Category Archives: criminal tax law

The U.S. Tax Court has dismissed a tax deficiency case against Luis Carlos Ibarra Cano after finding that the IRS failed to properly notify the taxpayer due to an address error. The dispute arose when the IRS claimed Cano owed $4,422 in taxes for 2020, based on income reported on a Form W-2.

On January 23, 2023, the IRS mailed a notice of deficiency to “2206 TH St. Hempstead, TX 77445-4761,” instead of Cano’s correct last known address, “220 6th Street, Hempstead, TX 77445.” Cano filed his petition with the Tax Court 400 days later, well beyond the usual deadline.

The IRS argued that the case should be dismissed because the petition was late. However, the court found that the IRS’s notice was sent to the wrong address and therefore did not meet the legal requirement for proper notification. The court rejected the IRS’s claim that Cano’s possession of the notice proved its validity, emphasizing that the IRS must strictly comply with the “last known address” rule to establish jurisdiction.

Ultimately, the Tax Court dismissed the case for lack of jurisdiction, highlighting the importance of the IRS’s obligation to send deficiency notices to the correct address.

    

Marini & Associates, P.A. 

 

 

for a FREE Tax HELP contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Sources:

1.       https://www.currentfederaltaxdevelopments.com/blog/2025/6/18/notice-of-deficiency-validity-insights-from-cano-v-commissioner    

2.      https://www.law360.com/tax-authority/articles/2355214/tax-court-rejects-irs-deficiency-case-over-address-error  

3.      https://www.currentfederaltaxdevelopments.com/blog/2025/6/18/notice-of-deficiency-validity-insights-from-cano-v-commissioner   

   4. https://www.vitallaw.com/news/tax-court-lacked-jurisdiction-as-irs-failed-to-establish-valid-notice-of-deficiency-cano-                        tcm/ftd014ce06f3fe2e44cb0b6a880ad5394d6ad

Read more at: Tax Times blog

Tax planning can be smart. Tax schemes? Not so much. The recent Tax Court case Kirk Stevens, et ux. v. Commissioner (T.C. Memo. 2025-45) is a cautionary tale for anyone tempted by “too good to be true” tax shelters, especially those involving complex financial products and interest deductions under IRC Section 163.

The Setup: A Creative, But Risky, Tax Strategy

Kirk and Shannon Stevens, after selling their business assets, faced a hefty tax bill. Looking for relief, they turned to a consultant who pitched a sophisticated transaction involving loans and options. Here’s how it worked:

·         The Stevens received a loan from an issuer.

·         They used the loan proceeds to buy a “Bermuda Call Option Agreement” from the same issuer.

·         The arrangement included features that mimicked debt but were tied to the performance of the option, not a straightforward repayment.

On their tax return, the Stevens claimed significant interest deductions under Section 163, hoping to offset their gain from the business sale.

The Court’s Verdict: No Substance, No Deduction

The IRS wasn’t impressed and neither was the Tax Court. The judges found that:

·         No Real Debt: The so-called “loan” didn’t require unconditional repayment. Instead, everything hinged on the option’s performance. In the court’s eyes, this wasn’t bona fide debt.

·         Lack of Economic Substance: The transaction had no real business purpose other than generating tax deductions. That’s a red flag for the IRS, and it failed the economic substance doctrine test.

As a result, the court disallowed the interest deductions. To make matters worse, the Stevens were hit with accuracy-related and excessive-refund penalties.

Key Takeaways for Taxpayers and Advisors

1. Substance Over Form Matters
No matter how intricate the paperwork, if a transaction doesn’t have real economic substance or a genuine business purpose, the IRS and courts will look past it.

2. Bona Fide Debt Is Essential for Interest Deductions
To deduct interest under Section 163, you need a true debt—meaning a real obligation to repay, not just a circular flow of funds tied to a financial product.

3. Beware of “Tax Shelter” Schemes
If a strategy is marketed primarily for its tax benefits, especially if it involves loans and options with little real risk or business purpose, proceed with caution.

4. Penalties Can Add Up
Not only can the IRS deny deductions, but they can also impose steep penalties for negligence or excessive refund claims.

Final Thoughts

The Stevens case is a reminder: Effective tax planning is about leveraging legitimate opportunities, not chasing aggressive schemes that lack substance. Consult with reputable tax professionals, and always make sure your strategies have a solid business foundation.

 

Marini & Associates, P.A. 

 

 

for a FREE Tax HELP contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Sources:

1.       https://www.currentfederaltaxdevelopments.com/blog/2025/5/15/tax-court-memo-2025-45-stevens-v-commissioner-key-takeaways-on-interest-deductions-and-penalties-in-complex-financial-transactions    

2.      http://www.smbiz.com/sbtc25.html   

Read more at: Tax Times blog

According to DoJ, a Miami-Dade County investor has pleaded guilty to filing a false tax return in an effort to shield $30 million in trading proceeds from capital gains taxes, federal prosecutors announced. 

