Justia Tax Law Opinion Summaries

The Greens opened a Union Bank of Switzerland (UBS) account around 1980, with their daughter, Kimble, as a joint owner. Kimble directed UBS to maintain the account as a numbered account and to retain all correspondence at the bank. Kimble married an investment analyst who agreed to preserve the secrecy of the account. The couple’s joint federal tax returns did not report any income derived from the UBS account nor disclose the existence of the foreign account. After the couple divorced, Kimble's tax returns were prepared by a CPA, who never asked whether she had a foreign bank account. In 2003-2008, Kimble’s tax forms, signed under penalty of perjury, represented that she did not have a foreign bank account.In 2008, Kimble learned of the Treasury Department’s investigation into UBS for abetting tax fraud; she retained counsel. UBS entered into a deferred prosecution agreement that required UBS to unmask numbered accounts held by U.S. citizens. Kimble was accepted into the Offshore Voluntary Disclosure Program (OVDP) and agreed to pay a $377,309 penalty. Kimble withdrew from the OVDP without paying the penalty.The IRS determined that Kimble’s failure to report the UBS account was willful and assessed a penalty of $697,299, 50% of the account. Kimble paid the penalty but sought a refund. The Federal Circuit affirmed summary judgment against Kimble, finding that she violated 31 U.S.C. 5314 and that her conduct was “willful” under section 5321(a)(5). The IRS did not abuse its discretion in setting a 50% penalty. View "Kimble v. United States" on Justia Law

In 2009, Meidinger submitted whistleblower information to the IRS under 26 U.S.C. 7623, concerning “one million taxpayers in the healthcare industry that are involved in a kickback scheme.” The IRS acknowledged receipt of the information, but did not take action against the accused persons. The IRS notified Meidinger of that determination. Meidinger argued that the IRS created a contract when it confirmed receipt of his Form 211 Application, obligating it to investigate and to pay the statutory award. The Tax Court held that it lacked the authority to order the IRS to act and granted the IRS summary judgment. The D.C. Circuit affirmed that Meidinger was not eligible for a whistleblower award because the information did not result in initiation of an administrative or judicial action or collection of tax proceeds.In 2018, Meidinger filed another Form 211, with the same information as his previous submission. The IRS acknowledged receipt, but advised Meidinger that the information was “speculative” and “did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.” The Tax Court dismissed his suit for failure to state a claim; the D.C. Circuit affirmed, stating that a breach of contract claim against the IRS is properly filed in the Claims Court under the Tucker Act: 28 U.S.C. 1491(a)(1). The Federal Circuit affirmed the Claims Court’s dismissal, agreeing that the submission of information did not create a contract. View "Meidinger v. United States" on Justia Law

In 2009, Bank of America acquired Merrill Lynch. In 2013, Merrill Lynch “merged with and into” Bank of America. In 2017, Bank of America filed a complaint, seeking to recover overpaid interest on federal tax underpayments and additional interest on federal tax overpayments arising under 26 U.S.C. 6601 and 6611. The claimed overpayment interest arose from overpayments made by Merrill Lynch. The government moved to sever the Merrill Lynch overpayment interest claims exceeding $10,000 and requested that the district court transfer them to the Court of Federal Claims or, alternatively, dismiss them for lack of subject matter jurisdiction. The Magistrate Judge concluded and the district court affirmed that district courts have “subject matter jurisdiction over overpayment interest claims pursuant to 28 U.S.C. 1346(a)(1).The Federal Circuit vacated. The plain language of section 1346(a)(1) dictates that the term “any sum” refers to amounts that have been previously paid to, or collected by, the IRS, which, overpayment interest “[b]y its nature, . . . is not.” The conclusion that section 1346(a)(1) does not cover overpayment interest claims is consistent with the tax code’s broader statutory scheme; the legislative history does not contradict that conclusion. View "Bank of America Corp. v. United States" on Justia Law

