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

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

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

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

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

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

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

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

In these appeals and cross-appeals, the taxpayers claim they are entitled to tax credits associated with foreign transactions that the government disallowed because it contends the transactions lacked economic substance. The court rejected AIGʹs contention that foreign tax credits, by their nature, are not reviewable for economic substance; in determining whether a transaction lacks economic substance, the court considered: (a) whether the taxpayer had an objectively reasonable expectation of profit, apart from tax benefits, from the transaction; and (b) whether the taxpayer had a subjective non‐tax business purpose in entering the transaction; the court concluded, as a matter of first impression in this Circuit, that foreign taxes are economic costs and should thus be deducted when calculating pre‐tax profit; the court also concluded that it is appropriate, in calculating pre‐tax profit, for a court both to include the foreign taxes paid and to exclude the foreign tax credits claimed; under the subjective prong, a court asks whether the taxpayer has a legitimate, non‐tax business purpose for entering into the transaction; as to AIGʹs transactions, the court held that there are unresolved material questions of fact regarding the objective factors and subjective business purpose for entering the cross-border transactions; as to BNYʹs transactions, the court held that the Tax Court correctly concluded that the Structured Trust Advantaged Repackaged Securities loan product (STARS) trust transaction lacked economic substance; and the court also held that the Tax Court did not err in concluding that the $1.5 billion loan from Barclays had independent economic substance, and that BNY was therefore entitled to deduct the associated interest expenses. Accordingly, the court affirmed the judgment in its entirety. View "Bank of N.Y. Mellon v. Commissioner" on Justia Law

The City filed timely proofs of claim for property taxes owed by a Chapter 11 debtor with respect to quarters of the 2009 tax year that had been billed pre‐petition, but did not file proofs of claim with respect to property tax bills for later quarters that were billed during the bankruptcy proceedings.  A single lien secured payment of the entire tax burden - both taxes that were the subject of claims and those that were not. The bankruptcy court ruled that the now-confirmed plan extinguished the lien and the district court affirmed. The court held that a lien is extinguished by a Chapter 11 plan if: (1) the text of the plan does not preserve the lien; (2) the plan is confirmed; (3) the property subject to the lien is “dealt with” by the terms of the plan; and (4) the lienholder participated in the bankruptcy proceedings. The court concluded that all four requirements are satisfied when applied to the facts of this case. Accordingly, the court affirmed the judgment. View "City of Concord, N.H. v. Northern New England Telephone Operations" on Justia Law

Plaintiff filed a complaint against the United States under 26 U.S.C. 7426, seeking a judgment of $2,915,000 in compensation for an alleged wrongful levy by the IRS. The district court granted the government's motion to dismiss under Federal Rule of Civil Procedure 12(b)(1). The court agreed with the district court that plaintiff's section 7426 claim was time barred because she filed it more than nine months after the IRS served her with the relevant notice levy, and that plaintiff could not have brought a claim under 28 U.S.C. 1346 because claims for a tax refund are unavailable to plaintiffs who could have brought a claim under section 7426 but for the expiration of the statue of limitations. Accordingly, the court affirmed the judgment. View "Mottahedeh v. United States" on Justia Law