Justia Tax Law Opinion Summaries

The IRS audited Plaintiff's and erroneously determined he owed tax for 2013 when he had actually overpaid. Plaintiff sought a timely 2012 tax refund based on the discovered miscalculation. Plaintiff claimed that, in the same envelope, he also requested a refund for the 2013 tax year, although the IRS claims it did not receive the 2013 refund request. Ultimately, the IRS awarded Plaintiff the requested 2012 refund, but denied the 2013 refund based on Plaintiff's failure to provide a timely request.Plaintiff sought enforcement of his 2013 refund, which the district court denied. On appeal, the Fourth Circuit held that Plaintiff failed to meet the required elements of the Mailbox Rule but plausibly alleged physical delivery of his refund request. Thus, the Fourth Circuit reversed in part, affirmed in part, and remanded for further proceedings. View "Stephen Pond v. US" on Justia Law

When the ACA’s mandate and SRP were still in effect, a husband and wife (“Taxpayers”) did not maintain the minimum insurance coverage required by the ACA. The taxpayers did not include their $2409 SRP when they filed their 2018 federal tax return. The Taxpayers filed for Chapter 13 bankruptcy protection in the Eastern District of North Carolina. The IRS filed a proof of claim for the unpaid SRP and asserted that its claim was entitled to priority as an income or excise tax under Section 507 of the Bankruptcy Code. The Taxpayers objected to the government’s claim of priority. The bankruptcy court granted the objection, concluding that, for purposes of the Bankruptcy Code, the SRP is a penalty, not a tax, and therefore is not entitled to priority under Section 507(a)(8). The government appealed to the district court, which affirmed the bankruptcy court’s decision. The district court held that even if the SRP was generally a tax, it did not qualify as a tax measured by income or an excise tax and thus was not entitled to priority. The government thereafter appealed.   The Fourth Circuit reversed and remanded. The court concluded that that the SRP qualifies as a tax under the functional approach that has consistently been applied in bankruptcy cases and that nothing in the Supreme Court’s decision in NFIB requires the court to abandon that functional approach. Because the SRP is a tax that is measured by income, the government’s claim is entitled to priority under 11 U.S.C. Section 507(a)(8)(A). View "US v. Fabio Alicea" on Justia Law

Plaintiffs are “in the business of purchasing tax-lien certificates.” They attend government auctions where they bid on tax-delinquent properties and, if successful, either take title to the properties or earn interest while the owners try to redeem them. A Maryland statute has made that endeavor difficult in Prince George’s County. The problem: the statute directs the County to offer defaulted properties to a select class of people (comprising largely those living and holding government positions there) before listing the properties for regular public auction. Plaintiffs, who do not fit that limited class, claim the statute violates the Privileges and Immunities Clause of the U.S. Constitution.   The Fourth Circuit reversed the district court’s ruling and held that Section 14-817(d) violates the Privileges and Immunities Clause and that Section 14-821(b) cannot be severed from it, and remand with instructions to enter summary judgment in Plaintiffs’ favor, enjoining Defendants from conducting limited auctions under Section 14-817(d) going forward and allowing the transfer of the already-purchased liens. The court reasoned that no substantial reasons justify the favoritism, and the court must hold the statute unconstitutional. View "Chris Brusznicki v. Prince George's County" on Justia Law

The Internal Revenue Service is barred from issuing a summons “with respect to any person if a Justice Department [criminal] referral is in effect with respect to such person.” I.R.C. Section 7602(d)(1). The IRS issued a summons for information to Equity Investment Associates, LLC. (“Equity”). Equity sought to quash that summons, arguing that an existing criminal referral for its lone agent must be treated as a referral for Equity itself.   The Fourth Circuit rejected this argument and affirmed the district court’s judgment. The court held under Section 7602, a business entity is a distinct person from its agents. And because the court only look to whether the taxpayer itself has been referred to the Justice Department, Equity cannot quash the summons. Thus, the district court did not abuse its discretion when denying Equity’s motion for an evidentiary hearing. And because Equity cannot meet that lower burden, it cannot meet the “heavy burden of disproving the actual existence of a valid civil tax determination or collection purpose.” View "Equity Investment Associates, LLC v. US" on Justia Law

