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

For the purpose of applying 31 U.S.C. 5321(a)(5)'s civil penalty, a "willful violation" of the Report of Foreign Bank and Financial Accounts (FBARs) reporting requirement includes both knowing and reckless violations, even though more is required to sustain a criminal conviction for a willful violation of the same requirement under section 5322.The Fourth Circuit affirmed the district court's conclusion that the undisputed facts establish that defendants' failure to file the FBARs for 2007 and 2008 was objectively reckless. In this case, among other things, defendants knew that they were holding a significant portion of their savings in a foreign bank account and earning interest income on that account; defendants knew that interest income was taxable income and that foreign income was taxable in the United States; and defendants reported interest income to their accountant from domestic banks and foreign income earned in Saudi Arabia but failed to report foreign interest income. Furthermore, the Finter Bank account was a numbered account with "hold mail" service; the Swiss bank accounts were by no means small or insignificant and thus susceptible to being overlooked by defendants; and defendants stated that they did not have a foreign bank account on their tax returns. The court also affirmed the district court's conclusion that the civil penalty for a willful FBAR violation is established by 31 U.S.C. 5321(a)(5)(C)–(D), not 31 C.F.R. 1010.820(g). Finally, the civil penalties against defendants were timely assessed, and the enforcement action was timely filed. View "United States v. Horowitz" on Justia Law

After the tax court determined that petitioners failed to report approximately $41.2 million of compensation income that they realized when certain restricted stockholdings that they owned became substantially vested in January 2004, the tax court upheld the Commissioner's decision to impose accuracy-related penalties for negligence and substantial understatement of tax liability, and denied petitioners' post-trial attempt to offset their underreported income with various net operating loss carrybacks.The Fourth Circuit affirmed the tax court, holding that the tax court did not err in holding that petitioners each realized and were required to report $45.7 million of taxable income when their UMLIC S-Corp. stock substantially vested in taxable year 2004. In this case, even if the Surrender Transactions could somehow be seen as rescinding petitioners' employment and compensation agreements with UMLIC S-Corp., the court agreed with the tax court's conclusion that those transactions were totally devoid of economic substance and must be disregarded for federal income tax purposes. The court also held that the tax court did not err in upholding the accuracy-related penalties imposed by the Commissioner. Finally, the court rejected petitioner's claim that the tax court erred in refusing to consider their net operating losses (NOL) carryback claim during post-trial computation proceedings conducted pursuant to Tax Court Rule 155. View "Estate of Arthur E. Kechijian v. Commissioner" on Justia Law

CSX argued that SCVA impermissibly discriminates against railroads in violation of the Railroad Revitalization and Regulatory Reform Act of 1976. The Fourth Circuit reversed the district court's determination that South Carolina had provided sufficient justification for the discriminatory tax. The court held that CSX has made a prima facie showing of discriminatory tax treatment based on the appropriate comparison class of other commercial and industrial real property taxpayers in South Carolina. Furthermore, the state's three justifications -- the equalization factor applied to railroad assessments, the combined effect of other tax exemptions applied to rail carriers, and assessable transfers of interest which trigger new appraisals -- were insufficient to justify the discriminatory tax scheme. View "CSX Transportation, Inc. v. South Carolina Department of Revenue" on Justia Law

Under the federal tax offset program, the Secretary of the Treasury has the discretion to set-off "any" tax overpayment against a taxpayer's preexisting tax liabilities, and the bankruptcy code provides that exempt property cannot be used to satisfy "any" of the bankruptcy debtor's prepetition debts. At issue was which of these statutory directives controls when a bankruptcy debtor claims, as exempt property, a tax overpayment that the government seeks to set-off under the offset program.The Fourth Circuit agreed that debtors' interest in their tax overpayment became part of the bankruptcy estate. However, based on the plain language of the various statutes, particularly the plain language of 11 U.S.C. 553(a), the court held that the government's right to offset the debtors' tax overpayment under 26 U.S.C. 6402(a) cannot be subordinated or otherwise affected by debtors' attempts to claim the overpayment as exempt property. Accordingly, the court vacated the district court's judgment, remanding for further proceedings. View "Copley v. United States" on Justia Law

Taxpayer filed a tax refund action against the United States, seeking a refund collected from him by the IRS pursuant to a treaty between the United States and Canada, for income taxes that he owed to Canada in 2006. After both countries executed the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital, the Senate ratified it. Under Article 26A, which was later added to the treaty and ratified by the Senate, the United States and Canada agreed to assist each other with the collection of unpaid taxes.The court affirmed the district court's judgment and held that Article 26A merely facilitates collection of an already existing debt and thus did not violate the Origination Clause; Article 26A did not infringe on the Taxing Clause where the Taxing Clause is not an exclusive grant of power to Congress; and thus Article 26A did not require House-originating implementation legislation. The court also held that the IRS can use its domestic assessment authority in pursuit of the collection of a liability owed by a taxpayer to Canada. View "Retfalvi v. United States" on Justia Law

The Fourth Circuit affirmed the district court's order granting summary judgment to the City and the Foundation in an action alleging discriminatory taxation in violation of the Railroad Revitalization and Regulatory Reform Act of 1976. The court applied the factors in San Juan Cellular Tel. Co. v. Pub. Serv. Comm'n, 967 F.2d 683, 685 (1st Cir. 1992), and held that the City's storm water management charge was a fee, rather than a tax, and therefore was not subject to the Act's requirements. In this case, the charge was imposed by the City's legislative body, and the charge was part of a comprehensive regulatory scheme. View "Norfolk Southern Railway Co. v. City of Roanoke" on Justia Law

The Fourth Circuit affirmed the tax court's imposition of back taxes and penalties attributable to taxpayers' use of an unlawful tax shelter. In this case, taxpayers claimed in their 2000 tax return substantial capital losses attributable to a Custom Adjustable Rate Debt Structure (CARDS) transaction. The court held that the tax court did not abuse its discretion in rejecting taxpayers' Daubert challenge; the tax court did not clearly err in finding that taxpayers' CARDS transaction failed both the subjective and objective prongs of the economic substance test; and the tax court properly found that taxpayers failed to establish reasonable cause and good faith for claiming losses based on the CARDS transaction. View "Baxter v. Commissioner" on Justia Law

The 90-day filing requirement in I.R.C. 6015(e)(1)(A)(ii) is jurisdictional. The Fourth Circuit affirmed the tax court's dismissal of a petition for relief based on lack of jurisdiction. The court held that the tax court correctly concluded that it lacked jurisdiction to consider the untimely petition and declined to consider petitioner's additional arguments about equitable tolling, which were all predicated on subsection (e)(1)(A) being a non-jurisdictional filing deadline. View "Nauflett v. Commissioner of IRS" on Justia Law

The Fourth Circuit affirmed the district court's decision holding respondent in contempt after she failed to produce certain documents pursuant to an IRS summons. In this case, the IRS was investigating respondent's income tax liability and was seeking various documents. The court held that United States v. Rylander, 460 U.S. 752 (1983), was controlling in this case and that respondent's arguments against Rylander were meritless. The court also held that the district court did not abuse its discretion in finding petitioner in contempt where the IRS established that she had committed at least a constructive violation of the Enforcement Order by failing to produce documents presumptively within her possession or control, and respondent failed to satisfy her burden of demonstrating that she made in good faith all reasonable efforts to comply with the order. View "United States v. Ali" 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