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General Litigation Bulletins

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March 2000
Don't Even Consider it: First Circuit Sets New Limit to Responsible Person Penalty
The First Circuit, in Vinick v. United States, 2000 U.S. App. LEXIS 3593 (1 st Cir. March 8, 2000), held as a matter of law that in deciding whether a person qualified as a responsible individual for imposition of the Trust Fund Recovery Penalty, I.R.C. § 6672, a court could not consider evidence for any period other than that when taxes were unpaid.
Feb. 2000
Safe Harbor from Disclosure Litigation Tumult: Levy Disclosures Not Wrongful Despite Lack of Deficiency Notice
Levy Disclosures Not Wrongful Despite Lack Of Deficiency Notice. Answering the question of whether the Service may disclose tax return information in issuing liens and levies, even if the proper collection procedures were not followed, the Tenth Circuit in Mann v. United States, 2000 U.S. App. LEXIS 2487 (10 th Cir. Feb. 18, 2000), determined that I.R.C. § 6103(k)(6) provides a safe harbor for such disclosures. Because tax return information may be disclosed under section 6103(k)(6), even if procedural deficiencies render the levies defective, no cause of action exists under I.R.C. § 7431.
Feb. 2000
Facts & Circumstances Fifth Circuit Declines to Adopt Universal Tolling Rule
In a case involving whether successive bankruptcies toll the statute of limitations for collection, the Fifth Circuit found not clearly erroneous the bankruptcy court's factual determination that the debtor's filing of three bankruptcy petitions in three years was not done in bad faith. Internal Revenue Service v. Stern, 85 AFTR2d 2000-335 (5 th Cir. Dec. 16, 1999) (unpublished).
Dec. 1999
High and Drye, Supreme Court Finds Tax Lien Attaches to Estate Property Despite Disclaimer
In a unanimous decision only a month after oral argument, the Supreme Court ruled that an individual's state law disclaimer did not prevent pre-existing tax liens from attaching to an inheritance, in Drye Family 1995 Trust v. United States, 1999 U.S. LEXIS 8238 (S.Ct. Dec. 7, 1999). This significant victory for the Government confirms the primacy of the federal tax lien over state laws designed to protect property from the reach of creditors. It resolves a split among the circuits over whether the federal tax lien under I.R.C. § 6321 attached to the taxpayer's right to inherit, if the taxpayer later disclaimed his inheritance under state law.
Nov. 1999
What is Reasonable? Bright-Line Test for Reasonable Cause Exception Rejected
The Third Circuit, in East Wind Industries, Inc. v. United States, 1999 U.S. App. LEXIS 29869 (3 d Cir. Nov. 16, 1999), reversed the trial court in finding that financial hardship may constitute reasonable cause for the failure to pay taxes under I.R.C. § 6651 or to make deposits under I.R.C. § 6656.
Oct. 1999
Perfection: Unsuccessful Garnishments Sufficient to Perfect Creditor's Lien
Jack Schulman, an independent insurance agent for Primerica Life Insurance Company, died intestate on June 30, 1996. Primerica paid Schulman on commission, including commissions for policy renewals that continue to be paid to Schulman's estate. The amount of commission income to the estate is between $10,000 and $15,000 per month. Primerica will continue to pay commission income to Schulman's estate as long as policies he issued or managed continue to be renewed. The estate owes federal taxes on 1991, 1992, 1995 and 1996 tax assessments against Schulman, 1 although the 1995 and 1996 assessments were made after his death. The 1991 and 1992 taxes, totaling about $245,000, are secured by notices of federal tax lien filed in 1993. The 1995 and 1996 taxes, assessed on July 6, 1998 and totaling about $138,000, are unsecured.
Sept. 1999
Presumption of Disclosure Service Must Release Redacted FSAs Under FOIA
In the latest installment of the ongoing litigation, the district court in Tax Analysts v. Internal Revenue Service, 1999 U.S. Dist. LEXIS 14950 (D. D.C. Sept. 3, 1999) found the Service still is applying Freedom Of Information Act guidelines too restrictively, and ordered the release of previously redacted information from Field Service Advisories. The court suggested the Service follow the lead of the Department of Justice, whose policy states, "Justice [will] defend the assertion of a FOIA exemption only in those cases where the agency reasonably foresees that disclosure would be harmful to an interest protected by that exemption."
Aug. 1999
Equitable: Eleventh Circuit Agrees Bankruptcy Courts May Toll Priority Periods
In United States v. Morgan, 1999 U.S. App. LEXIS 10741 (11 th Cir. July 26, 1999), the first of a trio of appellate cases considering the Government's latest arguments on the issue of equitable tolling in bankruptcy, 1 the Eleventh Circuit concluded that the plain language of B.C. § 108(c) does not provide for the tolling of the priority period under B.C. § 507(a)(8)(A)(i) due to prior bankruptcy cases. However, the appellate court held that bankruptcy courts have the equitable power under B.C. § 105(a) to toll the priority period.
July 1999
Take a Look: Court Orders Service to Consider Offers in Compromise in Bankruptcy
A bankruptcy court has found the Service's policy not to consider an offer in compromise submitted by a debtor in bankruptcy to be discriminatory and a violation of B.C. § 525. While the Service's decision whether or not to accept an offer in compromise ("OIC") remains discretionary, the bankruptcy court of In re Chapman, 84 AFTR2d 99-5068 (Bankr. S. W.Va. June 23, 1999) used its equitable power under B.C. § 105 to require the Service to at least consider the OIC.
