Federal Circuit Invalidates Section 263A Regulation Under the Chevron Test

On May 31, 2012, the U.S. Court of Appeals for the Federal Circuit concluded that the associated property rule in Treas. Reg. § 1.263A-11(e)(1)(ii)(B) as applied to property temporarily withdrawn from service was not a reasonable interpretation of 26 U.S.C. Section 263A (“Section 263A”).  The Federal Circuit also found that the Treasury Department failed to provide a reasoned explanation when it promulgated that regulation.  Dominion Resources, Inc. v. United States, 97 Fed. Cl. 239 (Fed. Cir. 2012) is available here.  The Treasury Regulation at issue is available here while Section 263A is available here.

The factual background is incorporated in the opinion.  Dominion Resources is in the business of providing electric power and natural gas to individuals and businesses.  In 1996, it replaced coal burners in two of its plants.  While making those improvements, it temporarily removed the units from service “ one unit for two months and the other for three months.  During this period, Dominion incurred interest on debt unrelated to these improvements.  Dominion deducted some of this interest from its taxable income.  The IRS disagreed with the deduction computation under Treas. Reg. § 1.263A-11(e)(1)(ii)(B) and applied the regulation to capitalize $3.3 million of that interest instead of deducting it.  This distinction is notable because a deduction occurs immediately in the tax year, while capitalization occurs over later years.  In a settlement between the IRS and Dominion, the IRS allowed Dominion to deduct 50% and capitalize 50% of the disputed amount.  Dominion nonetheless disputed the amounts and sought to invalidate Treas. Reg. § 1.263A-11(e)(1)(ii)(B) in court.

Section 263A is comprised of five subsections, which the court described as “circular” because each rule referred to another rule in a progression such that the reader ends at the beginning.  Nevertheless, as a general rule, Section 263A requires capitalization of certain costs incurred in improving real property, instead of deduction.   Subsection (f) provides the general rule that interest is a cost requiring capitalization when the cost is allocable to the property.  Furthermore, the section states that “[s]ubsection (a) shall only apply to interest costs which are (A) paid or incurred during the production period, and (B) allocable to property which is described in subsection (b)(1)”  For determining what interests costs are allocable, subsections (f)(1) and (f)(2) provide that interest is allocable “to the extent that the taxpayers interest costs could have been reduced if production expenditures had not incurred.”  In determining the amount of interest required to be capitalized under Section 263A(f)(2), interest on any other indebtedness is assigned to such property that the taxpayers interest costs could have been reduced if production expenditures had not been incurred.  This subsection is generally considered the “avoided-cost principle.”

The regulation at issue defined what constituted production expenditures and determined the amount of interest capitalized. Under Treas. Reg. § 1.263A-11(e)(1), production expenditures subject to capitalization include not only the amount of allocable portion of the cost of land but also the adjusted basis of the entire unit being improved that is temporarily withdrawn from service, known as associated property.  Thus, by including the adjusted basis amount, the regulation increased the amount of interest to be capitalized.

The issue on appeal from the decision of the U.S. Court of Federal Claims, available here here, was whether the inclusion of the adjusted basis of the unit violates various statutory provisions.  Because Treas. Reg. § 1.263A-11(e)(1)(ii)(B) required a larger base amount, it resulted in a larger amount of interest to be capitalized.  The challenge to the regulation was only as applied to property that was temporarily withdrawn from service and not as applied to property that was not placed in service. 

The court analyzed the validity of Treas. Reg. § 1.263A-11(e)(1)(ii)(B) under what is commonly referred to as the “two-step test” set forth in Chevron, USA v. NRDC, 467 U.S. 837 (1984), available here.  Step one is whether Congress has directly spoken to the precise question at issue.  If the statute is silent or ambiguous, the second step resolves the question of whether the agencys answer is based on a permissible construction of that statute. 

In the present case, the regulation did not contradict the text of the statute but only because the statute is opaque, or as previously explained, circular.  Therefore, the Federal Circuit determined that the statute was ambiguous and was forced to turn to the second step of the Chevron test.

Under step two, the Court concluded that the regulation directly contradicted the “avoided-cost rule” which implemented Congresss concern with the avoided cost principle.  This rule recognizes that if the improvement had not been made, those funds could have been used to pay down the debt and therefore reduce interest that accrued on the debt.  In the instant case, the improvement was made and that amount was not used to pay down the debt and interest consequently accrued on that amount. 

Moreover, the adjusted basis did not represent an avoided amount because a property owner does not expend funds in an amount equal to the adjusted basis when making the improvement.  Instead, a property owner expends funds in an amount equal to the cost of the improvement itself.  Additionally, the statute uses the term “expenditures,” the plain meaning of which is an amount actually expended or spent on the improvement.  The Court explained that a property owner would not expend or incur an amount equal to the adjusted basis when making the improvement, and as a result, the regulation unreasonably linked the interest capitalized when making an improvement to the adjusted basis. It reasoned that the only way an amount equal to the adjusted basis could potentially satisfy the avoided-cost rule was by assuming that the property owner did not expend funds in an amount equal to the adjusted basis when making the improvement.  Even so, the Court stated that there was no reasonable explanation that assumed that a property owner would have sold the same unit that it removed from service for the sole purpose of improving.  Accordingly, the federal regulation unreasonably linked the interest capitalized when making an improvement to the adjusted basis.  Therefore, the associated property rule in Treas. Reg. § 1.263A-11(e)(1)(ii)(B) as applied to property temporarily withdrawn from service was not a reasonable interpretation of Section 263A(f)(2)(A)(ii) and was deemed to be invalid.

