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

Former Shareholders of Tarcon filed petitions in the Tax Court contesting the Commissioner's notices of transferee liability. The Tax Court ruled in favor of the Former Shareholders, applying Commissioner v. Stern, holding that the Commissioner could only collect from the Former Shareholders if, under North Carolina law, a Tarcon creditor could recover payments of Tarcon's debts from the Former Shareholders. The court concluded that the Tax Court properly identified and applied the controlling legal framework as set forth in Stern and it did not commit clear error in its factual findings. Accordingly, the court affirmed the judgment in favor of the Former Shareholders. View "Starnes v. Commissioner, IRS; Stroupe v. Commissioner, IRS; Naples v. Commissioner, IRS; Morelli, Sr. v. Commissioner, IRS" on Justia Law

The government asserted that petitioner had participated in a tax avoidance scheme to take advantage of the lower taxes in the Virgin Islands. At issue was whether the Tax Court abused its discretion in denying the motion of the Virgin Islands to intervene in this case, which was filed in response to a notice of deficiency issued by the IRS to petitioner for not paying U.S. income taxes. Because Tax Court Rule 1(b) gave the Tax Court broad discretion in deciding whether and to what extent to follow Rule 24 governing intervention and because Rule 24 itself conferred broad discretion on a trial court, the court gave deference to the Tax Court's decision to deny intervention, reviewing for only a clear abuse of discretion. Because the Tax Court's concerns over the consequences of granting the Virgin Islands' motion to intervene were not unreasonable, the court found no clear abuse of the Tax Court's broad discretion. View "McHenry v. Commissioner of IRS" on Justia Law

Ocean Pines Association, a non-stock corporation, oversees a subdivision of more than thirty-five hundred acres in Berlin, Maryland. The Association was exempt from federal income taxation as an organization "not organized for profit but operated exclusively for the promotion of social welfare" pursuant to 26 U.S.C. 501(c)(4)(A). The Tax Court subsequently determined that the net income from two parking lots and a beach club owned by a tax-exempt association constituted "unrelated business taxable income." The association appealed. Because the income derived from the parking lots and beach club was not "substantially related" to the association's tax-exempt purpose, the court affirmed. View "Ocean Pines Assoc. v. Commissioner of IRS" on Justia Law

This case presented two questions, each born of the efforts of Capital One, a credit card issuer, to defer significant tax liability. First, whether Capital One could retroactively change the method of accounting used to report credit-card late fees on its 1998-1999 tax returns in such a fashion as would reduce is taxable income for those years by roughly $400,000,000. Second, whether Capital One could deduct the estimated costs of coupon redemption related to its MilesOne credit card program before credit card customers actually redeemed those coupons. The court did not permit Capital One to retroactively change the method of accounting because allowing Capital One to do so would open the door to unilateral and retroactive changes in accounting methods with large and unpredictable implications for public revenue. The court also declined to permit the narrow coupon-with-sales exception to undermine the purposes of the all-events rule because little good and much mischief would ensue from upending the Commissioner's reasonable and longstanding interpretation of his regulation. Accordingly, the court affirmed the judgment of the Tax Court.

Plaintiffs brought this suit to enjoin, as unconstitutional, enforcement of two provisions of the recently-enacted Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119. The challenged provisions amended the Internal Revenue Code by adding: (1) a "penalty" payable to the Secretary of the Treasury by an individual taxpayer who failed to maintain adequate health insurance coverage and (2) an "assessable payment" payable to the Secretary of the Treasury by a "large employer" if at least on of its employees received a tax credit or government subsidy to offset payments for certain health-related expenses. The court held that because this suit constituted a pre-enforcement action seeking to restrain the assessment of a tax, the Anti-Injunction Act, 28 U.S.C. 2283, stripped the court of jurisdiction. Accordingly, the court vacated the judgment of the district court and remanded the case with instructions to dismiss for lack of jurisdiction.

