San Jose Tax Attorney | Silicon Valley IRS & Tax Defense

Written by Sam Brotman, J.D., LL.M. (Taxation), MBA — Managing Attorney, Brotman Law  ·  Updated May 2026

What Sam Does for San Jose Clients

Silicon Valley produces the most complex individual and business tax situations in the country — and the density of that complexity in San Jose and the surrounding area makes it right up our alley. ISO exercises with AMT exposure, missed 83(b) elections that surface years later during a liquidity event, QSBS exclusions under IRC § 1202 that attract IRS scrutiny as exit values grow, FBAR exposure for executives with international stock plans, VC general partners navigating carried interest recharacterization under IRC § 1061, and FTB residency audits for founders who moved to Texas but kept California connections. These are the cases that come out of San Jose and the South Bay.

I represent San Jose and Silicon Valley clients across the full range of federal and California tax matters: IRS audits, IRS Criminal Investigation defense, Tax Court litigation, Offers in Compromise, FTB audits and residency disputes, FBAR and international tax compliance, and ERC defense. The Northern District of California — including the San Jose federal courthouse — is a court where I practice. I am admitted to the California Bar and authorized to represent clients before all IRS divisions under Form 2848.

Silicon Valley Tax Issues Sam Handles

IRS Audits — Northern District of California, San Jose Division

An IRS audit is a legal examination of your return, not an accounting reconciliation — and how you handle the first IRS contact sets the tone for everything that follows. The federal courthouse for the Northern District of California's San Jose division is at 280 S. First Street, San Jose, CA 95113. For Silicon Valley taxpayers, this is the federal district court for tax refund suits and related federal tax litigation. The U.S. Tax Court schedules sessions in San Francisco for Northern California cases, including those from San Jose.

The IRS field offices serving Silicon Valley handle a high volume of examination activity involving tech executive compensation, startup equity, venture capital structures, and international income. I handle correspondence audits, office exams, and multi-issue field examinations for San Jose and South Bay clients. See our full guide to IRS audit defense.

83(b) Elections — Missed Elections, Late Elections, and the IRS's Position

An IRC § 83(b) election must be filed with the IRS within 30 days of a restricted property transfer. There are no extensions and no exceptions. This is one of the most consequential and time-sensitive elections in the Internal Revenue Code, and Silicon Valley founders and early employees miss it more often than you would expect — usually because the grant documents were processed by the company and no one told the individual what they needed to file independently.

The mechanics: when a founder receives restricted stock subject to a vesting schedule, IRC § 83 provides that income is recognized at each vesting date (when the restriction lapses) at the then-fair market value. An 83(b) election overrides this rule — the founder elects to recognize income at the grant date, when the stock is typically worth close to the par value or the seed-round price. Without the election, each vesting event is a taxable income event at whatever the company's current value is at that time. By the time a Series C closes, the tax difference between grant-date value and vesting-date value can be enormous.

If the election was missed, the options are limited. There is no routine correction mechanism. Rev. Proc. 2012-29 provides a limited procedure for correcting certain Section 83(b) situations, but it is narrow and the IRS's baseline position is that late elections are ineffective. The defense in an audit, if the issue surfaces, focuses on whether the property actually constituted a "substantial risk of forfeiture" such that § 83 applied at all — an analysis that depends on the specific vesting terms and the company's facts at grant date.

QSBS Exclusion — IRC § 1202 Audit Exposure

The IRC § 1202 exclusion allows early investors and founders in qualified small businesses to exclude up to 100% of gain on the sale of qualifying stock — and as Silicon Valley exit values have grown, so has IRS audit activity around § 1202 claims.

The exclusion is real and significant. A founder who held qualifying QSBS for more than five years and realizes $10 million in gain can exclude the entire amount from federal income tax under current law. But the qualification requirements are specific and the IRS reviews them carefully:

• The company must have been a domestic C corporation at the time the stock was originally issued (LLCs and S corporations do not qualify)
• The company's aggregate gross assets must not have exceeded $50 million at the time of original stock issuance (the QSBS test looks at the date of issuance, not the date of sale)
• The stock must have been acquired at original issuance in exchange for cash, services, or property — secondary market purchases generally do not qualify
• The company must be in a qualifying trade or business — financial services, professional services, hospitality, and certain other categories are excluded
• The taxpayer must have held the stock for more than five years

The most common audit issues: the company's gross assets at issuance (which requires looking at the original capitalization table and contemporaneous valuations), whether the stock was acquired at original issuance versus in a secondary transfer, and whether conversions of convertible notes reset the issuance date.

ISO vs. NSO — The Equity Compensation Tax Analysis

The choice between incentive stock options (ISOs) and non-qualified stock options (NSOs) has significant tax consequences, and the analysis for Silicon Valley clients often centers on AMT exposure.

The AMT exposure on ISO exercises is the most common issue I see from San Jose and Silicon Valley clients. An employee who exercises 500,000 ISOs with a $10 spread — $5 million in AMT preference income — in a year when the underlying stock is still illiquid can face a seven-figure AMT bill due in April even though they have not received a dollar of cash from the shares. The mechanics of the AMT minimum tax credit (MTC) — which allows you to recover the AMT paid in future years when your regular tax exceeds your AMT — are cold comfort in the exercise year.

FTB Residency Audits — The Silicon Valley Departure Problem

The FTB residency audit is one of the most common significant tax problems for Silicon Valley founders and executives who move to Texas, Nevada, or Florida — and the audit rate for high-income departures from the Bay Area is substantial.

California taxes residents on worldwide income. Someone who closes a funding round, announces they are relocating to Austin, and then continues to have substantial California connections — retained Bay Area real estate, company board attendance, investment relationships with California-based funds, or simply spending more time in California than they claimed — is an FTB residency audit target.

