Articles Posted in U.S. Court of Appeals for the Fifth Circuit

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These consolidated tax refund actions stem from faulty AMCOR investments. Taxpayers were partners in AMCOR partnerships that the IRS investigated as shams. After taxpayers settled with the IRS and paid the amounts assessed, they sought refunds claiming that the IRS’s assessments were untimely and that the IRS failed to issue notices of deficiency. The court concluded, however, that its decision in Irvine v. United States forecloses taxpayers' arguments. Like in Irvine, the district courts in this case lack subject matter jurisdiction to hear these refund claims. Additionally, the variance doctrine forecloses taxpayers’ argument that the IRS failed to issue notices of deficiency because taxpayers did not make such an argument in their claims for refund before the IRS. Accordingly, the court affirmed the district courts' grant of summary judgment in favor of the IRS. View "Rodgers v. United States" on Justia Law

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Bombardier operated a fractional-aircraft-ownership program called “Flexjet.” In this appeal, Bombardier claims it is not required to remit federal excise tax on fees collected from participants in Flexjet. The court concluded that the district court's interpretation of 26 U.S.C. 6415(a) is consistent with the statute’s plain language and with authority from this and other circuits; this outcome does place an additional burden on entities already saddled with the responsibility of collecting the tax, but it also prevents unjust enrichment; and it was proper for the district court to dismiss Bombardier’s refund claim. The court also concluded that Bombardier is in possession, command, and control of the means of transportation, and is therefore required to submit section 4261 tax on fees collected from Flexjet participants. The court further concluded that the district court did not err in concluding that the fees collected by Bombardier, including the monthly management fees, are subject to section 4261 excise tax. Finally, the IRS did not violate any duty of clarity it owed to Bombardier, and the unfair competitive disadvantage principle has no application in this case. The district court did not err in denying Bombardier's motion to supplement the complaint. Accordingly, the court affirmed the district court's judgment in the Government's favor. View "Bombardier Aerospace Corp. v. United States" on Justia Law

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In a prior appeal of this tax case, the court affirmed the district court’s decision to disregard the partnership form of Chemtech Royalty Associates, L.P. (Chemtech I), and Chemtech II, L.P. (Chemtech II), for tax purposes but vacated and remanded as to the penalty award. On remand, the district court reinstated the vacated penalty award and further held that a tax penalty for gross-valuation misstatement applied to Chemtech II. Real party in interest Dow now appeals the penalty award solely as to Chemtech I. The court rejected Dow’s theory that the court's mandate required the district court to consider whether Dow had a reasonable basis and substantial authority for its sham-partnership position; the district court did not err in failing to justify the negligence and substantial-understatement penalties on the basis of the court's sham-partnership holding, but it could have done so; and the court affirmed the applicability of the negligence and substantial-understatement penalties on the ground that the district court would have been correct to do so. The court also concluded that Dow lacked substantial authority for its position that Chemtech I was a valid partnership. For substantially the same reasons, Dow fails to meet the lesser reasonable-basis standard. Accordingly, the court affirmed the judgment. View "Chemtech Royalty Ass'n, LP v. United States" on Justia Law

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After plaintiffs challenged a substantial increase in the taxes on two properties they own, the Parish sent two tax assessors to inspect the property. Plaintiffs filed suit in state court alleging violations of their state and federal constitutional rights stemming from the inspection. After removal to federal court, the district court determined that inspector Lloyd Handorf was not entitled to qualified immunity because he had exceeded the scope of his consent and therefore violated plaintiffs’ Fourth Amendment rights. Specifically, the district court determined that while Handorf had consent to conduct a tax appraisal, he exceeded this consent by: (1) being on the curtilage; (2) peering into the windows; and (3) opening the pool house door. The court concluded that there is no guidance within this circuit regarding the actions a tax appraiser may take in an assessment. Further, other than conclusory allegations, plaintiffs have not identified the proper course of conduct for a tax appraiser. Therefore, the court reversed the judgment and concluded that Handorf is entitled to qualified immunity because plaintiffs' constitutional right was not clearly established at the time of the challenged conduct. View "King v. Louisiana Tax Commission" on Justia Law

