Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Articles Posted in Tax Law
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Plaintiff appealed from the dismissal of his claims challenging tax penalties assessed against him, as well as the revocation of his passport pursuant to those penalties. He also appealed the denial of an award of attorneys’ fees under the Freedom of Information Act (FOIA).   The Fifth Circuit affirmed. The court explained that Plaintiff sought to overturn the penalties, restrain collection of them, or otherwise cast doubt on the validity of the assessment. The government has not waived its sovereign immunity for those challenges, and so the district court was correct to dismiss them for lack of jurisdiction. Further, the court explained that Congress was within its rights to provide the IRS another arrow in its quiver to support its efforts to recoup seriously delinquent tax debts. Under even intermediate scrutiny, the passport-revocation scheme is constitutional. Thus, the district court was correct to dismiss Plaintiff’s challenge.   Finally, the court explained that when considering FOIA attorneys’ fees, the court has generally looked with disfavor on cases with no public benefit. Here, the district court did not abuse its discretion in declining to award fees. Plaintiff’s lawsuit is far afield from the purposes for which FOIA, and its attorneys’ fees provision, were designed. There is no public value in the information and no value for anyone other than Plaintiff. Instead, Plaintiff only sought the information to aid him in his personal fight with the IRS regarding his tax penalties. View "Franklin v. United States" on Justia Law

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The United States appeals the district court’s summary judgment rulings rendered in this federal income tax refund action filed by Plaintiffs. The Fifth Circuit reversed the district court’s ruling and found that the district court erred in its jurisdictional determination. The court remanded with instructions to dismiss for lack of jurisdiction.     The court explained that determining whether a tax assessment complies with Section 6501’s three-year limitation period necessitates a determination of whether Section 6229 has extended that period, as is true here, our decisions have repeatedly concluded that a “partnership item” is presented for determination. And Section 7422(h) prohibits refund action courts from deciding partnership items in the first instance or re-evaluating a tax court’s determination of those items. Thus, in this instance, the district court lacked subject matter jurisdiction over Plaintiffs’ Section 6501 refund claims and reversibly erred in concluding the contrary. Further, the court wrote that Plaintiffs’ argument that notice was required—because their deficiency was attributable to a violation of their Section 6501 assessment deadline—misunderstands the meaning of “deficiency” as that term is defined by Section 6211(a). View "Baxter v. USA" on Justia Law

Posted in: Tax Law
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Defendants were convicted by a jury of conspiracy to defraud the Internal Revenue Service (“IRS”) by interfering with its lawful functions and evasion of payment of taxes. On appeal, Defendants both challenge the sufficiency of the evidence supporting their convictions and raise challenges to a number of jury instructions.   The Fifth Circuit affirmed. The court held that the district court’s denial of Defendant’s last-minute continuance request was not an abuse of discretion, and Defendant was not denied the counsel of his choice. Further, because Defendant failed to meaningfully address all four prongs of plain error review either in his opening brief or in reply, his constructive amendment challenge fails.   Further, the court wrote, that viewed in the light most favorable to the verdict, the evidence showed that Defendant failed to report a substantial amount of income; influenced MyMail to amend its tax return to underreport how much income it distributed to Defendant; converted at least $1 million of income into gold coins; purchased a house with gold coins and transferred it to a trust controlled by a relative; and hid his income in Co-Defendant’s trust accounts and used the concealed funds to pay his living expenses for at least a decade, including during the years that the IRS Agent was contacting Defendants, as Defendant’s IRS power-of-attorney, in an attempt to collect Defendant’s unpaid tax liabilities. Based on the foregoing evidence, a reasonable jury could find beyond a reasonable doubt both willfulness and an affirmative act of evasion. View "USA v. Selgas" on Justia Law

