Tax Shelter Litigation

Tax Shelter Defense Tax Litigation

  • Attorneys in Freeman’s tax controversy and litigation practice have been named to U.S. News and World Report’s Best Lawyers in America list, recognized by Chambers & Partners as among the leading tax and litigation attorneys in the United States, including for fraud representations, and recognized as the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas.
  • Our tax litigation attorneys include former IRS trial attorneys, former clerks to the Chief Judge of the United States Tax Court, tax law professors, dual-credentialed CPAs, and attorneys with advanced LL.M. tax degrees from the most prestigious tax programs in the nation. One-third of our attorneys are law professors at tier one law schools, teaching tax law.
  • We regularly take on the nation’s biggest litigation firm: The Department of Justice. We bring a systematic approach to tax litigation; and we are rewriting the odds in complex tax disputes, one case at a time.

Tax Shelter Defense and Litigation

Freeman tax controversy practice regularly represents clients in tax shelter litigation. We vindicate, mitigate, and defend our clients against government allegations, bringing big-firm talent, think-tank intellect, and strategic insight to their corners. We are hyper focused; responsive; and battle-tested.

We combine unique litigation skills and experience with substantive tax knowledge. Our attorneys are client-focused problem solvers. They are steeped in substantive tax expertise gained from years of experience in the trenches and provide sophisticated representation and penetrating legal acumen.

Best Lawyers® and U.S. News & World Report have recognized Freeman as a “Tier 1” Tax Law firm and our tax attorneys have garnered national recognition for their tax defense work, such as:

  • The “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas
  • U.S. News – Best Lawyers® Best Lawyers in America
  • The Best Lawyers in America®, Chambers USA

In tax litigation, the right move at the right time can mean the difference between the right outcome and the wrong one. We begin thinking through the end game from day one. We sift through and evaluate the case, cultivating its thematic essence and distilling complex facts into clear and compelling narratives and defenses.

Tax Minimization

Federal courts have long recognized that a taxpayer may structure their affairs in a manner that complies with the law so as to minimize taxes as much as possible. Among the more well-known quotes from the judiciary:

“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)

“Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”

Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) (J. Learned Hand)

We believe that it is imperative that taxpayers have aggressive, knowledgeable counsel to represent and protect their rights, particularly where they face government enforcement and challenges with respect to tax structures that comply with the law.

Tax Shelter Defense

The Tax Reform Act of 1986 addressed tax shelters from the 1970s and 1980s by preventing individual taxpayers from using “passive activity” losses from tax shelter investments to reduce taxes by offsetting taxable income.

The government believed that abusive tax shelters picked up again in the 1990s and in the late 1990’s, a Department of the Treasury report described a large and growing problem with abusive corporate tax shelters. In 2002, citing many ongoing efforts, Treasury published a plan to further combat tax shelters, featuring both legislative proposals and administrative actions. And in 2004, the AJCA provided updated disclosure and list-maintenance rules and updated penalty provisions. The list-maintenance rules require that material advisors keep lists of their investors and make the lists available to the Secretary of the Treasury within 20 business days of a request.

In the early 2000’s, the U.S. Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs initiated an in-depth investigation into the development, marketing, and implementation of abusive tax shelters by professional organizations such as accounting firms, banks, investment advisors, and law firms. Ultimately, the Subcommittee concluded that the development and sale of potentially abusive and illegal tax shelters have become a lucrative business in the United States, and professional organizations like major accounting firms, banks, investment advisory firms, and law firms have become major developers and promoters of tax shelters.

“Tax shelter,” however, is a misleading phrase. The term ‘‘tax shelter’’ has come to be used in a variety of ways depending upon the context. Some tax shelters are specific tax benefits explicitly enacted by Congress to advance a legitimate endeavor, such as the low-income housing tax credit.

Tax shelters can be legitimate to the extent that they take advantage of various provisions in the tax code to lawfully avoid tax. For instance, retirement plans (e.g., 401(k)) shelter income by not subjecting certain wages to federal income taxes until the wages are distributed from the plan.

Our attorneys represent so-called promoters and professionals involved in government investigations into tax shelters. We provide legal know-how and an in-depth knowledge of the investigation process and related procedures.

In addition to statutory and regulatory requirements and prohibitions, federal courts have developed over the years a number of common law doctrines targeting tax shelters, including the economic substance, business purpose, substance-over-form, step transaction, and sham transaction doctrines.

IRS investigations targeting tax shelters often involve “reportable” transactions. Reportable transactions include:

  • Listed Transactions

    A transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or another form of published guidance as a listed transaction.

  • Confidential

    Transactions offered under conditions of confidentiality.

  • Contractual Protection

    Transactions that are offered with the right to a full or partial refund of fees if the IRS does not allow the tax benefit of the transaction.

  • Loss Transactions

    Certain losses under IRC §165.

  • Transactions of Interest (TOI)

    Transactions that the IRS and the Treasury Department believe to have the potential for tax avoidance or evasion, but lack sufficient information to determine whether the transaction should be identified specifically as a tax avoidance transaction. The TOI category of reportable transactions applies to transactions entered on or after November 2, 2006.

Our firm and attorneys maintain a reputation for integrity and vigorous representations defending taxpayers and tax professionals. Freeman attorneys have experience defending against a range of government agencies, with a particular focus on the IRS.

Well-versed in high-stakes tax and criminal tax defense, our attorneys are trial-ready and battle tested; we’re ready when you are.

Representative Matters

  • Criminal Tax. Represented attorney in federal indictment for tax evasion.
  • Criminal Tax. Represent client in alleged $12 million tax evasion.
  • Criminal Tax Investigation; Non-Prosecution. Represented client in criminal tax investigation by IRS Criminal Investigation Division involving allegations of income tax evasion; “killed investigation,” obtaining agreement from IRS CID not to seek prosecution against client.
  • Criminal Tax Investigation; Non-Prosecution. Represented client in criminal tax referral involving allegations of income tax evasion; “killed case,” obtaining declination to prosecute client from United States Attorneys Office.
  • Criminal Tax Investigation; Non-Prosecution. Represented client in criminal tax investigation by IRS Criminal Investigation Division involving allegations of income tax evasion; “killed investigation,” obtaining agreement from IRS CID not to seek prosecution against client.
  • Criminal Investigation; Seizure; Non-Prosecution Represented client under federal investigation for laundering and facilitating cryptocurrency exchanges following government seizure of cash. “Killed case,” and obtained government declination to pursue criminal charges, as well as obtained return of all seized funds.
  • White-Collar Criminal Defense; Non-Prosecution Represented client in grand jury investigation with respect to allegations of perjury, tax evasion, obstruction of justice, and financial kickback scheme, obtaining United States Attorneys Office’s agreement not to prosecute.
  • Criminal Tax Defense. Represented client as criminal counsel in federal criminal case involving allegations of criminal tax evasion and conspiracy with tax preparer.
  • Appellate. Served as lead appellate counsel in federal court of appeals, providing oral argument in federal tax case.
  • Federal Criminal Defense. Following appointment as counsel, initiated investigation and obtained release of client from prison after uncovering wrongful investigative actions and entrapment.
  • IRS “SEP” Audit/Investigations. Represented client in Special Enforcement Program (“SEP”) audit/investigation involving millions of dollars of alleged unreported income and several million dollars of unpaid tax and assessments; obtained deal to avoid criminal referral and avoidance of fraud penalties.
  • Criminal Tax Defense. Represented client against criminal tax evasion charges involving allegations of the evasion of tax in excess of $1.5 million. Obtained result of no prison time.

Have questions? Refer to our FAQs for Tax Shelter Defense.