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

Petitioner made an offer in compromise (OIC) to settle his outstanding tax liability. Under the Tax Increase Prevention and Reconciliation Act (TIPRA), Petitioner submitted a payment of twenty percent of the value of his OIC, acknowledging that this TIPRA payment would not be refunded if the OIC was not accepted. The Commissioner of Internal Revenue did not accept the OIC because the Commissioner concluded that ongoing audits of Petitioner's businesses made the overall amount of his tax liability uncertain. Petitioner then sought a refund of his TIPRA payment.   In a previous appeal, the Ninth Circuit held that the Internal Revenue Service did not abuse its discretion by returning the OIC, but vacated the Tax Court’s determination that the IRS had not abused its discretion in refusing to return the TIPRA payment. The Ninth Circuit remanded for the Tax Court to consider its refund jurisdiction in the first instance. On remand, the Tax Court held that it did not have jurisdiction.   The Ninth Circuit affirmed the Tax Court’s decision because there is no specific statutory grant conferring jurisdiction to refund TIPRA payments. The panel explained that, as the Tax Court correctly noted, it is a court of limited jurisdiction, specifically granted by statute, with no authority to expand upon that statutory grant. View "MICHAEL BROWN V. CIR" on Justia Law

Plaintiffs sell products as third-party merchants through Amazon’s “Fulfilled by Amazon” (“FBA”) program. Prior to October 2019, California required FBA merchants to collect and pay sales tax on sales to California residents. California’s Marketplace Facilitator Act altered that requirement. However, the Marketplace Facilitator Act is not retroactive and the Department continued to seek sales tax remittances from third-party FBA merchants for pre-October 2019 sales.Plaintiffs claimed that the California Department of Tax and Fee Administration’s tax collection efforts against Guild members violated the Due Process, Equal Protection, Privileges and Immunities, and Commerce Clauses of the United States Constitution, as well as the Internet Tax Freedom Act, 47 U.S.C. Sec. 151. The district court granted the Department’s motion to dismiss, holding that the Guild’s claims were barred by the Tax Injunction Act (“TIA”), 28 U.S.C. Sec. 1341.The Ninth Circuit affirmed, finding that the district cour properly dismissed the action pursuant to the TIA, which bars federal jurisdiction over the Guild’s claims because the Guild seeks an injunction that would to some degree stop the assessment or collection of a state tax and an adequate state law remedy exists. View "ONLINE MERCHANTS GUILD V. NICOLAS MADUROS" on Justia Law

Taxpayers challenged the constitutionality of Subpart F’s ability to permit taxation of a CFC’s income after 1986 through the Mandatory Repatriation Tax (“MRT”). The district court dismissed the action for failure to state a claim, denied taxpayers’ cross-motion for summary judgment, and taxpayers appealed.   The Ninth Circuit affirmed the district court’s dismissal. The court held that the MRT is consistent with the Apportionment Clause and it does not violate the Fifth Amendment’s Due Process Clause. That clause requires that a direct tax must be apportioned so that each state pays in proportion to its population. The court acknowledged that the Sixteenth Amendment exempts from the apportionment requirement the category of “incomes, from whatever source derived.” The court observed that courts have consistently upheld the constitutionality of taxes similar to the MRT notwithstanding any difficulty in defining income, that the realization of income does not determine the tax’s constitutionality, and that there is no constitutional ban on Congress disregarding the corporate form to facilitate taxation of shareholders’ income.   The court explained that the MRT serves the legitimate purpose of preventing CFC shareholders who have not yet received distributions from obtaining a windfall by never having to pay taxes on their offshore earnings that have not yet been distributed. The MRT accomplished this legitimate purpose by rational means: by accelerating the effective repatriation date of undistributed CFC earnings to a date following passage of the TCJA. View "CHARLES MOORE V. USA" on Justia Law

