed not persuaded by the IRS’s argument, and found that the that the Respondent “held foreign bank accounts with “engagement letter is limited on its face to investment millions of dollars in assets through a sham foreign entity” advisory services, which is a very small percentage of through the time period covered by the 2010 Subpoena.89 the work done for Mr. McNeill by E&Y, and does not Respondent failed to produce any of the Liechtenstein preclude the reasonableness of his reliance on oral advice documents in response to the 2010 Subpoena. In indisputably given in the case.”86 addition, the Government alleged that Respondent failed to produce records relating to other foreign accounts: (i) – Richard A. Nessler a joint account with her husband at Credit Suisse, (ii) an account at HSBC in France, and (iii) an account held by a foundation in Liechtenstein. In response, the Government filed a motion for contempt and sought an order to impose on Respondent a sanction of $5,000 per day for failure Sanctions Ordered for Taxpayer’s to produce the bank records. A month later, in July 2016, Failure to Produce Foreign Bank the Government indicted Respondent, charging her with (1) obstructing and impeding the due administration of the Records internal revenue laws, and (2) subscribing to a false and On January 24, 2017, the United States District Court for fraudulent U.S. individual income tax return. the Southern District of New York held that a taxpayer, designated Respondent Subject E (“Respondent”), violated District Court’s Analysis a compulsion order, was in civil contempt of court, and In deciding whether to impose sanctions against ordered that she must comply with a grand jury subpoena Respondent, the district court noted that it must consider seeking records of foreign bank accounts.87 The court the following: “(1) the character and magnitude of the imposed a sanction on Respondent of $1,000 per day harm threatened by continued contempt; (2) the probable if she did not produce the bank records by February 13, effectiveness of the proposed sanction; and (3) the 2017. The district court rejected Respondent’s assertion financial consequence of the sanction on the contemnor.”90 that the act of production violated her Fifth Amendment The determination falls within the informed discretion of privilege against self-incrimination. the district court.

Background Respondent argued that she was required only to produce The contempt proceeding arose from Respondent’s documents in her immediate physical possession. The refusal to comply with a grand jury subpoena dated

88 Id. at *2. 86 Slip Op. at 34. 89 Id. 87 In re Various Grand Jury Subpoenas, __ F.3d __, 2017 WL 361685 (S.D.N.Y. 2017). 90 Id. at *3.

© 2017 Winston & Strawn LLP 13 2010 Subpoena called for the production of documents the grand jury was improperly motivated.”96 The court that were in her “care, custody, or control.” Respondent found that Respondent failed to offer any evidence of construed her obligation narrowly, arguing that “[r]ecords irregularity. In addition, the court rejected Respondent’s which are not in [her] possession cannot be produced.”91 claim that evidence obtained by the grand jury pending Looking to precedents in the Second Circuit, the district the indictment will be used against her in violation of her court rejected Respondent’s argument and concluded Fifth and Sixth Amendment rights. The court narrowed the that the test for “care, custody, and control” is not the universe of documents to “required records” which bear location of the documents. Rather, control is defined as no “independent communicative element and therefore do “the legal right, authority, or practical ability to obtain the not present the risk of self-incriminations under the Fifth materials sought upon demand.” 92 Applying this test to Amendment.”97 Respondent, the court concluded that she had control of the foreign accounts and thus must undertake to Finally, as to the request for sanctions, the court held produce them. Specifically, as to the joint account with that because Respondent had not produced all records her husband at Credit Suisse, Respondent had a power within her care, custody, or control, she was in violation of attorney over the account for 13 years and during that of the compulsion order issued in 2013. The court found time, she specifically directed the bank to transfer funds that the character and magnitude of the harm threatened to other accounts. As for her account at HSBC France, the by Respondent’s continued contempt of the compulsion Respondent maintained care, custody, and control of the order was significant. The court concluded that the account, but failed to produce records because the bank Government’s request to impose a fine of $5,000 per day imposed a processing fee of $430, which Respondent was excessive, and concluded that a fine of $1,000 should sought to shift to the Government. The court refused to be sufficient to coerce Respondent to conform her conduct shift the cost to the Government and ordered Respondent to the court’s order and was reasonable in relation to the to produce the records. As for the foundation account, facts underlying Respondent’s “contumacious conduct.”98 the court found that Respondent “directed the creation of the Foundation to manage a sizable inheritance from – Richard A. Nessler her father” and received “distributions from certain of the accounts linked to the Foundation.”93 The court found that Respondent’s tax return and the Liechtenstein documents sufficiently established the associational relationship between Respondent and the foundation account, Tax Court Rejects Eighth Amendment and held that Respondent should produce the records Change to Penalty Statute because “she had the legal authority and practical ability to obtain them.”94 On February 2, 2017, the United States Tax Court upheld accuracy-related penalties under Section 6662A against Respondent further argued that in view of the pending a taxpayer who participated in a distressed asset/debt tax indictment against her, enforcement of the 2010 Subpoena shelter transaction in Thompson v. Commissioner.99 The at this time would improperly aid the Government in its taxpayer moved to declare Section 6662A unconstitutional criminal trial preparation. The court noted that a grand as violating the Eighth Amendment’s Excessive Fines jury’s wide-ranging investigative power “does not end Clause. The Tax Court concluded that the penalty wasn’t when it indicts a defendant.”95 Post-indictment activities so grossly disproportionate as to violate the Eighth are permitted, and Respondent had the burden to rebut Amendment. the presumption of regularity that attaches to grand jury proceedings and prove that the “Government’s use of