Suresh Gajwani, 78, admitted to submitting fraudulent documents to the Internal Revenue Service, falsely claiming his company qualified for tax exemptions under Puerto Rico’s Act 60. Prosecutors say Gajwani retroactively converted his company to an S Corporation to exploit the tax incentive program, which is intended for bona fide Puerto Rican residents. 

The scheme allowed Gajwani to avoid paying approximately $7 million in capital gains taxes for 2019. As part of his plea agreement, he will pay $15.3 million in restitution, covering taxes, interest, and penalties. 

According to the facts admitted at the change of plea hearing, in 2018, Gajwani was a resident of Miami-Dade County. In October 2019, Gajwani owned a company that held stocks and options that had substantially appreciated in value by tens of millions of dollars.  In anticipation of the tax on those gains, Gajwani sought to take advantage of a tax incentive program offered pursuant to Puerto Rico Act 60. Under the program, bona fide residents of Puerto Rico could apply for an exemption from federal taxes on certain capital gains realized after the individual became a Puerto Rican resident. Gajwani did not become a bona fide resident of Puerto Rico until January 1, 2020, which was after the stock portfolio had accrued built-in gains.  

Gajwani was advised by an accountant and attorney to convert his company to a small business corporation (known as an S Corporation) under the Internal Revenue Code to take advantage of the Puerto Rico capital gains tax exemption. Gajwani was also advised by an attorney that built-in gains for U.S. residents accrued prior to becoming a resident of Puerto Rico could be exempt from federal taxes.

In order to convert the company retroactively, in January 2020, Gajwani submitted a false document to the IRS that claimed that the company had intended to convert as of January 1, 2019. Gajwani knew that he did not intend to treat the company as an S Corporation as of January 1, 2019, and that the real reason for the submission of the paperwork to the IRS was to avoid paying capital gains taxes. Based upon Gajwani’s false statement, the IRS granted Gajwani’s request.

In 2019, Gajwani’s company had a portfolio with approximately $30 million in built-in gains. Had the IRS not allowed Gajwani’s company to convert to an S Corporation retroactively, the company would have owed approximately $7 million in capital gains taxes for 2019.

Gajwani faces up to three years in prison. Sentencing is scheduled for August 30, 2025, before Chief U.S. District Judge Cecilia M. Altonaga.

Federal authorities say the case highlights their commitment to prosecuting tax fraud and ensuring that all taxpayers play by the rules.

Have an IRS Tax Problem? 

 

   
Contact the Tax Lawyers at 

Marini & Associates, P.A. 

 

 

for a FREE Tax HELP contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

In IR-2025-67 dated June 12, 2025 The U.S. Department of the Treasury and the Internal Revenue Service extended and modified the transition relief provided in Notice 2024-56 PDF for brokers who are required to file Form 1099-DA, Digital Asset Proceeds From Broker Transactions PDF to report certain digital asset sale and exchange transactions by customers.

Transition relief for brokers required to file Forms 1099-DA

In 2024, Treasury and IRS announced final regulations requiring brokers to report digital asset sale and exchange transactions on Form 1099-DA, furnish payee statements, and backup withhold on certain transactions beginning January 1, 2025. At the same time, the IRS announced in Notice 2024-56 transition relief from penalties related to information reporting and backup withholding tax liability required by these final regulations for transactions effected during 2025. Additionally, Notice 2024-56 also provided limited transition relief from backup withholding tax liability for transactions effected in 2026.

The IRS received and carefully considered comments from the him the transition relief provided in Notice 2024-56 indicating that brokers needed more time to comply with the reporting requirements; today’s notice addresses those comments.

Additional transition relief

Notice 2025-33 extends the transition relief from backup withholding tax liability and associated penalties for any broker that fails to withhold and pay the backup withholding tax for any digital asset sale or exchange transaction effected during calendar year 2026.

The notice also extends the limited transition relief from backup withholding tax liability for an additional year. Specifically, brokers will not be required to backup withhold for any digital asset sale or exchange transactions effected in 2027 for a customer (payee), if the broker submits that payee’s name and tax identification number (TIN) to the IRS’s TIN Matching Program and receives a response that the name and TIN combination matches IRS records. Additionally, relief is provided to brokers that fail to withhold and pay the full backup withholding tax due, if the failure is due to a decrease in the value of withheld digital assets in a sale of digital assets in return for different digital assets in 2027, and the broker immediately liquidates the withheld digital assets for cash.

This notice also provides additional transition relief for brokers for sales of digital assets effected during calendar year 2027 for certain customers that have not been previously classified by the broker as U.S. persons.

 Have an IRS Tax Problem? 

 

   
Contact the Tax Lawyers at 

Marini & Associates, P.A. 

 

 

for a FREE Tax HELP contact us at:

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog