Episode 35: Recent Trends in Controversy Matters
Welcome back to “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies—in an easy-to-understand format. Whether you’re looking to learn more about tax bills, global tax implications, or planning insights for your business, you’re in the right place.
Listen every other week for more from our guests, which include everyone from university scholars to industry professionals to the firm’s experienced leaders.
In this episode, we’ll look at recent trends in controversy matters before the IRS. We welcome Kristin Gutting and Ed Chung with the controversy team at Forvis Mazars to share their insights.
If you have any questions or need any assistance, please reach out to a professional at Forvis Mazars.
Transcript
IRIS LAWS
From Forvis Mazars’ controversy team, this week we welcome Kristin Gutting and Ed Chung, who will talk with us about recent trends and what they are seeing in exams. From your one stop for tax updates and analysis, I’m Iris.
LANCE JACOBS
And I’m Lance.
IRIS LAWS
And this is “Tackling Tax.”
LANCE JACOBS
In the federal tax system, taxpayers are represented by two separate but equally important groups: the tax return preparers, and the specialists who represent them in controversy matters before the IRS. These are their stories. We’re pleased with that “Law and Order” intro to welcome to the podcast Kristin Gutting and Ed Chung.
Kristin is a principal in Forvis Mazars’ federal tax specialty services practice and leads the firm’s tax controversy and practice and procedure team. With more than 20 years of experience, she represents taxpayers in federal and state tax disputes, including examinations, appeals, collection matters, and penalty controversies. Drawing on her experience as both a tax attorney and former associate professor of law, Kristin provides strategic advocacy and practical solutions to help clients successfully resolve complex tax matters.
Ed has more than a decade of experience representing individuals, estates, C-corporations, S-corporations, and other flow-through entities. He has served on a number of engagements advising on laws applicable to, and the policies and procedures followed by, the IRS and the various state and local tax jurisdictions in the examination of tax returns, administrative appeals of examination determinations, tax court litigation, and the collection of outstanding tax liabilities.
Welcome to the both of you.
ED CHUNG
Thank you.
LANCE JACOBS
So, going back a little bit to an earlier Supreme Court session, the talk of the ‘23- ‘24 Supreme Court term was the decision in Loper Bright, which was the culmination, I think, of a long-time effort to overturn the court’s holding in Chevron, whereby courts no longer had to defer to agency interpretations of statutes.
Loper Bright itself involved regulations promulgated by the National Marine Fisheries Service, but obviously has impacted across the entire federal regulatory universe, including tax regulations. Guys, have we started to see the impact of Loper Bright in the federal tax practice?
ED CHUNG
I think as a general sense, I have not seen a tremendous amount of impact. I think things have kind of settled, for the most part, to not a statutory deference as you would have under Loper, but certainly on an informal deference standard. And I mean, the other issue about Loper Bright is that technically, appeals is not allowed, really, to address regulatory arguments. That’s something that you need to do as part of litigation, whether it be in tax court or a district court or some other form.
On a personal level, for me, I’ve not seen a tremendous impact on that particular area. So, Loper in and of itself, I think, day-to-day has not changed practice too much on my end.
I don’t know if Kristin has something, has had a bit of a different experience?
KRISTIN GUTTING
Yeah. So, I have seen Loper come up in the ERC space. And so, not in regards to regulations, but in regards to the notices that were put out by the IRS interpreting the ERC statute. And we have seen several courts in that space actually cite Loper and talk about how the notice should be given no deference in light of the new rule with Loper.
And so, that has been something that we’ve been using also in defending clients in ERC matters regarding Loper making the notice have no deference, and that the notice itself is giving a more narrow position in the ERC cases and that the courts aren’t paying attention to it. So, in appeals, they shouldn’t pay attention to it, and they’re allowed to look at that in appeals. Unlike, as I mentioned, they’re not allowed to consider whether a regulation is valid or not in appeals.
LANCE JACOBS
And I guess that makes sense in the sense that in appeals, you’re still within the IRS, right? So, it’s still part of the executive branch. And I think to Ed’s point, you’d have to get out into some judicial or quasi-judicial environment before they could consider that. So, I guess that makes sense. As you guys both probably know, I’m just a dumb state tax guy, but I did want to bring up in the state universe, Loper Bright is a federal concept, but the same drive to eliminate deference at the federal level actually had more success at the state level.
And I think, you know, there were states that had, pre-Loper, had gotten rid of deference. And post-Loper there was more of a legislative push to get rid of deference. The state I always think about in terms of Loper is Florida, because they put in a constitutional amendment basically banning deference.
To the extent that you guys are involved in state controversy, have you seen, as a result of Loper, states kind of, or taxpayers really, I guess, pushing the envelope on asking authorities to not defer to regulations to the extent that you’re above in those issues?
ED CHUNG
I think you’re running into the similar type of issues that you would have, at least on the fed side. We have from time to time presented the possibility that we disagreed with some form of state interpretation of an applicable law. The problem is one of what kind of appetite does the client, does the taxpayer have, right, to really fight? And what typically you will have on the state level is that the numbers will become smaller, right?
Generally, the rates you’re looking at will be lower. So, it’s hard to get that appetite to really go on and fight and go ahead and commit the fees that you would need to do that kind of a contest, because most of the state and local authorities will do a similar approach to the fed side, which is if you really want to contest the way we’re looking at this, you’re going to have to go to court, in essence, right? So, I haven’t had any taxpayers that are willing to do the outlay, monetarily, to do that kind of a contest.
LANCE JACOBS
And Kristin, have you had that experience at the state level at all?
KRISTIN GUTTING
I haven’t. I would tend to agree with Ed that, given the dollar figures on a lot of these matters, cost-benefit doesn’t usually make sense, but I haven’t seen it come up or argued it at the state level.
LANCE JACOBS
Yeah, I think that’s a fair point. That said, you know, I’ve litigated in the past some state tax issues and they can always get big enough such that, you know, it justifies the, you know, the fee risk associated with it. So, well, it’s interesting to see, that Loper is starting to percolate at least a little bit, it sounds like in Kristin’s space. And Ed, it sounds like we’re in a wait-and-see, and we’ll see what happens as we go down the road here with additional challenges that are to regulations that come out maybe through the tax court.
ED CHUNG
Yeah. I mean, look, the manual provisions have not been updated to take into consideration the changes, right? So, the administrative practice at appeals is still the one that you have pre-Loper, right? I was hoping to see maybe a change in that. I know there were some, there were some proposed. I think it was some proposed regs on this particular issue where it was basically trying to open the door, right, to appeals, potentially, right? Looking at the contests that you have on the regulations interpretation. But I haven’t seen anything final on that. You’re still under the old regime right now.
KRISTIN GUTTING
I was just going to add to what Ed was saying. You know, I am hoping also that appeals will change its rules and consider Loper. It makes it really difficult when their whole case is relying on a regulation and your only argument is Loper to take some of the reliance off of the regulation. And if they don’t change that rule, it really takes appeals off the table for a lot of taxpayers right now.
ED CHUNG
Yeah, it’s an inconsistency, right? It’s an inconsistency because you have the Supreme Court saying there’s no deference, but appeals is basically saying, well, you know, yes, we’re going to defer to the reg completely. We’re not going to let you do a regulatory argument, right, contesting the validity or the interpretation. Well, interpretation you could do, I shouldn’t say that. It’s the validity on the reg.
IRIS LAWS
Yeah. No, that makes sense. If we could shift a little bit to maybe more of a practical consideration. I think as we all know, the IRS with DOGE significantly cut the number of staff that they had. I think that the stat was, you know, in only the first half of 2025, maybe 25% of their staff they cut.
There’s been some reporting recently that there’s, you know, efforts to sort of reverse those cuts. But regardless of maybe what’s happening or not happening, how have these staff cuts in the past year or so affected you guys from a practical standpoint?
KRISTIN GUTTING
I can start. I think one of the things that we’re seeing with the staff cuts is a lot of the cuts, and people who chose to leave under the different programs the IRS offered were experienced hires. And so, we’ve lost a lot of the history and experience at the IRS. And now we’re working with a lot of individuals who are maybe even newer to tax, and are going through training. And so, we’re seeing that a lot in our practice.
IRIS LAWS
Ed, same thing?
ED CHUNG
I think it’s been a bit of a roller coaster ride, right, where the funding, there was a lot of funding that came in and right before, right, the DOGE changes came in we saw a tremendous spike in activity on the exams. There were basically every two weeks you were opening a new exam, a ton of volume.
And then it went the complete opposite direction, right? Then it went the other direction, somewhere towards the middle to where it was. And I think, like always, you get a mix, right, within the staff, right? I agree with Kristin. You’ve lost a lot of experience, but you can get some fresh new managers or new agents that may be good or bad.
I think one of the things that happened overall, and I think it’s still lingering to this day, is that morale is very low at the government right now, right? And that impacts the service quality, I think. So, to a certain extent, the drive to provide, go beyond the bare minimum. right?
Sometimes you also see, I think you’re seeing with DOGE sometimes, they’re just a remnant to try to drive efficiency, right? And that might not be the right answer. Sometimes the right answer’s to slow down and take a little more consideration. You’re not getting a lot of times the courtesy wait or the call, right, allowing you to, for example, respond to a report, or perhaps you missed a fax coming in asking for additional information.
