Tax Litigation

Southern California Tax Litigation Attorneys

Tax Litigation: Our Legal Team Can Help You Resolve Serious Tax Issues in Court

Tax law is among the most complex of all state or federal statutes, and few law firms in Southern California take on representation in this area of law. At Dallo Law Group, taxation legal matters will be under the watchful eye of our founder and lead attorney, Michael Dallo. A CPA and Certified Tax Specialist, adjunct professor at the University of San Diego, is among the most respected tax litigation lawyers in Southern California. Don’t trust a serious tax law legal matter to a less qualified Southern California tax lawyer.

Taking on the IRS or FTB in or out of court requires a specialized skill set. These agencies, and their lawyers, are not always right. In tax litigation, the law affords the tax agency a “presumption of correctness” that favors the agency. When the IRS or FTB issues a deficiency notice, the court initially presumes the agency’s determinations are correct. As a result, the taxpayer initially bears the burden of proof in U.S. Tax Court.

Proving Your Case

The tax authorities are not infallible. They frequently rely on automated data, incomplete records, or narrow interpretations of complex state laws that may not apply to your specific situation. Because the IRS’s determination is presumed correct, the taxpayer must initially present evidence showing the determination is incorrect. Litigation could be the only way to challenge an arbitrary assessment and present the “credible evidence” necessary to shift the burden back to the agency and protect your financial interests.

The Burden of Proof

  • The Initial Presumption: Both the IRS and FTB assessments are legally presumed correct until you provide evidence to prove them wrong.
  • IRS and FTB Errors: In some cases, agencies issue assessments based on estimated income or third-party information that may not fully reflect the taxpayer’s actual financial situation, which lack the full context of your business expenses or other matters.
  • Shifting the Burden: In federal court, if you provide credible evidence and have cooperated with previous requests, the burden of proof on certain factual issues may shift to the IRS if the taxpayer presents credible evidence and satisfies statutory requirements, including proper recordkeeping and cooperation.
  •  The Necessity of Records: Since you are in the best position to access your own financial data, the courts expect you to produce the “contemporaneous records” (receipts, logs, contracts) that disprove the agency’s assumptions.

When tax disputes escalate beyond simple audits, they often progress to litigation. Both the Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) actively enforce tax compliance in Southern California, particularly toward high-net-worth individuals and those with complex business structures.

The primary types of tax issues that commonly trigger tax litigation include the following:

  • Residency and Domicile Disputes: The FTB frequently litigates against individuals who have left Southern California and continue to maintain business interests or property in the region, claiming they owe California taxes on worldwide income.
  • Worker Classification (AB 5 Compliance): Disputes over whether independent contractors are employees and are wrongly classified can lead to significant payroll tax assessments or legal actions initiated by the EDD and FTB.
  • Substance Over Form & Economic Substance: The IRS may litigate transactions that appear to be designed solely for tax avoidance without a valid business purpose or “economic substance.”
  • Disallowed Business Deductions: Litigation often arises when the IRS or FTB denies large deductions for travel, entertainment, or home-office expenses due to a lack of substantiation or a claim that they are personal expenses.
  • Foreign Asset and Account Reporting: Failure to properly report offshore accounts (FBAR) or foreign business interests can cause “willful” penalty assessments, which may be subject to litigation.
  • Aggressive Conservation Easements and Tax Shelters: Participation in syndicated conservation easements or other “listed transactions” identified by the IRS as potentially abusive is a high-priority area for federal investigations and leading to litigation.
  • Apportionment and Unitary Tax for Businesses: For multi-state or multinational corporations, disputes over how much of the income is “sourced” to California (apportionment) can lead to high-stakes litigation.
  • “Piggyback” Assessments: When an IRS audit results in a change, the FTB may issue a corresponding state assessment based on the federal change. Litigation may occur if the taxpayer settles with the IRS for convenience but wishes to contest the state-specific implications.
  • Collection Due Process (CDP) Appeals: Litigation in U.S. Tax Court often follows a CDP hearing if a taxpayer disagrees with the IRS’s intent to levy assets or file a federal tax lien.

IRS Appeals Lawyer in Southern California

Over 85% of tax cases get resolved in an IRS appeal. There are situations where the taxpayer and the IRS have a more complex and contentious tax dispute. If you feel that the IRS owes you a tax refund, or you think the amount of taxes that the IRS claims you owe is incorrect, tax litigation may be a good option. Our highly qualified tax lawyer with a Master of Laws in Taxation (LL.M.) is the best person to handle your tax dispute in court because you want an attorney who is both highly trained and experienced in tax litigation and is educated and knowledgeable regarding the intricacies of federal tax law.

What options are available to litigate my tax case?

Litigating a tax case in tax court is the most popular choice amongst taxpayers because this is the only option where you don’t have to prepay your tax before going to court. While the tax court can be a desirable forum to litigate a tax dispute, it is not always the best or a possible choice for your tax dispute. If you believe you are entitled to a refund for taxes paid to the IRS or if you miss the deadline to file a petition with the Tax Court, you must generally prepay the tax and litigate your case in the United States District Court or the Court of Federal Claims.

Determining which forum choice requires the help of a skilled tax lawyer. Contact Dallo Law Group for a consultation to discuss your tax litigation options!

What tax cases are litigated in Tax Court?

The most common tax cases that are litigated in tax court are audit re-determinations, where you petition the Tax Court to re-determine (reconsider) your tax liability. After the audit is complete, the IRS will issue a Notice of Deficiency (Letter 531-T) indicating that you can file a petition with the tax court within 90 days. Once the petition is filed with the Tax Court, the tax lawyers of Dallo Law Group will ensure that most IRS collection activities related to the disputed liability are generally suspended while the case is pending.

In addition to audit reconsiderations, you could petition the tax court if you received a (1) Notice of Determination concerning collection action or worker classification; or (2) Notice of Determination concerning a request for innocent spouse relief.

***IMPORTANT NOTE***

If a petition is not filed with the Tax Court within 90 days following the date the Notice of Deficiency or Notice of Determination is mailed, the Tax Court CAN NOT hear your case. Your only option is to prepay the tax and sue for a refund in District Court or the Court of Federal Claims. This is a firm deadline and is your ticket to tax court. If you have received a Notice of Deficiency or Notice of Determination, contact us as soon as possible to schedule a consultation to discuss your rights and to prevent you from losing the ability to litigate in Tax Court.

Can I appeal my case if I do not receive a favorable outcome in court?

You have the opportunity to appeal your case if you are unhappy with the outcome at trial. Your appeal rights and procedures depend on where your tax case was litigated. Contact the tax attorneys of Dallo Law Group to discuss your tax litigation appeal.

What tax cases are litigated in the District Court?

If you miss the deadline to file a petition with the Tax Court, you must prepay your tax and sue for a refund in District Court or Court of Federal Claims if you want to litigate your case. There may also be situations where the district court is preferable over the Tax Court, such as where a jury trial in the District Court would be the best option given the facts and circumstances of your case.

Some cases can only be litigated in the district court. For instance, trust fund recovery penalties (responsible person penalty) can only be litigated in the district court. Also, criminal tax matters must be resolved in the district court.

An experienced Southern California tax attorney can help you determine whether your tax case should be litigated in District Court. Contact us today at 619-912-0616. We have two offices to serve you, one in Irvine and one in San Diego, and we serve all of Southern California.