Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

Joseph Wilson, the sole owner and beneficiary of a foreign trust, filed his returns for tax year 2007 late, the IRS assessed a 35% penalty that applies to beneficiaries of foreign trusts, and Wilson paid the penalty. After his death, plaintiffs filed suit on behalf of Wilson's estate for a refund, arguing that the IRS should have imposed only a 5% penalty that applies to owners of foreign trusts. The district court granted partial summary judgment in favor of plaintiffs.The Second Circuit vacated the district court's judgment, holding that when an individual is both the sole owner and beneficiary of a foreign trust and fails to timely report distributions she received from the trust, the government has the authority under the Internal Revenue Code to impose a 35% penalty. Accordingly, the court remanded for further proceedings. The court denied motions for leave to file a supplemental appendix that includes documents outside the record on appeal and for leave to file a sur-reply brief as moot. View "Wilson v. United States" on Justia Law

The Second Circuit affirmed the district court's grant of summary judgment for the Cayuga Indian Nation of New York and the district court's permanent injunction enjoining the County from foreclosing on the Cayuga Indian Nation's real property for nonpayment of taxes. The court agreed with the district court that tribal sovereign immunity from suit bars the County from pursuing tax enforcement actions under Article 11 of the New York Real Property Tax Law against the Cayuga Indian Nation. The court explained that the County's foreclosure proceedings are not permitted by the traditional common law exception to sovereign immunity that covers certain actions related to immovable property. In this case, the foreclosure actions fall outside the purview of the common law version of the immovable-property exception. The court also rejected the County's reading of City of Sherrill v. Oneida Indian Nation of New York, 544 U.S. 197 (2005), as abrogating a tribe's immunity from suit. View "Cayuga Indian Nation of New York v. Seneca County" on Justia Law

New York State appealed from the district court's consolidated judgments invalidating the State's Opioid Stewardship Act (OSA), which requires opioid manufacturers and distributors to make an annual payment to fund statewide opioid-related services but prohibits them from passing the costs of those payments through to their customers.The Second Circuit held that the OSA's opioid stewardship payment is a tax within the meaning of the Tax Injunction Act (TIA), and that the district court should have dismissed plaintiff's challenges to the payment under the TIA for lack of jurisdiction. After considering the factors in Entergy Nuclear Vt. Yankee, LLC v. Shumlin, 737 F.3d 228, 232–33 (2d Cir. 2013), and San Juan Cellular Telephone Co. v. Public Service Commission, 967 F.2d 683, 685 (1st Cir. 1992), the court concluded that the primary purpose of the opioid stewardship payment is to raise revenue, not to punish or regulate plaintiffs and other licensees who are required to make the payment. Accordingly, the court reversed the judgments, except insofar as they relate to the pass-through prohibition, which is not before the court. View "Association for Accessible Medicines v. James" on Justia Law

Neither the 1794 Treaty of Canandaigua nor the 1842 Treaty with the Seneca Nation create an individualized exemption from federal income taxes for income "derived from" Seneca land. In this case, petitioners filed suit in tax court seeking a redetermination of their 2008 and 2009 joint individual tax returns, in which they sought an exemption for income derived from their gravel operation, contending that their gravel sales during 2008 and 2009 were exempt from federal income taxes pursuant to the two treaties.The Second Circuit affirmed the tax court's determination that neither treaty created an exemption and rejected petitioners' argument suggesting otherwise because petitioners' view is premised upon the erroneous presumption that an exemption from federal taxes for income derived from land held in trust for American Indians extends to land that remains in the possession of the Seneca Nation of Indians. The court also noted that, to the extent the 1842 Treaty with the Seneca creates an exemption from taxes on Seneca land, that exemption does not cover income derived from Seneca land by individual enrolled members of the Seneca Nation. View "Perkins v. Commissioner" on Justia Law