Adkins sought a federal income tax refund, based on financial losses sustained as the victim of a fraudulent investment scheme. The IRS was unable to formalize the parties’ settlement before the statute of limitations on the refund request was set to expire. Adkins filed suit. Following a remand, the Claims Court ruled against Adkins.The Federal Circuit reversed. The court noted its previous holding that the Claims Court misconstrued the regulation concerning the timing of a theft loss deduction by reading Treasury Regulation 1.165- 1(d)(3) as imposing a higher burden on taxpayers who attempt to recover their losses after discovering a fraud than on taxpayers who claim the same loss immediately upon discovery and by holding that, where a taxpayer has filed a claim for reimbursement from those who defrauded her, the taxpayer may not claim a loss until that claim is fully resolved or abandoned. What a taxpayer must prove by reasonable certainty is that, as of the time the loss was claimed, there was no reasonable “prospect of recovery”; she is not required to prove that it was certain no recovery could be had. While one could establish the absence of any reasonable prospect of recovery by the abandonment of a claim, abandonment is not a prerequisite to such a showing. On remand, the Claims Court again required too much with respect to the showing required. View "Adkins v. United States" on Justia Law

The plaintiffs each own a wind farm that was put into service in 2012. Each applied for a federal cash grant based on specified energy project costs, under section 1603 of the American Recovery and Reinvestment Tax Act of 2009. The Treasury Department awarded each company less than requested, rejecting as unjustified the full amounts of certain development fees included in the submitted cost bases. Each company sued. The government counterclaimed, alleging that it had actually overpaid the companies.The Claims Court and Federal Circuit ruled in favor of the government. Section 1603 provides for government reimbursement to qualified applicants of a portion of the “expense” of putting certain energy-generating property into service as measured by the “basis” of such property; “basis” is defined as “the cost of such property,” 26 U.S.C. 1012(a). To support its claim, each company was required to prove that the dollar amounts of the development fees claimed reliably measured the actual development costs for the windfarms. Findings that the amounts stated in the development agreements did not reliably indicate the development costs were sufficiently supported by the absence in the agreements of any meaningful description of the development services to be provided and the fact that all, or nearly all, of the development services had been completed by the time the agreements were executed. View "California Ridge Wind Energy, LLC v. United States" on Justia Law

Walby was born in Michigan, and, in 2014-2018, lived and worked in Michigan. For the 2014 taxable year, Walby’s employer, Baker, withheld $9,751.60 in federal income taxes. In 2015, Walby claimed exemption from all withholdings and executed an “Affidavit of Citizenship,” which she submitted to the State Department, declaring that she was a sovereign citizen of the state of Michigan and, “because she was not restricted by the 14th Amendment ... she was not a United States citizen thereunder but rather a nonresident alien not subject to income taxes.” In 2016, at the direction of the IRS, Baker resumed withholding. Walby did not file federal tax returns for 2014–2018 but, in 2019, filed claims for refunds of the taxes withheld from her 2014 and 2016–2018 paychecks.The Federal Circuit affirmed the dismissal of Walby’s tax refund lawsuit concerning her 2014 return as untimely. A timely administrative refund claim must be filed within two years of the taxes being paid. The claims for the years 2016–2018 were timely but were properly dismissed as meritless. Walby could not establish a loss of U.S. nationality and even if she were a nonresident alien, Walby qualified as a U.S. resident for tax purposes under I.R.C. 7701 by virtue of her substantial presence. The court rejected a request for sanctions. View "Walby v. United States" on Justia Law

GMI is the parent corporation of several partners of General Mills, an LLC that is treated as a partnership for tax purposes (the Partnership). GMI alleges that after certain partnership-level audits of the Partnership’s returns for the 2002–2006 tax years were settled with the IRS, the IRS erroneously collected $5,958,695 in “large corporate underpayments” (LCU) interest (I.R.C. 6621(c)), by selecting incorrect “applicable dates” to start interest accrual. GMI paid the interest and filed unsuccessful administrative refund claims, then sued the government. The Claims Court dismissed for lack of subject matter jurisdiction, concluding that GMI failed to file its claims within the six-month limitations period, I.R.C. 6230(c). GMI argued that the general two-year tax refund limitations period (I.R.C. 6511(a)) applied. Section 6230(c) provides that “[a] partner may file a claim for refund on the grounds that . . . the [IRS] erroneously computed any computational adjustment necessary . . . to apply to the partner a settlement” and that any such claim “shall be filed within 6 months after the day on which the [IRS] mails the notice of computational adjustment to the partner.”The Federal Circuit affirmed. The essence of GMI’s challenge is to the IRS’s computation of the change in its tax liability resulting from the Partnership’s settlement of partnership items; interest was “clearly contemplated” as part of the Partnership settlement agreements. GMI received adequate notice but filed its refund claims well outside the six-month period, View "General Mills, Inc. v. United States" on Justia Law