91 Id. 92 SEC v. Credit Bancorp, Ltd., 1994 F.R.D. 469, 471 (S.D.N.Y. 2000). 96 Id. 93 2017 WL 361685, at *5. 97 Id. at *8. 94 Id. at *6. 98 Id. at *9. 95 Id. at *8. 99 148 T.C. No. 3 (2017).

© 2017 Winston & Strawn LLP 14 Factual Background Tax Court answered both questions in the negative. The taxpayers reported a loss on a flow-through distressed asset debt transaction (“DAD”) on their joint tax As to the first question, the Tax Court concluded that return for tax year 2005. The IRS audited the 2005 return “the primary goal for enacting Section 6662A was to and concluded that the source of the loss was a listed reinforce voluntary compliance with existing disclosure transaction described in Notice 2008-34.100 Because the requirements and deter taxpayers from using tax taxpayers failed to disclose the relevant facts relating to shelters.”105 In explaining the reasons for enacting the transaction, the Service asserted a 30 percent penalty Section 6662A, the Tax Court cited to the House of under Sections 6662A(c) and 6664(d)(2) (now Section Representatives Committee on Ways and Means: 6664(d)(3)). The taxpayers conceded that they were not entitled to the bad debt deduction, but contested the Because disclosure is so vital to combating abusive tax determined penalties and interest. The taxpayer argued avoidance transactions, the Committee believes that that Section 6662A is unconstitutional on its face. taxpayers should be subject to a strict liability penalty on an understatement of tax that is attributable to non-disclosed Application of the Eighth Amendment listed transactions or non-disclosed reportable transactions Section 6662A(a) imposes a penalty on any reportable that have a significant purpose of tax avoidance. transaction understatement. If a taxpayer fails to Furthermore, in order to deter taxpayers from entering into adequately disclose a reportable transaction giving rise to tax avoidance transactions, the Committee believes that an understatement under Section 6662A, the penalty is 30 more meaningful (but not a strict liability) accuracy-related percent, and there are no available defenses.101 The Eighth penalty should apply to such transactions even when Amendment to the United States Constitution provides: disclosed. “Excessive bail shall not be required, nor excessive fines imposed, nor cruel nor unusual punishments inflicted.” The Tax Court considered these comments and concluded In Austin v. United States, the Supreme Court held that that “the primary goal for enacting Section 6662A was “[t]he Excessive Fines Clause limits the government’s to reinforce voluntary compliance with the existing power to extract payments, whether in cash or in kind, as disclosure requirements and deter taxpayers from using punishment for some offense.”102 tax shelters.”106 Accordingly, the Tax Court found that the Section 6662A penalty imposes a financial risk to In deciding whether Section 6662A violated the Excessive taxpayers who fail to comply, and serves a revenue-raising Fines Clause, the Tax Court looked to United States v. purpose. Thus, the court concluded that the penalty under Bajakajian,103 where the Supreme Court stated, to pass Section 6662A is no different from penalties upheld on constitutional proportionality, the amount of the forfeiture other cases.107 or fine must bear some relationship to the gravity of the offense that it is designed to punish. Thus, “if the amount Finally, the Tax Court concluded that even assuming that of the forfeiture is grossly disproportional to the gravity Section 6662A implicated the Excessive Fines Clause, the of the defendant’s offense, it is unconstitutional.”104 penalty imposed is not so grossly disproportionate as to Thus, to answer the question of whether Section 6662A fail the Bajakajian test. violates the Eighth Amendment, the Tax Court addressed two questions: (1) whether Section 6662A constitutes – Richard A. Nessler punishment for an offense, and (2) whether the punishment is grossly disproportional to the gravity of the offense. The

