Justia U.S. 11th Circuit Court of Appeals Opinion Summaries

Petitioner failed to report millions of dollars in income. After an audit, an IRS examiner sent him a letter that said Petitioner owed penalties on top of his back taxes. Petitioner tried to negotiate without success; the examiner’s direct supervisor signed a second letter, which proposed the same penalties, as well as a form approving those penalties. The Tax Court disallowed the penalties, holding that the supervisor’s approval came too late because she had not approved the penalties at the time of the first letter. The IRS appealed, arguing that the Tax Court misinterpreted Section 6751(b)’s requirements.   The Eleventh Circuit reversed the Tax Court. The court explained that the statute prohibits assessing a penalty unless a condition has been met—supervisory approval of the initial determination of an assessment. But the statute regulates assessments; it does not regulate communications to the taxpayer. Because the IRS did not assess Petitioner’s penalties without a supervisor approving an “initial determination of such assessment,” the court held that the IRS has not violated Section 6751(b). View "Burt Kroner v. Commissioner of Internal Revenue" on Justia Law

The appeal involves the tax consequences of Petitioners' participation in a complex tax avoidance scheme. Petitioners expected to realize an $80.9 million capital gain as a result of selling a portion of his company. The scheme, which involved a set of tiered partnerships, allowed Petitioners to claim a $77.6 million artificial loss to offset his legitimate capital gains. A federal district court found the scheme to be an abusive tax shelter and upheld the IRS’s disallowance of the benefits of the shelter in a partnership-level proceeding, and a prior panel of the Eleventh Circuit affirmed. As a result of the partnership-level proceeding, the IRS issued a notice of deficiency to Petitioners disallowing the $77.6 million loss deduction they reported on their joint tax return. Petitioners sought review in the U.S. Tax Court, which rejected their various challenges.   The Eleventh Circuit affirmed. The court explained that the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), the governing scheme in effect during the relevant period, established uniform audit and litigation procedures for the resolution of partnership tax items. The filing of the final partnership administrative adjustment (FPAA), the timeliness of which Petitioners do not contest, suspended the limitations period for assessment of tax attributable to affected items until January 11, 2017. The 2016 notice asserts a deficiency that is attributable to an affected item. Accordingly, the statute of limitations had not expired when the IRS issued the September 9, 2016 notice of deficiency, as the Tax Court correctly found. View "Raghunathan Sarma, et al v. Commissioner of Internal Revenue" on Justia Law

Affordable Bio Feedstock, Inc., and Affordable Bio Feedstock of Port Charlotte, LLC, (collectively “ABF”) appealed the District Court’s summary judgment denying their claim for reimbursement of “protest payments” made to the Internal Revenue Service (“IRS”) after the IRS claw-backed an alternative fuel tax credit it had previously given ABF. In support of its position, ABF argued that federal courts may order the Government to pay plaintiffs money from the Federal Treasury based solely on equitable principles.  At issue on appeal is whether any court may order that fund be appropriated from the Federal Treasury based on equitable estoppel without specific authorization from Congress.   The Eleventh Circuit affirmed, holding that the Supreme Court foreclosed ABF’s arguments 32 years ago in Office of Personnel Management v. Richmond, 496 U.S. 414, 110 S. Ct. 2465 (1990), when it held that “payments of money from the Federal Treasury are limited to those authorized by statute.”  Here, ABF sought only to recover the money it already paid to the IRS. The only relevant fact is that this money is currently within the Federal Treasury, and so the IRS would have to withdraw money from the Federal Treasury to pay any adverse equitable judgments. Under Richmond, ABF has waived any argument that its activities qualified it for the alternative fuel tax credit under Section 6426 and points to no other statute(s) as a potential basis for recovery. View "Affordable Bio Feedstock, Inc., et al v. USA" on Justia Law

