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

Blue Lake Rancheria, an Indian tribe, sought a refund of Federal Unemployment Tax Act (FUTA), 26 U.S.C. 3306(c)(7), taxes paid by Mainstay Business Solutions (Mainstay), an employee leasing company wholly owned by the Tribe. At issue was the scope of section 3306(c)(7)'s exception from "employment" and also at issue was whether Mainstay was the common law employer of its leased employees. The court held that the services performed "in the employ of an Indian tribe" were excepted from FUTA's definition of "employment" by section 3306(c)(7) only where a tribe or its instrumentality was a common law employer of the worker performing the services. The court held that because Mainstay was a common law employer of its leased employees during the years in question, it was not required to pay FUTA taxes with respect to those employees. Therefore, the court reversed and remanded with instructions to enter judgment for the Tribe.

In connection with an assessment of a taxpayer for unpaid taxes, the IRS began searching for the taxpayer's assets and issued a summons to a bank for a related third party's account information. The taxpayer and third party argued that 26 U.S.C 7609 required the IRS to notify them, which would have enabled them to seek a court order quashing the summons. Applying Ip v. United States, the court held that under the circumstances of the case, no notice was necessary. Therefore, the court affirmed the judgment of the district court.

This case arose when taxpayer transferred membership units in a family-owned LLC partly as a gift and partly by a sale to two trusts and coupled the transfers with simultaneous gifts of LLC units to two charitable foundations. Subsequent to an IRS audit, which determined that the units had been undervalued, the foundations discovered they would receive additional units. At issue was whether the taxpayer was entitled to a charitable deduction equal to the value of the additional units the foundations would receive. The court held that Treasury Regulation 25.2522(c)-3(b)(1) did not bar a charitable deduction equal to the value of the additional units the foundations would receive. Therefore, the court affirmed the judgment.

This case stemmed from the over $450,000 petitioners owed to the IRS for failing to report income derived from a fraudulent check-cashing scheme. At issue, inter alia, was whether the Tax Court had jurisdiction in a hearing conducted pursuant to 26 U.S.C. 6330 to review the IRS's failure to comply with its statutory mandate under 26 U.S.C. 6335(f). The court held that the Tax Court had jurisdiction under section 6330 to review the IRS's failure during a collection due process hearing to comply with its mandate under section 6335(f). When the IRS violated its statutory mandate, it assumed the risk of devaluation in the levied property, and the Tax Court appropriately ordered it to credit petitioners' outstanding tax liabilities. Because this relief was a specific remedy, 26 U.S.C. 7433 did not preempt the award. Accordingly, the judgment of the Tax Court was affirmed.

This case stemmed from a bankruptcy appeal of a tax debt owed by debtor to the California Franchise Tax Board (FTB). The bankruptcy court and the Bankruptcy Appellate Panel (BAP) found that the debt was not excepted from discharge in debtor's Chapter 7 bankruptcy proceeding. At issue was whether, as a consequence of debtor's prior Chapter 13 Bankruptcy case, the lookback period was suspended and the tax debt was not discharged. The court held that when the bankruptcy court confirmed debtor and debtor's husband's Chapter 13 plan, the estate property revested in debtor and became debtor's property, thus lifting the applicable stay provisions. Since this revesting occurred before the tax debt became due, no stay precluded the FTB from collection on the debt under 11 U.S.C. 362. Consequently, the tax debt was not excepted from the Chapter 7 discharge, and the principles of equitable tolling did not apply to extend the lookback period as the FTB was neither precluded from collecting on the tax debt nor did it actively try to protect its claim. Accordingly, the court held that the debt was discharged and affirmed the BAP.

Debtor filed a Chapter 11 Bankruptcy petition in 1998 and submitted a plan of reorganization ("Plan"), continuing to operate as a debtor-in-possession. Article X of the confirmed Plan provided for the discharge of all debts pursuant to which debtor was the "primary obligor." In 2007, the IRS contacted debtor's principal officers regarding potential assessment of a Trust Fund Recovery Penalty ("TFRP") pursuant to 26 U.S.C. 6672. At issue was whether the collection of a TFRP from the principal officers violated the express terms of Article X discharging such claims. The court affirmed the bankruptcy court's dismissal of the action for lack of jurisdiction where the relief sought by debtor would effectively preclude the IRS's collection of a section 6672 assessment and therefore, fell squarely within the reach of the Anti-Injunction Act, 26 U.S.C. 7421(a), and the court's holding in American Bicycle Ass'n v. United States. The court also held that, in light of the well-established principle that section 6672 liability was a separate and distinct liability, the court agreed with the bankruptcy court's alternative holding that, although a corporation could be the primary obligor on its own underlying tax obligation, it was not the primary obligor on the separate and distinct assessment under section 6672. Rather, the corporate officers were the primary obligors on the TFRP liabilities, as these liabilities were assessed independently under section 6672 for the officers' own willful conduct. Accordingly, the judgment of the bankruptcy court was affirmed.

Plaintiffs sued the Secretary of the Treasury and the Commissioner of the Internal Revenue Service in their official capacities under 28 U.S.C. 2201, alleging that the so-called "parsonage exemption" violated the Establishment Clause of the United States Constitution. Plaintiffs also sued the Executive Office of the California Franchise Tax Board in his official capacity under 42 U.S.C. 1983, alleging that California's parsonage exemption violated the Establishment Clause of both the United States and California Constitutions. Six days after plaintiffs filed their complaint, a minister of the gospel in the Sacramento area, who regularly claimed both the federal and state parsonage exemptions, moved to intervene as a defendant. At issue was whether an individual who claimed certain federal and state tax exemptions could intervene in an unrelated action challenging the constitutionality of those exemptions. The court held that the minister was not entitled to intervene as of right where the federal defendants adequately represented the minister's interest. The court also clarified that the independent jurisdictional grounds requirement did not apply to proposed intervenors in federal-question cases when the proposed intervenor was not raising new claims. Therefore, the court also held that the minister was not required to make any further showing that his intervention was supported by independent jurisdictional grounds where the district court's denial of permissive intervention was not an appropriate exercise in discretion because the district court did not apply the correct legal rule. Accordingly, the court vacated and remanded that portion of the district court's order so that the district court could reassess the request for permissive intervention.

Plaintiff filed an instant refund suit alleging that she was entitled to a refund of the income and Medicare taxes she paid in 1999-2000. At issue was whether plaintiff could postpone tax consequences attributable to her option exercises during 1999 and early 2000 under Internal Revenue Code 83(c)(3). Also at issue was whether plaintiff could defer tax consequences for a distinct reason under Treasury Regulation 1.83-3(k). The court held that plaintiff could not postpone tax consequences attributable to her option exercises where she did not demonstrate an entitlement to deferral of tax consequences under section 83(c)(3). The court remanded the issue related to the deferral under section 1.83-3 for further proceedings.