The Second Circuit affirmed the tax court's determination that petitioners held Wrentham House, a historic mansion in Newport, Rhode Island, as a capital asset eligible for capital loss deduction rather than as real property used in a taxpayer's trade or business eligible for ordinary loss deduction.The court held that the tax court did not err in determining that (i) petitioners held Wrentham House as a capital asset at the time of its sale and were therefore eligible upon its sale to deduct the loss only as a capital loss, and that (ii) petitioners were liable for late-filing additions to tax and accuracy-related penalties. View "Keefe v. Commissioner" on Justia Law

The Second Circuit vacated the district court's dismissal of Pfizer's claim against the United States for overpayment interest on its delayed tax refund. The court held that jurisdiction of Pfizer's claim for overpayment lies exclusively with the United States Court of Federal Claims. The court explained that overpayment interest is a straightforward claim against the federal government that was covered by the Tucker Act. Accordingly, the court transferred the case to the Court of Federal Claims. View "Pfizer Inc. v. United States" on Justia Law

The Second Circuit affirmed the district court's dismissal of plaintiff's second amended complaint (SAC) for failure to state a claim. The SAC alleged that Costco charged its customers sales tax on the full price of items subject to a manufacturer's discount in situations where New York law provided that Costco, rather than the customer, was liable for the tax. The court held that these claims must be brought in a New York administrative proceeding under New York Tax Law 1139, which provided the exclusive remedy for claims that a tax, penalty, or interest was erroneously, illegally or unconstitutionally collected. Likewise, the district court properly dismissed plaintiff's unjust enrichment claims and his claim under New York General Business Law 349. View "Guterman v. Costco Wholesale Corp." on Justia Law

Petitioner challenged the tax court's denial of her petition seeking a refund of her overpayment of 2012 income taxes. Although the Commissioner did not dispute that petitioner was overpaid or the amount of overpayment, the Commissioner argued -- and the tax court agreed -- that the tax court lacked jurisdiction to order a refund or credit of the overpayment.The Second Circuit agreed with petitioner's interpretation of the look back period in 26 U.S.C. 6512(b)(3) and held that "third year after the due date (with extensions)" refers in this case to the third year after the return due date, plus a six‐month extension period. The court held that "(with extensions)" has the same effect as does the similar language that existed in 26 U.S.C. 6511(b)(2)(A) at the time of section 6512(b)(3)'s amendment‐‐that is, the language expands the tax court's jurisdiction to order refunds and credits. Therefore the notice of deficiency in this case, mailed 26 months after the due date, was mailed during the third year and thus the tax court had jurisdiction to look back three years, which would reach the due date and allow petitioner to recover her overpayment. Accordingly, the court reversed and remanded for entry of judgment for petitioner. View "Borenstein v. Commissioner" on Justia Law

The Second Circuit reversed the tax court's decision upholding 2008 tax deficiencies identified by the Commissioner upon application of the substance‐over‐form doctrine to recharacterize various lawful tax‐avoiding transactions as tax‐generating events for petitioners, their adult sons, a family trust, and a family‐controlled corporation. Specifically, petitioners challenged the tax court's decision to uphold a tax deficiency against them based on the Commissioner's recharacterization of Summa's tax‐deductible commission payments to a DISC as taxable dividends to Summa shareholders.The court held that the Commissioner was not precluded from defending the challenged recharacterization, but the substance‐over‐form doctrine did not support recharacterization of Summa's DISC commission payments as constructive dividends to its shareholders. Therefore, the court reversed the portion of the judgment holding petitioners liable for $77,850 in 2008 income taxes. View "Benenson v. Commissioner" on Justia Law

The Second Circuit reversed the tax court's decision rejecting the Commissioner's claim that the Estate of Andrew J. McKelvey owed $41 million in taxes with respect to McKelvey's 2008 income tax return for omitting what the Commissioner alleged were short‐ and long‐term capital gains arising from the execution of new contracts extending the valuation dates of two variable prepaid forward contracts. The court remanded for determination of whether the termination of obligations that occurred when the new contracts were executed resulted in taxable short‐term capital gains, and calculation of the amount of long‐term capital gains that resulted from the constructive sales of the collaterized shares. View "Estate of Andrew J. McKelvey v. Commissioner" on Justia Law