100 See 2008-1 C.B. 645. 101 If a taxpayer adequately discloses the details of the transaction, the penalty is lowered to 20 percent, and the taxpayer may be able to avoid the penalty if he can show reasonable cause and good faith. 102 509 U.S. 602, 609-10 (1993). 105 Stip. Op. at 9. 103 524 U.S. 321, 334 (1998). 106 Slip Op. at 9. 104 Id. at 337. 107 See, e.g., Acker v. Comm’r, 26 T.C. 107 (1956).

© 2017 Winston & Strawn LLP 15 states have adopted a “throw back” rule which throws back and includes in the numerator of a taxpayer’s sales factor sales of goods shipped from the state to a state in Elan Pharmaceuticals v. New Jersey which a taxpayer is not “taxable.” Division of Taxation The New Jersey Division of Taxation in its audit of Elan Pharmaceuticals Inc.’s 2002-2004 New Jersey corporate *** income tax returns applied its throwout rule to exclude over $1 billion of receipts from the denominator of Elan’s Economic Nexus as a State Income Tax sales factor, increasing by approximately 50% Elan’s income sourced to New Jersey. The Division argued for Planning Opportunity the broadest possible application of the throwout rule, and excluded all receipts from Elan’s sales factor other than A recent taxpayer victory in New Jersey Tax Court, those sales of goods shipped to the handful of states in litigated by Winston & Strawn LLP’s state and local tax which Elan filed income tax returns. team, highlights an opportunity for multistate corporate taxpayers to minimize apportionment of income to states The New Jersey Tax Court rejected this audit adjustment, in which they conduct business. In Elan Pharmaceuticals finding that the rule must be narrowly limited in its v. New Jersey Division of Taxation,108 New Jersey’s application to sales shipped from inventory stored in aggressive extension of its corporate income tax to out- New Jersey to states in which Elan was not “subject to” of-state corporations was ultimately used to minimize that tax. The court agreed with the taxpayer and ruled that portion of the taxpayer’s income taxable by New Jersey. receipts from transactions that could have been taxed by any other state, even where such states had not asserted Elan Pharmaceuticals Decision taxing jurisdiction, could not be thrown out. Thus, the court The taxpayer, Elan Pharmaceuticals, was headquartered refused to exclude those receipts from goods shipped in California and filed corporate income tax returns in New from inventory in other states because those states could Jersey, Tennessee, and a handful of other states. New have taxed these sales by adopting a throwback rule. Jersey determined the taxable portion of a multistate Similarly, the court found that Elan’s investment income corporation’s income by applying an apportionment was not excludible under the throwout rule because formula to the taxpayer’s total income. New Jersey California, where Elan was headquartered, had jurisdiction adopted a three-factor (payroll, property, and double to tax this income, even though it did not do so. weighted sales) apportionment formula that compared the amounts of payroll, property, and sales in New Tax Planning Implications of Elan Decision Jersey to the taxpayer’s total payroll, property, and The Elan decision has tax planning implications in the over sales everywhere. Sales of tangible personal property 25 states adopting throwout or throwback rules. To better generally were sourced to the state in which the goods understand this tax planning strategy, some background are delivered, but to avoid so-called “nowhere” sales, information is first necessary regarding the extension in New Jersey from 2002-2010 adopted a throwout rule recent years of state taxing jurisdiction via “economic which excluded entirely from the sales factor the sales of nexus.” goods shipped, or receipts otherwise sourced, to states in which the taxpayer was not “taxable.” This throwout Economic Nexus – Adding Out-of-State Corporations to rule increased a taxpayer’s New Jersey sales factor the Tax Rolls percentage, by decreasing the denominator of the sales For sales tax purposes, the United States Supreme Court factor by the sales “thrown out” of the sales factor. In has long held that a corporation must have substantial contrast to New Jersey’s throwout rule, approximately 25 physical presence in a state to be subject to its taxing jurisdiction. The same is not true for income taxes,

