Justia Tax Law Opinion Summaries

Three individuals—two tax attorneys, who were partners in a Missouri law firm, and an insurance broker from North Carolina—created and marketed a “Gain Elimination Plan” (GEP) to clients across various states, including North Carolina. The plan purported to enable clients to reduce taxable income by paying business expenses to limited partnerships largely owned by charities. In practice, the government established that these partnerships never actually existed, no services were provided, and the deductions claimed were based on fabricated transactions. The attorneys and the broker helped clients file tax returns with false deductions, resulting in over $22 million in unpaid taxes. The insurance broker also supplied false information to obtain life insurance policies for the plan, sharing commissions with the attorneys. One of the attorneys used the plan to reduce her own reported income, and the attorneys prepared tax returns for the broker that underreported his income.A jury in the United States District Court for the Western District of North Carolina convicted all three defendants of conspiracy to defraud the government and multiple counts related to the preparation and filing of false tax returns. The district court sentenced them to imprisonment, supervised release, and restitution. The defendants appealed, challenging the prosecution’s authorization, venue, evidentiary rulings, jury instructions, and sufficiency of the evidence.The United States Court of Appeals for the Fourth Circuit affirmed the convictions and sentences. The court held that the prosecution was properly authorized under the Appointments Clause and relevant statutes, venue in the Western District of North Carolina was proper because conduct elements of the offenses occurred there, and the “literal truth” defense did not apply to false totals derived from fabricated deductions. The appellate court also found no reversible error regarding evidentiary rulings, jury instructions, or the sufficiency of the evidence supporting the conspiracy and false return charges. View "United States v. Chollet" on Justia Law

Two executives of a Charlotte-based software company, serving as Chief Executive Officer and Chief Operating Officer, were responsible for the company’s financial affairs, including filing required IRS forms and paying over trust-fund taxes withheld from employees’ wages. Over multiple years, the company failed to pay over these taxes, despite repeated IRS interventions, warnings from advisors, and assurances from the executives that steps were being taken to resolve their liabilities. Despite participation in an IRS Voluntary Disclosure Program and substantial company revenues, the executives continued to pay themselves significant salaries while the unpaid trust-fund tax debt accumulated, ultimately exceeding $500,000. After the company ceased operations, the IRS imposed personal liability and penalties on both executives, who also failed to use available funds to pay overdue taxes.A federal grand jury in the United States District Court for the Western District of North Carolina indicted both executives in January 2023 for five counts of willful failure to pay over trust-fund taxes, in violation of 26 U.S.C. § 7202. After a joint jury trial in March 2024, both were convicted on these counts, though acquitted of filing false tax returns and tax evasion. Their post-trial motions for acquittal and a new trial—based on insufficiency of the evidence and the alleged weight of evidence favoring their cooperation with the IRS—were denied by the district court.The United States Court of Appeals for the Fourth Circuit reviewed the convictions and denial of the new trial motion. The court applied an abuse of discretion standard to the jury instruction and Rule 33 new trial issues, and reviewed legal questions de novo. The Fourth Circuit held that the district court did not abuse its discretion in allowing the jury to review the indictment, providing instructions regarding willfulness and the good faith defense, or denying a new trial, finding that the evidence of willful failure to pay over taxes was overwhelming. The criminal judgments were affirmed. View "US v. Gentner" on Justia Law

Catherine LaRosa and her late husband filed joint tax returns for several years. Following IRS assessments for underpayment for the years 1981–1983, and overpayment for 1984–1985, the parties reached a settlement in which both owed each other money. The LaRosas paid the IRS the net amount, including interest and penalties, but later sought a refund, arguing the IRS had miscalculated the interest. In 1994, the IRS issued a refund after recalculating the interest, but later determined that the refund was incorrect and sued to recover it. The United States District Court for the District of Maryland granted summary judgment to the government, ordering repayment, and the United States Court of Appeals for the Fourth Circuit affirmed. The LaRosas did not repay the refund for over twenty years.In 2019, the government attempted to foreclose on the LaRosas’ home to collect the judgment. At this point, LaRosa sought “innocent spouse” equitable relief from the IRS under 26 U.S.C. § 6015(f)(1), which allows the IRS to relieve a taxpayer from liability for any unpaid tax in certain circumstances. The IRS refused to process her request, asserting that no amount was currently owed and that Section 6015(f) did not authorize relief for erroneous refunds. LaRosa then sought review in the United States Tax Court, which granted summary judgment to the IRS, holding that the erroneous refund did not create an “unpaid tax” or “deficiency” eligible for relief under Section 6015(f).On appeal, the United States Court of Appeals for the Fourth Circuit held that an erroneous refund of underpayment interest does create a liability for “unpaid tax” eligible for equitable relief under Section 6015(f)(1). The court vacated the Tax Court’s judgment and remanded for further proceedings. The holding was limited to underpayment interest and did not address other issues, which were left for the Tax Court to consider on remand. View "LaRosa v. Commissioner of Internal Revenue" on Justia Law

