Source: http://sclawreview.org/case-summaries-tax/
Timestamp: 2017-03-28 10:09:24
Document Index: 512896487

Matched Legal Cases: ['§ 1', '§ 707', '§ 707', '§ 707', '§ 6103', '§ 7431', '§ 7430']

Tax - South Carolina Law Review
Tax	ROUTE 231, LLC, JOHN D. CARR, TAX MATTERS PARTNER v. COMMISSIONER OF INTERNAL REVENUE, NO. 14-1983Decided: January 8, 2016
The Fourth Circuit affirmed the decision of the Tax Court
This case stemmed from Route 231’s filing of its federal tax return in 2005, and the Commissioner of the IRS issued a Final Partnership Administrative adjustment (“FPAA”) stating that one of its transactions from its member Virginia Conservation Tax Credit FD LLLP (“Virginia Conservation”) should have been listed as gross income and not as a capital contribution. Route 231 challenged this determination, and the Tax Court found that the transaction was a “sale” and should have been listed as gross income. Route 231 appealed.
The Fourth Circuit first looked at Route 231’s argument that the “Virginia tax credit transaction with Virignia Conservation constituted a nontaxable capital contribution followed by a permissible allocation of partnership assets to a bona fide partner.” In making its determination, the Court first looked at whether the transaction was a “disguised sale,” and listed seeral relevant factors to look at when amking this determination. The Court also noted that there was a presumption of a sale created in regulation § 1.707-3(b)(2) when the partner/partnership transfers occurred within a two-year period, unless the facts and circumstances established otherwise, a presmption that placed a high burden on a partnership to disprove that a sale had occurred. Although Route 231 attempted to distinguish the previous Virginia Historic from this case and say that because Virginia Conservation is a bona fide partner, the partner/partnership transactions are immune from the scope of § 707. However, the Court says this argument misses the point, because the analysis under § 707 looks at the nature of the transaction itself and not the nature of the participants in the transaction. In looking at the transaction, the Court first determined whether the Virginia tax credits are property within the scope of § 707, and agree with the Tax Court that they are. It next looked at whether the transfer of the property was a “sale,” and because the exchange of tax credits for money occurred within a two-year period, the sale presumption applied. The Court listed the Tax Court’s list of factors that showed the transaction was a “sale,” and agreed with the Tax Court that those factors point to the conclusion that the transaction was a “sale,” and therefore should have been listed as “income.” Furthermore, the Court agreed with the Tax Court that the tax year in which the income should have been reported was 2005, not 2006 as Route 231 contended. First, the Court noted that Route 231 listed on its 2005 tax form that it received the money from the sale in 2005. Under the principles of the tax code, the Court firmly stated that a “taxpayer may be barred from taking one factual position in a tax return and then taking an inconsistent position later in a court proceeding in an effort to avoid liability based on the altered tax consequences of the original position.” Additionally, the Court found that Virginia Conservation had “legal title in, an equity interest in, and the right to possess the tax credits as soon as Route 231 earned them,” according to the terms of the agreement between them. Finally, the Court said that Route 231’s use of the accrual method of accounting showed that the sale occurred in 2005. For these reasons, the Fourth Circuit affirmed the finding of the Tax Court. Full opinion
NAT’L ORG. FOR MARRIAGE v. U.S., NO. 14-2363 Decided: December 2, 2015 The Fourth Circuit affirmed the district court’s denial for the National Organization for Marriage (NOM) to collect attorneys’ fees because the government’s litigation position was “substantially justified” showing NOM was not a “prevailing party” under the statute. NOM is a tax-exempt, nonprofit organization that works to protect and sustain marriage and faith throughout the United States. NOM is required to annually file Internal Revenue Service (IRS) Form 990, which includes names, addresses, and contribution amounts of donors who give $5,000 or more during the year. The IRS is required to disclose this information to the public but must redact the names and addresses. However, an IRS clerk released a copy of the unredacted donor list, and it eventually was published online by the Human Rights Campaign (HRC) and the Huffington Post. NOM filed suit against the IRS seeking damages for the unlawful inspection and disclosure of confidential tax information by agents of the IRS in violation of 26 U.S.C. § 6103. NOM sought statutory damages, actual damages, punitive damages, and costs and attorneys’ fees under § 7431(c). The government conceded that its release of the information entitled NOM to a single recovery of statutory damages but not actual damages, punitive damages, costs, or attorneys’ fees. After discovery, the government moved for summary judgment. The district court granted partial summary judgment to the government. The court found that NOM was not entitled to punitive damages and NOM’s claim of unlawful inspection failed due to a lack of evidence. However, the district court determined NOM was entitled to actual damages, and the parties entered into a consent judgment for the government to pay NOM $50,000 to resolve its claims for actual damages and costs. NOM then moved for $691,025.05 in attorney’s fees. The district court denied this motion, and NOM appealed.
Reasonable attorneys’ fees, when the defendant is the United States, are available under § 7430(c)(4). Section 7430(c)(4)(B)(i) requires that if the government is the defendant, the plaintiff “shall not be treated as the prevailing party…if the United States establishes that [its] position…in the proceeding was substantially justified.” The district court determined that the government “reasonably contested NOM’s unfounded willful disclosure and inspection allegations that would have supported a claim for punitive damages if properly proven.” However, the court did not comment on whether the government’s position regarding actual damages was substantially justified. Here, NOM argues there was an abuse of discretion. The litigation position of the government is “substantially justified” if it has a “reasonable basis in law and fact” or if it is “justified to a degree that could satisfy a reasonable person.” The burden is on the government to show that it was substantially justified. In determining whether the government’s position was substantially justified, the court looked at the available objective indicia of the strength of the government’s position and conducted an independent assessment of the merits of the government’s position with respect to actual damages. Here, NOM sought statutory, actual, and punitive damages. The Fourth Circuit concluded that the government adopted a reasonable strategy in conceding statutory damages, but challenging both actual and punitive damages. The government had substantial justification to argue that the proximate cause had been broken. If the government would have conceded actual damages early on, this could have hurt the government’s position later if NOM had been able to submit evidence enabling it to proceed on the punitive damages issue. Therefore, the Fourth Circuit could not say that the government acted unreasonable prior to the summary judgment stage of the litigation by waiting to see what NOM’s evidence was and then challenging its sufficiency. The Fourth Circuit held that the government’s position was substantially justified, making NOM not entitled to attorney’s fees because it was not a prevailing party. Full Opinion
Montgomery County v. Federal National Mortgage Association, Nos. 13-1691; 13-1752Decided: January 27, 2014
– Wesley B. Lambert Corr v. Metropolitan Washington Airports Authority, No. 13-1076 Decided: January 21, 2014
United States v. Under Seal, No. 13-4267Decided: December 13, 2013
Philip Morris USA, Inc. v. Vilsack, No. 12-2498 Decided: November 20, 2013
Johnson v. United States, No. 12-1739 Decided: November 5, 2013
United States v. Woods, No. 11-4817Decided: March 18, 2013
Municipal Association v. USAA General Indemnity, Nos. 11-2220, 2221, 222, and 2223 Decided: March 1, 2013
Hire Order Ltd. v. Marianos, No. 11-1802Decided: October 18, 2012
United States v. Jinwright, No. 10-5289 and No. 10-5290Decided: June 22, 2012