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How does Greenberg’s Express apply to FDR cases with foreign assets?

On Behalf of | Oct 18, 2023 | International Tax Law |

It is not uncommon for those who find themselves the subject of an audit to believe that they were unfairly targeted. This is especially true for those who hold foreign assets or business interests. Taxpayers who need to navigate tax compliance with these types of assets are dealing with complex legal rules. Unfortunately, knowing the rules is only the first step. It is also important to know how case law interprets these rules to get a better idea of how the courts would handle a possible dispute.

One example is the case of Greenberg’s Express, Inc. v. Comm’r of Internal Revenue. This case provides important clarification on how the Tax Court deals with time restrictions and the ability to look back at information from earlier portions of the case. This has implications for cases with both foreign and domestic assets.

What was the case?

In addition to providing guidance on a complex legal matter, the case received national attention because it involved connections to Carlo Gambino, an alleged key player in the mafia. Greenberg’s Express was a business that became the target of an audit and allegations of tax deficiencies. The business argued it was the subject of the audit because the Internal Revenue Service (IRS) wanted to target two owners, Thomas and Joseph Gambino, sons of Carlo Gambino. They claimed the IRS targeted their business as way to strike out against the Gambino family; that there were no tax issues to support the audit.

They pushed for the Tax Court to throw out the IRS’ deficiency notice or, if not that, at least shift the burden of proof to the IRS.

What did the Tax Court hold?

The Tax Court disagreed and held that the petitioners were not entitled to this form of relief. The case now serves as a reminder that the Tax Court proceeding is de novo, that it generally does not “look back” at the IRS’s conduct before the Notice of Deficiency. Examples of events that taxpayers may request additional review that would fall under this rule can include the interview or summons.

Is this always true?

There are some exceptions. The Greenberg’s Express rule may not apply when dealing with international cases that include a formal document request (FDR). FDRs are a legal tool used by the IRS to push taxpayers into prompt compliance. Under § 982(a), taxpayers only have 90 days to comply with a request for foreign-based documentation. After this deadline, the taxpayer is generally prohibited from entering any foreign-based documentation into evidence at civil trials for the tax treatment of the item. The fact that this can qualify for an exception means that in these types of cases the Tax Court may look at what went on prior to the notice of deficiency.

This is an important and complex caveat that an attorney experienced in this niche area of tax law can help navigate