Tax Trail Pamphlet

With 16 years experience in tax law, John Faucher is familiar with the system.  At the beginning of 2014, he wrote A Practical Guide to the Tax Trail.  This pamphlet describes what happens to your tax return and your tax liability from the filing of your return, through an audit, all the way to getting a decision from the Tax Court determining your tax liability. Knowing the audit process can make it less scary, and can give you insight into how to protect your own interests.

To download this guide, please fill out the following information.  We will use your information to keep in contact and provide you with more useful material.

We focus on tax and bankruptcy law in Southern California: helping local debtors get discharged from debt, particularly tax debt; helping to lower tax debt via challenges to IRS determinations at audit and litigation stages; helping creditors recover what they are entitled from bankrupt estates; helping settle disputes between debtors, creditors, and bankruptcy trustees.  We know the tax and bankruptcy codes and the people who make these processes work.

  Call 818/889-8080 now to find out how we can help with your financial, tax, and legal problems.

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John Faucher consulting a clientJohn Faucher, principal of the firm, practices at the intersection of tax and bankruptcy law because he finds this legal practice offers an invigorating mixture of client counseling, problem solving, court appearances, litigation, and helping people in difficult circumstances.  Before going into private practice in 2009, John worked for almost a decade as an attorney for the U.S. Treasury Department, Internal Revenue Service.  While there, he defended IRS tax audits in tax court and represented the IRS in bankruptcy proceedings.  John has also worked as corporate counsel for Coastal Corporation in Houston, Texas, and for other private partnerships.  In 2014, John earned a Certificate of Specialization in Bankruptcy Law from the State Bar of California.

2014-08 JDF photoIn larger bankruptcy and tax issues, John Faucher often teams up with other attorneys with expertise in these areas.  Please see Our Attorneys for more information on the attorneys with whom we routinely associate.

 Download the  free Tax Audit Trail Pamphlet Here.


Could I go to Jail?

My client’s shaking, horrified. She lied on her tax return and worries the IRS will find out when they open the audit.  She thinks she’ll end up in handcuffs if she even talks to the IRS.  She won’t.   But the IRS will be happy that she is scared. Americans filed 137.3 million tax returns in […]

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IRS Delays Benefit my Clients

The IRS is woefully understaffed: in IRS offices across the country staffing is down 7 to 41% and not one office has seen an increase. Complicated correspondence is not answered timely, or sometimes at all. I have a large collection of letters from the IRS saying that it received my inquiry some time ago, that […]

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IRS Tax Debt Ten-Year Clock

Most people don’t know that the IRS stops trying to collect on tax debt after 10 years. This 10-year clock can be valuable to people who owe back taxes from several years ago. The statute of limitation on collecting tax owed is at 26 U.S.Code § 6502(a)(1): the IRS may start a collection proceeding only […]

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What is a Private Letter Ruling (aka PLR)?

Sometimes a taxpayer makes a seemingly minor technical mistake on his return that ends up with large consequences down the line. Shocking, yes, but it’s been known to occur. Good examples of such minor technical mistakes: using a wrong depreciation schedule on a large asset; continuing to report a corporation’s income on Form 1120S after […]

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A Dream Job

A Dream Job   I love what I do. Intervening on behalf of my clients in tax audits, or helping people shed crippling debt, allows me to (1) draw on prior professional experience at the IRS and elsewhere, (2) use my detective and people skills in finding and negotiating with the right auditors and revenue […]

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Tax “Love Gifts”

Churches and ministers receive many tax breaks: churches do not need to withhold social security taxes from their ministers’ pay; churches receive income tax-free; and ministers do not pay tax on the cash value of church-provided housing. But receiving a tax-free salary is not one of the breaks ministers receive. I have client who’s a […]

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Tax Season is Phishing & Scam Season

I recently received an email solicitation — purporting to be from the IRS — claiming I was eligible for a refund and asking me to click a link to process my return for the refund. Here’s a copy of it.  It is shamelessly not from the IRS: the return email address has nothing to do […]

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If You Sign Your Tax Return, You’re Responsible For It — Even If You Use A Preparer…