The Court further held that the associated property rule in Treas. Reg. § 1.263A-11(e)(1)(ii)(B) violated the State Farm requirement that the Treasury provide reasoned explanations for adopting regulations.  State Farm requires the Treasury to articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choice made.  See Motor Vehicles Mfrs. Assn of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).  The Court stated that the IRS failed to provide guidance that mentioned adjusted basis as part of the interest-capitalization method.  There was no rationale other than the general statement that the regulations were intended to implement the avoided-cost method. 

In conclusion, the IRS failed to provide any explanation for the way that the use of an adjusted basis implemented the avoided-cost rule and it did not satisfy the rule.  The Treasury did alert the interested public how the basis of the property being improved would be treated, but the explanation was not sufficient to satisfy the State Farm requirement that the regulation articulate a satisfactory or cogent explanation.

The attorneys at Fuerst Ittleman, PL have extensive civil and criminal tax litigation experience before the U.S. District Courts, the U.S. Tax Court, the U.S. Court of Federal Claims, and the U.S. Circuit Courts of Appeal.  You can contact us by calling 305.350.5690, or by emailing us at contact@fidjlaw.com.

Federal Appeals Court Affirms Collateral Consequences of Park Doctrine

On July 27, 2012, the United States Court of Appeals for the D.C. Circuit in Freidman v. Sebelius upheld the U.S. Department of Health and Human Services (“HHS“) determination to exclude three former Purdue Pharma executives from participating in federal healthcare programs after they pled guilty to misdemeanor misbranding violations under the Federal Food, Drug, and Cosmetic Act (“FDCA”) based on the Park Doctrine. The Freidman case is an example of the potential collateral consequences of Park Doctrine prosecutions.

The Park Doctrine, also known as the “Responsible Corporate Officer Doctrine” (“RCO”), allows corporate officials to be convicted of misdemeanors based entirely on his or her position and responsibility in a corporation. Notably, the Governments burden to support a misdemeanor conviction under Park is relatively low. The Government must only show that the violation occurred and that the alleged person to be the responsible corporate official occupied a position of responsibility where the official could have prevented or corrected the violation. There is no requirement that a person had any criminal intent or acted personally in any wrongdoing, or for that matter, was even aware of a violation. We have previously blogged about the recent use of the Park Doctrine by the U.S. Food and Drug Administration (“FDA“), here and here.

Background

As we previously reported, in 2007, Purdue Pharma L.P. and Purdue Frederick Company, Inc. (hereinafter “Purdue”) pled guilty to one felony count of misbranding in violation of 21 U.S.C. § 331(a) for knowingly and intentionally marketing OxyContin, a schedule II controlled substance, as less addictive, and less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than other pain medications. Additionally, three Purdue executives pled guilty to one count of misdemeanor misbranding in violation of 21 U.S.C. § 331(a) and for their admitted failure to prevent Purdues fraudulent marketing of OxyContin under the Park Doctrine. At sentencing, the three executives were sentenced to probation and disgorged millions of dollars of income.

However, soon after the executives entered their guilty pleas, HHS excluded them from any participation in federal health care programs for 12 years because their convictions were based on fraud and the unlawful manufacture of a controlled substance. As a consequence of this exclusion, the corporate officers will be unable to engage any in business which participates in federal health care programs such as Medicare and Medicaid. HHSs decision was upheld by the U.S. District Court for the District of Columbia.

Appeals Court Decision

On appeal to the United States District Court of Appeals for the D.C. Circuit, the executives argued that (1) their misdemeanor misbranding convictions did not rise to the level of "relating to fraud" as to warrant the penalty of exclusion under 42 U.S.C. § 1320a-7(b)(1), and (2) the length of their exclusions was not supported by substantial evidence and thus was arbitrary and capricious.

In its decision, available here, the Court of Appeals held that HHS has the authority to exclude individuals convicted of a misdemeanor if the conduct underlying the conviction is related to fraud, even if the individual is an executive that had no knowledge of the underlying fraudulent conduct based on the Park Doctrine. However, the Court of Appeals also found that the 12 year exclusion of the Purdue executives was arbitrary and capricious because HHS failed to justify the unprecedented length of the exclusion as required by the Administrative Procedure Act. The Appeals Court therefore remanded the case to the District Court with instructions to remand the matter on to HHS for further consideration of the length of the exclusions.

Significantly, the exclusions in Friedman, even if reduced, constitute a severe penalty for executives facing a misdemeanor prosecution under the Park Doctrine. As we previously reported, the FDA has expressly stated that it will seek to increase the amount of Park Doctrine criminal prosecutions of corporate executives whose companies commit FDCA violations.

The FDA and white collar criminal defense lawyers at Fuerst Ittleman are experienced in handling even the most complex cases where clients are facing allegations of criminal actions. Fuerst Ittleman attorneys have represented clients in a variety of FDA-related criminal investigations and prosecutions including violations of the FDCA under 21 U.S.C. §§ 331 and 333 as well as prosecutions of corporate officials under the Park Doctrine. For more information regarding Fuerst Ittlemans white collar criminal defense practice, contact an attorney today at contact@fidjlaw.com

IRS Win in Appellate Case Portends Bigger FBAR crackdown

On July 20, 2012, the U.S. Court of Appeals for the Fourth Circuit concluded that the district court clearly erred in finding that the Government failed to prove that J. Bryan Williams willfully violated 31 U.S.C. § 5314 by failing to report his interest in two foreign bank accounts for the tax year 2000 and reversed the district courts opinion.  United States v. J. Bryan Williams, case no. 10-2230 (4th Cir. 2012), an unpublished opinion, is available here.

The matter was before the Fourth Circuit following the Governments appeal of the decision of the U.S. District Court for the Eastern District of Virginia, available here, which had ruled that the IRS lacked evidence to prove Williams willful violation of the FBAR filing requirement.

