Justia Corporate Compliance Opinion Summaries

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

These consolidated cases sought judicial review of notices of final partnership administrative adjustment (FPAA) issued to Bemont and BPB. Following the review of the district court, the government appealed the ruling on the partnerships' motion for partial summary judgment disallowing the 40% valuation misstatement penalty, and the ruling post trial holding that the FPAA issued to Bemont for the 2001 tax year was time-barred. The partnerships appealed the district court's judgment upholding the imposition of the 20% substantial understatement and negligence penalties. The court reversed the judgment of the district court that the FPAA as to the 2001 tax year was untimely; affirmed the judgment of the district court in all other respects including disallowing the 40% valuation misstatement penalty and upholding the 20% negligence penalty for both 2001 and 2002. View "Bemont Investments, L.L.C., et al. v. United States" on Justia Law

Under Internal Revenue Code 1361(a) and 1362(a)(1), qualifying small business corporations could affirmatively elect S corporation status for federal income tax purposes. Under Internal Revenue Code 1363(a) and 1366(a)(1)(A), an S corporation's "profits pass through directly to its shareholders on a pro rata basis and are reported on the shareholders' individual tax returns." At issue was whether a corporate taxpayer was ineligible for S corporation status, and therefore must be taxed as a C corporation, because its sole shareholder was a custodial Roth IRA. Taproot contended that a Roth IRA could not be distinguished from its individual owner under a reasonable interpretation of the governing statute. Adhering to this construction, Taproot thus argued that it satisfied the S corporation requirements. The court agreed with the Tax Court that Revenue Ruling 92-73 provided persuasive guidance that IRAs were ineligible for S corporation shareholders. Here, the 2004 amendment, coupled with the prior legislative history, unequivocally supported the IRS's interpretation of the S corporation statute and promulgation of Revenue Ruling 92-73. The court also agreed with the IRS's narrow interpretation of Treasury Regulation 1.1361-1(e)(1), restricting its application of custodial accounts in which corporate dividends were taxed in the year received. Moreover, the court found persuasive the IRS's opinion that ownership of custodial IRAs and Roth IRAs should not be attributed to the underlying individual for purposes of S corporation eligibility. Accordingly, the decision of the Tax Court was affirmed. View "Taproot Admin. Serv. v. CIR" on Justia Law

The United States appealed from a judgment of the district court invalidating two notices of Final Partnership Administrative Adjustments issued by the IRS. The district court so ruled because it concluded that the taxpayer's characterization of two tax-exempt Dutch banks as its partners in Castle Harbour LLC was proper under Internal Revenue Code 704(e)(1). The district court also concluded that, even if the banks did not qualify as partners under section 704(e)(1), the government was not entitled to impose a penalty pursuant to Internal Revenue Code 6662. The court held that the evidence compelled the conclusion that the banks did not qualify as partners under section 704(e)(1), and that the government was entitled to impose a penalty on the taxpayer for substantial understatement of income. Accordingly, the judgment of the district court was reversed. View "TIFD III-E Inc. v. United States" on Justia Law

A tax employee of defendant, terminated after reporting an alleged tax fraud scheme to the company and federal enforcement agencies, filed suit asserting claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(c) and 1962(d). The district court dismissed, finding that the predicate acts alleged were either unrelated or did not proximately cause plaintiff's injuries. The Seventh Circuit reversed. The retaliatory actions were related to the alleged tax fraud scheme, under the Supreme Court's "continuity plus relationship" test. Since enactment of the Sarbanes-Oxley Act, 18 U.S.C. 1513(e) retaliation against an employee constitutes racketeering. Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower, even though they occur after the coverup is exposed. In this case, the retaliatory acts were not isolated events, separate from the tax fraud. Plaintiff properly alleged that his termination was proximately caused by a RICO predicate act of retaliation. View "DeGuelle v. Camilli" on Justia Law

