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

This action arose from a partnership's attempted use of a bogus tax shelter to offset capital gains and the Commissioner's subsequent denial of a $32.5 million "loss" claimed by the partnership to eliminate income tax liability on an asset sale resulting in a $28 million capital gain. The Tax Court ruled that a taxpayer holding both direct and indirect interests in a partnership may elect under section 6223(e)(3)(B) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), 26 U.S.C. 6221-6232, not to be bound by the results of a partnership proceeding - or partnership audit - as to some, but not all, of those interests held during the relevant taxable year. The court held that the meaning of the statutory language is clear and unambiguous, and it means that unless a partner elects to have all of his or her partnership items treated as nonpartnership items, the partner cannot elect out of the TEFRA proceeding. The court concluded that the Tax Court's reading of the disputed statute was incorrect. The court also concluded that the IRS's sloppy administrative errors, including mailing the wrong form letter to the taxpayers, were not sufficient either to require a different outcome or to stop the IRS from pursuing this matter and its claims. Because the court held that the taxpayers' disputed elections to opt out were invalid, the court remanded for further proceedings. View "JT USA v. CIR" on Justia Law

Debtors, William M. "Trip" Hawkins - the cofounder of EA and his wife, filed a declaratory action against the IRS and the FTB seeking a determination that their unpaid taxes were covered by the bankruptcy plan discharge. The IRS and FTB counterclaimed, alleging that the tax debts were excepted from discharge under 11 U.S.C. 523(a)(1)(c). The district court and the bankruptcy court held that specific intent to evade taxes was not required in order to except a tax debt from discharge under section 523(a)(1)(C) and the courts relied in large part on debtors' spending beyond their income as the basis for denying tax debt discharge. The court held that the denial of discharge for willfully attempting, in any manner to evade or defeat a tax debt requires that the acts be taken with the specific intent to evade the tax. In this case, neither the district court nor the bankruptcy court had the benefit of the court's holding and therefore, the court vacated and remanded for the courts to reanalyze the case using a specific intent standard.View "Hawkins v. FTB" on Justia Law

The Commissioner disallowed petitioner's claimed deduction on his 1999 tax return for a capital loss purportedly generated by several Cayman Islands entities. Petitioner invested in an Offshore Portfolio Investment Strategy (OPIS) in order to reduce the tax liability associated with petitioner's strategy of either taking his company, DiTech, public or selling it. The Tax Court affirmed. Applying the economic substance doctrine, the court concluded that the record amply supported the Tax Court's factual conclusion that petitioner pursued the OPIS product solely for its tax benefits and that the Tax Court had ample record support for its factual conclusion that the OPIS transaction had no practical economic effects other than the creation of income tax losses. Accordingly, the court affirmed the judgment of the district court. View "Reddam v. CIR" on Justia Law

Petitioners challenged the Commissioner's disallowance of a $30 million deduction on the Estate's tax return for a lawsuit pending at the time of Gertrude Saunders' death (the Stonehill Claim). The court concluded that the Stonehill Claim was disputed at the date of the decedent's death, and its estimated value as of that date was not ascertainable with reasonable certainty. Therefore, the tax court properly disallowed the Estate's deduction, but correctly allowed a deduction in the amount paid to settle the Stonehill Claim after the decedent's death. Accordingly, the court affirmed the judgment of the district court. View "Estate of Saunders v. CIR" on Justia Law

Plaintiff, former vice president and CFO of National Airlines, filed suit under 26 U.S.C. 7422 against the United States for a refund of taxes erroneously assessed. The United States counterclaimed for the unpaid balance of the tax assessments. The district court granted summary judgment in favor of the government on both the claim and counterclaim. The court held that assets are "encumbered" for purposes of 26 U.S.C. 6672 only if "the taxpayer is legally obligated to use the funds for a purpose other than satisfying the preexisting employment tax liability and if that legal obligation is superior to the interest of the IRS in the funds," a test that is not met here. Therefore, the district court properly held that plaintiff willfully failed to pay over excise taxes that he was obligated to pay as a responsible person. The court also held that the Air Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, section 301(a)(1), did not "allow the airlines to use the excise taxes as working capital" and does not defeat trust status for unpaid excise taxes for purposes of personal liability under section 6672. Accordingly, the court affirmed the judgment of the district court. View "Nakano v. United States" on Justia Law

