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

After the IRS assessed taxpayer in 2014 for tax deficiencies dating back to 2005, taxpayer contends that the assessment is barred by the Internal Revenue Code's three-year limitations period, which runs from the date "the return" is filed. The district court held that the limitations period never began to run because taxpayer never filed "the return."The Fifth Circuit vacated the district court's judgment allowing the tax assessment and held that taxpayer filed "the return" that started the limitations clock when he filed forms containing data sufficient to (1) show that he was liable for the taxes assessed and (2) calculate the extent of his tax liability. In this case, taxpayer's Forms 1040 and 1099 constitute "the return" that begins the running of the Internal Revenue Code's three-year assessment limitations period. Because the IRS assessment came more than three years after taxpayer filed those forms, the court concluded that the assessment is barred by the limitations period. The court remanded to the district court with instructions to remand the case to the bankruptcy court for entry of judgment in accord with the opinion. View "Quezada v. Internal Revenue Service" on Justia Law

The Fifth Circuit affirmed the tax court's denial of petitioners' motion for costs under 26 U.S.C. 7630. Petitioners moved for costs after a dispute over an IRS notice of deficiency assessing them about $51,000 in taxes, penalties, and interest that resulted in their favor. The court held that, given the available facts, the tax court did not abuse its discretion by concluding that the IRS's position was substantially justified. In this case, the record plainly reflects a discrepancy between petitioners' return and the IRS's third-party material. Furthermore, when the Commissioner answered, the IRS had not received any substantiating documents from petitioners. Therefore, the tax court did not abuse its discretion. View "Johnson v. Commissioner" on Justia Law

The IRS served a John Doe summons on the Texas Law Firm, which provides tax-planning advice, seeking documents for “U.S. taxpayers," who, during specified years, used the Firm's services "to acquire, establish, maintain, operate, or control" a foreign financial account, asset, or entity or any foreign or domestic financial account or assets in the name of such foreign entity. A John Doe summons, described in 26 U.S.C. 7609(c)(1), does not identify the person with respect to whose liability the summons is issued. The government made the required showings that the summons relates to the investigation of a particular person or ascertainable group or class, there is a reasonable basis for believing that such person or group or class may fail or may have failed to comply with any provision of internal revenue law, and the information sought and the identity of the person or persons is not readily available from other sources. The Firm moved to quash, claiming that, despite the general rule a lawyer’s clients’ identities are not covered by the attorney-client privilege, an exception exists where disclosure would result in the disclosure of confidential communication.The Fifth Circuit affirmed in favor of the government. Blanket assertions of privilege are disfavored. The Firm's clients’ identities are not connected inextricably with privileged communication. If the Firm wishes to assert privilege as to any responsive documents, it may do so, using a privilege log to detail the foundation for each claim. View "Taylor Lohmeyer Law Firm. P.L.L.C. v. United States" on Justia Law

The Commission issued the Estate a notice of deficiency, determining that the Estate had a $491,750.00 tax liability which differed from the Estate's tax return valuation. The Fifth Circuit affirmed the tax court's decision sustaining the Commission's determinations. The court held that the Estate holds a substituted limited partnership interest in SILP.The court also held that the Notice of Deficiency (including its attachments) fulfills the statutory requirement under 28 U.S.C. 6212. However, even assuming arguendo that the notice description was inadequate, the court could not invalidate it on that basis because Internal Revenue Code 7522(a) explicitly prohibits it from setting aside a notice for lacking the descriptive element. Finally, the court rejected the Estate's argument under the Administrative Procedure Act as without merit. View "Estate of Frank D. Streightoff v. Commissioner" on Justia Law

After plaintiff successfully challenged in bankruptcy court a tax penalty assessed against him by the IRS that exceeded $40 million, plaintiff filed suit against the IRS and three IRS agents, in their individual capacities, pleading a claim for damages against the individual defendants under Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388 (1971), for allegedly violating his Fifth Amendment right to procedural due process. Plaintiff also sought attorney's fees he incurred litigating the penalty issue in his Chapter 11 bankruptcy case under 26 U.S.C. 7430 and the Equal Access to Justice Act.The Fifth Circuit affirmed the district court's grant of defendants' Federal Rule of Civil Procedure 12(b)(6) motion and dismissal of the action with prejudice. The court held that the district court properly concluded that this case was a new Bivens context and that special factors existed under Ziglar v. Abbasi, 137 S. Ct. 1843 (2017). The court also held that plaintiff was not entitled to recover attorney's fees because his request was untimely under 28 U.S.C. 2412(d)(1)(B) and he was not a "prevailing party" under 26 U.S.C. 7430(c)(4)(A)(ii). View "Canada, Jr. v. United States (Internal Revenue Service)" on Justia Law

