Articles Posted in Tax Law

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The Second Circuit affirmed the district court's dismissal of a petition for innocent spouse relief based on lack of jurisdiction and from an order denying petitioner's motion to vacate the order of dismissal. The court held that petitioner's failure to file the petition within the statutorily prescribed period deprived the Tax Court of jurisdiction to review her claim. View "Matuszak v. Commissioner of Internal Revenue" on Justia Law

Posted in: Tax Law

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Plaintiffs filed suit under 26 U.S.C. 7431 against the IRS, after the IRS sent a report containing plaintiffs' names, social security numbers, and financial information to the wrong person. The government conceded liability and acknowledged that plaintiffs were entitled to $1,000 each in statutory damages for the disclosure of the report. Plaintiffs argued, however, that they were entitled to statutory damages of $1,000 not just for the disclosure of the report but for the disclosure of each item of information contained in the report. Plaintiffs also sought punitive damages. The district court granted the government's motion for summary judgment. The court found no ambiguity in the statute, and held that the statute clearly provided an aggrieved taxpayer $1,000 in statutory damages for ʺeach actʺ of unauthorized disclosure, not for each item of information disclosed. To the extent that there was any doubt, the court explained that it must resolve the matter in favor of the government. In regard to punitive damages, the court agreed with the district court that no reasonable jury could find, on the record presented, that the disclosure resulted from anything other than ordinary negligence. Accordingly, the court affirmed the judgment. View "Minda v. United States" on Justia Law

Posted in: Tax Law

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Petitioner and the Government cross-appealed the tax court's orders relating to petitioner's underreporting of income in his 2003 tax return, principally in connection with a $2 million payment he received from Delta Currency Trading for his role in a now-defunct tax shelter scheme. While petitioner's deficiency proceeding was pending losses reported by Mercato - a partnership of which petitioner was a member - were disallowed in a partnership tax proceeding. The tax court held that it lacked jurisdiction over the added income tax deficiency because I.R.C. 6230 required the Commissioner to apply the results of the Mercato proceeding to petitioner by computational adjustment, rather than in his deficiency proceeding. The tax court also held that petitioner owed the self-employment tax and corresponding penalty. The court held that the tax court erred in concluding that it lacked jurisdiction over the additional income‐tax deficiency attributable to the $2 million Delta payment; section 6751(b)(1) requires written approval of the initial penalty determination no later than the date the IRS issues the notice of deficiency (or files an answer or amended answer) asserting such penalty; and compliance with section 6751(b) is part of the Commissioner's burden of production and proof in a deficiency case in which a penalty is asserted. Therefore, the court vacated the tax court's jurisdictional ruling; remanded to the tax court to enter a revised decision upholding the additional income-tax deficiency, because petitioner concedes that the $2 million payment was fully taxable; affirmed the portion of the tax court's order upholding the self-employment tax deficiency; and reversed the portion of the tax court's order upholding the accuracy-related penalty. View "Chai v. Commissioner" on Justia Law

Posted in: Tax Law

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Defendant, the owner and operator of a freight service that couriered items to and from the United States and Canada, was found guilty of nine counts of tax-related offenses. Defendant was charged with violating 26 U.S.C. 7212(a), which imposes criminal liability on one who ʺcorruptly or by force or threats of force . . . endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title.” Another portion of the statute, often referred to as the ʺomnibus clause,ʺ imposes criminal liability on one who ʺin any other way corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title.ʺ On appeal, defendant argued that the court, like the Sixth Circuit, should construe the phrase ʺthe due administration of this titleʺ in the omnibus clause to include only a pending IRS action of which a defendant was aware. The court rejected defendant's argument and joined three of its sister circuits in concluding that section 7212(a)ʹs omnibus clause criminalizes corrupt interference with an official effort to administer the tax code, and not merely a known IRS investigation. The court also concluded that an omission may be a means by which a defendant corruptly obstructs or impedes the due administration of the Internal Revenue Code under section 7212(a). Finally, the court concluded that the district court did not commit procedural error by using the manner of calculating the tax loss and restitution amounts that it did, or by deciding not to apply a two‐level reduction to defendant's base offense level for acceptance of responsibility. Accordingly, the court affirmed the judgment. View "United States v. Marinello" on Justia Law

