The Shoe is on the Other Foot
Most of the time, you hear about the IRS suing an individual or a company for fraud. But in this case, you have a tax fraud investigator suing the IRS instead. Miami fraud investigator, Lewis B. Freeman is suing the IRS for allegedly wrongly assessing a $4.8 million penalty it levied against him.
Freeman's company, Lewis B. Freeman & Partners Inc. is a well-known company that is hired to investigate fraud cases and has often been appointed by the court to stand as trustees or receivers. The million dollar penalty the IRS imposed on Freeman dates back to an incident 5 years ago when he was one of 4 shareholders in a company that provided tax-related counseling to other companies on employee benefits. One of the tax-saving strategies was to utilize so-called 132(f) plans, so named after the section of the Tax Code that allowed tax breaks for commuter mass transit and parking expenses.
According to section 132(f), employees are allowed to seek reimbursement for the cost of commuting and parking when it relates to their work. The reimbursements they receive are tax-free and their employers who pay them do not have to make the regular Social Security and Medicare tax payments on these reimbursements. Freeman's company gave this counsel to 5 companies. One of these companies then shared it with 15 other companies that employed 4,827 workers in total. Unfortunately, the IRS did not interpret section 132(f) quite the same way as Freeman did.
The IRS deemed Freeman's tax break plan an 'abusive tax shelter' and sent him a 'notice of penalty charge' of $1,000 per employee in all the companies who received his tax break advice. That came up to a staggering $4,827,000. This penalty was computed according to Tax Code section 6700 which was added to the code in 1982 to authorize the IRS to penalize those deemed to promote abusive tax shelters. Since then, the IRS has been criticized for being too over-zealous in using this section to punish less severe cases or in cases where there was a mere disagreement with a taxpayer over an aggressive tax-saving method.
Freeman obviously disagreed with the action of the IRS. He denies liability but at the same time, stated that his maximum liability should be $20,000 only i.e. $1,000 per company involved, if at all liable. The lawsuit says that the firm Freeman was a shareholder in received a fee of $118,000 for its services but after deducting all related expenses, Freeman 'may ultimately derive net losses instead of any gains at all'.
The 3 other shareholders in the company 5 years ago also received the same penalty notices of $4.8 million each. It is not clear whether they have initiated their own court proceedings against the IRS.
Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.
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