Petitioner went to trial for three counts of tax fraud under 18 U.S.C. Sections 2 and 287 and one count of attempted tax evasion under 26 U.S.C. Section 7201. A jury convicted on all four counts, and he was sentenced to a period of incarceration, supervised release, and restitution. The district court vacated the convictions for the first three counts of tax fraud but left in place the fourth for tax evasion. Petitioner timely appealed, renewing his arguments that his counsel was ineffective 1) in failing to properly move for judgment of acquittal as to Count Four, 2) in calling him to the witness stand, and 3) in failing to advise him of the dangers of testifying in his own defense.   The Eleventh Circuit granted Petitioner’s habeas petition and vacated his conviction under Count Four for tax evasion. The court explained that as to Count Four for attempted tax evasion, the basic inquiry on the ineffective assistance of counsel claim is, whether Petitioner’s trial counsel was deficient in failing to move for judgment of acquittal under Fed. R. Crim. P. 29 after the Government’s presentation of its case-in-chief, and, if so, whether that deficiency prejudiced the outcome of the trial.   The court wrote that here Petitioner’s counsel’s performance was deficient because he failed to properly move for judgment of acquittal when the Government had not carried its evidentiary burden in its case-in-chief. Further, had Petitioner’s counsel properly moved for judgment of acquittal, the district court would have been legally required to grant it for the same reasons the Eleventh Circuit did under a de novo standard. View "Peter Hesser v. USA" on Justia Law

Taxpayer conceded that he failed to report his foreign bank accounts to the IRS, but contested the IRS's determination that his violations were willful and argued for vacatur of his civil penalties. The district court held that taxpayer's violations were reckless, and therefore willful, in most of the tax years at issue. The district court also held that the IRS had miscalculated taxpayer's civil penalties and set them aside under the Administrative Procedure Act (APA), and then sua sponte calculated and imposed a fresh set of penalties.The Eleventh Circuit concluded that the district court applied the correct legal standard in analyzing whether taxpayer willfully violated the FBAR reporting requirements. The court explained that willful conduct in the FBAR context includes knowing and reckless conduct. Reckless conduct is action that objectively entails a high risk of harm, which is the standard the district court applied. Nevertheless, the court concluded that the civil penalties assessed by the IRS were unlawful under the APA and must be recalculated. In this case, the IRS erred by using the wrong foreign bank account balances to calculate taxpayer's penalties, contravening the relevant statute and regulations. The district court further erred by calculating and imposing new penalties instead of remanding to the agency, as required by the APA. The court explained that, even though the district court ultimately arrived at the same total penalty amount the IRS did originally, the IRS's original errors were not harmless. Accordingly, the court vacated and remanded for recalculation. View "United States v. Schwarzbaum" on Justia Law

In the early 1900s, New York City used a Brooklyn powerhouse to provide electricity for its trolley system. In 1940, the City took ownership of the power plant and removed a smokestack, placed it in the building's basement, on top of a mechanical system that was insulated with friable asbestos-containing material, and buried it under a concrete slab. Enterprises acquired the property in 1986. An asbestos inspection by the city revealed that the property was contaminated with PCBs. The property was placed on New York’s Registry of Inactive Hazardous Waste Disposal Sites, rendering it effectively worthless. The state began remediation in 2015. The discovery of the buried smokestack and friable asbestos-containing material postponed the project indefinitely. New York City continued to tax the property according to its “best intended use” as a warehouse. Rather than paying the taxes or properly challenging their validity, Enterprises ignored them. The taxes became liens.In 2018, Enterprises filed for Chapter 11 bankruptcy and initiated an adversary proceeding against the city, alleging “continuous trespass,” and seeking a declaratory judgment that the city is responsible for the hazardous waste and resulting damage and improperly taxed the property. The bankruptcy court dismissed the adversary proceeding. The Eleventh Circuit affirmed. Even assuming the latest possible date of discovery, Enterprises’ trespass claim is time-barred. The Bankruptcy Abuse Prevention and Consumer Protection Act, 11 U.S.C. 505(a)(2)(C), prohibited the court from redetermining the tax assessments. View "5200 Enterprises Ltd. v. City of New York" on Justia Law

The Eleventh Circuit reversed the tax court's order disallowing taxpayers' carryover deduction for the donation of a conservation easement. The court concluded that the Commissioner's interpretation of I.R.C. 1.170A14(g)(6)(ii) is arbitrary and capricious and violates the Administrative Procedure Act's (APA) procedural requirements. The court explained that Treasury, in promulgating the extinguishment proceeds regulation, failed to respond to NYLC's significant comment concerning the post-donation improvements issue as to proceeds. Because the court found the Commissioner's interpretation of section 1.170A-14(g)(6)(ii) invalid under the APA, it concluded that the easement deed's subtraction of the value of post-donation improvements from the extinguishment proceeds allocated to the donee does not violate section 170(h)(5)'s protected-in-perpetuity requirement. The court remanded for further proceedings. View "Hewitt v. Commissioner" on Justia Law

