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

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

Plaintiff filed a putative class action suit against J.C. Christensen, alleging that J.C. Christensen violated the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692, by offering to settle his debt for less than the full amount without warning him that his total savings might be reduced by an increase in his tax liability. The district court dismissed the suit. The court held that a debt collector need not warn of possible tax consequences when making a settlement offer for less than the full amount owed to comply with the FDCPA. Accordingly, the court affirmed the judgment of the district court. View "Altman v. J.C. Christensen & Assoc." on Justia Law

Petitioners sought a redetermination in the Tax Court challenging the Commissioner's determination of tax deficiencies and assessment of penalties against them under section 6662 of the Internal Revenue Code, 26 U.S.C. 1 et seq. The Commissioner determined that petitioners were deficient based on a contribution by the McGehee Family Clinic to a multiple-employer welfare benefit plan. The Commissioner concluded that the Plan was not an "ordinary and necessary" business expense within the meaning of I.R.C. 162(a) and that the Plan was "substantially similar" to the listed tax-avoidance transaction described by the IRS in I.R.S. Notice 95-34. The court held that the Plan is substantially similar to the listed tax-avoidance transactions under Notice 95-34 and, therefore, upheld the Commissioner's assessment of accuracy-related penalties against petitioners under section 6662A. Further, the court held that petitioners had adequate notice of the potential for penalties under section 6662A and that the increased penalty rate under section 6662A(c) is applicable to the Clinic. The court affirmed the judgment of the Tax Court. View "Prosser v. Commissioner of Internal Revenue" on Justia Law

The County appealed the district court's order preliminarily enjoining it from foreclosing upon certain real property owned by the Cayuga Nation in order to recover uncollected ad valorem property taxes. The court affirmed the district court's injunction where the court declined, as has the Supreme Court, to read a "commercial activity" exception into the doctrine of tribal sovereign immunity from suit. In the absence of a waiver of immunity by the tribe, unless Congress has authorized the suit, precedents demand that the court affirm the district court's injunction of the County's foreclosure proceedings against the Cayuga Nation's property. Accordingly, the court affirmed the judgment of the district court.View "Cayuga Indian Nation of New York v. Seneca County, New York" on Justia Law

Taxpayer donated a facade conservation easement to the National Architectural Trust, and claimed a charitable deduction under I.R.C. 170(f)(3(B)(iii). On appeal, Taxpayer challenged the Tax Court's judgment finding that the easement had no negative impact on the value of her property. The court concluded that the Tax Court's conclusion that the facade easement did not reduce the fair market value of Taxpayer's house was supported by substantial evidence. The court rejected Taxpayer's claim under I.R.C. 7491. Accordingly, the court affirmed the judgment of the district court. View "Scheidelman v. Commissioner of Internal Revenue" on Justia Law

Entergy filed suit against Vermont seeking a declaratory judgment that Vermont's Electrical Energy Generating Tax was unconstitutional. On appeal, Entergy challenged the district court's grant of Vermont's motion to dismiss based on lack of subject matter jurisdiction. At issue was whether the Tax Injunction Act, 28 U.S.C. 1341, denied the federal courts jurisdiction to review Entergy's challenges to the Generating Tax. The Act prohibits federal courts from interfering with state taxation schemes so long as the state courts offer an adequate forum to litigate the validity of the tax. The court concluded that the Act applied to the Generating Tax and that Vermont provided a plain, speedy, and efficient mechanism for raising Entergy's objections to the validity of the tax. Accordingly, the court affirmed the judgment of the district court. View "Entergy Nuclear v. Shumlin" on Justia Law

This case involved shareholders who owned stock in a C Corporation, which in turn held appreciated property. Commissioner appealed the district court's holding that Diebold could not be held liable as a transferee of a transferee under 26 U.S.C. 6901. The court concluded that the standard of review for mixed questions of law and fact in a case on review from the Tax Court was the same as that for a case on review after a bench trial from the district court: de novo to the extent that the alleged error was in the misunderstanding of a legal standard and clear error to the extent the alleged error was in a factual determination. On the merits, the court held that the two requirements of 26 U.S.C. 6901 were separate and independent inquiries, one procedural and governed by federal law, and the other substantive and governed by state law; under the applicable state statute, the series of transactions at issue collapsed based upon the constructive knowledge of the parties involved; and the court vacated the Tax Court's decision and remanded for further proceedings. View "Diebold Foundation, Inc. v. Commissioner of Internal Revenue" on Justia Law