Risks, Mitigation & Strategies for Lawyers
As a practicing attorney, staying ahead of tax controversies isn’t just smart—it’s essential. Tax authorities like the IRS are ramping up enforcement with advanced data analytics, AI-driven audits, and broader compliance nets. For lawyers advising businesses and high-net-worth individuals, understanding these shifts means protecting clients from audits, penalties, and protracted disputes. This blog draws from an upcoming CLE webinar featuring W. Curtis Elliott, Jr., Partner at Culp Elliott & Carpenter P.L.L.C., and Steve Mather, Principal at MATHER | ANDERSON. They unpack the latest IRS priorities, early warning signs, resolution tactics, case law impacts, and compliance best practices tailored for legal professionals.
IRS Enforcement Priorities: What Lawyers Need to Watch
The IRS isn’t playing around. In 2025, enforcement budgets surged, targeting high-income earners, pass-through entities, and crypto transactions. Directive from IRS Commissioner Danny Werfel emphasizes “high-risk” areas like abusive trusts, syndicated conservation easements, and micro-captive insurance schemes. For lawyers, this translates to heightened scrutiny on Schedules C, K-1s, and Form 1099s.
Consider the impact: The IRS’s Direct File program and expanded use of AI for anomaly detection mean routine returns now trigger automated flags. In United States v. Daugerdas (recent appeals reinforcing promoter penalties), courts upheld massive fines for tax shelter advice. Lawyers drafting opinions or structuring deals must flag these risks early. Proactive tip: Advise clients to document “substantial authority” under IRC §6662 to dodge 20% accuracy penalties.
Spotting Early Warning Signs and Taking Action
Tax disputes rarely erupt overnight. Savvy lawyers recognize red flags like mismatched third-party reporting (e.g., 1099-K from payment processors), repeated Notices of Deficiency (CP2000), or summonses under IRC §7602. Recent data shows 70% of audits stem from information returns discrepancies.
Proactive measures? Implement a “tax health check” protocol: Quarterly reconciliations of books to returns, leveraging tools like Thomson Reuters or CCH for predictive analytics. If a notice hits, respond within 30 days—don’t ignore it. Elliott and Mather stress pre-audit “voluntary disclosures” via Form 3949-A or streamlined offshore programs, slashing penalties by up to 75%. For estate planners, watch IRC §6751(b) manager-approval requirements; failure voids penalties in disputes.
Real-world example: A client-facing a $2M underpayment notice resolved it pre-audit by self-reporting via OVDP, avoiding criminal referral. Lawyers, embed this in your retention agreements—billable hours goldmine.
Mastering Resolution Strategies and Negotiation
When disputes escalate, negotiation trumps litigation. Fast Track Settlement (under Rev. Proc. 2023-14) offers resolution in months, not years, with appeals officers incentivized for speed. Mather highlights “offer in compromise” success rates climbing to 40% post-Inflation Reduction Act funding.
Key techniques:
Build rapport: Use Appeals’ “unofficial conferences” to test waters.
Leverage data: Present economic hardship affidavits with financial projections.
Expert witnesses: Engage CPAs for cost segregation studies or valuation reports.
Recent case law bolsters this: Boehm v. Commissioner (T.C. 2024) limited IRS’s “economic substance” doctrine, giving taxpayers leverage in shelter challenges. For lawyers, master IRC §7122 settlement authority—it’s your courtroom without the robe.
Navigating Case Law and Regulatory Shifts
2025 brought pivotal updates. The Supreme Court’s Moore v. United States upheld the Mandatory Repatriation Tax, but opened doors for realization-based challenges. Tax Court in Greenberg v. Commissioner struck down retroactive penalties, mandating clear notice.
Regulatory fronts: Final regs on §162(m) deduction limits expanded “publicly held” definitions, hitting more mid-caps. BEPS 2.0 pillars loom, with global minimum taxes pressuring multinationals. Lawyers advising C-corps must pivot to Pillar Two compliance modeling.
Mitigation hack: Annual “tax controversy playbook” reviews, incorporating IRS LB&I campaigns like S Corporations (abusive devices).
Compliance Best Practices: Your Risk Shield
Ultimate defense? Ironclad compliance. Adopt a “three-lines” model:
Governance: Board-level tax risk committees.
Controls: Automated workflows via Avalara or Vertex for nexus tracking.
Training: CLE-mandated sessions on §7216 data safeguards.
Elliott recommends “tax insurance” policies covering defense costs up to $10M. For family law practitioners, integrate QTIP trust audits to preempt §2056 disputes. Wellness note for busy lawyers: Amid aromatherapy breaks (hey, Quezon City pros know the value), schedule these reviews quarterly.
In sum, tax controversies demand vigilance. Join the CLE webinar for Elliott and Mather’s deep dive—register now to arm your practice. Your clients’ fortunes (and your fees) depend on it.