Seaview believed it filed its 2001 partnership tax return (Form 1065) in July 2002, but the Internal Revenue Service (“IRS”) stated they had no record of receiving it. Seaview faxed an agent a signed copy of Form 1065. During an audit interview, the IRS noted that Seaview’s accountant had previously provided a signed tax return and introduced Form 1065 as an exhibit. Seaview’s counsel mailed another signed copy of the 2001 Form 1065 to an IRS attorney.   The IRS issued Seaview a Final Partnership Administrative Adjustment (“FPAA”) for 2001. In that notice, the IRS stated that it had no record of a tax return filed by Seaview for 2001. Seaview filed a petition in the Tax Court challenging the adjustment of losses. The Tax Court held that Seaview did not “file” a tax return when it faxed a copy to the IRS agent or mailed a copy to the IRS counsel.   The Ninth Circuit reversed the Tax Court’s summary judgment in favor of the government. The court held that when (1) an IRS official authorized to obtain and receive delinquent tax returns informs a partnership that a tax return is missing and requests that tax return, (2) the partnership responds by giving the IRS official the tax return in the manner requested, and (3) the IRS official receives the tax return, then the partnership has “filed” a tax return for purposes of Section 6229(a). Further, under the Beard v. Commissioner, 82 T.C. 766 (1984) factors, the Form 1065 was a “return.” View "SEAVIEW TRADING, LLC, AGK INVE V. CIR" on Justia Law

The Ninth Circuit reversed the tax court's decision granting summary judgment to taxpayer, holding that 26 U.S.C. 6751(b) requires written supervisory approval before the assessment of the penalty or, if earlier, before the relevant supervisor loses discretion whether to approve the penalty assessment. In this case, because the supervisor gave written approval of the initial penalty determination before the penalty was assessed and while she had discretion to withhold approval, the IRS satisfied 6751(b)(1). View "Laidlaw's Harley Davison Sales, Inc. v. Commissioner of Internal Revenue" on Justia Law

The Ninth Circuit affirmed the tax court's decision dismissing for lack of jurisdiction petitions for redetermination of federal income tax deficiencies for a partnership. Appellants argue that their petition was timely because I.R.C. 6223(f) barred the Commissioner from issuing more than one notice of Final Partnership Administrative Adjustment (FPAA) pertaining to a partnership's taxable year, and the FPAA issued by the Commissioner on March 6, 2018 was the only valid FPAA.The panel concluded that the FPAA issued on November 1, 2017, was the only valid FPAA, and therefore appellants' petition was untimely. Because the Commissioner sent the November 1, 2017 FPAAs addressed to SNJ's TMP to the address given by appellants, the tax court properly held that the November 2017 FPAAs were not invalid by reason of being improperly addressed. The panel stated that there is no evidence that any other information that the Commissioner had or should have had according to appellants was furnished to the Commissioner according to the applicable regulations. Even though the Commissioner may have had access to the other address information presented by appellants, the Commissioner was not required to use it. Because the August 1, 2017 letter is not a notification of the beginning of an administrative proceeding, the November 1, 2017 FPAAs did not violate I.R.C. 6223(d)(1). Furthermore, the FPAAs issued on November 1, 2017 were valid and the 2018 FPAAs were invalid. Because June 7, 2018 is more than 150 days after November 1, 2017, the tax court properly dismissed appellants' petition. Finally, the panel concluded that the filing deadline in I.R.C. 6226 is jurisdictional and, because the filing deadline is jurisdictional, equitable tolling is unavailable. View "SNJ Limited v. Commissioner of Internal Revenue" on Justia Law

The Ninth Circuit reversed the district court's Federal Rule of Civil Procedure 12(b)(6) dismissal of plaintiffs' complaint in a tax refund action in which they sought to deduct mortgage interest that their lender received at the short sale of taxpayer's home. The panel held that, on the facts as pleaded, plaintiffs are entitled to deduct the mortgage interest paid in connection with the short sale of their home in 2011. In this case, the district court erred in applying Estate of Franklin v. Commissioner, 544 F.2d 1045 (9th Cir. 1976), to the very different circumstances presented here. The panel also rejected the IRS's alternative argument that I.R.C. 265(a)(1) precludes plaintiffs' home mortgage interest deduction.Under the settled rules for a short sale involving the extinguishment of nonrecourse debt, the panel stated that the Tufts approach applies, and plaintiffs were entitled to take the corresponding mortgage interest deduction for the interest paid and received at the short sale. The panel explained that the fact that, during an earlier bankruptcy, plaintiffs' mortgage had been converted, through their bankruptcy discharge, from recourse to nonrecourse, provides no basis for declining to apply those rules. View "Milkovich v. United States" on Justia Law

