Justia Tax Law Opinion Summaries

Taxpayer conceded that he failed to report his foreign bank accounts to the IRS, but contested the IRS's determination that his violations were willful and argued for vacatur of his civil penalties. The district court held that taxpayer's violations were reckless, and therefore willful, in most of the tax years at issue. The district court also held that the IRS had miscalculated taxpayer's civil penalties and set them aside under the Administrative Procedure Act (APA), and then sua sponte calculated and imposed a fresh set of penalties.The Eleventh Circuit concluded that the district court applied the correct legal standard in analyzing whether taxpayer willfully violated the FBAR reporting requirements. The court explained that willful conduct in the FBAR context includes knowing and reckless conduct. Reckless conduct is action that objectively entails a high risk of harm, which is the standard the district court applied. Nevertheless, the court concluded that the civil penalties assessed by the IRS were unlawful under the APA and must be recalculated. In this case, the IRS erred by using the wrong foreign bank account balances to calculate taxpayer's penalties, contravening the relevant statute and regulations. The district court further erred by calculating and imposing new penalties instead of remanding to the agency, as required by the APA. The court explained that, even though the district court ultimately arrived at the same total penalty amount the IRS did originally, the IRS's original errors were not harmless. Accordingly, the court vacated and remanded for recalculation. View "United States v. Schwarzbaum" on Justia Law

In the early 1900s, New York City used a Brooklyn powerhouse to provide electricity for its trolley system. In 1940, the City took ownership of the power plant and removed a smokestack, placed it in the building's basement, on top of a mechanical system that was insulated with friable asbestos-containing material, and buried it under a concrete slab. Enterprises acquired the property in 1986. An asbestos inspection by the city revealed that the property was contaminated with PCBs. The property was placed on New York’s Registry of Inactive Hazardous Waste Disposal Sites, rendering it effectively worthless. The state began remediation in 2015. The discovery of the buried smokestack and friable asbestos-containing material postponed the project indefinitely. New York City continued to tax the property according to its “best intended use” as a warehouse. Rather than paying the taxes or properly challenging their validity, Enterprises ignored them. The taxes became liens.In 2018, Enterprises filed for Chapter 11 bankruptcy and initiated an adversary proceeding against the city, alleging “continuous trespass,” and seeking a declaratory judgment that the city is responsible for the hazardous waste and resulting damage and improperly taxed the property. The bankruptcy court dismissed the adversary proceeding. The Eleventh Circuit affirmed. Even assuming the latest possible date of discovery, Enterprises’ trespass claim is time-barred. The Bankruptcy Abuse Prevention and Consumer Protection Act, 11 U.S.C. 505(a)(2)(C), prohibited the court from redetermining the tax assessments. View "5200 Enterprises Ltd. v. City of New York" on Justia Law

The Eleventh Circuit reversed the tax court's order disallowing taxpayers' carryover deduction for the donation of a conservation easement. The court concluded that the Commissioner's interpretation of I.R.C. 1.170A14(g)(6)(ii) is arbitrary and capricious and violates the Administrative Procedure Act's (APA) procedural requirements. The court explained that Treasury, in promulgating the extinguishment proceeds regulation, failed to respond to NYLC's significant comment concerning the post-donation improvements issue as to proceeds. Because the court found the Commissioner's interpretation of section 1.170A-14(g)(6)(ii) invalid under the APA, it concluded that the easement deed's subtraction of the value of post-donation improvements from the extinguishment proceeds allocated to the donee does not violate section 170(h)(5)'s protected-in-perpetuity requirement. The court remanded for further proceedings. View "Hewitt v. Commissioner" on Justia Law