My client called in a panic. He was being audited, and the IRS wanted to know why he claimed $2,500 in mileage expense on his Schedule C. My client doesn’t own a Schedule C business. The IRS also questioned my client’s $10,000 loss on his professional stamp collecting – another fictional activity. His tax preparer […]

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The IRS Appeals Officer & Process

When a taxpayer disagrees with the IRS auditor’s determination, the IRS assigns the matter to an appeals officer. This is a second, new IRS employee that the taxpayer can negotiate with. Importantly, as a taxpayer deals with successively-higher-level employees in the IRS, the discretion of each employee increases. Appeals officers almost always have more discretion […]

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Account Transcripts: What the IRS Knows About You

Except for what you tell it, the IRS (and for that matter, state tax authorities like the FTB) doesn’t really know very much about you. But it’s worthwhile to find out what it does know about you. The IRS keeps information about taxpayers in transcripts, small files on its central computers. I find it invaluable […]

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When a Tax Court case opens with “petitioner is a fugitive from justice, living abroad, perhaps in Khartoum, Sudan,” I wonder whether the taxpayer can win against the government. When I further read about a state sales-tax audit leading to a law enforcement sting netting nine people in custody, but that the “petitioner avoided arrest [and] . . . is subject to outstanding arrest warrants for numerous criminal offenses, including theft of sales tax, the filing of false and fraudulent State tax returns, racketeering, and money laundering,” I’ll bet that the IRS wins this case, no matter what. But sometimes the underdog prevails.

Here, it’s Abdalla Mohamed, the owner of several beauty-supply corporations, a fellow who apparently bilked tax authorities out of hundreds of thousands of dollars, laundered money, and fled the country.
First, the IRS did an audit and found underreporting of more than $300,000 in tax (or almost $1 million in income) for 2006 and 2007. Mr. Mohamed was not present for the audit. His attorney agreed to the deficiencies in income tax, but not to the fraud penalties that the IRS tried to assess. So the Tax Court only needed to decide whether to impose the fraud penalty or not.

For 2006, the IRS laid out the paper trail showing that the corporations made far more money than Mr. Mohamed allowed to be shown on his tax returns, and the fraud penalty applied. For the 2007 tax year, a small fact complicated things: Mr. Mohamed had his tax preparer sign and file the return on his behalf, rather than signing it himself.

As a result, Judge Halpern declared that Mr. Mohamed’s 2007 return was not valid. If there is no valid return, there is no understatement of tax, because there is no original statement of tax. For the fraud penalty of IRC § 6663 to attach, there must be an understatement of tax. So no fraud penalty for 2007.
But the IRS wouldn’t just give in easily. It next argued that Mr. Mohamed’s 2007 return got filed late – indeed, no tax return was filed at all – so the taxpayer owes a delinquency penalty under IRC § 6651, and since the taxpayer clearly intended to defraud the government with the attempted return, he owes the 75 percent penalty for fraudulent-failure-to-file, IRC § 6651(f).

At trial, Judge Halpern didn’t like this argument. He pointed out that, for the section 6651(f) 75 percent penalty to apply, the failure to file the return had to be fraudulent. Here, the taxpayer fully intended to file a return on time, and took the steps that he thought would achieve that result (letting his tax preparer sign the return), only to be denied the filing at the last moment – or even after the last moment, since it was Judge Halpern who decided it was not a valid return. In fact, Judge Halpern found that Mr. Mohamed’s delinquency was perfectly reasonable (the taxpayer often used his accountant to perform his tasks), and qualified him for the “good cause” exception to the delinquency penalty.

So for the 2007 tax year, Mr. Mohamed had no penalty at all!
Of course, Mr. Mohamed’s victory is relatively small. He still owes close to a million dollars in taxes and penalties.

I find it remarkable that he even bothered to fight this fight. He probably has no assets left in this country and cannot return; why pay an attorney to change his total bill to the IRS from $1 million to $800,000? And yet, the decision helps other taxpayers because it clarifies the elements of tax fraud and the delinquency penalty.
If you have issues with tax fraud or the delinquency penalty, particularly if the IRS is on you like a hungry pit bull on a steak, I am very interested in helping you out.