Plaintiffs, two private citizens and eighteen states, filed suit challenging the individual mandate requirement of the Patient Protection and Affordable Care Act (ACA). The individual mandate required individuals to maintain health insurance coverage and, if individuals did not maintain this coverage, they must make a payment to the IRS called a shared responsibility payment.Plaintiffs argued that the individual mandate was no longer constitutional because: (1) Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 538 (2012), rested the individual mandate's constitutionality exclusively on reading the provision as a tax; and (2) a 2017 amendment, which changed the amount of the shared responsibility payment to zero dollars, undermined any ability to characterize the individual mandate as a tax because the provision no longer generates revenue, a requirement for a tax. Plaintiffs further argued that the individual mandate was essential to, and inseverable from, the rest of the ACA and thus the entire ACA must be enjoined.The Fifth Circuit affirmed in part and vacated in part the district court's judgment, holding that there is a live case or controversy because the intervenor-defendant states have standing to appeal and, even if they did not, there remains a live case or controversy between plaintiffs and the federal defendants; plaintiffs have Article III standing to bring this challenge to the ACA because the individual mandate injures both the individual plaintiffs, by requiring them to buy insurance that they do not want, and the state plaintiffs, by increasing their costs of complying with the reporting requirements that accompany the individual mandate; the individual mandate is unconstitutional because it can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power; and, on the severability question, the court remanded to the district court to provide additional analysis of the provisions of the ACA as they currently exist. View "Texas v. United States" on Justia Law

The Fifth Circuit affirmed the district court's decision holding that a $52 million payment from taxpayer's predecessor in interest to the predecessor's subsidiary was not a bad debt under 26 U.S.C. 166 or an ordinary and necessary business expense under 26 U.S.C. 162.In this case, BJ Parent's $52 million payment to BJ Russia created no debt owed to BJ Parent, and the payment discharged no guarantor obligation of BJ Parent's. Therefore, the court held that the payment was not deductible as a bad debt under Section 166. Furthermore, the court held that the IRS correctly disallowed any deduction based on the Free Financial Aid (FFA) as an ordinary and necessary business expense under section 162. The court explained that the FFA was not an expense of BJ Parent, and it was not provided to pay any expense of BJ Russia. The court reasoned that even if BJ Parent's long-term strategy included recapitalizing its Russian subsidiary to meet Russian capitalization requirements, this did not itself make the funds deductible. View "Baker Hughes, Inc. v. United States" on Justia Law

The Fifth Circuit vacated the district court's final judgment in an action alleging that an IRS test for determining certain liabilities was facially unconstitutional. The court held that Freedom Path did not have standing to bring this facial challenge and therefore the court dismissed the action based on lack of jurisdiction. In this case, plaintiff's claimed chilled speech injury was not fairly traceable to the text of Revenue Ruling 2004-6. View "Freedom Path, Inc. v. IRS" on Justia Law

The Commissioner issued a final partnership administrative adjustment that determined PBBM was not entitled to a charitable contribution deduction to the North American Land Trust and assessed a penalty for the overvaluation of the conservation easement. The Fifth Circuit affirmed the district court's disallowance of a readjustment. The court held that while the contribution protected the conservation purpose of preserving land for outdoor recreation by the general public under 26 U.S.C. 170(h)(4)(A)(i), it did not meet the perpetuity requirement of section 170(h)(5)(A). Accordingly, the donation did not qualify for a deduction. Finally, the court found no error in the tax court's valuation of the easement or its determination of a penalty. View "PBBM-Rose Hill, Ltd. v. Commissioner" on Justia Law

Plaintiff appealed the district court's summary judgment determination that her late husband was personally liable under 26 U.S.C. 6672 for over $4.3 million in penalties for the unpaid withholding taxes of his medical practice. The Fifth Circuit reversed the denial of the motion for reconsideration; affirmed the district court's determination that the husband's $100,000 loan was unencumbered for purposes of section 6672 liability; vacated the remainder of the summary judgment because there was a genuine issue of material fact as to whether his medical practice had $4.3 million in available, unencumbered funds after the husband learned of the unpaid taxes; and remanded for further proceedings. View "McClendon v. United States" on Justia Law