Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Articles Posted in Tax Law
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California cigarette tax regulations apply to inter-tribal sales of cigarettes by a federally chartered tribal corporation wholly owned by a federally recognized Indian tribe.The Ninth Circuit affirmed the district court's dismissal of an action brought by Big Sandy, a chartered tribal corporation wholly owned and controlled by the Big Sandy Rancheria of Western Mono Indians, seeking declaratory and injunctive relief against the Attorney General of California and the Director of the California Department of Tax and Fee Administration regarding taxes applied to inter-tribal sales of cigarettes.The panel concluded that the district court properly dismissed the Corporation's fifth cause of action on jurisdictional grounds pursuant to the Tax Injunction Act, 28 U.S.C. 1341, and properly declined to apply the Indian tribes exception to the Tax Injunction Act's jurisdictional bar. The panel also concluded that the district court properly dismissed the Corporation's remaining causes of action challenging the Directory Statute and California's licensing, reporting, and recordkeeping requirements in connection with cigarette distribution. In this case, the Corporation challenged the Directory Law on two grounds: (1) applying the challenged regulations to the Corporation's cigarette sales to tribal retailers on other reservations violates "principles of Indian tribal self-governance;" and (ii) federal regulation of "trade with Indians within Indian country" under the Indian Trader Statutes preempts the challenged regulations as applied to the Corporation's intertribal wholesale cigarette business. The panel concluded that the district court properly dismissed both theories for failure to state a claim. Accordingly, the panel affirmed the district court's dismissal for lack of subject matter jurisdiction and for failure to state a claim. View "Big Sandy Rancheria Enterprises v. Bonta" on Justia Law

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The Ninth Circuit joined its sister circuits in concluding that, when Congress expressly departs from substance-over-form principles, the Commissioner may not invoke those principles in a way that would directly reverse that congressional judgment.The panel reversed the tax court's decision in favor of the Commissioner on a petition for redetermination of federal excise tax deficiency where petitioners established a Foreign Sales Corporation to reduce the tax paid on income that was then distributed as dividends to Roth Individual Retirement Accounts (IRAs). The panel concluded that the unusual statutory provisions at issue here expressly elevated form over substance in the relevant respects, and thus the tax court erred by invoking substance-over-form principles to effectively reverse that congressional judgment and to disallow what the statute plainly allowed. View "Mazzei v. Commissioner of Internal Revenue" on Justia Law

Posted in: Tax Law
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The Ninth Circuit affirmed the district court's dismissal based on lack of jurisdiction of a declaratory judgment action concerning a dispute arising from the withholdings required under the Foreign Investment in Real Property Tax Act (FIRPTA) and the Fixed, Determinable, Annual, or Periodical income (FDAP) rules. Plaintiffs seek a declaratory judgment that, among other things, withholding money from their agreed purchase price to pay the federal taxes required under FIRPTA and the FDAP rules is not a breach of their real estate contract with Namaca.Under the Declaratory Judgment Act, a federal court may issue a declaration resolving the parties' competing legal rights in a case of actual controversy within its jurisdiction, except with respect to federal taxes. In this case, plaintiffs argue that because the FIRPTA and FDAP withholdings are made before the IRS assesses tax liability, the taxation exception does not apply because a declaration concerning their withholding obligations will not restrain the ultimate assessment of taxes. However, the panel held that the Declaratory Judgment Act's bar is not conditioned on a determination of ultimate tax liability. Furthermore, it is coextensive with the Anti-Injunction Act despite the broader language of the former. Therefore, the panel upheld the district court's dismissal of plaintiffs' request for a declaratory judgment that withholding money from their agreed purchase price to pay the taxes allegedly owed under FIRPTA and the FDAP rules is not a breach of their real estate contract. View "Gilbert v. United States" on Justia Law

Posted in: Tax Law
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Plaintiff, one of the largest marijuana dispensaries in the United States, appealed the Tax Court's decision on a petition for redetermination of federal income tax deficiencies. At issue is whether a cannabis dispensary that purchases the marijuana it resells and that values its inventory using the cost method must account for its inventory cost in accordance with section 1.471-3(b) of the Treasury Regulations.The Ninth Circuit affirmed the Tax Court's decision, declining to consider plaintiff's constitutional claim that that I.R.C. 280E violates the Sixteenth Amendment because plaintiff failed to raise the claim in the Tax Court. The panel rejected plaintiff's contention that some of its expenditures, even if they cannot be deducted under section 280E, can be excluded from income as part of its inventory cost under general inventory tax accounting rules. Rather, the panel concluded that the Tax Court did not err in concluding that plaintiff's inventory cost is determined by Treas. Reg. 1.471-3(b), which applies to a purchaser and reseller of the products it sells. Finally, the panel declined to consider plaintiff's contention, which was not raised before the Tax Court, that the Tax Court should have allowed at least some of plaintiff's claimed exclusions as "necessary charges incurred in acquiring possession of the goods" under Treas. Reg. 1.471-3(b). View "Patients Mutual Assistance Collective Corp. v. Commissioner" on Justia Law

Posted in: Tax Law
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The Ninth Circuit reversed the district court's judgment in an action brought by the United States against taxpayer for tax penalties and interest involving her failure to report foreign financial accounts. In this case, taxpayer did not timely file a Report of Foreign Bank and Financial Accounts form (FBAR) disclosing her foreign financial accounts in the United Kingdom. The IRS found that taxpayer violated the reporting requirements of 31 U.S.C. 5314 and imposed multiple penalties under 31 U.S.C. 5321(a)(5)(A) based on her belated submission of a single FBAR.The panel held that section 5321 authorizes the IRS to impose only one non-willful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts. In this case, taxpayer was required to file one FBAR for the 2010 calendar year by June 30, 2011 and failed to do so; she committed one violation and the IRS concluded that her violation was non-willful; and thus the maximum penalty for such a violation "shall not exceed $10,000." View "United States v. Boyd" on Justia Law

