Justia U.S. 1st Circuit Court of Appeals Opinion Summaries

Taxpayers bought and renovated a $1,050,000 row house in the South End of Boston, subject to historic preservation restrictions. In 2003, they learned about a tax incentive program for historic preservation, promoted by National Architectural Trust, which advised them that the Trust could help them qualify for a deduction of 10 to 15 percent of fair market value. Internal Revenue Code, 26 U.S.C. 170(h), creates an incentive for donation of property interests to nonprofit organizations and government entities for "conservation purposes," including preservation of "historically important" land or structures. Taxpayers made a $1,000 deposit, executed a Preservation Restriction Agreement, and sent another $15,840. On their 2003 return they claimed a cash contribution of $16,870 to the Trust and a noncash contribution of $220,800 for the easement donation (spread to 2004 return). In 2009, the IRS sent "Notice of Deficiency" and calculated that they owed an additional $39,081.25 for 2003 and an additional $36,340.00 for 2004, plus underpayment penalties. The Tax Court disallowed any deduction for the easement, but held that they were entitled to deduct their $16,840 cash contribution on their 2004 return. The First Circuit vacated and remanded, rejecting the reasoning for disallowing the deduction for the easement. View "Kaufman v. Shulman" on Justia Law

The government sued the Haags to reduce tax liabilities ($1,620,224) to judgment. Mrs Haag asserted entitlement to "innocent spouse" relief 26 U.S.C. 6015(b)(1)-(2),(f)). The Haags brought a separate claimthat they had been denied a collection due-process hearing, 26 U.S.C. 6320. The district court consolidated the actions and entered judgment against the Haags on the collection action. Concerning innocent spouse relief, the court found that the statute required that claims be filed within two years after the first collection action. The IRS discovered evidence that it had sent proper notice of the CDP hearing; the court ruled against the Haags in their separate action. The First Circuit affirmed. The Haags filed another suit, alleging that the government failed to notify their attorney of tax liens. Mrs. Haag sued, claiming that the IRS had failed to consider a request for innocent spouse relief that she raised in 2005. The district court dismissed both as barred by res judicata. The First Circuit affirmed. Mrs. Haag then claimed that in 2009 the Tax Court invalidated a regulation imposing a two-year limitations period on innocent spouse requests. The IRS denied the claim. The Tax Court granted judgment for the government. The First Circuit affirmed. View "Haag v. Shulman" on Justia Law

Taxpayers, who incurred tax liability as a result of a failed business, had transferred real estate to a trust for the benefit of family members. The IRS determined that, with accrued interest, their indebtedness exceeds $400,000 and, in 2004, gave notice of intent to levy, 26 U.S.C. 6330(a). The taxpayers did not dispute the amount, but requested a pre-attachment CDP hearing and offered to settle their debt for $10,000. They denied that they had any ownership interest in the property and asserted that, with their assets and income, they could never come close to satisfying their total tax liability. After gathering information and hearing arguments, the IRS rejected the offer in compromise, finding that the taxpayers were the real owners. The Tax Court reviewed the determination de novo, found that the taxpayers were not the owners of the real estate, directed the IRS to accept the offer in compromise, and ordered the IRS to pay attorneys' fees. The First Circuit reversed, holding that the Tax Court employed an improper standard of review with respect to the IRS's subsidiary determinations. Under a more deferential standard, consistent with the nature and purpose of the CDP process, the IRS acted reasonably. View "Dalton v. Comm'r of Internal Revenue Serv." on Justia Law

Puerto Rico has classified Coors as a large brewer under its beer tax schedule, taxed at a higher rate than small brewers, including local brewer Cervecería India. In 2006, Coors brought suit challenging this differential treatment under the dormant Commerce Clause. The district court originally dismissed the case on comity grounds, but the First Circuit reversed. While remand was pending in 2010, the Supreme Court decided Levin v. Commerce Energy, Inc., which expressly abrogated the First Circuit’s 2009 decision. The district court then dismissed on grounds of comity. The First Circuit affirmed. Puerto Rico’s Secretary of the Treasury did not consent to litigate in federal court and Puerto Rico courts provide an adequate state forum for adjudication of federal constitutional claims. View "Coors Brewing Co. v. Mendez-Torres" on Justia Law