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Marvel challenges the tax court's grant of summary judgment for the Commissioner. At issue is whether Marvel's consolidated group must reduce its consolidated net operating loss (CNOL) under I.R.C. 108(b)(2)(A) by the total amount of the groupʹs previously excluded cancellation of indebtedness income under a ʺsingle entityʺ approach as opposed to determining the amount of CNOL apportionable to each member and applying section 108(b)(2)(A) on a member‐by‐member basis. Applying de novo review, the court affirmed the tax court's application of a ʺsingle entityʺ approach to reduce the CNOL, and finding of deficiencies in income tax due for the taxable years 2003 and 2004 in the amounts of $2,144,756 and $14,453,653, respectively. View "Marvel Entm't, LLC v. Comm'r" on Justia Law

Posted in: Tax Law

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Years after Steven Greenfield was implicated in tax evasion as a result of a document leak, the Government issued a summons for Greenfield’s records, including documents relating to all of Greenfield’s financial accounts and documents pertaining to the ownership and management of offshore entities controlled by Greenfield. Greenfield opposed production and moved to quash the summons based on his Fifth Amendment right against self-incrimination. The district court granted enforcement as to a subset of the records demanded by the summons. The court found that, for all but a small subset of the documents covered by the order, the Government has not demonstrated that it is a foregone conclusion that the documents existed, were in Greenfield’s control, and were authentic even in 2001. Second, the court found that the Government has failed to present any evidence that it was a foregone conclusion that any of the documents subject to the summons remained in Greenfield’s control through 2013, when the summons was issued. Accordingly, the court vacated the district court's order and remanded, because the Government has not made the showing that is necessary to render Greenfield’s production of the documents non-testimonial and, hence, exempt from Fifth Amendment challenge. View "United States v. Greenfield" on Justia Law

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Plaintiff filed a qui tam action under the New York False Claims Act (NYFCA), N.Y. Stat Fin. Law 187 et seq., on behalf of the State and the City against Wells Fargo for fraudulent avoidance of New York tax obligations. The district court dismissed for failure to state a claim. The court concluded that, with no special state interest, and with no indication of congressional preference for state-court adjudication, the exercise of federal jurisdiction in this case is fully consistent with the ordinary division of labor between federal and state courts. The court also concluded that the complaint did not plausibly allege that the Wells Fargo trusts were not qualified to be treated as Real Estate Mortgage Investment Conduits (REMICs). Therefore, the complaint failed to state a claim on which relief could be granted under the NYFCA for any false statement or record affecting the trusts' entitlement to exemption from income tax under the New York tax laws. Accordingly, the court affirmed the judgment. View "State of New York ex rel. Jacobson v. Wells Fargo" on Justia Law

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Petitioner challenged an administrative summons issued by the IRS after it issued an approximately $25 million penalty against petitioner and his company. The district court granted the government's motion to dismiss the petition for lack of subject matter jurisdiction and denied petitioner's request for jurisdictional discovery. The court agreed with the district court that it lacked jurisdiction because the United States has not waived sovereign immunity to allow suits to quash summonses that are “issued in aid of the collection of . . . an assessment,” and that the challenged summons was issued in aid of collection. Moreover, the IRS had authority to issue the summons, as there was not an outstanding criminal referral at the time the summons was issued. The court also held that the district court did not abuse its discretion in denying jurisdictional discovery because petitioner did not meet his burden of showing that the requested discovery is likely to produce the facts needed to establish jurisdiction. Accordingly, the court affirmed the judgment. View "Haber v. United States" on Justia Law

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MMC and the government agreed that MMC is entitled to an overpayment refund and further agree on the amount of that overpayment, but disagree on the interest rate to be applied. MMC argues that, despite being organized as a corporation under New York law, it should receive the benefit of the higher interest rate applicable to non‐corporations, because it is a nonprofit corporation and the word “corporation” in I.R.C. 6621(a)(1) should be construed to refer only to for‐profit corporations. The court held that I.R.C. 6621(a)(1)'s lower interest rate applies equally to for-profit corporations and nonprofit corporations such as MMC.  Accordingly, the court affirmed the judgment of the district court. View "Maimonides Medical Center v. United States" on Justia Law

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Appellants challenged the magistrate judge's order denying a petition to quash an IRS summons. The court concluded that: (i) the attorney-client privilege was not waived by appellants’ provision of documents to a consortium of banks sharing a common legal interest in the tax treatment of a refinancing and corporate restructuring resulting from an ill-fated acquisition originally financed by the Consortium; and (ii) the work-product doctrine protects documents analyzing the tax treatment of the refinancing and restructuring prepared in anticipation of litigation with the IRS. Accordingly, the court vacated and remanded. View "Schaeffler v. United States" on Justia Law

Posted in: Tax Law