Justia Corporate Compliance Opinion Summaries

Plaintiff, president and owner of WestCorp, sued the government for a refund of an IRS tax penalty that he paid. At issue was the treatment of admittedly incomplete payments WestCorp made from 2000-2001. To maximize its recovery, the IRS applied those payments first toward WestCorp's non-trust fund taxes rather than dividing the payments proportionally between WestCorp's trust fund and non-trust fund taxes. The court agreed with the district court that the undisputed facts show, as a matter of law, that plaintiff willfully failed to pay the trust fund taxes at issue; the court also agreed with the district court that the IRS properly allocated the undesignated payments at issue; and the court rejected plaintiff's contention that the IRS should nonetheless have applied at least part of the undesignated payments toward WestCorp's trust fund obligations. Accordingly, the court affirmed the judgment. View "Westerman v. United States" on Justia Law

This appeal arose from eleven notices of final partnership administrative adjustment (FPAAs) issued by the IRS with respect to three Limited Liability Companies (LLCs) treated as partnerships for tax purposes. The IRS claimed that the partnerships' transactions provided one partner with an illegal tax shelter to avoid taxes on his unrelated personal capital gain of the same approximate amount. The court affirmed the district court's determinations that (1) the FOCus transactions lacked economic substance and must be disregarded for tax purposes; (2) the negligence penalty was applicable and the partnerships were not entitled to the reasonable cause defense; and (3) the valuation misstatement penalty was inapplicable. The court vacated and rendered judgment for plaintiffs as to the remaining claims addressing the FPAAs premised on the government's alternative theory under Treasury Regulation 1.701-2 and the district court's approval of the alternative substantial understatement penalty. View "Nevada Partners Fund, et al. v. United States" on Justia Law

BDI elected under I.R.C. 1362(a) to be treated as an S-corporation, not subject to federal taxation because its profits and losses passed through to Barden, its sole shareholder. MSC owns the Majestic Star Casino and Hotel. BDI acquired MSC in 2005. BDI elected to treat MSC as a QSub (I.R.C. 1361(b)(3)(B), not as a separate tax entity. MSC, therefore, paid no federal taxes. In 2009, MSC and its affiliates filed voluntary bankruptcy petitions. Barden and BDI were not debtors. After the petition, Barden caused revocation of BDI’s status as an S-corporation; MSC’s QSub status automatically terminated because it was no longer wholly owned by an S-corp. Neither BDI nor Barden sought authorization from the debtors or from the Bankruptcy Court. MSC allegedly was unaware that it had a new obligation to pay income taxes. As of first date federal taxes would have been due, the debtors had paid no federal income taxes. The Bankruptcy Court permitted conversion of MSC to a limited liability company, so that MSC would no longer qualify for QSub status, even if the Revocation had not occurred. The debtors sought to avoid the Revocation, which, they alleged, caused an unlawful post-petition transfer of property. The Bankruptcy Court granted summary judgment to the debtors. The Third Circuit vacated and directed that the petition be dismissed for lack of jurisdiction. View "In Re:Majestic Star Casino LLC" on Justia Law

Allen Davis exercised an option to purchase additional shares in CNG, a closely-held corporation but did not report the option as income on his federal income tax return. On appeal, Davis and CNG taxpayers challenged their respective deficiency notices in the Tax Court. The Tax Court determined that Davis should have included the value of the shares he received from the option's exercise in his 2004 gross income and sustained the Commissioner's deficiency notice. The Tax Court upheld the CNG taxpayers' deductions. Because the court held that CNG granted Davis the option in connection with the performance of services and that he should have included the value of the shares he received as ordinary income under 26 U.S.C. 83(a), the court also upheld CNG taxpayers' deductions, which were proper under section 83(h). Accordingly, the court affirmed the judgment of the Tax Court. View "Davis v. Commissioner of IRS" on Justia Law

