Sorted by Commenter - Ethics - State of California

Mr. Howard Miller
April 8 , 2010
Page 2
In the course ofthe tax examination, the assigned Revenue Agent became concerned over the large
amounts of cash flowing through the business and the possibility that there was unreported income.
Upon the agent' s recommendation, a jeopardy
Service. Once this
, levies are immediately
Essentially, the IRS seizes property ofthe taxpayer and then talks. The judicial remedy to contest the
propriety of the jeopardy assessment and amount of jeopardy assessment is in the Federal District
Court. The amount of a tax deficiency can be contested in a subsequent
A trial on the jeopardy
, in the
approximate amount of $10 million. This, in turn, set the stage for the similar disposition of the
underlying tax case. A trial in Tax Court was thereby rendered moot.
My interpretation of proposed Rule (e
, since the defense of a jeopardy
assessment was not contemplated in the fee arrangement , the client might have been entitled to a refund of fees.
There is no question that the client was quite satisfied with the result and that additional legal fees associated with
a full trial in Tax Court were avoided. Logically, if the client would be entitled to a refund
, then the client had a
property right that was subject to seizure under the jeopardy
scenario could be:
1. The IRS, upon making the
, could demand that the lawyer turn over all monies which
would be subject to a refund claim by the client. Inasmuch as the initial retention of counsel did not contemplate
a jeopardy assessment administrative and judicial defense , all fees attributable to this work could be subject to
seizure (as well as all other assets
2. If the IRS seizes the fees from the lawyer, then the client is left without resources to contest the jeopardy
assessment and any other
assessment process, since the client doesn t have the necessary resources to retain counsel, or bringing an action
against the attorney for damages attributable to the turn-over of funds. As the attorney would be complying with
a lawful seizure process, it is doubtful the client could prevail on this basis. However , the net result is that the client
could be without representation in an action that was proved to be fatally flawed and that resulted in no additional
tax liability. Even if an action for damages against counsel was ultimately successful
, the client's business and net
worth have been destroyed.
3. Counsel, upon a seizure of fees, is left with representing the client without immediate compensation , in
the expectation that the client will prevail and recover their assets once the jeopardy assessment is abated. In the
event that the jeopardy assessment is upheld, there is a subsequent tax representation in Tax Court for which the
client lacks fees to be represented. In the event that the
withdraws from further representation, the client could have a claim for abandonment by the professional.
4. The IRS, by having an ability to seize the amount offees subject to a refund claim , in a purely civil matter
has been given the ability to interfere in the attorney-client relationship and decimate the client's ability to defend
seize
itself in a jeopardy case. Essentially, the logic
and retain funds that were necessary to mount a successful defense. The net result is that the client is out of business
and bankrupt and the IRS gets to keep funds to which it is not entitled.
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