The background and facts are incorporated in the opinion.  Pursuant to § 5314, taxpayers are required to report annually to the Internal Revenue Service (IRS) any financial interests the taxpayer has in any bank, securities, or other financial accounts in a foreign country.  The report is made by filing and completing form TD F 90-22.1, otherwise known as “FBAR.”  Section 5314 is available here. The FBAR must be filed on or before June 30th of each calendar year and the Secretary of Treasury may impose civil money penalties on any person who fails to timely file the report.  Under 31 U.S.C. § 5321, the Secretary may impose a maximum penalty of up to $100,000 or 50% of the balance in the account at the time of such violation if the taxpayer “willfully” fails to file the FBAR, which was the issue in the Williams case. 

The controversy began in 1993 when Williams opened two Swiss bank accounts in the name of ALQI Holdings, Ltd.  From 1993 through 2000, Williams deposited more than $7,000,000 into the ALQI accounts, earning more than $800,000 in income on the deposits.  Williams, in violation of § 5314, did not report to the IRS the income from the ALQI accounts or his interest in the accounts.  By late 2000, the Swiss and U.S. authorities became aware of the assets in the ALQI accounts, and froze the accounts after meeting Williams and his attorneys.

In January 2001, Williams completed a tax organizer, which had been provided to him by his accountant in connection with the preparation of his 2000 tax return.  The tax organizer included a question regarding whether Williams had “an interest in or a signature or other authority over a bank account, or other financial account in a foreign country.”  Williams answered “No.”  Williams 2000 Form 1040, line 7(a), asked the identical question and included instructions for exceptions and filing requirements for the FBAR.  Williams once again checked “No” and did not file an FBAR by the June 30, 2001 deadline. 

In January 2002, upon the advice of his attorneys and accountants, Williams fully disclosed the ALQI accounts to an IRS agent.  In October 2002, he filed his 2001 tax return that acknowledged his interest in the ALQI accounts. In 2003, Williams amended his 1999 and 2000 tax returns, which disclosed details about his ALQI accounts.

In June 2003, Williams pled guilty to conspiracy to defraud the IRS, in violation of 18 U.S.C. § 371, and criminal tax evasion, in violation of 26 U.S.C. § 7201, available here, for his connection with the ALQI accounts from 1993 to 2000.  Williams submitted an allocution, however, and received a three-level reduction under the Sentencing Guidelines for the acceptance of responsibility. In his allocution, Williams admitted to: (1) choosing not to report the income from the ALQI accounts until he filed his 2001 tax return; (2) knowing that he had an obligation to report to the IRS and/or the Department of Treasury the existence of the Swiss accounts but chose to hide his true income and evade taxes; and (3) knowing that what he was doing was wrong and unlawful and therefore admitting guilt of evading the payment of taxes for the tax years 1993 through 2000. 

In January 2007, Williams finally filed FBARs for each tax year from 1993 through 2000.  The IRS assessed two $100,000 civil penalties against him pursuant to § 5321(5), available here, for his failure to file an FBAR for the tax year 2000.  The IRS only assessed penalties for the tax year 2000 because the statute of limitations for assessing penalties for the other tax years had expired.  Williams subsequently failed to pay these penalties and the Government brought this enforcement action to collect them. 

All parties agree that Williams violated § 5314 by failing to timely file an FBAR for tax year 2000.  Thus, the only question is whether the violation was willful.  In holding that Williams violation was not willful, the district court explained that (1) Williams lacked any motivation to willfully conceal the accounts because the authorities were already aware of such accounts and (2) his failure to disclose the accounts “was not an act undertaken intentionally or in deliberate disregard for the law, but instead constituted an understandable omission given the context in which it occurred.”

In analyzing whether Williams conduct was willful, the opinion explains that willfulness “may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information,” and it “can be inferred from a conscious effort to avoid learning about reporting requirements.”  United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991).  Likewise, “willful blindness” may be inferred where “a defendant was subjectively aware of high probability of the existence of a tax liability, and purposefully avoided learning the fats point to such liability.”  United States v. Poole, 640 F.3d 114, 122 (4th Cir. 2011).  Importantly, in cases “where willfulness is a statutory condition of civil liability, [courts] have generally taken it to cover not only knowing violations of a standard but reckless ones as well.”  Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57 (2007).  Whether a person failed to comply with a tax reporting requirement is a question of fact.  Rycoff v. U.S., 40 F.3d 305, 307 (9th Cir. 1994); accord U.S. v. Gormley, 201 f.3d 290, 294 (4th Cir. 2000). 

The Courts review of the district courts decision is narrow under the clearly erroneous standard set forth in Federal Rule of Civil Procedure 52(a).  If the district courts account of the evidence is plausible, the court of appeals may not reverse even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.  However, the district courts findings are not conclusive if they are plainly wrong and the appellate court is allowed to engage in meaningful appellate review.  The dissenting opinion points out that there was evidence to support the district courts ruling, and therefore the circuit court should not reverse. 

Nonetheless, the majority opinion did in fact believe, with a definite and firm conviction, that the district court clearly erred in finding that Williams did not willfully violate § 5314.  In support thereof, the Court explained that Williams signed his 2000 tax return, thereby declaring under penalty of perjury that he had examined this return and accompanying schedules and statements and that, to the best of his knowledge, the return was true, accurate, and complete.  His signature was prima facie evidence that he knew the contents of his return and at minimum, line 7(a)s directions for the FBAR requirements put Williams on inquiry notice of the FBAR requirement. 