Norman, a school teacher, opened a “numbered” Swiss bank account with UBS in 1999. Statements for the account list only the account number, not Norman’s name or address. From 2001-2008, her balance ranged between $1.5 million-$2.5 million. Norman was actively involved in managing and controlling her account. She gave UBS investment instructions and prohibited UBS from investing in U.S. securities on her behalf, which helped prevent disclosure of her account to the IRS. She took withdrawals in cash. In 2008, Norman expressed displeasure when she was informed of UBS’s decision to “no longer provide offshore banking” and to work “with the US Government to identify the names of US clients who may have engaged in tax fraud.” Just before UBS publicly announced this plan, Norman closed her UBS account, transferring her funds to another foreign bank. Under 31 U.S.C. 5314(a), U.S. persons who have relationships with foreign financial agencies are required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury Department. When the IRS discovered her account during an audit, Norman initially expressed shock to learn that she had a foreign account and subsequently tried to claim that she did not control the account. The Federal Circuit affirmed a Claims Court finding that Norman willfully failed to file an FBAR in 2007 and the IRS properly assessed a penalty of $803,530 for this failure. View "Norman v. United States" on Justia Law

The Taxpayers, West Virginia non-stock, not-for-profit, 26 U.S.C. 501(c)(3) organizations, are generally exempt from federal income tax but are not exempt from taxes on “wages” from “employment” under the Federal Insurance Contributions Act (FICA). “Employment” under FICA has a broad definition but excepts service performed in the employ of a school by a student who is regularly enrolled and attending classes at the same school, 26 U.S.C. 3121(b)(10). In 2010, the IRS determined that medical residents fall within that exception, applied the determination retroactively, and issued tax refunds to the Taxpayers. The IRS paid interest on these tax refunds, applying the interest rate for corporations under 26 U.S.C. 6621(a)(1). If the IRS had used the interest rate for noncorporations, the Taxpayers would have received approximately $1.9 million in additional statutory interest. The Claims Court affirmed, reasoning that the Taxpayers are corporations under section 6621(a)(1) notwithstanding their nonprofit status. The Federal Circuit affirmed, agreeing with other circuits that an entity incorporated under state law is a corporation within the meaning of the Code. The Code addresses three basic types of corporations: nonprofit corporations covered by subchapter F; certain for-profit corporations covered by subchapter C; and certain for-profit corporations covered by subchapter S. In section 6621, Congress used the generic definition of “corporation,” which includes both for-profit and nonprofit entities. View "Charleston Area Medical Center, Inc. v. United States" on Justia Law

Alternative Carbon claimed nearly $20 million in energy tax credits meant for taxpayers who sell alternative fuel mixtures under 26 U.S.C. 6426(e)(1). The Internal Revenue Service determined that Alternative Carbon should not have claimed these credits and demanded repayment, with interest and penalties. Alternative Carbon paid back the government, in part, and then filed a refund suit. The Claims Court decided that Alternative Carbon failed to establish that it properly claimed the credits or that it had reasonable cause to do so and granted the government summary judgment. The Federal Circuit affirmed. Although the product at issue, a feedstock/diesel mixture, was a “liquid fuel,” it was not “sold” by Alternative Carbon; the transaction was more of a transfer for disposal. Alternative Carbon cannot show it had reasonable cause for claiming the alternative fuel mixture credits. View "Alternative Carbon Resources, LLC v. United States" on Justia Law