June 1999
Everything is Not Enough Automatic Stay Prevents Tax Lien Attaching to Inheritance
Acknowledging that the Service had, before the debtor filed bankruptcy, done all that was necessary to obtain a tax lien against the debtor's after-acquired property, the Fourth Circuit in United States v. Gold (In re Avis), 1999 U.S. App. LEXIS 14217 (4 th Cir. June 28, 1999) held that the automatic stay prevented the Service's lien from attaching to an inheritance acquired by the debtor during the bankruptcy.
May 1999
Whither Haas? Eleventh Circuit Upholds but Urges En Banc Reconsideration
The Eleventh Circuit reluctantly held in Griffith v. United States, 1999 U.S. App. LEXIS 8804 (11 th Cir. May 12, 1999), that a debtor's fraudulent efforts to escape tax collection was not a willful "attempt to evade or defeat such tax" under B.C. § 523(a)(1)(C) and In re Haas, 48 F.3d 1153 (11 th Cir. 1994). Reversing the lower courts, the Eleventh Circuit discharged the debtor from his tax debts, but urged an en banc reconsideration to narrow the scope of Haas.
April 1999
Lawless Actions, Fourth Circuit Grants Mandamus in Estate Tax Case
Accusing the Service of acting§ in complete disregard for the tax code,§ the Fourth Circuit granted a writ of mandamus, ordering the Service to extend a death tax credit to a decedent's estate. In the Estate of Mansy Y. Michael v. Lullo., 1999 U.S. App. LEXIS 5956 (4 th Cir. April 15, 1999), the decedent's estate filed an estate tax return which the Service audited, assessing an additional amount due. Following extensive negotiations, the Service sent a closing letter confirming the estate tax of $262,000 negotiated by the parties. The estate then provided proof of payment of taxes to the United Kingdom, and together with a small payment this credit satisfied the estate's tax liability.
March 1999
Privileged Communications Summons Enforced over Claim of Attorney-Client Privilege
The Second Circuit reversed the lower court and ruled in favor of the United States in a summons enforcement proceeding, United States v. Ackert, 1999 U.S. App. LEXIS 3129 (2d Cir. Feb. 26, 1999). An investment banking firm approached Paramount Communications with an investment proposal. The proposed transaction would generate significant capital losses, which would offset recent capital gains Paramount received from the sale of a subsidiary. Ackert, who pitched the proposal to Paramount, subsequently was contacted by Paramount's tax counsel. In conducting research to advise Paramount regarding the tax implications of the proposal, tax counsel met with and discussed details of the proposed transaction and its potential tax consequences. Paramount chose to go with the proposal, although using another investment banking firm.
Feb. 1999
Summons Enforcement Upheld
In United States v. Natco Petroleum, Inc., 1999 U.S. App. LEXIS 1442 (10 th Cir. Feb. 2, 1999) (unpublished), the Service issued a summons on a closely-held corporation, seeking corporate records regarding the civil tax liability of the taxpayer, who was the president and sole shareholder. At the enforcement hearing, the revenue agent was unclear whether the Service was investigating the tax liability of the corporation or of the taxpayer. The Tenth Circuit, affirming the district court, found the summons proper.
Jan. 1999
Objectionable Chapter 12 Plan Strips Tax Liens
In July, 1990, the Service filed tax liens for 1987-89 taxes against taxpayers, who subsequently filed chapter 12 bankruptcy in January, 1992. In April, 1992, the debtors filed their chapter 12 plan, listing the Service's claim as unsecured priority in the amount of $13,500. Without objection by the Service, the debtors' plan was confirmed in September, 1992. In October, 1992, the Service timely filed a proof of claim listing $27,000 in secured taxes, $1,500 in priority taxes, and $400 in unsecured taxes for the 1987-89 & 1991 tax years. The debtors claimed their real property was fully encumbered by other creditors, but did not file an objection to the Service's proof of claim. In June, 1993, the debtors filed a motion to sell real property, proposing to pay the Service's "tax lien" of $13,500. The Service did not object to the sale, and applied the proceeds to the 1987-88 tax years.
Dec. 1998
Gone But Not Forgotten: Haas Court Finds Debtors' Plan Infeasible
In 1995, the Eleventh Circuit held that a debtor's mere failure to pay taxes, without more, does not make those taxes nondischargeable. In re Haas, 43 F.3d 1153 (11 th Cir. 1995). Now comes the sequel, In re Haas, 1998 U.S. App. LEXIS 31388 (11 th Cir. Dec. 14, 1998). The debtors owed the Service $617,000 in income taxes (which taxes were ruled dischargeable under B.C. § 523(a)(1)(C)) and $68,000 in employment taxes. The income taxes were secured by notices of federal tax lien, while the employment taxes were trust fund taxes, and so enjoyed priority status under section 507(a)(8)(C).
Nov. 1998
Bad News, Good News Court Allows Equitable Tolling in Wrongful Levy Actions (But Not in this Case)
The Service levied on the taxpayer's wages, receiving from the taxpayer's company the amount of the taxpayer's retirement benefits. A year later, the taxpayer pled guilty to multiple criminal charges, and was ordered to pay restitution to his company. With the taxpayer in jail, the company sought a refund of the amount previously levied by the Government so as to satisfy the restitution order. However, the action under I.R.C. § 7426 was brought beyond the statute of limitations for wrongful levy, under I.R.C. § 6532(c). The company argued that, under the circumstances, the limitations period should be equitably tolled.


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