As the Fourth Circuit wrote, nothing in the record indicated that Williams ever consulted the FBAR or its instructions. Williams testified that he did not read line 7(a) or paid attention to any of the written words on his tax return.  According to Sturman, Williams made a conscious effort to avoid learning about reporting requirements.  Thus, according to the Fourth Circuit, Williamss false answers on both the tax organizer and his tax return further indicated conduct that was meant to conceal or mislead sources of income or other financial information.  Struman, 951 F.2d at 1476.  This conduct also constituted willful blindness to the FBAR requirement.  Poole, 640 F.3d at 122.

Moreover, the Fourth Circuit held that Williamss guilty plea allocation confirmed that his violation of § 5314 was willful.  Williams acknowledged that he willfully failed to report the existence of the ALQI accounts to the IRS or Department of the Treasury as part of his larger scheme of tax evasion.  Thus, the Court held that that acknowledgement was itself an admission of violation § 5314, because a taxpayer complies with § 5314 by filing an FBAR with the Department of Treasury.  Accordingly, Williams could not claim that he was unaware of, inadvertently ignored, or otherwise lacked motivation to disregard the FBAR reporting requirement.

In conclusion, the Fourth Circuits majority was convinced that, at a minimum, Williamss actions established reckless conduct, which satisfied the proof requirement under § 5314.  Safeco Ins., 551 U.S. at 57.  Thus, the Court ruled that the district court clearly erred in finding that willfulness had not been established. 

The attorneys at Fuerst Ittleman, PL have extensive civil and criminal tax litigation experience before the U.S. District Courts, the U.S. Tax Court, and the U.S. Circuit Courts of Appeal.  You can contact us by calling 305.350.5690, or by emailing us at contact@fidjlaw.com.

U.S. Tax Court Rules Silent Illinois Politician Committed Tax Fraud; Statute of Limitations does not Bar Assessment of Old Deficiency

On July 30, 2012, the U.S. Tax Court concluded that Betty Loren-Maltese, a locally well-known Illinois politician, fraudulently underreported income on her 1994 income tax return by omitting two substantial conversions of campaign funds to personal use.  Betty Loren-Maltese v. Commissioner, T.C. Memo 2012-214, is available here.

Ms. Loren-Maltese was the President of Cicero and the Republican Committeeman of Cicero Township, Illinois in 1994.  (Some readers may recognize Cicero as a town known for the headquarters of Chicago mobster Al Capone.  Certainly, Ms. Loren-Malteses actions did not help Ciceros colorful reputation.  She is the widow of another well-known local politician, Frank Maltese, who was sentenced to prison for being a mob bookmaker and pleading guilty to a federal gambling charge.) In 2002, Ms. Loren-Maltese was sentenced to serve eight years prison for conspiracy to defraud the town through a pattern of racketeering via multiple acts of bribery, money laundering, mail and wire fraud, official misconduct and interstate transportation of stolen property. See her criminal conviction in U.S. v. Spano, 421 F.3d 599 (7th Cir. 2005) here.

In addition to her criminal conviction, the Commissioner issued a notice of deficiency alleging civil tax-fraud for tax year 1994.  The Commissioner contended that Ms. Loren-Maltese withdrew more than $350,000 from the Committeeman Fund to finance her purchase of a classic black 1993 Cadillac Allante convertible and to invest in a luxury golf course.  The Commissioner also contended that the car and investment created taxable income in which she fraudulently tried to evade the tax due on the income.

Thus, there were three issues of law in the case related to the car purchase and golf course investment: (1) the general rules of tax fraud; (2) the proper treatment of money taken by a politician from her campaign fund for personal use; and (3) the effect of taking the Fifth Amendment in civil tax litigation, right against self-incrimination. Below, we explore how the Tax Court addressed these issues.

(As a threshold matter, it is important to take notice that the Commissioner was required to establish the underpayment from the personal use of campaign funds was fraudulent because fraud stops the clock on the statute of limitations under Sections 6501(a) and (c) available here.  Because so much time had passed since Ms. Loren-Maltese filed her 1994 tax returns, proving fraud was the only way the Commissioner could prevail.)

The Car

In 1994, Ms. Loren-Maltese purchased a classic black limited edition 1993 Cadillac Allante convertible with a check that was drawn on the Committeeman Fund.  The documents, prepared by the dealer and reviewed by Ms. Loren-Maltese, indicated that she was the owner and not in a capacity for the Town of Cicero or the Republican Party.  Using the Committeeman Fund to purchase the car for personal use is critical because Ciceros town attorney informed Ms. Loren-Maltese that she did not have to disclose contributions or expenditures for the Committeeman Fund, but did have to file publicly disclosed financial reports that gave detailed lists of contributions and expenditures for the Organization Fund.  The attorney also informed her that if she took money from the funds, she would have to pay tax on it and consider it personal income.  Nonetheless, she purchased an individual auto-insurance policy, indicated the use was for pleasure, and gave the dealership her personal information such as her address and drivers license number.  Under Illinois law, the name of the title creates a prima facie presumption that she is the owner of the car.

The court explained that paper formalities were not enough to prove an underpayment existed from the failure to include the personal use of the Committeeman Fund as personal income.  In response, the Commissioner pointed to her silence at trial.  She invoked the Fifth Amendment on virtually every question about the car, including its purchase, use, reporting, and her use of Committeeman Funds to buy it.  This silence severely injured her case because it allowed the court to draw a negative inference against her and because the Commissioner had voluminous evidence against her, such as her use of personal funds for insurance payments and maintenance for the car.  Human nature also allowed the court to draw inferences from her silence if, under the circumstances, it wouldve been natural for her to object.  See U.S. v. Hale, 422 U.S. 171 (1975).  Furthermore, the car was garaged at her summer home in Indiana.  Thus, the court determined car was purchased for personal use with money she personally converted from the Committeeman Fund and failed to include that income on her tax return, which created an underpayment.