The government accused Orrock of tax evasion for concealing income he received from the sale of a vacant lot that he controlled. Rather than report the sale proceeds on his personal tax return, Orrock belatedly disclosed the sale in the tax return for a partnership that he also controlled. In that return, he significantly underreported the sale proceeds.The Ninth Circuit affirmed his conviction for evading the assessment of taxes, 26 U.S.C. 7201, rejecting Orrock’s argument that the statute of limitations barred his conviction because it ran from the date he filed his false personal tax return, not from the later act of filing the partnership return. Acknowledging that some language in precedent may seemingly support that argument, the court clarified that the statute of limitations for evasion of assessment cases under section 7201 runs from the last act necessary to complete the offense, either a tax deficiency or the last affirmative act of evasion, whichever is later. The court aligned evasion of assessment cases with evasion of payment cases and joined all the other circuit courts that have addressed the issue. The indictment was filed within six years of Orrock’s last affirmative act of evasion, the filing of the partnership tax return, and was timely. View "United States v. Orrock" on Justia Law

Sienega failed to file required California state income tax returns in the 1990-1992, and 1996 tax years. The IRS made upward adjustments in Sienega’s federal tax liability for those years. For each of the four tax years, Sienega’s counsel faxed to California's Franchise Tax Board (FTB) a cover sheet and IRS Form 4549-A, listing the adjustments to Sienega’s income, the corrected taxable income and tax liability, interest, and penalties. The FTB issued a notice of proposed assessment for each tax year; each stated that the FTB had “no record of receiving [Sienega’s] personal income tax return.” The notices proposed to assess state taxes based upon the federal audit report and specified that if Sienega disagreed with any of the calculations, he would need to submit a formal protest. Sienega did not file any belated tax returns or protests. The assessments became final in 2009. In 2014, Sienega filed a bankruptcy petition. The FTB filed am adversary complaint seeking to have Sienega’s outstanding state tax debts declared nondischargeable under 11 U.S.C. 523(a)(1)(B), based on the fact that he had not filed a formal state tax return in any of the relevant years. Sienega contended that he had filed state tax returns by faxing information about the adjustments.The bankruptcy court granted the FTB summary judgment. The Bankruptcy Appellate Panel and Ninth Circuit affirmed. The faxes did not constitute a return under the “hanging paragraph” in section 523(a) because the California state law process with which his faxes complied was not “similar” to 26 U.S.C. 6020(a), which authorizes the IRS to prepare a tax return when a taxpayer does not. View "Sienega v. State of California Franchise Tax Board" on Justia Law

The IRS recorded liens for unpaid taxes, interest, and penalties against the debtors’ residence. After debtors filed for bankruptcy, the IRS filed a proof of claim. The portion of the claim that was secured by liens on the residence and attributable only to penalties was $162,000. The debtors filed an adversary proceeding, asserting that the IRS’s claim for penalties was subject to avoidance by the trustee and that because the trustee had not attempted to avoid this claim, debtors could do so under 11 U.S.C. 522(h). The trustee cross-claimed to avoid the liens and alleged their value should be recovered for the benefit of the bankruptcy estate.The bankruptcy court dismissed the adversary complaint. The trustee and the IRS agreed that the penalty portions of the liens were avoided under 11 U.S.C. 724(a). The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Section 522(h) did not authorize the debtors to avoid the liens that secured the penalties claim to the extent of their $100,000 California law homestead exemption. Section 522(c)(2)(B), denies debtors the right to remove tax liens from their otherwise exempt property. Under 11 U.S.C. 551, a transfer that is avoided by the trustee under 724(a) is preserved for the benefit of the estate; this aspect of 551 is not overridden by 522(i)(2), which provides that property may be preserved for the benefit of the debtor to the extent of a homestead exemption. View "Hutchinson v. Internal Revenue Service" on Justia Law