Under the 1982 Tax Treatment of Partnership Items Act, 26 U.S.C. 6221–6232, partnership-related tax matters are resolved in two stages. During the partnership-level proceedings, the IRS may adjust items relevant to the partnership as a whole and determine the “applicability of any penalty.” The partnership can challenge the adjustment. All partners are bound by any final decision in a partnership-level proceeding.On its 2001 partnership tax return, AHG reported a $25,618 total loss. Ginsburg’s individual 2001 tax return reported a $10,069,505 loss from AHG to offset his income. In 2008, the IRS sent Ginsburg notice that it was proposing adjustments to AHG’s returns, alleging that AHG “was formed . . . solely for purposes of tax avoidance.” For Ginsburg, the IRS “disallowed” the $10,069,505 loss and said it would impose a 40 percent penalty for “gross valuation misstatement.”Based on Ginsburg’s concessions that he was not entitled to deduct AHG’s losses because he was not at risk and the partnership’s transactions did not have a substantial economic effect., the tax court found that AHG must be “disregarded for federal income tax purposes,” and adjusted AHG’s 2001 tax return. The court denied Ginsburg’s petition concerning the penalty, rejecting his argument that the government did not get “written approval of the penalty by an immediate supervisor,” as required by 26 U.S.C. 6751(b)(1). The district court agreed that Ginsburg could not have reasonably relied on the advice of his tax, legal, and financial advisors and would not consider Ginsburg’s supervisory approval argument because he did not exhaust it in his IRS refund claim.The Eleventh Circuit affirmed. In partnership tax cases, the supervisory approval issue must be exhausted with the IRS before the partner files his refund lawsuit and must be raised during the partnership-level proceedings. View "Ginsburg v. United States" on Justia Law

The Eleventh Circuit affirmed the tax court's memorandum opinion upholding adjustments contained in five notices of deficiencies (NODs) issued by the IRS against petitioner for the tax years 1999, 2000, and 2001, as well as the tax court's adoption of the Commissioner's computations under Tax Court Rule 155 and its denial of several of petitioner's post-trial motions.In regard to jurisdiction issues, the court concluded that the Commissioner did not need to comply with the requirement of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) that it issue Final Partnership Administrative Adjustment (FPAAs) to GG Capital to notify petitioner of adjustments to partnership items. The court explained that GG Capital's attempted TEFRA election on its 1997 return was not valid; GG Capital was required to attach a statement signed by all of its partners in order to elect into the TEFRA procedures under I.R.C. 6231(a)(1)(B)(ii); but GG Capital did not do so for either 2000 or 2001 and was therefore not subject to the TEFRA regime. The court also concluded that the tax court did not err in finding the 2004 NOD was timely mailed on October 15, 2004 adjustments; because the limitations period for making assessments against petitioner related to the converted items was suspended by virtue of the pendency of the AD Global case, the 2009 NOD was timely as to the 1999 tax year; and the court rejected petitioner's remaining jurisdictional claims.The court concluded that the tax court properly upheld the Commissioner's adjustments to the NODs. In this case, the court declined to look behind the 2009 NODs in assessing their validity; the tax court did not fail to impose the proper burden of proof and the tax court did not abuse its discretion in denying the motion to reopen the record to allow petitioner to introduce new evidence so late into the action; and there was no error in the tax court's post-trial rulings. View "Greenberg v. Commissioner of Internal Revenue" on Justia Law

This appeal relates to TOT Holdings' execution of a deed that donated to Foothills Land Conservancy, a conservation easement encumbering nearly all its property. The IRS disallowed the deduction claimed by the taxpayer, and the Tax Court upheld that decision because the deed conveying the easement contained a formula for the distribution of proceeds that did not comply with the extinguishment proceeds requirement and the deed was not saved by purported interpretive provisions. The taxpayer appealed.The Eleventh Circuit concluded that the Tax Court correctly determined that the taxpayer did not comply with the extinguishment proceeds requirement and that the deed was not saved by the disputed provisions because they constitute an unenforceable condition-subsequent savings clause. The court also held that the Tax Court did not commit reversible error in approving the penalties assessed. Accordingly, the court affirmed the judgment. View "TOT Property Holdings, LLC v. Commissioner of Internal Revenue" on Justia Law

