Justia U.S. Federal Circuit Court of Appeals Opinion Summaries

GSS is the managing member and owner of Liberty. In 2006, Liberty purchased a note issued by Aaardvark and entered into a liquidity asset purchase agreement (LAPA) for that Note. BNS was Liberty’s counterparty for the Aaardvark LAPA, requiring BNS to purchase the Aaardvark Note at par value if Liberty exercised the LAPA. Months later, Liberty entered into a note purchase agreement with an unrelated investor, Scotiabank’s predecessor, and issued the First Loss Note; Scotiabank’s predecessor funded the “First Loss Note Account” to cover some of the risk of Liberty’s assets. That Account would compensate BNS for a loss in value of Liberty’s assets. For tax purposes, Scotiabank’s investment in the Note was treated as a partnership interest in Liberty. In 2011, Liberty exercised the Aaardvark LAPA; BNS purchased the Aaardvark Note at a loss. BNS certified this loss to Scotiabank, causing Liberty to pay $24 million to BNS from the Account. Liberty’s loss was allocated to GSS.GSS filed an amended return for the 2009 tax year, requesting to carry back the allocated 2011 loss, 26 U.S.C. 165. The IRS disallowed the deduction under section 707(b)(1), focusing on Liberty’s Aaardvark Note sale to BNS and the $24 million payment to BNS to conclude that these transactions should be treated as a single transaction. The Claims Court rejected GSS’s appeal. The Federal Circuit vacated. The Claims Court erred by applying a hybrid legal standard that improperly conflated the step transaction doctrine and the economic substance doctrine. Under the end result test, the Claims Court must “examine[] whether it appears that separate transactions were really component parts of a single transaction intended from the outset to be taken for the purpose of reaching the ultimate result.” View "GSS Holdings (Liberty) Inc. v. United States" on Justia Law

In 2017, Dixon’s tax preparer filed amended tax returns for him, within the time permitted by law, claiming a refund for tax years 2013 and 2014. After an audit, the IRS denied those claims and assessed additional taxes. Dixon filed suit. During the litigation, it became clear that Dixon had not personally signed his name on the 2017 amended returns—the tax preparer had signed Dixon’s name—and no authorizing power-of-attorney documentation accompanied the amended returns. Because 26 U.S.C. 7422(a) prevents a taxpayer from filing suit to claim a refund without having earlier submitted a “duly filed” refund claim to the IRS, and the 2017 amended returns were not “duly filed,” the Claims Court dismissed the case. Within days, Dixon filed duly signed amended returns for the 2013 and 2014 tax years, though the time allowed for amended returns claiming a refund for those years had passed. He filed another suit based on the IRS’s failure to act on his 2020 amended returns.The Claims Court again dismissed. Dixon’s first action was properly dismissed because the claims, though timely filed, were not “duly filed.” By the time MDixon filed corrected claims with the IRS, the time limits for filing with the IRS had passed unless the corrected claims related back to the earlier claims under the informal-claim doctrine, which does not apply because the IRS loses authority to act on an amendment of an unperfected claim once a suit is filed. View "Dixon v. United States" on Justia Law

In their divorce settlement, Roman gave Iris $150,000. Iris transferred to Roman her interest in their home. Roman agreed to pay any taxes assessed on Iris for her receipt of the $150,000. The IRS assessed $50,002.04 in taxes and penalties and mailed her a notice of intent to take possession of her property, including the home. Although Iris no longer had any ownership rights in the home and no lien had been placed, an IRS employee stated that the tax liability must be paid to stop a levy against Roman’s home and that Roman could appeal once the tax was paid. Roman apparently believed that he had no alternative to paying "a tax that he did not owe.” An installment agreement listed Iris as the taxpayer, identifying Roman’s checking account. Roman did not sign the agreement but sent the IRS payments until the obligation was satisfied.Roman sought a refund, arguing that under 26 U.S.C. 121(a) his payment to Iris qualified for an exclusion from gross income of gain for certain sales of a principal residence. The Federal Circuit vacated Roman’s award. Roman was not a “taxpayer” under 26 U.S.C. 6511(a), so the Claims Court lacked jurisdiction to hear Roman’s third-party refund claim under section 1346(a)(1). Roman nevertheless pled a claim under 28 U.S.C. 1491(a)(1); a party who pays a tax for which he is not liable may sue to recover that tax if it was paid under duress. View "Roman v. United States" on Justia Law