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Plaintiffs are individuals who obtained property tax loans from defendant property tax lenders in exchange for the transfer of their tax liens pursuant to Sections 32.06 and 32.065 of the Texas Tax Code. In these four consolidated appeals, at issue is whether the Truth in Lending Act's (TILA), 15 U.S.C. 1602(f), (g), (i), disclosure and consumer protection requirements apply to transfers of property tax liens carried out under Section 32.06 of the Texas Tax Code. The court concluded that the transfer of a tax lien does not constitute an extension of “credit” that is subject to TILA. Accordingly, the court denied the district court's dismissal of No. 14-51326, and reversed the district court's denial of defendants' motion to dismiss in No. 15-50199, 15-50340, and 15-50437. View "Billings v. Propel Fin. Servs." on Justia Law

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Defendant pled guilty to failing to file a tax return in 2006 and was sentenced to twelve months’ imprisonment, one year supervised release, and restitution in the amount of $453,547.00. The district court entered an order directing defendant's ex-wife's employer to withhold the portion of her earnings that accrued prior to the date of the divorce, including paid time off and contributions to her 401(k) and 403(b) retirement plans. The district court subsequently denied the ex-wife's motion to quash the writs of garnishment, as well as a motion to alter or amend the judgment. The court agreed with the district court that the ex-wife did not qualify for relief under I.R.C. 66(c), the "Innocent Spouse" provision, because this provision is only available as an affirmative defense to the government’s efforts to assess a tax deficiency, not when the government is enforcing a criminal judgment. Further, the ex-wife was aware that her husband earned an income as an insurance broker, disqualifying her under the knowledge provision of section 66(c)(3). The court affirmed the judgment. View "United States v. Tilford" on Justia Law

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The Commissioner issued petitioner a notice of deficiency for the 2011 tax year and charged that petitioner had mischaracterized $1.8 million of the $3.1 million he received as a result of the merger between his company and Google, Inc., as long-term capital gain rather than ordinary income. The court agreed with the tax court’s finding that the preponderance of the evidence favors the Commissioner’s deficiency determination, so any error in the court’s allocation of the burden of proof is harmless. In this case, the facts lend credence to the tax court’s conclusion that petitioner did not make a good faith effort to assess his tax liability and could not reasonably rely on his advisers. Accordingly, the court affirmed the judgment. View "Brinkley v. CIR" on Justia Law

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Plaintiff claimed that it acquired title to the foreclosed property at issue by a tax sale and filed suit to quiet title in state court. Defendant removed the action to federal court and counter-claimed for declaratory relief. The district court dismissed the suit and found that the tax sale was void, quieting title in favor of defendant. The court determined that the district court properly concluded that it did not have subject matter jurisdiction over plaintiff’s suit. A quiet title action against the federal government must be brought in federal court, and when the state court lacks subject matter jurisdiction, no jurisdiction is added by removal to federal court. The court also concluded that in the absence of consent from the federal government, the sale of the property under state law was invalid. While the statute preserves local “power to tax,” it does not permit local governments to seize and sell federal government property. Therefore, the tax sale of federally owned real estate was null and void, and the district court rightly quieted title in favor of the Secretary. The court affirmed the judgment. View "Equity Trust Co. v. McDonald" on Justia Law

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Petitioners are subsidiaries of the Howard Hughes Corp., an entity involved in selling and developing commercial and residential real estate. Petitioners used the completed contract method of accounting in computing their gains from sales of property under long-term construction contracts. The IRS challenged the method and the Tax Court sided with the IRS. At issue was whether petitioners' contracts were “home construction contracts” within the meaning of I.R.C. 460(e)(6)(A), thereby making petitioners eligible to use the completed contract method of accounting. The court concluded that petitioners' construction contracts do not fall within the meaning of subsection (i) of section 460(e)(6)(A) or subsection (ii) of section 460(e)(6)(A). Because petitioners' contracts are not "home construction contracts," within the meaning of the statute, the court affirmed the Tax Court's judgment. View "Howard Hughes Co. v. Commissioner" on Justia Law