Petitioner, a Russian scientist, held a J-1 exchange visitor visa as a researcher sponsored by his employer. In 2010 and 2011, Petitioner received W-2 in the amount of $76,729 and $79,061, respectively. Petitioner filed 1040-NR forms, taking the position that all his earnings were exempt from taxation under the United States-Russia Tax Treaty (“Tax Treaty”). In 2014, the IRS sent Petitioner a notice of deficiency and Petitioner sought relief at the Tax Court.The Tax Court found in favor of Petitioner, holding that his W-2 income was properly considered “a grant, allowance, or similar payments” under the Tax Treaty. The court reasoned that “wages may be eligible for exemption so long as they are similar to a grant or allowance.”The Fourth Circuit reversed. The Tax Treaty provides that salaries, wages, and other similar remuneration are taxable; however, a grant, allowance, or similar payments payable to a person who is studying or doing research is exempt. Adopting the reasoning in Bingler v. Johnson, 394 U.S. 741 (1969), the court held the relevant question is “whether there is a “requirement of any substantial quid pro quo” that distinguishes compensation for employment from a “relatively disinterested, ‘no-string’” grant.” The Fourth Circuit remanded the case to the Tax Court for further proceedings. View "Vitaly Baturin v. Commissioner, Internal Revenue" on Justia Law

The Fourth Circuit concluded on the merits that, under the Bankruptcy Code and the applicable state fraudulent transfer statutes, tax penalty obligations are not voidable, and relatedly, tax penalty payments are not recoverable. Accordingly, the court affirmed the district court's decision upholding the bankruptcy court's dismissal of the trustee's claims seeking to void tax penalty obligations owed by the debtor to the IRS and to recover prior payments made by the debtor to the IRS upon such obligations.The court found the Sixth Circuit's decision in In re Southeast Waffles, LLC, 702 F.3d 850 (6th Cir. 2012), persuasive and concluded that tax penalties do not fit within the obligations contemplated in the North Carolina Uniform Voidable Transactions Act. Because tax penalties are not obligations incurred as contemplated by the Act, it cannot be the "applicable law" required for the trustee to bring this action under 11 U.S.C. 544(b)(1). If there is no applicable law for the trustee's section 544(b)(1) claim, the court concluded that the claim must be dismissed. The court noted that its conclusion about the tax penalty payments turns on the legitimacy of the underlying tax penalty obligation; not the fact that the payments reduced the amount of the tax penalty obligations dollar for dollar. Since the underlying tax penalty obligation is not voidable, neither are Yahweh Center’s payments on that obligation. View "Cook v. United States" on Justia Law

Barringer was the Executive Vice President and a Board member of J&R, a Virginia manufacturing company. By 2014, J&R was delinquent on filing and paying its 941 (employee withholding) taxes. Fearing personal liability, Barringer submitted a Hardship Withdrawal Form requesting $311,859.04 from her 401(k) account “[t]o prevent eviction or ... foreclosure of the mortgage on [her] principal residence.” Barringer deposited the funds into J&R's account to pay the delinquent taxes. Barringer’s mortgage balance was approximately $200,000 at the time; her payments were not delinquent. In 2016, J&R was again behind on its 941 taxes. Barringer requested a final distribution from her 401(k) account, falsely citing the end of her employment with J&R. Barringer again deposited the funds, plus some of her personal savings, into the J&R account. Instead of paying delinquent taxes, Barringer paid herself and vendors. After providing misinformation to federal agents, Barringer was convicted of willfully failing to collect and truthfully account for and pay taxes, 26 U.S.C. 7202, and making materially false statements to federal agents, 18 U.S.C. 1001(a)(2).The Fourth Circuit affirmed the convictions and 36-month sentence. Any error in the denial of Barringer’s pretrial motion to dismiss the wire fraud counts was harmless because the court subsequently granted her motion for a judgment of acquittal on those charges. Barringer’s false statements to investigators were “material to a matter within the jurisdiction of the agency.” The court upheld an abuse-of-trust enhancement under U.S.S.G. 3B1. View "United States v. Barringer" on Justia Law