Under the 1982 Tax Treatment of Partnership Items Act, 26 U.S.C. 6221–6232, partnership-related tax matters are resolved in two stages. During the partnership-level proceedings, the IRS may adjust items relevant to the partnership as a whole and determine the “applicability of any penalty.” The partnership can challenge the adjustment. All partners are bound by any final decision in a partnership-level proceeding.On its 2001 partnership tax return, AHG reported a $25,618 total loss. Ginsburg’s individual 2001 tax return reported a $10,069,505 loss from AHG to offset his income. In 2008, the IRS sent Ginsburg notice that it was proposing adjustments to AHG’s returns, alleging that AHG “was formed . . . solely for purposes of tax avoidance.” For Ginsburg, the IRS “disallowed” the $10,069,505 loss and said it would impose a 40 percent penalty for “gross valuation misstatement.”Based on Ginsburg’s concessions that he was not entitled to deduct AHG’s losses because he was not at risk and the partnership’s transactions did not have a substantial economic effect., the tax court found that AHG must be “disregarded for federal income tax purposes,” and adjusted AHG’s 2001 tax return. The court denied Ginsburg’s petition concerning the penalty, rejecting his argument that the government did not get “written approval of the penalty by an immediate supervisor,” as required by 26 U.S.C. 6751(b)(1). The district court agreed that Ginsburg could not have reasonably relied on the advice of his tax, legal, and financial advisors and would not consider Ginsburg’s supervisory approval argument because he did not exhaust it in his IRS refund claim.The Eleventh Circuit affirmed. In partnership tax cases, the supervisory approval issue must be exhausted with the IRS before the partner files his refund lawsuit and must be raised during the partnership-level proceedings. View "Ginsburg v. United States" on Justia Law

The Eleventh Circuit affirmed the tax court's memorandum opinion upholding adjustments contained in five notices of deficiencies (NODs) issued by the IRS against petitioner for the tax years 1999, 2000, and 2001, as well as the tax court's adoption of the Commissioner's computations under Tax Court Rule 155 and its denial of several of petitioner's post-trial motions.In regard to jurisdiction issues, the court concluded that the Commissioner did not need to comply with the requirement of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) that it issue Final Partnership Administrative Adjustment (FPAAs) to GG Capital to notify petitioner of adjustments to partnership items. The court explained that GG Capital's attempted TEFRA election on its 1997 return was not valid; GG Capital was required to attach a statement signed by all of its partners in order to elect into the TEFRA procedures under I.R.C. 6231(a)(1)(B)(ii); but GG Capital did not do so for either 2000 or 2001 and was therefore not subject to the TEFRA regime. The court also concluded that the tax court did not err in finding the 2004 NOD was timely mailed on October 15, 2004 adjustments; because the limitations period for making assessments against petitioner related to the converted items was suspended by virtue of the pendency of the AD Global case, the 2009 NOD was timely as to the 1999 tax year; and the court rejected petitioner's remaining jurisdictional claims.The court concluded that the tax court properly upheld the Commissioner's adjustments to the NODs. In this case, the court declined to look behind the 2009 NODs in assessing their validity; the tax court did not fail to impose the proper burden of proof and the tax court did not abuse its discretion in denying the motion to reopen the record to allow petitioner to introduce new evidence so late into the action; and there was no error in the tax court's post-trial rulings. View "Greenberg v. Commissioner of Internal Revenue" on Justia Law

This appeal relates to TOT Holdings' execution of a deed that donated to Foothills Land Conservancy, a conservation easement encumbering nearly all its property. The IRS disallowed the deduction claimed by the taxpayer, and the Tax Court upheld that decision because the deed conveying the easement contained a formula for the distribution of proceeds that did not comply with the extinguishment proceeds requirement and the deed was not saved by purported interpretive provisions. The taxpayer appealed.The Eleventh Circuit concluded that the Tax Court correctly determined that the taxpayer did not comply with the extinguishment proceeds requirement and that the deed was not saved by the disputed provisions because they constitute an unenforceable condition-subsequent savings clause. The court also held that the Tax Court did not commit reversible error in approving the penalties assessed. Accordingly, the court affirmed the judgment. View "TOT Property Holdings, LLC v. Commissioner of Internal Revenue" on Justia Law