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

The United States appealed from a judgment of the district court invalidating two notices of Final Partnership Administrative Adjustments issued by the IRS. The district court so ruled because it concluded that the taxpayer's characterization of two tax-exempt Dutch banks as its partners in Castle Harbour LLC was proper under Internal Revenue Code 704(e)(1). The district court also concluded that, even if the banks did not qualify as partners under section 704(e)(1), the government was not entitled to impose a penalty pursuant to Internal Revenue Code 6662. The court held that the evidence compelled the conclusion that the banks did not qualify as partners under section 704(e)(1), and that the government was entitled to impose a penalty on the taxpayer for substantial understatement of income. Accordingly, the judgment of the district court was reversed.

Defendant appealed from a conviction of 16 counts of aiding and assisting in the preparation of false federal income tax returns and was sentenced to concurrent terms of 41 months incarceration, three years' supervised release, and restitution and a special assessment. The court affirmed the conviction except with respect to certain aspects of the sentence, as to which the judgment was vacated and remanded for: (1) resentencing within the range authorized by statute, and (2) amendment of the restitution order to: (a) determine whether the State and the City of New York were victims entitled to restitution, (b) exclude payments already made by the five taxpayer-clients to the IRS, and (c) exclude losses associated with a 2001 tax return that did not serve as a basis for any of the 16 counts of conviction.

Plaintiff appealed from a judgment of the district court granting defendant's motion to dismiss her complaint. On appeal, plaintiff principally contended that the dismissal of her claim brought pursuant to section 7434 of the Internal Revenue Code, a provision that created a civil damages remedy for the willful filing of fraudulent "information return[s]," was in error. The court held that plaintiff's allegations of an intentional failure to file required information returns did not state a claim under this provision, which by its terms required an allegation that a fraudulent information return was willfully filed by defendant. Accordingly, the court affirmed the district court's judgment.

These consolidated appeals, which have been returned to the court on remand from the United States Supreme Court, once again called upon the court to consider whether - and, if so, on what grounds - the Oneida Indian Nation of New York (OIN) was entitled to restrain the Counties from foreclosing upon certain fee-title properties, acquired on the open market by the OIN in the 1990's, for which the OIN had refused to pay property tax. The court held that the OIN had abandoned its claims premised on tribal sovereign immunity from suit as well as its claims based upon the Nonintercourse Act, 25 U.S.C. 177. The court also held that the district court erred in ruling that the Counties' redemption-notice procedures failed to comport with due process. The court further held that the district court should not exercise supplemental jurisdiction over the OIN's state-law claims. The court finally affirmed as to several ancillary matters.

Appellants sued New York City and the State, along with a number of city and state officials, challenging a tax scheme that exempted New York City residents from a tax levied on parking services rendered in Manhattan. Appellees subsequently filed a motion to dismiss, arguing, among other things, that comity barred the federal courts from hearing appellants' challenge to the state law. The district court granted the motion and the court affirmed, holding that because New York state courts have the ability to implement a remedy that the federal courts could not, Levin v. Commerce Energy, Inc. counseled in favor of dismissing the complaint pursuant to comity.

The government appealed from an order of the district court granting a preliminary injunction to stay enforcement of provisions of the Prevent All Cigarette Trafficking Act (PACT Act), Pub. L. No. 111-154, section 2(a), 124 Stat. 1087, 1088, requiring mail-order cigarette sellers to pay state excise taxes. The government argued that the district court erred in concluding that plaintiffs were likely to succeed on the merits of their claim that the PACT Act's provision requiring out-of-state tobacco sellers to pay state excise taxes, regardless of their contact with that state, violated the Due Process Clause. The court held that because the district court's entry of the preliminary injunction was not an abuse of discretion, the court affirmed the judgment.

This appeal concerned tax deductions that Altria claimed in 1996 and 1997, and which the IRS disallowed. The claimed deductions resulted from Altria's participation in nine leveraged lease transactions with tax-indifferent entities. The jury found that Altria was not entitled to the claimed tax deductions. Applying the substance over form doctrine, the jury rejected Altria's contention that it retained a genuine ownership or leasehold interest in the assets and therefore was entitled to the tax deductions. The district court denied Altria's motion for judgment as a matter of law or for a new trial and entered judgment for the government. The court affirmed and held that Altria had not shown that the district court erred in instructing the jury regarding the substance over form doctrine.

The Seneca Nation of Indians ("Seneca Nation"), Unkechauge Indian Nation ("Unkechauge Nation"), St. Regis Mohawk Tribe ("Mohawk Tribe"), Cayuga Indian Nation of New York ("Cayuga Nation"), and Oneida Nation of New York ("Oneida Nation") (collectively, "plaintiffs") sought to enjoin amendments to New York's tax law which were designed to tax on-reservation cigarette sales to non-member purchasers. At issue was whether New York's amended tax law interfered with plaintiffs' tribal sovereignty and violated their immunity from state taxation. The court held that plaintiffs failed to demonstrate a likelihood of success on the merits of their claims that the precollection scheme impermissibly imposed a direct tax on tribal retailers, or alternatively, imposed an undue and unnecessary economic burden on tribal retailers; and that the coupon and prior approval systems interfered with their rights of self-government and rights to purchase cigarettes free from state taxation. Accordingly, the district court abused its discretion in granting the Oneida Nation's motion for preliminary injunction and correctly rejected the Seneca Nation's, Cayuga Nation's, Unkechauge Nation's, and Mohawk Tribe's motions for preliminary injunctions.