The FTB applies a "closest connections" test. It looks at where you spend the most time, where your primary residence is, where your family lives, where your professional relationships are based, and whether you actually established domicile in the new state. California-source income — equity in California-incorporated companies, royalties from California business interests, wages for California work — is taxable to California even for non-residents. The distinction between California-source income (taxable to all) and non-California income (taxable only to residents) is critical to the residency audit defense strategy.

I handle FTB residency audits, multi-state domicile disputes, and appeals before the Office of Tax Appeals (OTA). If you have moved from Silicon Valley and have a pending liquidity event, the time to analyze your California position is before the FTB decides to.

FBAR and International Tax — Dual-Resident Executives and Foreign Compensation

Silicon Valley's concentration of foreign-born executives and global tech companies creates substantial FBAR and international tax exposure for individuals who hold foreign financial accounts or receive foreign compensation.

A FinCEN Form 114 (FBAR) is required annually from any U.S. person — including resident aliens, not just citizens — whose foreign financial accounts exceeded $10,000 in aggregate value at any point during the year. For dual-resident executives who maintain accounts in their home countries, this reporting obligation is often not clearly communicated. Willful failure to file carries civil penalties up to the greater of $100,000 or 50% of the account value per violation — and willfulness can be established by showing the taxpayer ignored obvious warning signs.

Treaty positions for dual-resident executives add another layer. An executive who is a tax resident of both the U.S. and another country under each country's domestic law must rely on the applicable tax treaty's tiebreaker rules to determine which country has primary taxing rights on various categories of income. Getting this wrong can result in either double taxation or incorrect treaty positions that attract IRS scrutiny.

I handle FBAR compliance, amended filings, streamlined procedures for non-willful violations, and voluntary disclosure under IRM 9.4.3 for situations with willful exposure. I also handle international compensation disputes, treaty position analysis, and GILTI, PFIC, and other international reporting compliance issues that arise for Silicon Valley executives. See our full page on FBAR defense.

Carried Interest — VC General Partners and IRC § 1061

The three-year recharacterization rule under IRC § 1061 converts what would otherwise be long-term capital gain on carried interest to short-term gain — taxable at ordinary income rates — when the applicable partnership interest is held for less than three years.

For Silicon Valley venture capital general partners, the § 1061 analysis requires careful attention to the holding period of each portfolio investment, the fund's investment structure, and whether the GP's interest qualifies for the capital interest exclusion (which applies to carried interest calculated on capital the GP actually invested). The interaction between § 1061 and the normal long-term capital gain rules for partnership interests creates ongoing compliance questions that are different from what VC GPs dealt with before the Tax Cuts and Jobs Act.

ERC Audits — Silicon Valley Tech Companies

Many Silicon Valley technology and services companies that claimed the Employee Retention Credit for 2020 and 2021 based on supply chain disruption arguments are facing IRS examination.

The ERC was available to businesses that experienced either a full or partial suspension of operations due to a government order, or a significant decline in gross receipts (50% decline in 2020, 20% decline in 2021) compared to the same quarter in 2019. Under IRS Notice 2021-20, certain supply chain disruptions could qualify as a partial suspension even without a direct government order affecting the business. The IRS has flagged supply chain-based ERC claims for heightened scrutiny, and Silicon Valley companies that used this theory — particularly if the claims were prepared by a third-party mill — are in the active examination pool.

An ERC audit requires demonstrating, quarter by quarter, which specific government orders caused the partial suspension and how those orders materially affected the business's operations. I handle ERC audits, ERC appeals, and ERC reconsideration requests. See our ERC audit defense page.

Why San Jose Clients Work with Sam

Equity compensation, FBAR, QSBS, carried interest, and FTB residency audits are not exotic issues for our practice — they are the common work. Silicon Valley has the highest concentration of the specific tax issues I handle most often. That is not a coincidence; it is why Bay Area clients come to Brotman Law despite our San Diego address.

I hold a J.D. and an LL.M. in Taxation — the postgraduate law degree specific to federal tax practice. I am admitted to the California Bar, the U.S. Tax Court, and the Northern District of California, which includes the San Jose courthouse. Since 2013, Brotman Law has represented over 400 clients in audits and recovered or saved $1B+ in taxes and penalties.

The practical answer to "why a San Diego attorney for a San Jose matter": the IRS and California tax agencies don't care where your attorney's office is. What matters is whether your attorney has handled your type of case and can get the IRS or FTB to a reasonable result. For the specific issues that come out of Silicon Valley — stock options, QSBS, FBAR, FTB residency — that expertise travels fine.

How San Jose Clients Work with Sam

The work in a tax matter is correspondence, document production, and formal proceedings — most of which work remotely without any geographic limitation. Silicon Valley clients typically work with me by phone and video. We start with a free 15-minute call to go through your situation. If we move forward, I get a signed engagement agreement and Form 2848, and from there I handle the IRS or California agency communications directly.

For IRS proceedings or Tax Court sessions in San Francisco, I travel. The Northern District courthouse in San Jose — at 280 S. First Street — is where federal tax refund suits for San Jose taxpayers would be filed; I appear there when a case proceeds to federal district court. FTB appeals before the OTA are typically handled through written submissions and scheduled hearings.

Honest framing: most of the value I add to a tax case is not showing up in person. It is knowing the right arguments to make, understanding what the IRS or FTB is actually looking for, and managing the information flow so you are not inadvertently making the other side's case. That work happens on the phone, in the documents, and in the formal submissions — not by driving to your office.

Representative Matters

Each matter is unique. Past results do not guarantee any particular outcome. The following examples are representative of the types of Silicon Valley cases we handle.