Justia U.S. 4th Circuit Court of Appeals Opinion Summaries

Articles Posted in Tax Law

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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
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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
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After the Court of Appeals of Maryland suspended Michael Tankersley’s law license when he refused to provide his social security number to the Client Protection Fund of the Bar of Maryland, Tankersley filed suit against the trustees of the Fund, and the judges and the clerk of the Court of Appeals. Tankersley filed suit against these defendants in their official capacities, seeking injunctive relief based on his claim that his suspension violated the federal Privacy Act, 5 U.S.C. 552a. The district court granted defendants’ motion to dismiss. Both the Tax Reform Act, 42 U.S.C. 405(c)(2)(C)(i), and the Welfare Reform Act, 42 U.S.C. 666(a)(13)(A), allow states to collect individuals’ social security numbers in specific situations. The court held that the district court erred in relying on section 666 of the Welfare Reform Act to dismiss Tankersley’s complaint. In this case, the court agreed with Tankersley that “applicant” cannot properly be read to include a Maryland attorney who must pay an annual fee to maintain his license. However, the court concluded that section 405 of the Tax Reform Act applies to Tankersley, and the state of Maryland may lawfully compel him to provide his social security number to the Fund or consequently have his law license suspended. Accordingly, the court affirmed the district court's judgment. View "Tankersley v. Almand" on Justia Law

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The Commissioner issued a Final Partnership Administrative Adjustment (FPAA) indicating that Route 231 should have reported the $3,816,000 it received from Virginia Conservation, one of its members, as gross income and not a capital contribution. The Tax Court determined that the transaction was a “sale” and reportable as gross income in 2005. The court concluded that the Tax Court did not err in agreeing with the Commissioner that the money Route 231 received from Virginia Conservation was “income” for federal tax purposes. Further, the court concluded that the Tax Court correctly determined that the tax credit sale occurred in 2005 for federal tax purposes. Accordingly, the court affirmed the judgment. View "Route 231, LLC v. Commissioner" on Justia Law
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NOM appealed the district court’s denial of its motion under 26 U.S.C. 7431(c)(3) to collect attorneys’ fees from the IRS. NOM had filed suit against the IRS seeking damages for unlawful inspection and disclosure of confidential tax information by IRS agents. NOM sought statutory damages, actual damages, punitive damages, and costs and attorneys’ fees. the district court concluded that NOM was not a “prevailing party” under section 7430(c)(4)(A) because (1) it did not “substantially prevail[] [in litigation against the IRS] with respect to the amount in controversy, or . . . the most significant . . . issues presented,” and, alternatively, (2) the government’s position in the litigation was “substantially justified” under 7430(c)(4)(B). The court could not say that the government acted unreasonably prior to the summary judgment stage of the litigation by waiting to see what NOM’s evidence was and then challenging its sufficiency. In this case, the government adopted a reasonable strategy in conceding statutory damages, but challenging the existence and amount of both actual and punitive damages. The court agreed with the district court that the government’s litigation position was “substantially justified,” which, by itself, is sufficient to find that NOM was not a “prevailing party” under the statute. Accordingly, the court affirmed the judgment. View "National Org. for Marriage v. IRS" on Justia Law
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As part of a grand jury investigation, the grand jury issued a subpoena to Appellant requiring her to produce certain records. When she failed to produce all of the requested documents, the government moved for an order to show cause as to why Appellant should not be held in contempt for failing to comply with the subpoena. At the show-cause hearing, Appellant testified that she did not produce other materials responsive to the subpoena because of the advice of her attorney. The district court ultimately found Appellant guilty of criminal contempt. Appellant appealed, arguing that the district court violated her due process rights by requiring her to prove her advice-of-counsel defense, a burden she claimed belonged to the government. The Fourth Circuit affirmed the conviction, holding that the district court did not improperly shift the burden of proof to Appellant. View "United States v. Westbrooks" on Justia Law
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Petitioners donated a conservation easement to a land trust and claimed a $10,524,000 charitable deduction for the asserted value. The Tax Court held that the easement did not qualify as a charitable contribution and petitioners were not entitled to the deduction. The Tax Code and Treasury Regulations together make clear that 26 U.S.C. 170(h)(2)(C) means that a charitable deduction may be claimed for the donation of a conservation easement only when that easement restricts the use of the donated property in perpetuity. In this case, because the easement fails to meet this requirement, it is ineligible to form the basis of a charitable deduction under section 170(h)(2)(C). The court rejected petitioners' contention that the court should reject this straightforward application of statutory text and affirmed the judgment. View "Belk, Jr. v. CIR" on Justia Law

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Plaintiffs filed suit challenging the validity of an IRS final rule implementing the premium tax credit provision of the Patient Protection and Affordable Care Act (ACA), 26 U.S.C. 36B. The final rule interprets the Act as authorizing the IRS to grant tax credits to individuals who purchase health insurance on both state-run insurance "Exchanges" and federally-facilitated "Exchanges" created and operated by HHS. The court found that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS's determination, the court upheld the rule as a permissible exercise of the agency's discretion. Accordingly, the court affirmed the judgment of the district court. View "King v. Burwell" on Justia Law
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These appeals concerned whether Fannie Mae and Freddie Mac were exempt from the payment of state and local taxes imposed on the transfer of real property in Maryland and South Carolina. Fannie Mae and Freddie Mac claimed that they were exempt from such transfer taxes under 12 U.S.C. 1723a(c)(2) and 1452(e) respectively. The district courts in Maryland and South Carolina rejected the Counties' claims, concluding that the general tax exemptions applicable to Fannie Mae and Freddie Mac, while not applicable to real property taxes, did cover real property transfer taxes, thus making a distinction between property and transfer taxes. The district courts also concluded that Congress acted within its Commerce Clause power. The court held that the real property exclusions from the general tax exemptions of section 1723a(c)(2) and 1452(e) did not include transfer and recordation taxes; in the absence of a particular constitutional right that would trigger heightened scrutiny, the court held that a congressional exemption from state taxation under the Commerce Clause was subject to rational-basis review; Congress could exempt Fannie Mae and Freddie Mac from state and local transfer taxes, even though they were collected in the context of interstate transactions, because the taxes could substantially interfere with or obstruct the constitutionally justified missions of Fannie Mae and Freddie Mac in bolstering the secondary mortgage market; and the Counties' remaining arguments for finding the statutory tax exemptions unconstitutional were rejected. Accordingly, the court affirmed the judgment of the district courts. View "Montgomery County, Maryland v. Federal National Mortgage Assoc." on Justia Law

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Phillip Morris sought review of the USDA's decision regarding the implementation of the Fair and Equitable Tobacco Reform Act (FETRA), 7 U.S.C. 518 et seq. Phillip Morris challenged the USDA's decision to use 2003 tax rates instead of current tax rates in calculating how these assessments were to be allocated across manufacturers of different tobacco products. The court concluded that USDA's decision was a permissible interpretation of FETRA; there was no clear indication in the text of the statute, or in Congress's prior or subsequent action, that Congress intended for USDA to take a different course; and there was similarly no basis for concluding that USDA filled that gap with an unreasonable interpretation. Accordingly, the court affirmed the district court's grant of USDA's motion for summary judgment. View "Philip Morris USA, Inc. v. Vilsack" on Justia Law