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Plaintiff formed the Enelre Foundation as a Stiftung under the laws of Liechtenstein. Stiftung is a German word meaning, roughly, “foundation” or “endowment.” Enelre’s purpose is to provide education and general support for Plaintiff and his children. Plaintiff transferred $3 million to Enelre’s bank accounts. He later learned the IRS would consider Enelre a “foreign trust,” triggering certain reporting requirements. Plaintiff belatedly filed the reports, and the IRS assessed penalties. Plaintiff paid the penalties and then filed this refund action. The district court granted summary judgment for the government.The Fifth Circuit affirmed. The court explained that the district court correctly found that Enelre qualifies as a foreign trust. Its organizing documents explain that Enelre’s purpose is to support its beneficiaries and limit its transactions to pursuing and realising its purpose. This is characteristic of an ordinary trust. The documents also prohibit Enelre from conducting commercial trade. Liechtensteinian Public Registry filings confirm this prohibition. Enelre’s familial purpose, lack of business objective, and bar on commercial activity render it a trust. Enelre’s form of organization confirms it is a trust. Enelre is subject to Liechtenstein’s “Act on Trust Enterprises.” View "Rost v. USA" on Justia Law

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Exxon sought $1.5 billion from the IRS. The source of this sum is two retroactive changes Exxon made to its returns. The first change involves a tax issue: whether a transaction is a mineral lease or mineral sale. See, e.g., Goldfield Consol. Mines Co. v. Scott, 247 U.S. 126 (1918); Stratton’s Indep., Ltd. v. Howbert, 231 U.S. 399 (1913). The second concerned a more recent development in the tax code: how an incentive for producing renewable fuels affects a company’s excise tax, and in turn, its income tax.   The district court rejected both changes but gave Exxon back a penalty the IRS imposed for requesting an excessive refund. Exxon appealed the lease-versus-sale issue, and the government cross-appealed the rejection of the penalty. The Fifth Circuit affirmed the district court’s ruling.   The court explained that Qatar and Malaysia have an economic interest in the minerals being extracted. That means the agreements are as Exxon originally described them: leases. The court further wrote that although Exxon’s position is close to the “reasonable basis” line, it agreed with the district court’s assessment granting Exxon a refund.   The court next addressed the issue regarding which amount of excise tax Exxon can deduct from its gross income: (1) the lesser amount it actually paid after claiming a renewable-fuel credit or (2) the greater amount it would have paid without the credit. The court found that Exxon’s renewable-fuel credit reduced its excise tax. It can deduct only the reduced amount. View "Exxon Mobil v. USA" on Justia Law

Posted in: Tax Law
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Petitioner appealed the denial of an income tax deduction he claimed for a charitable donation of an aircraft. Because Petitioner failed to comply with the statutory requirements for such a deduction, the Fifth Circuit affirmed the judgment of the Tax Court.   The court explained Section 170 of the Internal Revenue Code governs deductions for charitable contributions. For a contribution of a qualified vehicle, including airplanes, whose value exceeds $500, the taxpayer must provide contemporaneous written acknowledgment from the donee organization of the contribution, including the name and taxpayer identification number of the donor. Further, the donee organization must provide the IRS with the information contained in the acknowledgment.   Here, the court wrote that the Commissioner of Internal Revenue (“Commissioner”) was entitled to summary judgment as Petitioner was disallowed from claiming the deduction as a matter of law. Petitioner failed to provide a contemporaneous written acknowledgment from the donee organization that satisfied the requirements of 26 U.S.C. Section 170(f)(12)(B). Petitioner did not provide a satisfactory contemporaneous written acknowledgment with his Form 1040X. He included a letter dated December 30, 2010, from the Society discussing the donation of the airplane, but the letter was not addressed to Petitioner. The letter does not mention Petitioner and does not provide his taxpayer identification number. Thus, the court held that the letter cannot substantiate the contribution of the airplane under Section 170(f)(12)(B)(i). View "Izen v. CIR" on Justia Law

