Justia U.S. 3rd Circuit Court of Appeals Opinion Summaries

In 2005 Anderson was charged with federal tax evasion (26 U.S.C. 7201) for tax years 1995 through 1999, while Anderson was an entrepreneur and venture capitalist involved in operating several international companies, including G & A, which generated hundreds of millions of dollars of income. The government alleged that because G & A was a “controlled foreign corporation,” he was required to recognize a share of its income on his tax return; that he fraudulently failed to do so; and thatAnderson had fraudulently underpaid his taxes by $184 million, 99% of which stemmed from G & A. He pleaded guilty with respect to two years and was sentenced to 108 months imprisonment. In 2007 Anderson filed a petition to redetermine his tax deficiencies, 26 U.S.C. 6213(a). The Tax Court granted partial summary judgment to the IRS. The Third Circuit affirmed. Anderson’s conviction for tax evasion in 1998 and 1999 precludes him, by virtue of collateral estoppel, from contesting in civil fraud proceedings that G & A income was taxable to him in those years. The IRS’s concession of all deficiency and penalty issues for the years 1995, 1996, and 1997 has no preclusive effect on those issues for 1998 and 1999. View "Anderson v. Comm'r of Internal Revenue" on Justia Law

The New Jersey Sports and Exposition Authority, a state agency which owned a leasehold interest in the East Hall, also known as “Historic Boardwalk Hall”, on the boardwalk in Atlantic City, was tasked with restoring it. After learning of the market for federal historic rehabilitation tax credits (HRTCs) among corporate investors, and of the additional revenue which that market could bring to the state through a syndicated partnership with one or more investors, NJSEA created Historic Boardwalk Hall, LLC (HBH) and sold a membership interest to a subsidiary of Pitney Bowes. Transactions admitting PB as a member of HBH and transferring ownership of East Hall to HBH were designed so that PB could earn the HRTCs generated from the East Hall rehabilitation. The IRS determined that HBH was simply a vehicle to impermissibly transfer HRTCs from NJSEA to PB and that all HRTCs taken by PB should be reallocated to NJSEA. The Tax Court disagreed. The Third Circuit reversed. PB, in substance, was not a bona fide partner in HBH. View "Historic Boardwalk Hall, LLC v. Comm'r of Internal Revenue" on Justia Law

The business proprietor, Calabrese, filed for reorganization of the business under Chapter 11 of the Bankruptcy Code. After failure to confirm a reorganization plan, the bankruptcy was converted to Chapter 7. He also filed an individual petition under Chapter 13. The State of New Jersey Department of Taxation filed several secured proofs of claim in the individual bankruptcy. As proprietor of a restaurant, Calabrese was required to collect sales tax from customers. N.J. Stat. 54:32B-3(c)(1), 54:32B-12(a), 54:32B-14(a). Calabrese successfully moved to have the claims reclassified as unsecured. New Jersey filed amended proofs alleging that Calabrese owes $63,437.19 in taxes collected while operating his business from 2003 to 2009. The Bankruptcy Court held the taxes at issue are trust fund taxes under 11 U.S.C. 507(a)(8)(C) rather than excise taxes under 507(a)(8)(E) and, therefore, not dischargeable. The district court and Third Circuit affirmed. Public policy concerns weigh against Calabrese, primarily because sales taxes collected by a retailer never become the property of the retailer; it retains those funds in trust for the state. View "In Re: Calabrese" on Justia Law

ABC is a dissolved corporation. Doe 1 was the company’s President and sole shareholder. Doe 2 is his son. LaCheen represents ABC and Doe 1; Blank represents Doe 2. The law firms have a joint-defense agreement covering the three. Investigating tax implications of ABC’s acquisition and sale of closely held companies, the government issued a grand jury subpoena to ABC’s former vice president as custodian of records. The documents are in custody of Blank. ABC refused to accept service of the subpoena issued to its former employee. The government issued subpoenas to LaCheen and Blank. The firms withheld documents listed on a privilege log. The government sought to compel ABC, Blank, and LaCheen to produce documents identified on the privilege logs, citing cited the crime-fraud doctrine, which provides that evidentiary privileges may not be used to shield communications made for purposes of getting advice for commission of a fraud or crime. The district court entered the order. The Third Circuit dismissed for lack of appellate jurisdiction. To obtain immediate appellate review, a privilege holder must disobey the order, be held in contempt, then appeal the contempt order. That route is available to ABC, which can obtain custody of the documents from its agent. View "In Re: Grand Jury" on Justia Law

Defendants owned an engineering and surveying company. Between 2002 and 2008, it failed to pay the IRS more than $500,000 in taxes withheld from employee paychecks. They were convicted of conspiracy to defraud the United States, 18 U.S.C. 371, and 21 counts of failure to account and pay over employment taxes, 26 U.S.C. 7202. The Third Circuit affirmed the convictions, rejecting claims of evidentiary errors, but remanded for resentencing. The district court erred in imposing a two-level increase to the offense levels for abuse of a position of trust, pursuant to U.S.S.G. 3B1.3.View "United States v. DeMuro" on Justia Law