However, to prove fraud, the Commissioner was required to provide some evidence that she understood that she used campaign funds for personal use and willfully did so with the intent to evade taxes she knew would have been due.  The Commissioner already established that an underpayment existed, and subsequently, the Commissioner needed to establish some portion of that underpayment was due to fraud.  Furthermore, fraud requires a state of mind, which is commonly defined as an intentional wrongdoing on part of the taxpayer with the specific purpose to evade a tax believed to be owing.  See McGee v. Commissioner, 61 T.C. 249 (1973).  It is rare to have direct proof of someones state of mind, so the court typically relies on circumstantial evidence.  In this case, the court looked for “badges of fraud,” which were inadequate records, implausible or inconsistent explanations of behavior, concealing assets, engaging in illegal activities, and attempting to conceal activities.

The court explained that she was well-advised by the town attorney on the details of titling and tracing funds but used this knowledge to hide her use of campaign funds.  She also asked to garage the car at someone elses home after learning she was the subject of a federal investigation.  Therefore, the court found that the Commissioner had shown by clear and convincing evidence that Ms. Loren-Malteses understatement of income was due to fraud.

The Golf Course

The other item of the asserted underpayment of taxes came from Ms. Loren-Malteses investment in the Four Seasons resort and golf course in Miscauno Island, Wisconsin.  The resort was in desperate need of renovation, and the money for the work came from loans by Ms. Loren-Maltese and other investors.  Between July and September of 1994, Ms. Loren-Maltese gave and personally signed three checks totaling $350,000, also drawn from the Committeeman Funds account, to investors for the Four Seasons.

Despite her use of the Committeeman Funds account, all documents relating to the loan and promissory notes identified Ms. Loren-Maltese in her personal capacity only.  The purchase in her personal capacity only is further evidenced through the investment group commissioning research into the complicated Wisconsin laws.  The lawyer who conducted the research carefully noted the names of the parties involved, the amount of investments, and their legal capacities.  There was no mention of Ms. Loren-Maltese in any representative capacity while other investors were indentified as holding interests as partnerships.  As a result, the court determined that Ms. Loren-Maltese did not include in her personal income the money taken from the Committeeman Fund, which resulted in an underpayment of taxes. 

Once the court determined she used the Committeeman Fund for personal use, the court then determined that Ms. Loren-Maltese failed to carry her burden to establish that the understatement of income arising from the Four Seasons investment wasnt done with fraudulent intent.  She tried to argue the investment was done on behalf of the Committeeman Fund as the loan repayments were signed over to the Fund.  However, the checks were only signed over after a grand jury subpoena for information and the documents relating to investments made in the Four Seasons were served.

Additionally, her argument that the investment was done on behalf of the Committeeman Fund is inconsistent with her Form D-2s, Report of Campaign Contributions and Expenditures.  The forms indicated great discrepancies between the reported assets and the actual account balances of the Committeeman Fund and the differences do not coincide with the Four Seasons investment. Once again, her argument also failed due to her negative inference from taking her Fifth Amendment when asked at trial about whether she knowingly falsified the Form D-2s to disguise her investment in the Four Seasons.  The omissions and inconsistencies in the forms, along with her less-than-credible argument, flash another badge of fraud, which is that of implausible explanations.

Ms. Loren-Maltese also argued that she complied with state reporting requirements and treated the promissory note as an investment.  Nevertheless, there were exceptionally suspicious imprecision from the loan and repayments on note.  Other expenditures and receipts on the D-2 include exact values of modest expenses like keychains and fast-food meals.  Consequently, the court concluded that the her attempts to recharacterize the investment as an investment on behalf of the Fund, rather than a conversion of the Funds assets to her personal use failed to refute the Commissioners argument that any understatement from her failure to include the amount of her investment in the Four Seasons as income on her 1994 was due to fraud.

The court also took note of Ms. Loren-Malteses level of education and business experience as a factor in determining fraudulent intent.  She was a capable politician who managed the business affairs of the Town, understood contracts and the importance of title, understood what a nominee was, and hired attorneys to help her with the Four Seasons investment.  She also used her knowledge as an experience politician to conceal her activities.

In conclusion, the court found that both the car and golf course should have been included in her income.  Her failure to do so was due to fraud.  Thus, the statute of limitations was not barred for assessing her 1994 deficiency.

The attorneys at Fuerst Ittleman, PL have extensive civil and criminal tax litigation experience before the U.S. District Courts, the U.S. Tax Court, and the U.S. Circuit Courts of Appeal.  You can contact us by calling 305.350.5690, or by emailing us at contact@fidjlaw.com.

Update: Workers Compensation Fraud Task Force Announces Multiple Arrests in Workers Compensation Check Cashing Scheme

On July 30, 2012, Florida Chief Financial Officer Jeff Atwater and Broward County Sheriff Al Lamberti announced multiple arrests in an investigation conducted by the Florida Workers’ Compensation Fraud Task Force known as “Operation Dirty Money.” The arrests come as part of a larger effort of the Florida Department of Financial Services’ Division of Insurance Fraud to combat workers’ compensation fraud facilitated by money services businesses (“MSB”)

As we previously reported here, MSB facilitated workers’ compensation fraud has been in the crosshairs of Florida officials since August of 2011. At that time, the Financial Services Commission of the Florida Office of Financial Regulation issued a cabinet report to Governor Rick Scott regarding MSB facilitated workers’ compensation schemes. The report revealed that MSBs have played an active, critical, and sometimes unknowing part in defrauding the workers’ compensation insurance market in Florida. A complete overview of the fraud scheme can be read here.