Congress passed the American Recovery and Reinvestment Act ARRA) to stabilize the U.S. economy following the 2008 financial crisis, 123 Stat. 115, creating two types of government-subsidized Build America Bonds (BABs). “Direct Payment BABs,” entitled bond issuers to a tax refund from the Treasury Department equal to 35 percent of the interest paid on their BABs. Treasury pays issuers of BABs annually. The payments are funded by the permanent, indefinite appropriation for refunds of internal revenue collections. 31 U.S.C. 1324. Local power agencies (Appellants) collectively issued over four billion dollars in qualifying Direct Payment BABs before 2011. Through 2012, Treasury paid the full 35 percent.In 2011 and 2013, Congress passed legislation reviving sequestration: “[T]he cancellation of budgetary resources provided by discretionary appropriations or direct spending law,” 2 U.S.C. 900(c)(2), 901(a). Treasury stopped making payments to Appellants at 35 percent. Since 2013, Appellants have been paid reduced rates as determined by the Office of Management and Budget’s calculations; for example, 2013 payments were reduced to 8.7 percent.Appellants sued, arguing a statutory theory that the government violates ARRA section 1531 by not making the full 35 percent payments and that the government breached a contract that arises out of section 1531. The Federal Circuit affirmed the Claims Court’s dismissal of the suit. No statutory claim existed because sequestration applied to these payments. No contractual claim existed because the ARRA did not create a contract between the government and Appellants. View "Indiana Municipal Power Agency v. United States" on Justia Law

In 2002-2004, Mohamad was an Atek shareholder with no direct role in its operations. Mohamad timely 2002 and 2003 tax returns, paying the taxes due on shareholder income of $85,010 and $77,813 respectively. In 2007, Mohamad sought a refund for overpaid taxes, claiming he did not receive the full amount of reported shareholder income on which he paid taxes but received only $20,000 before Atek was shut down. He filed amended tax returns deducting the unpaid income as bad debt. The IRS maintains that it never received an amended tax return for 2003 and, consequently, there is no record of the IRS disallowing the 2003 refund claim. In 2018, the Federal Circuit affirmed the dismissal of the 2002 and 2004 refund claims but vacated the dismissal of the 2003 claim and remanded to the Claims Court the questions: whether Mohamad filed a timely 2003 claim, and, if so, whether it was timely, and whether the IRS disallowed that claim.The Federal Circuit affirmed the Claims Court’s holding that IRC 7502, as interpreted by Treasury Regulation 301.7502–1(e)(2)(i), displaced the common-law mailbox rule for determining IRS filing dates and, alternatively, that dismissal was appropriate for failure to show that the tax refund claim was filed within the three-year limitations period, IRC 6511. The issue was not “business debt” so Mohamad was not entitled to a seven-year limitations period. View "Taha v. United States" on Justia Law

In 2007, CalBio acquired two facilities and began upgrading them to biomass facilities. CalBio secured Authority to Construct permits that allowed construction and allowed the facilities to generate and sell electricity. The permits could be converted into Permits to Operate after the facilities met conditions, including emissions tests. CalBio labeled the facilities “in operation” in 2008. The facilities passed pre-parallel testing under PG&E interconnection agreements and began selling electricity on the spot market and later to PG&E. The facilities operated fairly continuously throughout 2009, occasionally noncompliant with emissions regulations.The 2009 American Recovery and Reinvestment Act, 123 Stat. 115, allowed entities to receive federal grants if they “placed in service” a renewable energy facility during 2009-2010 or began constructing property in 2009-2010. CalBio was experiencing financial difficulties but did not seek grants because its facilities had been placed in service in 2008. CalBio suspended operations in 2010 and sold the facilities. Akeida spent $15 million improving the facilities, which passed emissions tests in 2011. Akeida applied for grants, claiming that the facilities were placed in service when Akeida’s emissions improvements were certified.The Treasury Department largely rejected Akeida’s claims, reasoning that most of the property had been placed in service in 2008. The Claims Court and Federal Circuit agreed, applying Treasury’s regulatory definition of “placed in service,” which required it to determine the “taxable year in which the property is . . . availabil[e] for a specifically assigned function.” View "Ampersand Chowchilla Biomass, LLC v. United States" on Justia Law