There’s less patience with that, I feel like there is some of that as well. But in general, again, I think the morale is something that impacts on our side as well, right? Because obviously one side of the equation is not happy. It doesn’t make your job easier usually, it makes your job harder.
KRISTIN GUTTING
Yeah, I would agree that morale is really low. And there is definitely a great drive for finishing cases timely when you have them. And that is causing complications when you’re dealing with a case. Maybe you didn’t get a call, so they won’t wait or they’ll say, I’m not going to wait for that because this case has been out there for a while and it’s usually not been out there for a while due to the taxpayer’s fault.
They’ve always complied. It’s been out there for a while due to government shutdowns, turnover of staff, and matters like that. But now it’s being held against the taxpayer that something’s been out there for a while and they’re getting pushed to close things instead of reaching possibly the right result.
IRIS LAWS
Wow, what a challenge. Well, along those lines, I know, you know, you alluded a little bit, Ed, to the volume of exams that we’ve seen over time. Last week we had Craig Kuechenberg on the podcast to talk about the Sirius case and everything that’s going on with, you know, self-employment and partnership tax and that kind of thing. I guess just with partnership tax in general, I know historically, right, there’s been different initiatives, from the IRS to look at partnerships specifically.
Have you seen that change with some of these new cases or any volume change specifically with that?
ED CHUNG
There was a change in volume like we just were talking about with the DOGE budget cuts. But one thing that has—I talked about the roller coaster up and down—but one thing that has been consistent from the prior administration to this administration is that there is the amount of partnerships that are being examined is way too low.
So, there is definitely still a focus on partnership examinations. I think that is a large portion of the inventory that we have is usually in Subchapter K. It’s less than 1% from what I remember, off the top of my head, of the partnerships that are being examined. I know initially before the DOGE budget cuts, the goal was to get to double digits around 10%.
So, they’re way off the mark right now. So, I would expect there to still be an increase in volume there. They need to get a tenfold increase in total partnerships examined to get to the numbers that they believe they need to be in.
IRIS LAWS
Kristin, does that mirror your practice as well?
KRISTIN GUTTING
Yeah, I’m seeing a lot of the cases I’m handling have a partnership involved in them. Whether that’s the primary taxpayer being examined or it’s part of a larger global wealth audit where they’re looking at an individual and several entities they own, typically there is a partnership involved. And as you know, with the partnership regime that’s currently in place for exams, it gets rather complicated.
IRIS LAWS
The dreaded AR, right?
KRISTIN GUTTING
Yeah, it’s, you know, the initial tax is at the partnership level. And most times you don’t see the partnership wanting to pay at the partnership level. And so, then it has additional cost to the partners deciding do they do what’s called a modification and try to lower the tax rate or lower their overall tax? Or do they do what’s called a push out?
And most that I’m seeing, there’s been a lot of push out, but a push out for a taxpayer also includes an additional 2% interest rate, which is pretty high on top of the hefty interest rates they’ve been seeing. And then the cost to do all the push outs.
IRIS LAWS
Right. I mean, the administrative costs of paying folks like us to handle all of that, I know, can be a hard consideration for those partners. Another trend that we’ve been seeing in the news, and I’m not sure how prevalent this is with our clients at our firm, but trends around conservation easements and exams there.
The listeners can’t see. But Kristin just gave me a little giggle about this one. So, just tell me about this. Like, what are your thoughts here? Is this like, I mean, I think it was something like 60% of the tax disputes that did go to court for these ended up being in favor of the IRS. So, they’re winning about, you know, a little over half of the ones that that ended up being litigated. But just generally, what are y’all seeing there?
KRISTIN GUTTING
So, I’ve been involved in the conservation easement space since we started hearing about them in the media and, you know, looking at the law surrounding that area. And it’s, just keep in mind that conservation easements are still part of the law. They’re still allowed. But the IRS was really cracking down on what was called a syndicated conservation easement, that which is run through a partnership, and that there were investors in the partnership that were part of the conservation easement.
And so, they’ve been winning a lot of the cases, as you said, in tax court. So, over the last several years, they’ve come out with different rounds of settlements that they’ve been offering taxpayers, generally, each settlement getting worse. The recent settlements that I’ve been seeing is no deduction except for the charitable deduction, but you can deduct the amount that you contribute to the partnership and a 10% penalty.
And so, you were seeing those in the tax court, and there was a lot of processing that needed to occur. And there were some errors made in initial settlements with the tax courts and they’ve had to redo the settlement and file with the tax court. And so, the IRS has come out with an office that is going to be handling all of those settlements to make sure that they are streamlined and reduce any administrative errors in these situations.
IRIS LAWS
At one point, was there like a bulk settlement. Am I making that up? Was that the case at one point?