The National Treasury Employees' Union (Union) sought review of an adverse ruling by the Federal Labor Relations Authority (Authority) where the Union filed a grievance alleging that the IRS was processing its members' dues revocation forms without following contractually-mandated procedures. After the parties filed exceptions to the arbitrator's award with the Authority, the Authority denied the parties' exceptions and confirmed the award in its entirety. The Union petitioned the court for review. The court held that because the Authority's decision upholding the arbitrator's award was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, the court had no warrant to disturb the Authority's decision.

Plaintiff, operator of an electricity plant, sued defendant ("the county"), seeking to enjoin Expedited Bill 29-10, which imposed a levy on large stationary emitters of carbon dioxide within the county, on the ground that it violated the United States and Maryland Constitutions. At issue was whether a Montgomery County exaction on carbon dioxide emissions, levied only upon plaintiff's electricity-generating facility, was a tax or a fee. The court held that the carbon charge, which targeted a single emitter and was located squarely within the county's own "programmatic efforts to reduce" greenhouse gas emissions, was a punitive and regulatory fee over which the federal courts retained jurisdiction. Accordingly, the court reversed and remanded for further proceedings.

Petitioner requested innocent spouse relief from her tax liability under I.R.C. 6015(f) more than two years after the IRS began its efforts to collect the deficiency from an audit of the petitioner and her husband's joint income tax return for the year 2000. At issue was whether Treasury Regulation 1.6015-5(b)(1), 26 C.F.R. 1.6015-5(b)(1), establishing a two-year limitations period within which to request equitable innocent spouse relief from joint and several income tax liability under I.R.C. 6015(f), was a valid regulation. The court held that a two-year time period for requesting relief under section 6015(f) was a reasonable approach to filling the gap left in section 6015. Therefore, because section 6015(f) was ambiguous as to an appropriate limitations period and Regulation 1.6015-5(b)(1) was not arbitrary, capricious, or manifestly contrary to the statute, the court held that it was a valid regulation. Per petitioner's request, the court remanded the case to the Tax Court for determining whether petitioner was entitled to an extension under Treasury Regulation 301.9100-3. The court finally rejected petitioner's request for innocent spouse relief under the doctrine of equitable tolling where she waived the issue. Accordingly, the judgment of the Tax Court was reversed and the case remanded for further proceedings.

Defendant appealed from a judgment in which the district court found him guilty of four counts of aiding in the preparation of false tax returns in violation of 26 U.S.C. 7206(2). At issue was whether the district court unlawfully based its verdict on the guilty pleas of co-defendants, which were not evidence in the case, thereby depriving defendant of his due process right to a fair trial; whether the district court improperly credited testimony by the government's key witness that defendant contended was false; and whether the evidence was insufficient to prove that defendant knew that the tax returns he prepared were fraudulent and that he willfully violated section 7206(2). The court held that the district court's erroneous references to the unadmitted guilty pleas of his co-defendants constituted harmless error where the evidence overwhelmingly supported the conclusion that defendant deliberately avoided learning of materially false representations on the tax returns at issue. The court also held that the district court did not err in its consideration of a key witness' testimony where the the testimony was the product of reliable principles and methods. The court further held that the evidence was sufficient to support defendant's conviction where a reasonable trier of fact could conclude the defendant purposefully "closed his eyes" to large accounting discrepancies, which strongly indicated that the tax forms he prepared during the years in question contained materially false financial information.

The Commissioner of Internal Revenue ("Commissioner") challenged the way that defendants reported a series of transactions with investor partners in defendants' 2001 and 2002 federal tax returns. At issue was whether certain transactions between a partnership and its partners amounted to "sales" for purposes of federal tax law. The court reversed the Tax Court's finding that the Commissioner properly treated the challenged transactions as "sales" under IRC § 707 and agreed with the Commissioner that the defendants should have included the money received from investors as income in their tax returns.