The Browns, U.S. citizens, lived in Australia while Mr. Brown worked for Raytheon. The IRS received the Browns' amended returns for 2015 and 2017, claiming the Foreign Earned Income Exclusion, signed by attorney Castro, but not accompanied by powers of attorney. The Browns' second amended return for 2015, again signed by Castro, also did not append any powers of attorney. The IRS disallowed the refund claims, indicating that "as an employee of Raytheon . . . [Brown] may have entered into a closing agreement . . . irrevocably waiving” Browns’ rights to claim the Exclusion under section 911(a).The Browns filed a refund suit under 26 U.S.C. 6532 and 7422(a). The government argued that the Browns had not “duly filed” their administrative refund claims in accordance with section 7422(a) because they had not personally signed and verified their amended returns or properly authorized an agent to execute them. The Browns responded that the IRS had waived those requirements by processing their claims despite the defects and that the requirements were waivable regulatory conditions. The Claims Court dismissed the suit for lack of subject matter jurisdiction. The Federal Circuit affirmed. The Claims Court had jurisdiction; the “duly filed” requirement is more akin to a claims-processing rule than a jurisdictional requirement. However, the Browns did not meet that requirement, which derives from statute and cannot be waived by the IRS, nor did the IRS waive the requirement. View "Brown v. United Statesx" on Justia Law

In 1989, Bilzerian was convicted on nine counts of securities fraud, making false statements to the Securities and Exchange Commission, and conspiracy to commit certain offenses, and defraud the SEC and the Internal Revenue Service (IRS). The Southern District of New York sentenced Bilzerian to four years in prison, imposed a $1.5 million fine, and ordered him to disgorge $62,337,599.53.In 2012, Bilzerian’s wife, Steffen, filed a pro se complaint in the Claims Court seeking an $8,243,145 tax refund under 26 U.S.C. 1341. The dispute stems from transactions that Bilzerian made in 1985-1986 related to the purchase and sale of certain common stocks, for which he was convicted of securities fraud. Steffen and Bilzerian later filed a second amended complaint as joined parties.In 2018, the court dismissed that complaint with prejudice. The Federal Circuit affirmed. The plaintiffs cannot establish a reasonable belief of having an unrestricted right to the disputed funds when the money was first reported as income. A reasonable, unrestricted-right belief cannot exist where a taxpayer knowingly acquires the disputed funds via fraud. The “taxpayer’s illicit hope that his intentional wrongdoing will go undetected cannot create the appearance of an unrestricted right.” View "Steffen v. United States" on Justia Law

The Greens opened a Union Bank of Switzerland (UBS) account around 1980, with their daughter, Kimble, as a joint owner. Kimble directed UBS to maintain the account as a numbered account and to retain all correspondence at the bank. Kimble married an investment analyst who agreed to preserve the secrecy of the account. The couple’s joint federal tax returns did not report any income derived from the UBS account nor disclose the existence of the foreign account. After the couple divorced, Kimble's tax returns were prepared by a CPA, who never asked whether she had a foreign bank account. In 2003-2008, Kimble’s tax forms, signed under penalty of perjury, represented that she did not have a foreign bank account.In 2008, Kimble learned of the Treasury Department’s investigation into UBS for abetting tax fraud; she retained counsel. UBS entered into a deferred prosecution agreement that required UBS to unmask numbered accounts held by U.S. citizens. Kimble was accepted into the Offshore Voluntary Disclosure Program (OVDP) and agreed to pay a $377,309 penalty. Kimble withdrew from the OVDP without paying the penalty.The IRS determined that Kimble’s failure to report the UBS account was willful and assessed a penalty of $697,299, 50% of the account. Kimble paid the penalty but sought a refund. The Federal Circuit affirmed summary judgment against Kimble, finding that she violated 31 U.S.C. 5314 and that her conduct was “willful” under section 5321(a)(5). The IRS did not abuse its discretion in setting a 50% penalty. View "Kimble v. United States" on Justia Law

In 2009, Meidinger submitted whistleblower information to the IRS under 26 U.S.C. 7623, concerning “one million taxpayers in the healthcare industry that are involved in a kickback scheme.” The IRS acknowledged receipt of the information, but did not take action against the accused persons. The IRS notified Meidinger of that determination. Meidinger argued that the IRS created a contract when it confirmed receipt of his Form 211 Application, obligating it to investigate and to pay the statutory award. The Tax Court held that it lacked the authority to order the IRS to act and granted the IRS summary judgment. The D.C. Circuit affirmed that Meidinger was not eligible for a whistleblower award because the information did not result in initiation of an administrative or judicial action or collection of tax proceeds.In 2018, Meidinger filed another Form 211, with the same information as his previous submission. The IRS acknowledged receipt, but advised Meidinger that the information was “speculative” and “did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.” The Tax Court dismissed his suit for failure to state a claim; the D.C. Circuit affirmed, stating that a breach of contract claim against the IRS is properly filed in the Claims Court under the Tucker Act: 28 U.S.C. 1491(a)(1). The Federal Circuit affirmed the Claims Court’s dismissal, agreeing that the submission of information did not create a contract. View "Meidinger v. United States" on Justia Law