As a result of these findings, Florida C.F.O. Atwater announced the creation of the “MSB Facilitated Workers’ Compensation Fraud Workgroup” to develop comprehensive reforms to combat the fraud scheme. The efforts of the Workgroup culminated with its report and recommendations which were presented to the Insurance and Banking Subcommittee  of the Florida House of Representatives. A summary of the Workgroup’s report and recommendations can be read in our previous report here.

The efforts of the Workgroup ultimately paid off this past legislative session as the Florida Legislature unanimously passed CS/HB 1277, which adopted many of the the Workgroup’s recommendations. The changes implemented by CS/HB 1277 became effective July 1, 2012. A summary of the new law can be read in our previous report here.

According to officials, “Operation Dirty Money” has resulted in the arrests of eight individuals in Broward, Miami-Dade, and Palm Beach Counties for their involvement in a large-scale check cashing scheme to evade the costs of workers’ compensation coverage. The joint investigation revealed that Hugo Rodriguez was the ring leader of the group. According the authorities, Rodriguez and his company Oto Group, Inc. established 10 shell companies to funnel over $70 million in undeclared payroll through several MSBs in Broward, Miami-Dade, and Palm Beach Counties. Through the use of these shell companies, Rodriguez was able to conduct large construction projects while avoiding the costs associated with paying workers’ compensation premiums. Since the inception of the Florida Workers’ Compensation Fraud Task Force, the State of Florida has shut down 12 shell companies and identified $140 million in fraudulent transactions associated with their operation.

If you have questions pertaining to the Office of Financial Regulations, the BSA, anti-money laundering compliance, or how to ensure that your business maintains regulatory compliance at both the state and federal levels please contact us at contact@fidjlaw.com.

Update: Online Poker Sites Reach Settlement With Justice Department Over Fraud Allegations; Payment Processor Associated with Online Poker Fraud Sentenced

As we have detailed in previous reports here and here, on April 15, 2011, federal prosecutors shut down online poker sites PokerStars, Full Tilt Poker and Absolute Poker and indicted eleven people in connection with their involvement with the sites’ operation.

As we discussed, these actions were part of a larger effort by the Justice Department to target internet gambling websites for violations of federal law. After more than a year of litigation, however, the dispute between the websites and the Justice Department appears to have been resolved in the final days of July, 2012.

Although the law does not specifically address internet pay for play poker sites, The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA” defines “unlawful internet gambling” as: 1) placing, receiving or transmitting a bet, 2) by means of the Internet, even in part, 3) but only if that bet is unlawful under any other federal or state law applicable in the place where the bet is initiated, received or otherwise made. Thus, although there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has used UIGEA to prosecute internet pay for play poker operators and their payment processors.

On July 26, 2012, Judge Lewis Kaplan of the United States District Court for the Southern District of New York sentenced payment processor Ira Rubin to three years in prison for his role in processing payments for the online poker sites. In January, 2012, Mr. Rubin pled guilty to conspiracy charges related to illegal gambling, bank fraud, wire fraud, and money laundering. Prosecutors had alleged that after the passage of a 2006 law which prohibited banks from processing payments to offshore gambling websites, Mr. Rubin engaged in a fraudulent scheme to deceive US banks and financial institutions as to the true identity of the funds being transferred by processing these funds to appear as payments for goods and services to non-existent online merchants and fake companies. As we have previously reported, federal prosecutors have focused on payment processor prosecutions as a way of combating online pay for play poker.

Additionally, five days later, on July 31, 2012, the U.S. Department of Justice announced that it had reached a $731 million settlement with PokerStars and Full Tilt Poker regarding the forfeiture Complaint filed against the two companies in April, 2011. Under the terms of the agreement, Full Tilt agreed to forfeit virtually all of its assets to the United States, however, the Government has approved the acquisition of these assets by PokerStars in exchange for PokerStars’s agreement to reimburse $184 million owed by Full Tilt to Full Tilt’s foreign players. Additionally, PokerStars agreed to forfeit $547 million to the U.S. which will be used to compensate U.S. account holders.

Fuerst Ittleman will continue to monitor these developments. If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittleman’s experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

FDA Clears Ingestible Medical Device through De Novo Review Process

On May 1, 2012, the U.S. Food and Drug Administration (“FDA”) cleared the Proteus Digital Health, Inc. (“Proteus”) ingestible sensor for marketing as a Class II medical device through the de novo review process. The ingestible sensor is part of digital health feedback system that will relay information to a patient’s healthcare professional from a microchip embedded in pills to monitor a patient’s response to treatment.

The Proteus ingestible sensor can be integrated into medications such as inert pills or other pharmaceutical products. Once the digested sensor reaches the stomach fluid, it communicates a unique signal to a patch worn on the skin that marks the precise time the medication was taken. The patch also collects physiologic and behavioral information, including heart rate, body position and activity. The patch then relays the information to the patient’s healthcare professional through a mobile phone application. As a result, the ingestible sensor allows healthcare professionals to ensure that patients are taking medications as prescribed while receiving feedback on patients’ physical response to treatment.

Currently, the FDA has only cleared the ingestible sensor based on studies establishing its safety and effectiveness when implanted into placebo pills. However, Proteus hopes to have the device cleared for use with drugs in the near future.

Notably, the ingestible sensor device was cleared for marketing by the FDA through de novo review because it is the first device to monitor medication adherence. The de novo review process is available for novel low- and moderate-risk devices that have been found to be not substantially equivalent (“NSE”) to existing predicate devices as a result of a 510(k) submission. Pursuant to Section 513(f)(2) of the Federal Food, Drug, and Cosmetic Act (“FDCA”), the submitter of a 510(k) may, within 30 days of receipt of an NSE determination for that 510(k), submit a de novo petition requesting the FDA to make a risk-based classification determination for the device under Section 513(a)(1) of the FDCA. If the FDA grants the de novo petition, the device is reclassified from Class III into Class I or Class II. Alternatively, if the petition is denied, the device remains in Class III and may not be marketed until approved by the FDA through submission of a Premarket Approval Application (“PMA”). As a result of the ingestible sensor’s clearance and reclassification as a Class II medical device by the FDA through do novo review, industry may now use the ingestible sensor as a predicate device for future 510(k) submissions.