Maryland enacted a statute imposing a tax on digital advertising revenues, targeting only large companies with at least $100 million in global annual gross revenues. In response to concerns that these companies would pass the tax cost onto customers and potentially blame the state for price increases, Maryland amended the law to include a “pass-through provision.” This provision prohibited companies from directly passing the tax cost to customers by means of a separate fee, surcharge, or line-item on invoices, though it did not prevent companies from raising prices or otherwise recouping the tax cost in a non-itemized way.A group of trade associations challenged the pass-through provision, arguing that it violated the First Amendment by restricting their ability to communicate with customers about the tax and its impact on pricing. The United States District Court for the District of Maryland initially dismissed the First Amendment claims for lack of jurisdiction under the Tax Injunction Act. On appeal, the United States Court of Appeals for the Fourth Circuit determined that the Act did not bar the claims and remanded for consideration on the merits. On remand, the district court found that the provision regulated speech but dismissed the facial challenge, reasoning that the provision had constitutional applications.The United States Court of Appeals for the Fourth Circuit reviewed the case and held that the pass-through provision is a content-based restriction on speech, as it prohibits companies from communicating certain truthful information to customers. The court found that the provision could not survive even intermediate scrutiny under the First Amendment, as it was not adequately tailored to any substantial government interest. The Fourth Circuit reversed the district court’s decision and remanded the case for consideration of the appropriate remedy, holding that the pass-through provision is facially unconstitutional in all its applications. View "Chamber of Commerce v. Lierman" on Justia Law

Bank of America Corporation, after merging with Merrill Lynch in 2013, sought to recover interest on its pre-merger tax underpayments by netting them against pre-merger overpayments made by Merrill Lynch. The bank argued that the post-merger integration rendered it the "same taxpayer" as Merrill Lynch for purposes of the interest netting provision under 26 U.S.C. § 6621(d) of the Internal Revenue Code.The United States District Court for the Western District of North Carolina initially held jurisdiction over all of the Bank's claims. However, the Federal Circuit determined that the Court of Federal Claims had exclusive jurisdiction over claims for overpayment interest exceeding $10,000, leading to the severance and transfer of those claims. The district court then addressed the remaining claims, granting partial summary judgment in favor of the government. The court concluded that the "same taxpayer" requirement applies at the time the payments were made, and since Bank of America and Merrill Lynch were distinct entities when the payments were made, the interest netting provision did not apply.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the district court's decision. The Fourth Circuit held that the interest netting provision under § 6621(d) requires that the same taxpayer must have made the underpayments and overpayments at the time they were made. Since Bank of America and Merrill Lynch were separate entities when the relevant payments were made, they could not be considered the "same taxpayer" for the purposes of interest netting. The court also rejected the Bank's arguments based on state merger law and legislative history, emphasizing that the statutory text was clear and did not support the Bank's interpretation. View "Bank of America Corp. v. United States" on Justia Law