In August 2004, MMC began to look into filing a tax refund claim for reimbursement of FICA made on behalf of its medical residents in 2001. In March 2005, MMC discussed the matter with its accountants. On April 15, 2005, the day the claim was due, MMC completed the form; it has no evidence that it followed its standard practice and took the form to the post office. The IRS asserts that it has no record of receiving the claim. In December 2009, MMC filed a refund suit. The government refused to respond to discovery requests relating to the 2001 claim, arguing that the claim was not timely filed. The district court entered judgment for the government. The First Circuit affirmed, holding that MMC did not make an adequate threshold showing that its refund claim was timely filed, and thus the district court did not have jurisdiction to hear the case. View "ME Med. Ctr. v. United States" on Justia Law

Defendants were convicted of failure to pay federal income tax. Neither attended sentencing. They did not respond to demands to surrender and remained holed up in their secluded home for about nine months. Marshals had information that defendants were armed and making threats, but eventually arrested the couple and found explosives, firearms, and ammunition, including rifles, armor piercing bullets, pipe bombs, and bombs nailed to trees. Convicted of conspiring to prevent federal officers from discharging their duties, 18 U.S.C. 372; conspiring to assault, resist or impede federal officers, 18 U.S.C. 111(a) and (b) and 371; using or carrying a firearm or destructive device during and in relation to a crime of violence; possessing a firearm or destructive device in furtherance of a crime of violence, 18 U.S.C. 924(c)(1)(A) and (B); being a felon in possession of a firearm, 18 U.S.C. 922(g)(1); obstruction of justice, 18 U.S.C. 1503; and failing to appear at sentencing, 18 U.S.C. 3146. They were sentenced to 35 and 37 years. The First Circuit affirmed, rejecting arguments relating to competency, defendants' beliefs that they were not obligated to pay taxes, evidentiary rulings, and jury instructions.

Husband and wife filed returns for tax years 1997-1999 reporting zero income, despite having reportable income. Based on advice from their dentist and their own research, they concluded that no provision of the Internal Revenue Code imposed liability on them for taxes, and attached this explanation to their returns. They succeeded in stopping their employer from withholding taxes claiming exemptions and having the employer treat them as independent contractors, not subject to withholding of social security and medicare taxes. Between 2000 and 2008, despite reportable income asserted by the government to exceed $100,000 in each year, they filed no returns and took steps that made it more difficult for the government to track their assets. Between 1999 and 2007, the IRS repeatedly informed them that their position was frivolous and specifically warned of criminal sanctions. Convicted of conspiracy to defraud the U.S., 18 U.S.C. 371 (2006); attempted evasion of payment of tax, 26 U.S.C. 7201; and four counts of willful failure to file income tax returns, each was sentenced to 36 months in prison. The First Circuit affirmed, reasoning that the convictions were based on defendants' conduct, not guilt by association.

Taxpayer, the founder of EMC, a manufacturer of computer storage devices received non-qualified options to acquire EMC stock. When he exercised those options in 2001, they generated $162 million of ordinary income; it was estimated this could create a tax liability of over $63 million. Prior to exercising the options, taxpayer met with tax and accounting professionals and implemented a plan to form a partnership (Fidelity) with a foreign national; that partnership would engage in transactions that would generate losses largely offsetting gains without net risk. Gain would be principally allocated to the foreign national. Following a series of such transactions, the IRS disallowed taxpayer's losses on Fidelity option transactions for 2001 and 2002 and determined that the partnership was a sham that lacked economic substance. The district court sustained the adjustments and imposed a 40 percent penalty. The First Circuit affirmed

Three defendants were charged with conspiring to defraud the U.S. by obstructing the functions of the IRS, endeavoring to obstruct administration of the Internal Revenue laws, filing false tax returns, making false statements to FBI agents, and scheming to conceal material facts from a federal agency in connection with a charitable organization founded in 1993, which promoted Islamic jihad. A 24-day trial resulted in acquittal on all charges for one defendant and sentences of 12 months and 11 months in prison for the others. The First Circuit reversed acquittal on conspiracy counts, reinstating a guilty verdict, and affirmed the convictions on other counts. The variance in proof at trial did not prejudice defendants' substantial rights and the evidence was sufficient to prove a conspiracy narrower than charged.

The executor paid estate taxes in October, 2003, and filed the estate tax return in September, 2004, but the IRS denied a second extension request and he did not file an amended return and refund request for overpaid estate taxes in the amount of $237,813.48 until September, 2007. The IRS denied the claim on the ground that the refund sought was outside the three-year look-back period set forth in 26 U.S.C. 6511(b)(2)(A). The district court dismissed and the First Circuit affirmed, for lack of subject matter jurisdiction. The IRS correctly determined that it did not have the authority to and did not grant a second six-month extension. While the regulations do not explicitly say that there may be only one extension for executors who are not abroad, they provide for only one automatic extension. An equitable estoppel claim is not available and would have no merit.