The Fourth Circuit held that, after the Commissioner of Internal Revenue conceded that a taxpayer owed $0 and was entitled to the removal of any lien or levy, the United States Tax Court did not have jurisdiction to determine that the taxpayer overpaid and to order a refund. The court affirmed the district court's judgment, explaining that, when as here, the Commissioner has already conceded that a taxpayer has no tax liability and that the lien should be removed, any appeal to the Tax Court of the Appeals Office's determination as to the collection action is moot. The court stated that the phrase "underlying tax liability" does not provide the Tax Court jurisdiction over independent overpayment claims when the collection action no longer exists. View "McLane v. Commissioner of Internal Revenue" on Justia Law

To finance the purchase of a home in 2008, Wood borrowed $39,739.44. About six years later, Wood defaulted, with an unpaid balance of $23,066.66. The Department of Housing and Urban Development (HUD), which had insured the loan, paid that amount and sent Wood a Notice of Intent to Collect by Treasury Offset, using income tax overpayments. In 2017, Treasury offset Wood's federal tax overpayment of $9,961 toward the debt. In 2018, Wood filed a Chapter 7 bankruptcy petition, opting to exempt any 2017 income tax overpayment. Treasury nonetheless offset a $6,086 overpayment.Wood requested that the bankruptcy court void HUD’s lien and order a return of the $6,086. The court concluded that a debtor’s tax overpayment becomes property of the estate, protected by the stay, and the debtor may exempt the overpayments and defeat a governmental creditor’s right to setoff. The district court agreed, stating that because Treasury had knowingly intercepted the overpayments after the Woods filed for bankruptcy, equity did not favor granting permission to seek relief from the automatic stay.The Fourth Circuit remanded. The protections typically accorded properly exempted property under 11 U.S.C. 522(c) do not prevail over the government’s 26 U.S.C. 6402(d) right to offset mutual debts. Although the government exercised that right before requesting relief from the automatic stay, there is no reason to abridge the government’s 11 U.S.C. 362(d) right to seek the stay’s annulment. View "Wood v. United States Department of Housing and Urban Development" on Justia Law

The Fourth Circuit affirmed the district court's judgment affirming the IRS's disallowance of a charitable deduction that plaintiffs claimed on their 2011 joint income tax return. After plaintiffs purchased real property, they donated the existing house on the underlying land so that they could build a new one in its place. However, the charity ended up disassembling some of the house, salvaging useful components, and leaving the remainder for demolition by plaintiffs' contractor. Plaintiffs took a charitable deduction of $675,000 on their income tax return, representing the appraised value of the house as if it were moved intact to another lot. The IRS disallowed the deduction under 26 U.S.C. 170(f)(3). Plaintiffs paid the additional taxes assessed by the IRS and filed suit against the United States, seeking a refund of approximately $213,000.The court concluded that defendants donated their entire interest in the house and that they supported their donation with a "qualified appraisal" of the contributed property. In this case, the house was never recorded in the public land records, Plaintiff Linda Mann always retained record ownership of the house. Furthermore, even if the court were to accept that the donation agreement both "constructively severed" the house from the land and conveyed contractual ownership of the house to the charity, Linda still remained the record owner of the house responsible for real-estate taxes. The court also concluded that, even setting aside the consequence of Linda's continuing as the house's record owner, both the donation agreement considered as a whole and the substance of the transaction demonstrate that Linda failed to transfer her entire interest in the house to the charity. The court explained that Linda maintained the benefits and burdens of ownership of the remaining components which she ultimately paid her contractor to demolish. Therefore, she did not donate, as personal property, her entire interest in the house to the charity, making plaintiffs' attempt to claim the value of the entire house as a charitable deduction improper. Finally, the court concluded that the $313,353 appraisal used to claim the deduction was not a qualified appraisal of the contributed property under 26 U.S.C. 170(f)(11)(C). View "Mann v. United States" on Justia Law