Posted in: Tax Law
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The Ninth Circuit reversed the district court's determination that Shaun Allahyari's alleged security interest in property owned by his son, Komron Allahyari, a tax delinquent, was not entitled to priority over later-recorded federal tax liens. First, the panel concluded that the district court erred: (1) by holding that the deed of trust between Shaun and Komron recorded on July 26, 2005 was not entitled to priority over the later-recorded federal tax liens under local law; the 2005 Deed of Trust is protected under Washington law; and (2) by failing to consider whether past consideration is sufficient to support an agreement giving rise to a security interest under Washington law.The panel also concluded that the district court applied the incorrect standard of proof to its finding under Washington's Fraudulent Transfer Act. Finally, the panel concluded that, because 26 U.S.C. 7403(a) authorizes the United States to "subject any property, of whatever nature, of the delinquent, or in which [the delinquent] has any right, title, or interest, to the payment of such tax or liability," the United States may assert any affirmative defenses that would be available to the delinquent—including that the statute of limitations has run on payments due to senior liens. Accordingly, the panel reversed and remanded for reconsideration. View "United States v. Allahyari" on Justia Law

Posted in: Tax Law
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The Ninth Circuit affirmed the district court's dismissal of an action brought by plaintiffs, customers of the DWP, claiming that DWP overcharged for electric power and then transferred the surplus funds to the City, thereby allowing the City to receive what amounts to an unlawful tax under California law. Plaintiffs alleged claims under the Hobbs Act, the Racketeer Influenced and Corrupt Organizations Act (RICO), and 42 U.S.C. 1983, as well as claims under state law.The panel agreed with its sister circuits that the Hobbs Act does not support a private civil right of action; held that municipal entities are not subject to liability under RICO when sued in their official capacities, but the RICO claims in this case were asserted against the defendant City and DWP officials in their personal capacities; held that the RICO claim was nonetheless properly dismissed because it failed as a matter of law because it did not adequately allege a predicate act in extortion under California law or the Hobbs Act, mail and wire fraud, or obstruction of justice; and held that, under the Johnson Act, the district court lacked jurisdiction over the the section 1983 claims. Because plaintiffs have provided no basis for concluding that any of these deficiencies could be cured by an amendment of the complaint, and based upon the panel's own thorough review of the record, the panel held that amendment would be futile. View "Abcarian v. Levine" on Justia Law

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After Sanmina claimed a worthless stock deduction on its federal tax return, the IRS issued a summons for the memoranda authored by Sanmina in-house counsel. Sanmina objected on the basis that they were protected both by attorney-client privilege and the attorney work-product doctrine. On subsequent remand, the district court determined that the memoranda were covered by both attorney-client privilege and work-product protection, but that those privileges had been waived.The Ninth Circuit held that Sanmina waived the attorney-client privilege when it disclosed the Attorney Memos to DLA Piper. However, the panel held that such disclosure did not automatically waive work-product protection over the Attorney Memos and, rather, waiver of work-product immunity requires either disclosure to an adversary or conduct that is inconsistent with the maintenance of secrecy against its adversary. In this case, the panel held that Sanmina did not expressly waive work-product immunity merely by providing the Attorney Memos to DLA Piper, but its subsequent use of the DLA Piper Report to support its tax deduction in an audit by the IRS was inconsistent with the maintenance of secrecy against its adversary. Therefore, the panel explained that Sanmina's implied waiver of the work-product protection only extends to the factual portions of the Attorney Memos. The panel granted in part and denied in part the IRS's petition to enforce its summons. View "United States v. Sanmina Corp." on Justia Law

Posted in: Legal Ethics, Tax Law
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BNSF filed suit under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act), alleging that the tax on its intangible personal property is "another tax that discriminates against a rail carrier" under 49 U.S.C. 11501(b)(4).The Ninth Circuit joined the Fourth, Seventh, Eighth, and Tenth Circuits and held that challenges to discriminatory property taxes may proceed under 49 U.S.C. 11501(b)(4). The court rejected the Department's claims to the contrary and explained that this is not a challenge to exemption-based discrimination. The panel agreed with the district court that the proper comparison class for BNSF was Oregon's commercial and industrial taxpayers, and that the intangible personal property tax assessment discriminated against BNSF in violation of the 4-R Act. View "BNSF Railway Co. v. Oregon Department of Revenue" on Justia Law

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The Ninth Circuit affirmed the tax court's dismissal, based on lack of jurisdiction, of untimely petitions for redetermination of federal income tax deficiencies. In this case, taxpayers' attorneys selected an overnight delivery service that was not then on the published list and the error would not have mattered if the petitions had nonetheless arrived the next day. However, they were not received by the tax court until two days after being dropped off at a FedEx office in California.The panel held that the tax court did not err by concluding that the petitions had not been timely received and that the mailbox rule did not apply. Furthermore, because I.R.C. 6213(a)'s time limits are jurisdictional, the panel held that equitable exceptions such as equitable tolling and waiver do not apply. Finally, the panel held that there was no basis for declaring the notice of deficiency invalid because of an improperly addressed notice. View "Organic Cannabis Foundation v. Commissioner" on Justia Law

Posted in: Tax Law