This appeal stemmed from the sale of the Chronicle Publishing Company. After the Martin Family Trusts formed a tiered partnership structure, the Martin heirs commenced a series of transactions designed to create losses that would offset the taxable gain realized from the Chronicle Publishing sale. On appeal, taxpayers argued that the 2000-A Final Partnership Administrative Adjustment (FPAA) was time-barred by the restrictive language in the extension agreements. The court agreed with the district court that the extension agreements between the IRS and First Step encompassed adjustments made in the 2000-A FPAA that were directly attributable to partnership flow-through items of First Ship; the FPAA to 2000-A extended the limitations period for assessing tax beyond the extension agreements and through the present litigation; however, the agreements did not extend to adjustments in the 2000-A FPAA that were not directly attributable to First Ship; and because the district court held more broadly that "the extension agreements encompass the adjustments made by the IRS in the FPAA issued to 2000-A," the court remanded to the district court to make a determination of which adjustments in the 2000-A FPAA were directly attributable to partnership flow-through items of First Ship. The court affirmed in part and reversed in part. View "Candyce Martin 1999 Irrevocable Trust v. United States" on Justia Law

The Tribe and CTGW brought suit against the County for imposing property taxes on the Great Wolf Lodge located on the Grand Mound Property, which was tribal land held in trust by the government. At issue was whether state and local governments have the power to tax permanent improvements built on non-reservation land owned by the United States and held in trust for an Indian tribe. The court concluded that Mescalero Apache Tribe v. Jones made it clear that where the United States owns land covered by 21 U.S.C. 465, and holds it in trust for the use of a tribe, section 465 exempts permanent improvements on that land from state and local taxation. Accordingly, under Mescalero, the County was barred from taxing the Great Wolf Lodge during the time in which the Grand Mound Property was owned by the United States and held in trust under section 465. Therefore, the district court erred in granting summary judgment to the County. View "Chehalis Tribes v. Thurston Cnty." on Justia Law

Action Recycling moved to quash summonses from the IRS to produce records that Action Recycling had already produced for the IRS to review, arguing that the summonses for those records were issued in violation of the prohibition on summonses for information already in the possession of the IRS. The documents at issue were reviewed by an IRS agent who eventually left the IRS, the IRS then transferred the open investigation to another agent, and the new agent sought to further review the documents. The court held that an IRS Revenue Agent's review of records did not automatically give the IRS permanent possession of all of the information in those records and that a later summons for the same records was permissible under the Supreme Court's decision in United States v. Powell. Accordingly, the court affirmed the district court's denial of the motion to quash. View "Action Recycling, Inc. v. United States" on Justia Law

Appellants brought quiet title actions challenging tax liens filed by the IRS against certain commercial and residential properties. Appellants held legal title to these properties. The liens arose from assessments against taxpayers based on the IRS's claim that appellants held the relevant properties as nominees of taxpayers on the assessment dates. On appeal, appellants argued that California did not recognize nominee ownership. The court held, however, that California law did recognize a nominee theory of property ownership; the district court did not err in concluding that appellants held title to the McCall and Fourth properties as nominees of taxpayers; and the district court rejected appellants' joinder claim under Federal Rule of Civil Procedure 19(a) where appellants have not established that the absent entities at issue were necessary parties under Rule 19(a) and the district court properly resolved appellants' ownership interests in the McCall and Fourth properties in their absence. Accordingly, the court affirmed the judgment. View "Fourth Investment LP v. United States" on Justia Law

The Commissioner appealed the tax court's determination related to a deficiency in petitioners' federal income tax involving distributions from petitioners' variable universal life insurance policy. The Commissioner asserted that surrender charges could never be considered under I.R.C. 402(b)(2), and maintained that petitioners actually received the full stated policy values of their respective policies. The court affirmed the tax court's determination that the "amount actually distributed" when petitioners received ownership of the policies after their employer wound down their employees' benefit trust was "the fair market value of what was actually distributed." Further, the surrender charges associated with a variable universal life insurance policy could permissibly be considered as part of the general inquiry into a policy's fair market value. Accordingly, the court affirmed the decision. View "Schwab v. CIR" on Justia Law