ED CHUNG
Yes, and the settlements needed to be coordinated. There was a, like Kristin mentioned, the 10% pretty much. So, most of these were getting hit with overvaluation penalties of 40%. And the deal that council was offering was 10%, but it wouldn’t allow for flexibility between, perhaps one easement may have a stronger valuation than another one when they have better procedural defects alleged than another one.
So, and the settlement program has not been as successful as the government would have liked. So, what they’ve done now is they’re allowing council—it’s still up in the air right now because it’s in the early stages—but it sounds like they’re going to allow council more leeway to start negotiating these more on the merits of each individual case.
I think I actually would be happy to see that, right? I think that’s the way to go. I mean, I know there’s something to be said for why is this person getting a better deal than I am just because they have a council that’s more lenient, right? But in the interest of efficiency—we were just talking about DOGE—I think that’s what you need to do to be able to start settling more of these cases, right?
Because for the most part, I think a lot of taxpayers were fighting these because the deals were so harsh, right? So, I mean, well, what are your options? You know, we think we’re strong on the valuation and whatever it may be. And so, a lot of cases we’re going all the way up to circuit court.
KRISTIN GUTTING
I would agree with that. It would be nice to see, instead of having sort of the global settlement, one size fits all, all easements must fall in this basket and to be able to look at the merits. Because if you were to follow all the court cases, you would even see just looking at them, there were stronger cases than others.
Instead of having that, the idea that it seems like exists with the IRS at times is that any kind of syndicated easement must be bad and allowing them to actually look at the merits I think will go a long way and hopefully unclog the tax court docket with all these cases.
IRIS LAWS
Yeah, I think I saw a stat as of May 2026. It’s around like 1,100 pending cases just specific to these. So, to your point, it’s hard to argue that they’re not having that attitude, right? This is allowed, but it must be a bad actor if that’s what you’re seeing. So, that’s sort of an unfortunate outcome. But, well, this has been great insight.
I guess, any other trends that you guys are paying attention to that our listeners might say, hey, this might apply to me, maybe I should call up Kristin or Ed?
KRISTIN GUTTING
I would just say, anytime, you know, you even get a simple notice, don’t assume it’s simple, that it’s going to be a quick journey with the IRS. Everything’s taking longer. Unfortunately, some things are getting lost. On numerous occasions we have responded to the IRS using their new technology, their portholes, where you can upload documents and then we’ll get letter saying you failed to respond, but we have proof of responding. So, I just say don’t assume ever that it’s going to be simple and quick. And always follow up with anything you send to the IRS, even if you send it electronically to them using their own portals.
IRIS LAWS
Wise words. I’ve had that experience, yes.
ED CHUNG
Yeah. It’s, I think, then to kind of mirror what Kristin is saying. One of the things, the last, I would say, 12 to 18 months, there’s a lot of unpredictability, right? Before, you would have—depending on the administration and the budgeting or whatever it was—you would have, okay, this process is going to take this long.
This process is going to take this long. This is going to be the general reaction that you’re going to have at the administrative appeals level. This is how, you know, I’ll call it. I feel like these days it’s really hard because, I mean, from top to bottom, the IRS is not how it used to be, right? You don’t even have a commissioner.
How long has it been since we haven’t had a commissioner, right. So, it’s very and it’s, I think, I think it’s coming from the top down, it’s led to what, you know, whatever your opinion may be, good or bad, for me it’s hard to predict a good, stable pattern these days. It’s just a little bit all over the place.
So, it’s hard when I’m asked a question, how long do you think this will take? And some notice responses may take 90 days and all of a sudden they’ll take six months, right? Refunds, a lot of refunds are taking it over a year, but then all of a sudden you’ll have backlog that I guess is getting front loaded. And okay, the recent ones are getting out the door first. So, it’s, yeah, it’s very unpredictable.
IRIS LAWS
Well, thank you for your time, you guys. This has been very interesting. I think all taxpayers are very happy to have you in their corner. If they’re ever sort of faced with something like this. So, thanks for what you do. And thanks for coming on the podcast.
KRISTIN GUTTING
Thank you.
ED CHUNG
Thank you.
IRIS LAWS
And that’s our show. Thanks for joining. Remember to subscribe and listen in for the next episode of the podcast. Until next time.
ANNOUNCER
The information set forth in this podcast contains the analysis and conclusions of the panelists based upon his, her, or their research and analysis of industry information and legal authorities. Such analysis and conclusions should not be deemed opinions or conclusions by Forvis Mazars or the panelists as to any individual situation, as situations are fact specific.
The listener should perform their own analysis and form their own conclusions regarding any specific situation. Further, the panelists’ conclusions may be revised without notice, with or without changes in industry information and legal authorities.