Posted in: Tax Law
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Sunoco sued the Internal Revenue Service  (“IRS”) in Texas federal court, seeking a partial refund of its income tax payments for 2010 and 2011. Sunoco’s claims rested on a theory of reduced tax liability that the company had argued unsuccessfully for prior tax years in the Court of Federal Claims. Because the issue was fully and actually litigated in the earlier case, the district court dismissed Sunoco’s new suit based on collateral estoppel, and the Fifth Circuit affirmed.   The court held that the only question is the correctness of the issue preclusion ruling. Sunoco did not dispute that the three traditional elements of preclusion are satisfied. It argued, however, that the court should have considered a fourth factor: whether there are “special circumstances that would render preclusion inappropriate or unfair.”  The court found that because Sunoco and the IRS were both parties to Sunoco I, “an inquiry into special circumstances is unnecessary.” Sunoco is barred from relitigating the Federal Circuit’s conclusion that it cannot use the mixture credits to offset both excise-tax and income-tax liability. View "ETC Sunoco Holdings v. USA" on Justia Law

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The Fifth Circuit held that 26 U.S.C. 4611(b) imposes a tax on exports in violation of the Export Clause. In this case, the United States contends that Trafigura must pay a tax on domestic crude oil that it exports from the United States. Applying Pace v. Burgess, 92 U.S. 372, 376 (1876), and United States v. U.S. Shoe Corp., 523 U.S. 360, 363 (1998), the court first considered whether the charge under section 4611(b) is based on the quantity or value of the exported oil—if so, then it is more likely a tax. Then the court considered the connection between the Fund’s services to exporters, if any, and what exporters pay for those services under section 4611(b). Finally, the court applied heightened scrutiny and strictly enforced the Export Clause's ban on taxes by guarding against the imposition of a tax under the pretext of fixing a fee.The court affirmed the district court's judgment and concluded that the United States may not enforce section 4611(b) on crude oil "exported from the United States." The court stated that Congress has crafted a scheme in which crude oil exporters are forced to subsidize activities that are not "services used or usable by the exporter." Section 4611(b) saddles exporters with the cost of anti-pollution measures that generally benefit society at large, and not specifically the exporter who pays the charge. View "Trafigura Trading LLC v. United States" on Justia Law

Posted in: Tax Law
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The Fifth Circuit affirmed the district court's denial of partial summary judgment in an action brought by Vitol against the United States, seeking an $8.8 million tax refund. The court concluded that the plain language of the statute, taken in context, excludes butane from the definition of a liquefied petroleum gas (LPG) under 26 U.S.C. 6426(d)(2).In this case, the court applied the standard tools of statutory interpretation in their proper order, and the court need not consider legislative history or abstract congressional purpose. The court explained that, although the common meaning of LPG includes butane, section 6426(d)(2) is a subsidiary part of a broader statutory framework that treats a given fuel as either a taxable fuel or an alternative fuel, but not both. Therefore, the statutory context of section 6426 provides sound reason to depart from butane's common meaning. Furthermore, section 4083 defines butane as a taxable fuel for purposes of the excise tax imposed at section 4081. The court reasoned that, if butane is a taxable fuel, it cannot be an alternative fuel and thus it is not an LPG under section 6426(d)(2). View "Vitol, Inc. v. United States" on Justia Law

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JetPay is a national company offering credit card processing services to merchants and banks. JetPay processed credit card payments for customers purchasing tickets from Direct Air, placing the funds in Direct Air's escrow account until the passengers took the flights. After Direct Air ended its operations and filed for bankruptcy, JetPay asserts that it was contractually obligated to use its own funds to reimburse thwarted passengers. JetPay timely filed with the IRS for a refund of the excise taxes it repaid to the consumers, but the IRS denied the claim.The Fifth Circuit affirmed the district court's adverse grant of summary judgment against JetPay, agreeing with the district court that the company was not a proper party to seek a refund from the IRS. JetPay did not pay the tax to the Secretary, and thus the court did not consider whether the company qualifies as "the person who collected the tax" under 26 U.S.C. 6415(a). In this case, JetPay is neither a customer required to pay the tax before taking a flight nor an airline required to collect it. The court also concluded that the economic burden test does not apply to JetPay's case. Finally, the court rejected JetPay's equitable subrogation claim. View "JetPay Corp. v. United States" on Justia Law

Posted in: Tax Law