The FDA’s review of medical devices is complex. Fuerst Ittleman has extensive experience successfully navigating medical devices through FDA review. For more information on FDA’s review of medical devices, please contact us at contact@fidjlaw.com.

U.S. Court of Appeals for the D.C. Circuit Affirms Son of Boss Accuracy-Related Penalty

  On June 22, 2012, the United States Court of Appeals for the District of Columbia Circuit affirmed that a partnership which utilized a Son of Boss tax shelter to overstate its basis in partnership interests had also failed to establish a reasonable cause defense to the accuracy-related penalty. A full copy of the decision, entitled 106 Ltd. v. Commr, case no. 11-1242, is available here.

According to the facts set forth in the D.C. Circuits opinion, a “Son of Boss” tax shelter employs a series of transactions to create artificial financial losses that are used to offset real financial gains, thereby reducing tax liability.  In 2001, the IRS identified the Son of Boss tax shelter as an abusive transaction if used to generate artificial losses for tax purposes and would not allow the deductions for federal tax purposes. We have previously reported on issues relating to Son of Boss tax shelters here,  here, here, and here.

David Palmlund, a Dallas businessman and the tax matters partner, appealed the decision of the U.S. Tax Court upholding the imposition of a 40% accuracy-related penalty by the Internal Revenue Service (IRS). The Tax Courts decision is available here.

Long before this matter ended up in court, Joe Garza, Palmlunds personal lawyer, approached Palmlund about a foreign currency investment opportunity that was a variation of the Son of Boss shelter.  Garza explained the mechanics of the shelter and its tax advantages and encouraged Palmlund to consult with Turner & Stone, an accounting firm that had prepared Palmlunds tax returns for more than ten years.  Turner & Stone told Palmlund that they had worked on similar shelters in the past and recommended that he proceed.  Furthermore, Garza guaranteed the transaction by promising to pay Palmlunds litigation costs if the shelter were challenged and to refund his fee if the shelter were invalidated.  Ultimately, Palmlund directed Garza to take the necessary steps to implement the shelter.

The mechanics of the transaction are explained in the opinion.  In November 2001, Palmlund executed documents forming three entities which he controlled: (1) the partnership, (2) 32 LLC and (3) 7612 LLC.  7612, LLC bought offsetting long and short foreign currency for $30,000, the difference of the $3 million and $2.97 million premiums.  7612 LLC then transferred both digital options to the partnership.  Next, 7612 LLC bought $4,000 worth of Canadian currency and transferred the currency to the partnership.  Lastly, the partnership distributed 35% of the Canadian currency to Palmlund Ltd., the family limited partnership previously formed by Palmlund.  At Palmlunds request, the partnership terminated the digital options for a profit of $10,000 excluding fees owed to Garza for implementing the shelter.  Garza also provided a comprehensive opinion letter explaining the shelter and general topics like partnership law, disguise-sale provisions, and the treatment of foreign currency options.  The letter concluded that the structure would more likely that not withstand IRS scrutiny  

The partnerships 2001 tax return prepared by Turner & Stone reported a basis in the distributed Canadian currency of $2,974,000.  On Palmlunds return, also prepared by Turner & Stone, he claimed a flow-through loss of $1,030,491 from the Canadian currency distribution.  By utilizing the Son of Boss shelter, Palmlund reduced his total income by over $1 million and thereby reduced his tax liability by nearly $400,000.  Turner & Stone charged Palmlund $6,500 more than what they had charged for preparing his previous tax returns due to the returns more complex nature.

The IRS first communicated with Palmlund in May 2004 by sending him a copy of IRS announcement 2004-46, which outlined the IRSs proposed terms of settlement for any taxpayer utilizing a Son of Boss tax shelter.  Palmlund then met with Garza and Turner & Stone and decided to amend his individual return by removing the loss attributable to the Canadian currency and paid an additional $349,329 in taxes.  He did not amend the partnerships tax return. 

Consequently, the IRS issued a final partnership administrative adjustment (FPAA) to the partnership in May 2005.  The FPAA reduced the partnership basis to $0 and pursuant to § 6662, available here, imposed a 40% accuracy-related penalty to the underpayment of taxes resulting from the partnerships overstatement of its basis in the Canadian currency.  The Tax Court granted partial summary judgment in favor of the commissioner.  Thus, the only remaining issue was whether the partnership had a reasonable cause defense under § 6664(c)(1), available here,  to defeat the penalty.

Section 6664 provides a defense to an accuracy-related penalty if the taxpayer proves it had reasonable cause for the underpayment and acted in good faith.  The taxpayer can show reasonable cause if it shows that it relied on advice from a competent and independent professional advisor.  To show reasonable cause, the advice must be based on upon all pertinent facts and circumstances and the law as it relates to those facts and circumstances.  The advice must not be based on unreasonable factual or legal assumptions, including if the taxpayer knows or should have known it is unlikely to be true.  Lastly, the taxpayers reliance must itself be objectively reasonable.