Appellants challenged the IRS's deficiency finding, as well as an accuracy-related penalty. On appeal, appellants argued that the Tax Court misunderstood relevant law when it affirmed the IRS's calculation of their remaining basis in their S corporation. They also challenged the factual basis for the Tax Court's decisions affirming the Service's rejection of their over-reporting claim and upholding its imposition of the penalty. The court rejected defendant's first challenge, concluding that a shareholder's basis was decreased "for any period" by the amount of that shareholder's pro rata share of the corporation's losses, and a shareholder incurred previously unabsorbed losses in the first year the shareholder had adequate basis to do so. In regards to the over-reporting claim, the court held that the Tax Court made no clear error when it upheld the IRS's determination not to reduce the sole proprietorship's income. Consequently, there was no dispute that appellants' 2003 tax return understated their taxes by an amount that qualified as substantial. Accordingly, the court affirmed the judgment. View "Barnes, et al v. Commissioner, IRS" on Justia Law

Wiest worked in Tyco’s accounting department for 31 years, until his termination in 2010. Beginning in 2007, Wiest refused to process reimbursement claims that he believed were unlawful or constituted “parties” at resorts. Wiest sued Tyco and its officers and directors under the whistleblower protection provisions in Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. 1514A, and under Pennsylvania law. The district court dismissed the federal whistleblower claims and declined to exercise supplemental jurisdiction. The Third Circuit reversed in part, holding that the court erred in requiring that Wiest allege that his communications to his supervisors “definitively and specifically relate to” an existing violation of a particular anti-fraud law, as opposed to expressing a reasonable belief that corporate managers are taking actions that could run afoul of a particular anti-fraud law. View "Wiest v. Lynch" on Justia Law

In this original proceeding Allcat, a limited partnership, and one of its limited partners sought an order directing the Comptroller to refund franchise taxes Allcat paid that were attributable to partnership income allocated, but not distributed, to its natural-person partners. Allcat claimed it was entitled to a refund for two reasons. First, the tax facially violated Article VIII, Section 24 of the Texas Constitution because it was a tax on the net incomes of its natural-person partners that was not approved in a statewide referendum. Second, as applied by the Comptroller, to Allcat and its partners, the franchise tax violated Article VIII, Section 1(a) of the Constitution, which required taxation to be equal and uniform. The court held that: (1) the tax was not a tax imposed on the net incomes of the individual partners, thus it did not facially violated Article VIII, Section 24; and (2) the court did not have jurisdiction to consider the equal and uniform challenge.View "In re Allcat Claims Service, L.P. and John Weakly" on Justia Law

The city of Winchester and its collector (Winchester) filed a class action lawsuit against Charter Communications on behalf of itself and other similarly situated Missouri municipal corporations and political subdivisions, seeking a declaratory judgment requiring Charter and other telephone service providers to comply with ordinances requiring them to pay a license tax on gross receipts derived from fees and services connected to their operations and an order requiring Charter to pay all license taxes owed to the class. The circuit court struck Winchester's claims on the basis of Mo. Rev. Stat. 71.675, which bars cities and towns from serving as class representatives in suits to enforce or collect business license taxes imposed on telecommunications companies. The Supreme Court quashed the court's preliminary writ of prohibition and granted Winchester's request for a permanent writ of mandamus directing the trial court to vacate its order, holding that the court exceeded its authority in striking Winchester's class action allegations pursuant to section 71.675, as the statute violated Mo. Const. art. V, 5 because it amended a procedural rule of the Court.View "State ex rel. Collector of Winchester v. Circuit Court (Jamison)" on Justia Law

Former Shareholders of Tarcon filed petitions in the Tax Court contesting the Commissioner's notices of transferee liability. The Tax Court ruled in favor of the Former Shareholders, applying Commissioner v. Stern, holding that the Commissioner could only collect from the Former Shareholders if, under North Carolina law, a Tarcon creditor could recover payments of Tarcon's debts from the Former Shareholders. The court concluded that the Tax Court properly identified and applied the controlling legal framework as set forth in Stern and it did not commit clear error in its factual findings. Accordingly, the court affirmed the judgment in favor of the Former Shareholders. View "Starnes v. Commissioner, IRS; Stroupe v. Commissioner, IRS; Naples v. Commissioner, IRS; Morelli, Sr. v. Commissioner, IRS" 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