108 Elan Pharmaceuticals v. New Jersey Division of Taxation, No. 010589-2010 (Feb. 6, where the Supreme Court has not spoken and states 2017).

© 2017 Winston & Strawn LLP 16 consequently have taken inconsistent positions. A number states in which it licensed its products, even though only a of states including California, New York, and Ohio, have handful of those states actually asserted taxing jurisdiction adopted an economic nexus standard and have amended over the receipts. This was because New Jersey courts their taxing statutes to assert taxing jurisdiction based had ruled that out-of-state corporations without physical exclusively on a taxpayer’s annual sales exceeding a presence in New Jersey were taxable by New Jersey even minimum (typically $500,000 or $1,000,000) threshold. if their contacts with New Jersey were limited to merely In addition, courts in Illinois, New Jersey, and other states licensing their products to New Jersey consumers. have ruled, even in the absence of such amendment, that a state can constitutionally assert taxing jurisdiction Similarly, in Technical Advice Memorandum Franchise Tax over an out-of-state corporation taxpayer that derives Board No. 2012-01 (Nov. 29, 2012) the California Franchise substantial receipts from licensing intellectual property Tax Board ruled that sales of tangible personal property or lending to consumers in the state. In either instance, shipped by retailers from California to other states were adoption of economic nexus expands a state’s tax base not subject to the California sales throwback rule when by adding to its tax rolls out-of-state corporations that had shipped to states in which the seller had economic nexus previously escaped taxation due to their lack of physical under California’s statutory definition of this term. See presence in the state. also In Matter of Craigslist, Ca. SBE Cal. St. Tax Rep. (CCH) ¶¶ 406-504 (Mar. 29, 2016) (California Board of Equalization Besides New Jersey, whose throwout rule was in effect ruled that Craigslist’s receipts could not be thrown out 2002–2010, West Virginia and Louisiana have adopted a of its sales factor (under an alternative apportionment throwout rule. Other states, such as Illinois, have adopted a scheme approved by the Franchise Tax Board) where throwout rule specifically for sales of services. Additionally, those receipts were sourceable to states in which approximately 25 states have adopted a sales throwback Craigslist had economic nexus). rule for sales of goods, including Alabama, California, Colorado, Illinois, Kansas, and Massachusetts. Tax Planning Takeaway • Economic nexus is a two-edged sword. While state Economic Nexus – An Opportunity to Decrease adoption of this nexus standard can increase state Taxation of In-State Corporations income tax jurisdiction over out-of-state corporations, A consequence of economic nexus has been an increase this standard can decrease income taxes in states in the states’ jurisdiction to tax economic activity. At like California or Illinois, which have adopted both an the same time, courts have ruled that states adopting economic nexus standard in asserting taxing jurisdiction economic nexus likewise must apply this same standard over out-of-state corporations and a sales throwout or in determining the portion of such in-state corporation throwback rule. income they may tax versus that portion that is nontaxable because subject to taxing jurisdiction of other states. • By asserting that the economic nexus standard applies Thus, those states adopting an “economic nexus” equally in limiting application of the state’s sales standard to assert taxing jurisdiction against out-of-state throwout or throwback rule, corporations can minimize corporations, also must apply this same standard for sales or eliminate application of this rule to their sales, and throwback and throwout purposes. As highlighted by the reduce the income otherwise apportioned to that state. Elan Pharmaceuticals decision, this is true regardless of whether other states actually assert such taxing jurisdiction Questions regarding these issues can be answered by over the income. Charles J. Moll III at +1 (415) 591-1582, who leads Winston & Strawn’s nationwide state and local tax practice, Alan V. For example, in Lorillard Licensing Co. LLC v. Director Div. Lindquist at +1 (312) 558-6324, or another member of the of Taxation, 28 N.J. Tax 590 (Tax 2014), the New Jersey firm’s state and local tax team. Appellate Division ruled that the New Jersey Division of Taxation could not throw out of a licensing company’s New Jersey sales factor, receipts earned from any of the 50