28 U.S.C. 1346(a)(1) does not confer jurisdiction, concurrent with the United States Court of Federal Claims, over a taxpayer's civil action against the government solely for overpayment interest owed to the taxpayer.The Eleventh Circuit affirmed the district court's order dismissing plaintiffs' amended complaint for lack of subject matter jurisdiction over their standalone claim for overpayment interest allegedly owed to them by the government. Plaintiffs are victims of Bernie Madoff's Ponzi scheme and seek to recoup their losses. They filed multiple claims with the IRS, subsequently received tentative refunds of approximately ten million dollars, and now seek interest on the tax overpayments for the tax years at issue. The Court of Federal Claims denied the government's motion to dismiss as moot after finding that it lacked jurisdiction over plaintiffs' claim because it was untimely under the Tucker Act. The Court of Federal Claims, however, transferred the case to the Southern District of Florida because it was not evident how the Southern District of Florida or this Court would address jurisdiction over a standalone claim for overpayment interest.Read in context of the entire statute, the court concluded that the "any sum" category of section 1346(a)(1) does not encompass standalone overpayment interest claims against the government and that under the Tucker Act, the Court of Federal Claims has exclusive jurisdiction over such standalone claims exceeding $10,000. Therefore, the district court correctly determined that it lacked jurisdiction over plaintiffs' overpayment interest claim and properly dismissed their amended complaint. View "Paresky v. United States" on Justia Law

The Eleventh Circuit affirmed the Tax Court's decision upholding the Commissioner's determination that petitioner owes an income tax deficiency for 2011. The court concluded that the Tax Court did not clearly err in finding that petitioner failed to substantiate his claimed net operating loss (NOL) deduction in 2011. The court also concluded that the Tax Court did not abuse its discretion by overruling petitioner's objections to the Commissioner's deficiency computations under Rule 155, which included the income, but not the deductions, from petitioner's late-filed 2011 tax return. Finally, the court could not say that the Tax Court abused its discretion in refusing to reopen the case to litigate an issue that petitioner never attempted to raise. View "Barker v. Commissioner of Internal Revenue" on Justia Law

The Government filed suit to enforce the IRS assessment of a penalty against defendant for failing for the year 2007 to file a Report of Foreign Bank and Financial Accounts (FBAR) pursuant to 31 U.S.C. 5321. The district court granted summary judgment in favor of the Government and enforced the IRS assessment of a penalty for a willful violation.The Eleventh Circuit agreed with the district court that there are no genuine issues of material fact regarding defendant's willfulness or recklessness where the evidence was overwhelming that defendant sought to hide his overseas accounts from the United States government. The court joined its sister circuits and held that the maximum penalty is established by the 2004 amendment to 31 U.S.C. 5321, not by the regulation in 31 C.F.R. 1010.820(g)(2). The court also concluded that defendant's several arguments that the IRS factfinding proceedings were so insufficient as to warrant de novo review—in departure from the usual arbitrary and capricious review—are wholly without merit; the IRS's actions were not arbitrary and capricious; and defendant's arguments regarding the imposition of interest and late fees are without merit. Accordingly, the court affirmed the judgment. View "United States v. Rum" on Justia Law

The Eleventh Circuit affirmed the tax court's denial of taxpayer's request to sever her liability for unpaid tax liabilities from joint tax returns for the 2008, 2009, and 2010 tax years based on the innocent spouse doctrine. The court concluded that the tax court did not abuse its discretion in balancing the factors for determining equitable relief and concluding that the knowledge or reason-to-know factor weighed strongly against relief. In this case, taxpayer signed the couple's returns, was aware of their shared financial troubles, and knew of their prior problems with the IRS. Furthermore, the tax court did not abuse its discretion by placing too much weight on this factor. View "Sleeth v. Commissioner of Internal Revenue" on Justia Law