Plaintiff partnership was formed for the purpose of facilitating the acquisition of a portfolio of Chinese nonperforming loans (NPLs). The IRS determined that plaintiff was a sham partnership that need not be respected for tax purposes and that plaintiff's allocation of the $200 million loss to the deducting partner should be disallowed. At issue on appeal are the income-tax consequences of three interrelated transactions entered into by plaintiff and its three members. The court held that the district court correctly held that, while the acquisition of an interest in a portfolio of Chinese NPLs had economic substance, the plaintiff partnership was a sham that must be disregarded for federal income-tax purposes. As a consequence, that acquisition must be recharacterized as a direct sale. The court also held that the district court was correct to disallow all accuracy-related penalties on the ground that plaintiff had reasonable cause for, and exhibited good faith in, reporting the positions it took on its 2002 partnership return. Accordingly, the judgment was affirmed. View "Southgate Master Fund, L.L.C. v. United States" on Justia Law

Chevron, the franchisor, brought suit for declaratory judgment against one of its franchised dealers, M&M Petroleum Services, Inc. M&M responded with a counterclaim of its own, a counterclaim that was not only found to be frivolous, but the product of perjury and other misconduct. The court held that had M&M merely defended Chevron's suit, it could not have been held liable for attorneys' fees. The court held, however, that in affirmatively bringing a counterclaim that was reasonably found to be frivilous, M&M opened itself up to liability for attorneys' fees under the Petroleum Marketing Practices Act, 15 U.S.C. 2805(d)(3). Therefore, the district court did not err in determining that Chevron was eligible to recover attorneys' fees, nor did the district court abuse its discretion in determining that M&M's counterclaim was frivolous and awarding attorneys' fees to Chevron under section 2805(d)(3). View "Chevron U.S.A. Inc. v. M&M Petroleum Servs, Inc." on Justia Law

This tax case concerned the procedures to be followed when the IRS conducted a partnership proceeding under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), I.R.C. 6221-6233. Plaintiffs, individual taxpayers and limited partners in partnerships that were the subject of such proceedings, filed suit on grounds that the lack of deficiency notices rendered the IRS's assessments invalid. At issue was whether the IRS was required to issue notices of deficiency before assessing additional tax payments from plaintiffs. The court held that the assessments in this case amounted to computational adjustments and therefore, no deficiency notices were necessary. The court noted that the three remaining questions the court put to the parties as part of en banc rehearing each presumed that a deficiency notice was required. Because the court's holding here definitively contradicted that presumption, the court need not analyze those questions. Accordingly, the court affirmed the judgement of the Court of Federal Claims. View "Bush, et al. v. United States; Shelton v. United States" on Justia Law

This case arose from the IRS's investigation of a type of tax shelter known as a "Son-of-Boss" (a variant of the Bond and Options Sales Strategy (BOSS) shelter). Petitioner appealed the Tax Court's decision in favor of the Commissioner of Internal Revenue. The court held that the IRS properly sent petitioner an affected item notice of deficiency because the deficiency required a partner-level determination. The court also held that the Tax Court had jurisdiction to redetermine affected items based on the partnership item determinations in the Final Partnership Administrative Adjustment (FPAA). Therefore, the court affirmed the judgment of the Tax Court. View "Napoliello v. Commissioner of Internal Revenue" on Justia Law

This case arose when taxpayer transferred membership units in a family-owned LLC partly as a gift and partly by a sale to two trusts and coupled the transfers with simultaneous gifts of LLC units to two charitable foundations. Subsequent to an IRS audit, which determined that the units had been undervalued, the foundations discovered they would receive additional units. At issue was whether the taxpayer was entitled to a charitable deduction equal to the value of the additional units the foundations would receive. The court held that Treasury Regulation 25.2522(c)-3(b)(1) did not bar a charitable deduction equal to the value of the additional units the foundations would receive. Therefore, the court affirmed the judgment. View "Commissioner of Internal Revenue v. Estate of Anne Y. Petter, et al." on Justia Law