© 2017 Winston & Strawn LLP 17 of the next several years, and continued to include the effectiveness of a company’s compliance program as an important consideration.111 However, until the issuance DOJ’s Criminal Fraud Section Provides of the 2017 Guidance, the DOJ had provided only Valuable Guidance on the Evaluation minimal direction regarding how such programs would be evaluated and how their effectiveness would be of Corporate Compliance Programs determined. On February 8, 2017, the Fraud Section of the Criminal Division of the U.S. Department of Justice (the “Fraud Akin to a “how-to” guide, the 2017 Guidance provides Section”) issued valuable and detailed guidance regarding a useful and well-organized list of questions aimed at the evaluation of corporate compliance programs (the identifying information significant to a determination of “2017 Guidance”).109 Although these guidelines were the efficacy of a compliance program. The 2017 Guidance issued by the DOJ Fraud Section, one can expect that highlights the fact that when evaluating a corporate other departments of the DOJ, such as the Tax Division, compliance program, the government will look beyond will evaluate these similarly. The 2017 Guidance, entitled the corporation’s “paper program” (i.e., written policies) “Evaluation of Corporate Compliance Programs,” provides and focus on how the program operates in practice. a road map of how the Fraud Section will assess corporate The independence, authority, and support afforded compliance programs, including the specific criteria it to compliance personnel will also be an area of focus. will use in the process. The 2017 Guidance identifies 11 Moreover, the far-reaching and detailed nature of the 2017 topics and approximately 119 sample questions that seek Guidance suggests that corporations coming under the to elicit information considered relevant in evaluating government’s scrutiny will have their compliance programs the effectiveness of a corporate compliance program. subjected to a rigorous evaluation. Accordingly, companies Accordingly, it demonstrates the rigor with which the should carefully consider the 2017 Guidance in their efforts government intends to assess companies’ compliance to ensure that their compliance programs are not only programs and provides insight into the government’s effective, but will meet the government’s strict criteria and expectations. expectations should the company find itself in the position of having to defend allegations of corporate wrongdoing. The 2017 Guidance, which is the first official guidance issued under the Trump administration, expands on the Topics and Questions Highlighted in the 2017 DOJ’s existing framework. The “Principles of Federal Guidance Prosecution of Business Organizations,”110 first published in The 2017 Guidance organizes the 119 questions into the 1999, enumerates the factors that federal prosecutors are following 11 sections, which appear to be based on the 10 expected to consider when deciding how to resolve cases “Hallmarks of Effective Compliance Programs” published in involving corporate misconduct, including but not limited 2012 by the Criminal Division of the DOJ and the Securities to (i) “the existence and adequacy of the corporation’s and Exchange Commission (“SEC”) in the FCPA Resource compliance program,” and (ii) “the corporation’s remedial Guide,112 as well as existing federal sentencing guidelines actions, including any efforts to implement an effective corporate compliance program or to improve an existing 111 See, e.g., Memorandum from Larry D. Thompson, “Principles of Federal one.” Further guidance about the factors to consider in Prosecution of Business Organizations” (Jan. 20, 2003), available at http:// determining appropriate resolutions of investigations www.americanbar.org/content/dam/aba/migrated/poladv/priorities/privilegewai ver/2003jan20_privwaiv_do-jthomp.authcheckdam.pdf; Memorandum from of corporate wrongdoing was issued over the course Paul J. McNulty, “Principles of Federal Prosecution of Business Organizations” (Dec. 12, 2006), available at https://www.justice.gov/sites/default/files /dag/ legacy/2007/07/05/mcnulty_memo.pdf; Memorandum from Mark Filip, “Principles of Federal Prosecution of Business Organizations” (Aug. 28, 2008), available 109 “Evaluation of Corporate Compliance Programs” (Feb. 8, 2017), available at https:// at https://www.justice.gov/sites/default/files/dag/legacy/2008 /11/03/dag- www.justice.gov/criminal- fraud/page/file/937501/download. memo-08282008.pdf.