In late 2008, the IRS assessed Arthur and Gigi Stover a significant tax bill, which they could not pay. The Government waited until 2020 to initiate a collection suit, nearly twelve years later. Generally, the Government has ten years to sue for unpaid taxes, but this period can be extended if the taxpayer requests an installment agreement. The IRS records indicated that the Stovers requested such an agreement on December 12, 2008. However, Arthur Stover testified that they did not contact the IRS about a payment plan until 2009 through their CPA.The United States District Court for the Western District of North Carolina granted summary judgment to the Government, finding no genuine issue of material fact regarding the date of the installment agreement request. The court held that the request tolled the statute of limitations, making the Government's collection action timely.The United States Court of Appeals for the Fourth Circuit reviewed the case and found that there was a genuine dispute of material fact regarding the date of the installment agreement request. Arthur Stover's deposition testimony suggested that the request could not have been made until 2009, contradicting the IRS records. The court concluded that summary judgment was improper because the conflicting evidence created a genuine issue of fact that should be resolved by a factfinder.The Fourth Circuit vacated the district court's grant of summary judgment and remanded the case for further proceedings. The main holding was that summary judgment is not appropriate when there is a genuine dispute of material fact regarding the date that dictates the timeliness of the Government's suit. View "United States v. Stover" on Justia Law

This case involved the differences between how ad valorem taxes are determined in South Carolina for railroad property and how they are determined for most other commercial and industrial property. CSXT filed suit against the State, alleging that the property taxes imposed for the 2014 tax year will discriminate against CSXT. CSXT sought a judgment declaring that excluding CSXT from the benefit of the caps of the South Carolina Real Property Valuation Reform Act (SCVA), S.C. Code 12-37-3140(B), violates the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. 11501(b)(4), which prohibits the imposition of "another tax that discriminates against a rail carrier." CSXT also sought preliminary and permanent injunctions. The district court ultimately rejected CSXT's section 11501(b)(4) challenge. The court explained that Congress designed section 11501(b)(4) to prohibit taxes that discriminate against railroads. In this case, CSXT alleged that if it is not allowed to benefit from the SCVA cap, its 2014 property tax will be just such a tax. The court concluded that there was no basis for precluding CSXT from proving the claim it alleged – discrimination – and requiring CSXT instead to fit its challenge into a provision that does not even address discrimination and that required proof of facts CSXT has not even alleged. Therefore, the court vacated and remanded for further proceedings because the district court granted judgment against CSXT without ever reaching the question of whether the challenged tax was discriminatory. View "CSX Transportation, Inc. v. South Carolina Department of Revenue" on Justia Law

After petitioner unsuccessfully challenged his liability in a preassessment hearing before the Office of Appeals of the IRS, he sought to raise the same issue before the same administrative unit in his collection due process (CDP) hearing. The Office of Appeals concluded that Section 6330 of the Internal Revenue Code, I.R.C. 6330, prohibited him from disputing his liability a second time, and the Tax Court agreed. The court explained that petitioner was afforded a meaningful opportunity to challenge the imposition and amount of the reporting penalty: he had the ability to request a preassessment hearing before the Office of Appeals. The court determined that this was sufficient under Section 6330(c)(2)(B). The court also held that Section 6330(c)(4) barred petitioner from challenging his liability in the CDP context. Therefore, the court concluded that the Commissioner was entitled to judgment as a matter of law, and the court affirmed the Tax Court's judgment. View "Iames v. Commissioner of IRS" on Justia Law

Plaintiff filed a class action against HealthPort in state court seeking damages and injunctive relief, asserting several statutory consumer protection claims and common law claims. Specifically, plaintiff challenges HealthPort’s collection of $23 in sales tax on the sale of medical records. HealthPort removed the case to federal court. The court concluded that the Tax Injunction Act, 28 U.S.C. 1341, and the related principle of federal-state comity operate to deprive the court of jurisdiction. Therefore, the court vacated the judgment of dismissal and remanded to the district court with instructions to return the action to state court. View "Gwozdz v. Healthport Technologies, LLC" on Justia Law

QinetiQ, the successor in interest to DTRI, contends that the stock issued to an executive employee of DTRI was issued in connection with the executive’s employment and was subject to a substantial risk of forfeiture until 2008. QinetiQ argues that it is entitled to a tax deduction for the value of the stock as a trade or business expense in the tax year ending March 31, 2009. The IRS issued a Notice of Deficiency concluding that QinetiQ had not shown its entitlement to the claimed deduction. The court concluded that the IRS complied with all applicable procedural requirements in issuing the Notice of Deficiency to QinetiQ; the tax court did not err in concluding that the stock failed to qualify as a deductible expense for the tax year ending March 31, 2009, because the stock was not issued subject to a substantial risk of forfeiture; and thus the court affirmed the judgment. View "QinetiQ US Holdings, Inc. v. Commissioner of IRS" on Justia Law