Married couples formed Virgin Islands corporations that were limited partners in a VI limited liability limited partnership, Four Points, and derived all of their income from Four Points. The couples assert that they were not bona fide residents of the Virgin Islands in 2006, but that a portion of their income was derived from sources there, I.R.C. 932(a)(1)(A)(ii). Both couples filed 2006 tax returns with the U.S. and with the Virgin Islands, but, rather than paying the Virgin Islands, they paid all taxes to the U.S., claiming that they believed that the IRS would pay the Virgin Islands or that the VIBIR would obtain the amounts from the IRS. The couples filed suit to compel the VIBIR to declare whether the income was derived from sources within the Virgin Islands and, against the U.S., requested refunds. The district court dismissed with respect to the Virgin Islands and transferred the claim against the U.S. to Florida. The Third Circuit affirmed. Taxpayers stated no cause of action against the Virgin Islands and any claims are not ripe, as there has been no administrative action against them. The District Court of the Virgin Islands may transfer VI tax cases to other district courts. View "In re:Birdman" on Justia Law

After an error resulted in omission of a will's residual clause, litigation between the decedent's son and a charitable trust settled with the son receiving $5,600,000 and property and the trust receiving $11,721,141. The Estate filed a claim for federal estate tax charitable deduction. The IRS disallowed the deduction, finding that the contribution was made by the son via the settlement. The district court granted the Estate summary judgment, but found the government's position substantially justified and did not award fees or costs. The Third Circuit affirmed. The award for prevailing parties under 26 U.S.C. 7430 incorporates the Equal Access to Justice Act, 28 U.S.C. 2412(d)(1)(B), under which recovery of fees is barred if a party’s net worth exceeds the statutory amount. Parties seeking to recover under either the prevailing party provision or the qualified offer provision must satisfy the net worth requirements. Although the trust satisfied the net worth requirements as a tax-exempt charitable organization with fewer than 500 employees, the court rejected an argument that it was the real party in interest. View "Estate of Palumbo v. United States" on Justia Law

Taxpayers (married couples) had an interest in real estate that was condemned by Pennsylvania for construction of a highway. The state agreed to pay $40.9 million, with interest, in five yearly installments. During the first three years of the agreement, the taxpayers excluded the interest from their federal income taxes as exempt under 26 U.S.C. 103, which permits exclusion of interest payments that are obligations of the state. The IRS issued to each couple a deficiency notice for $2.3 million, which was affirmed by the Tax Court. The Third Circuit reversed in part. Negotiations between the parties transformed the state's interest obligation from mandatory to voluntary. The purpose underlying Section 103 was "well served" in this case; the state was able to obtain credit from the taxpayers at a lower rate of interest than it otherwise might have had to if the condemnation proceeding had been completed. View "DeNaples v. Comm'r of Internal Revenue" on Justia Law

In 1997 plaintiff held a 25% stake in a utility in the United Kingdom that was one of 32 U.K. companies subject to a one-time "windfall tax." After it paid that tax, plaintiff claimed a foreign tax credit on its U.S. tax return under I.R.C. 901. The windfall tax emerged from a backlash against the privatization of British utilities and transit operators. In concept, the windfall tax was a one-time 23% tax on the difference between each company’s "profit-making value" and the price for which the U.K. government had sold it. The public believed that the government had sold the companies too cheaply. In 2007, the IRS denied plaintiff's claim and issued a notice of deficiency. The Tax Court agreed that plaintiff was entitled to a foreign tax credit. The Third Circuit reversed, holding that the windfall tax does not qualify for a foreign tax credit. Whether a foreign tax qualifies requires analysis of the timing and the base of the foreign tax; a realization requirement, one of timing, ensures that the taxpayer has received income before being obligated to pay taxes on it. View "PPL Corp. v. Comm'r of Internal Revenue" on Justia Law

The company overpaid income tax for certain years. The IRS either refunded the overpayments or applied the overpayments as credits to other tax years or to liabilities for other types of taxes before the company contested a notice of deficiency the IRS issued for the years to which the credits were applied. The company claimed that the IRS did not pay it enough overpayment interest on those overpayments. The Third Circuit vacated the Tax Court ruling that it had subject matter jurisdiction (26 U.S.C. 6512(b)(1) and (3)) over the claim. Interest owed to a taxpayer by the government, is not "a part of, or even related to, a taxpayer's tax liability" and is not "assimilated in treatment to the principal amount of a tax." The Tax Court erred in equating the question of interest with overpayment.View "Sunoco Inc. & Subsidiaries v. Comm'r of Internal Revenue Serv." on Justia Law