110 Memorandum from Eric Holder, Jr., “Bringing Criminal Charges Against 112 “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (Nov. 14, 2012), Corporations” (June 16, 1999), available at https://www.justice.gov/sites/default/ available at https://www.justice. gov/sites /default /files/criminal-fraud/ files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF. legacy/2015/01/16/guide.pdf.

© 2017 Winston & Strawn LLP 18 and best practices published by the Organization for form of targeted questions – that a corporation can and Economic Cooperation and Development (“OECD”):113 should utilize to ensure that its compliance program is effective and will withstand government scrutiny. • Analysis and Remediation of Underlying Conduct Second, the 2017 Guidance highlights the government’s • Senior and Middle Management longstanding position that prosecutors should look beyond • Autonomy and Resources a company’s written compliance policies and procedures. • Policies and Procedures Prosecutors are expected to engage in a fact-intensive • Risk Assessment analysis in order to determine whether a corporation’s • Training and Communications compliance program is merely a “paper program,” or • Confidential Reporting and Investigation whether it is designed, implemented, reviewed, and • Incentives and Disciplinary Measures revised, as appropriate, in an effective manner. That is, • Continuous Improvement, Periodic Testing and Review while a corporation may draft policies and procedures that • Third Party Management purport to meet compliance expectations, the crux of the • Mergers and Acquisitions inquiry will focus on how the program operates in practice.

Significance of the 2017 Guidance Third, the 2017 Guidance reveals the significance that The 2017 Guidance is noteworthy in several respects. First, the government attributes to the independence and the 2017 Guidance reveals the Fraud Section’s intention to empowerment of compliance personnel. The heightened subject corporate compliance programs to robust and fact- focus on the roles and responsibilities of compliance intensive evaluations when investigating and addressing personnel demonstrates the government’s view that the alleged corporate wrongdoing. The 2017 Guidance sets efficacy of a compliance program is based, in part, on forth a wide range of highly detailed questions that are the stature, authority, and autonomy of the responsible intended to ascertain specific information regarding many personnel. For instance, the 2017 Guidance poses a series different aspects of a company’s compliance program.114 of questions designed to evaluate a compliance officer’s These questions will be used to determine how the “compensation levels, rank/title, reporting line, resources, company’s compliance program stacks up with respect and access to key decision-makers.” The sample questions to the particular criteria deemed relevant by the Fraud also direct prosecutors to consider whether a compliance Section. The 2017 Guidance provides that the questions department has adequate support from the corporation. should be used and tailored for “each company’s A compliance program is expected to be sufficiently risk profile” and acknowledges that each corporation funded and resourced at a level that is proportional to the warrants a “particularized” evaluation. Contrary to the risks that a particular corporation faces. In sum, the 2017 more generalized guidance previously issued, the 2017 Guidance signals that prosecutors will consider whether Guidance provides practical and meaningful tools – in the compliance personnel have the experience, power, and means to implement and enforce compliance measures to address compliance concerns effectively. 113 Working Group on Bribery, OECD, “Good Practice Guidance on Internal Controls, Ethics, and Compliance 2010” (Feb. 18, 2010), available at http://www.oecd.org/ dataoecd/5/51/44884389.pdf; “Anti-Corruption Ethics and Compliance Handbook Fourth, the 2017 Guidance indicates that corporate for Business” (Nov. 28, 2013), available at http://www.oecd.org/corruption/Anti- Corrupt ionEthicsComplianceHandbook.pdf. compliance programs are expected to adapt to a company’s changing business and risk profile. A 114 For example, the 2017 Guidance includes questions such as: “What has been the strong compliance program is designed to respond company’s process for designing and implementing new policies and procedures? Who has been involved in the design of policies and procedures? Have business to the varying risks faced by a particular corporation. units/divisions been consulted prior to rolling them out?”; “How has the company This concern has become increasingly important as communicated the policies and procedures relevant to the misconduct to relevant employees and third parties? How has the company evaluated the usefulness of companies expand their businesses geographically and these policies and procedures?”; “How has the company incentivized compliance substantively. For example, the emphasis on third-party and ethical behavior? How has the company considered the potential negative compliance implications of its incentives and rewards?”; and “Has the company’s management is an acknowledgement that third parties investigation been used to identify root causes, system vulnerabilities, and pose compliance risks for companies operating abroad, accounting lapses, including among supervisory manager and senior executives? What has been the process for responding to investigative findings? How high up and indicates an expectation that a compliance program in the company do investigative findings go?”

© 2017 Winston & Strawn LLP 19 should be designed to address such risks. In short, the program is merely a “paper program” or is practically 2017 Guidance indicates that when business-related effective, and whether its compliance personnel have the changes occur, the compliance program must be part of requisite authority and resources to carry out compliance that change, and that the company will be expected to objectives. Companies should engage in the type of reassess the corporation’s risk profile and enhance its fact-intensive inquiries set forth in the 2017 Guidance in compliance program to respond to any new risks faced by order to assess the effectiveness of their programs based the company. on the specific criteria and questions identified by the government as relevant to the determination. While every Takeaways company’s business and risk profile is different, only by The 2017 Guidance demonstrates the Fraud Section’s carefully considering and applying the 2017 Guidance in intentions to conduct far-reaching and rigorous, fact- reviewing their own compliance programs will companies based evaluations of the compliance programs of be able to determine how the government would evaluate companies facing allegations of corporate misconduct. their programs, if they were to come under scrutiny. If a Given the expected government scrutiny of corporate company’s compliance program falls short, as measured compliance programs, along with the government’s against the specific criteria set forth in the 2017 Guidance, expanding enforcement efforts to combat corporate appropriately tailored based on the company’s profile, wrongdoing in both the criminal and civil arenas, and the company should take immediate steps to improve its its increasing focus on holding both organizations and program in order to meet the government’s clearly stated individuals accountable, companies cannot afford to expectations for an effective compliance program. ignore the valuable and detailed information provided by the 2017 Guidance. It is imperative that companies – Suzanne Jaffe Bloom, Staci Yablon, Christina Calvar use the 2017 Guidance to assess the adequacy of their existing compliance programs, including whether the

© 2017 Winston & Strawn LLP 20 Winston & Strawn’s Tax Controversy clients in mediations, arbitrations, tax litigation, and trials and Litigation Practice before the U.S. Tax Court, the U.S. Court of Federal Claims, federal district courts, and state courts. When necessary, Our tax controversy practice is one of the cornerstones of we handle cases for clients in the federal circuit courts Winston & Strawn’s tax practice. Many of our tax attorneys of appeal and the U.S. Supreme Court. We have also devote a substantial portion of their practice to tax represented clients in grand jury investigations; Senate controversy matters, with several attorneys concentrating PSI investigations; Independent Counsel investigations; their entire practice on these matters. before the Director of Practice of the Treasury Department; and other administrative tribunals. In addition, one of our Winston & Strawn’s tax controversy practice represents attorneys recently served as an Independent Examiner our clients’ interests at all administrative and judicial levels. for a Swiss Bank under the Department of Justice’s Swiss Our nationally recognized team of tax litigators, some of Bank Program. whom are former government trial attorneys, has litigated some of the most significant civil and criminal tax cases in Our tax controversy attorneys represent major financial U.S. history. Our tax controversy attorneys have presented, institutions, multinational corporations, other public negotiated, and resolved hundreds of cases with IRS corporations, and significant privately held corporations, appeals offices around the country, and the scope of our exempt organizations, high net worth individuals, and large appeals practice covers virtually every taxpayer-contested estates in administrative and judicial proceedings against issue. Our team of trial attorneys also regularly represents the IRS and the Department of Justice.

Co-Editors

Lawrence Hill Richard Nessler Partner, New York Of Counsel, New York [email protected] [email protected]

© 2017 Winston & Strawn LLP 21