In affirming the Tax Courts decision, the D.C. Circuit found no error in the determination that the Partnership failed to establish a reasonable cause defense because Palmlund unreasonably relied on both Garzas and Turner & Stones advice.  First and foremost, Garzas and Turner & Stones role of promoting, implementing, and receiving fees from the Son of Boss strategy creates an inherent conflict of interest.   It is unreasonable of Palmlund to rely on their professional advice if they had a role in promoting the tax shelter.  According to the Court of Appeals, Palmlund knew or should have known that Garza and Turner & Stone were working together to structure and implement the tax shelter.  Therefore, Garza and Turner & Stone could not provide independent advice regarding the tax shelter.

Additionally, Palmlund unreasonably relied on Garzas opinion letter.  The letter relied on inaccurate representations as to the purposes of entering into the transaction.  The letter stated that Palmlund entered into the transaction because he believed there was reasonable opportunity to earn a reasonable pre-tax profit.  However, Palmlunds personal banker testified that Palmlund said he entered into the transaction as a tax strategy to lose money. 

There were other inaccuracies contained in the letter.  The letter stated Palmlund received the distributed Canadian currency in a partnership liquidating distribution.  However, the partnership distributed only 35% of the Canadian currency and Palmlund demonstrated his awareness of this inaccuracy as he directed Turner & Stone to amend his individual tax return to reflect the 35% distribution.  The letter also stated that the partnership did not know if it would be called upon to satisfy its obligations under the digital options.  Yet, by the time the letter was written, Palmlund had terminated the options and eliminated the partnerships obligations under them.

The DC Circuits opinion concluded by explaining that even if Palmlund did not know about the conflicts of interest, his motive for entering into the tax shelter and his business experience demonstrated his lack of good faith reliance.  The $1 million dollar loss from the transaction that earned Palmlund $10,000 should have alerted a person with Palmlunds business experience and sophistication to the shelters illegitimacy.  Thus, the D.C. Circuit affirmed the U.S. Tax Courts judgment in determining that the partnership failed to establish a reasonable cause defense to its accuracy-related penalty pursuant to § 6664(c)(1).

The attorneys at Fuerst Ittleman, PL have extensive civil and criminal tax litigation experience before the U.S. District Courts, the U.S. Tax Court, and the U.S. Circuit Courts of Appeal.  You can contact us by calling 305.350.5690, or by emailing us at contact@fidjlaw.com.

FDA Targets Gastric Band Surgery Advertisements

In late 2011, the U.S. Food and Drug Administration (“FDA“) launched an initiative targeting marketers of gastric band surgery following the death of five patients. The FDA is concerned that gastric band advertisements glamorize the surgical procedure without communicating any of the risks. Many of these advertisements feature slender men and women claiming to have lost massive amounts of weight and gained control of their lives solely as a result of undergoing gastric band surgery.

Gastric banding is a surgical procedure intended to reduce the size of the stomach for weight loss by placing a silicone band around the upper portion of the stomach to create a small pouch.  As of todays date, the FDA has approved two gastric banding devices, the Lap-Band by Allergan, Inc. and the Realize Adjustable Gastric Band by Ethicon Endo-Surgery, Inc.

Pursuant to the Federal Food, Drug and Cosmetic Act (“FDCA”), product advertising for certain medical devices, such as gastric bands, must contain relevant warnings and information regarding precautions, side effects, and contraindications. Advertisements that do not contain all of the required information are considered misleading. As a result of misleading advertisements, the medical device will be deemed to be misbranded. 

On December 13, 2011, the FDA issued Warning Letters for misleading gastric band advertisements and misbranded gastric band devices to eight surgical centers and one marketing firm. On June 25, 2012, the FDA issued another Warning Letter to a doctor for Lap-Band advertisements which misbrand the device pursuant to Sections 502(q), 502(r), and 201(n) of the FDCA. The Warning Letters stated that the advertisements failed to reveal material facts, including relevant risk information regarding the use of the gastric band, age and other qualifying requirements for the procedure, and the need for ongoing modification of eating habits, as provided in the approved gastric band device labeling.

FDA Warning Letters notify the recipient and the public that the FDA believes that a particular firm has violated federal law. Thus, given the bad publicity that these letters generate, it is advantageous for firms to correct possible violations even before the FDA issues Warning Letters. The recipients of Warning Letters have 15 days to address the misbranding issues contained in the Warning Letter and to develop specific corrective actions. Failure to do so may put the recipient in jeopardy of facing product seizures or formal legal action by the FDA. Although some courts have previously ruled that Warning Letters are not immediately challengeable in federal court, the United States Supreme Courts recent ruling in Sackett v. EPA (which we discussed here) may have created a sea change in that jurisprudence. We will follow this issue closely, both for our clients and this blog. 

For more information, you can contact an attorney by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.

Eleventh Circuit Rules that Tax Court Petition by Former owners Suspended the Statute of Limitations

On July 11, 2012, the Atlanta based Eleventh Circuit Court of Appeals issued its opinion in Shockley v. IRS, __ F.3d ____, (11th Cir.) available here, and overruled the U.S. Tax Court’s earlier decision in Shockley v. IRS, T.C. Memo. 2011-96.  A full copy of the Tax Court’s decision is available here.

The question addressed by the Eleventh Circuit in Shockley was whether a Tax Court petition that challenged a notice of deficiency as being invalid suspended the statute of limitations against the assessment. The facts of the case were as follows.

On May 31, 2001, pursuant to a stock purchase agreement, the Shockleys sold their shares of Shockley Communications Corporation (“SCC”), a closely held

corporation that owned and operated numerous media stations, to a third party. Pursuant to the terms of the sale, the Shockleys resigned from their positions in SCC as of that date, and at no time after the sale did they resume their roles as officers, directors, or shareholders of SCC.  Also on May 31, 2001, following the sale, the third party purchaser converted SCC to a Delaware limited liability (SCA LLC). SCA LLC immediately sold some of SCCs assets to Quincy Newspapers, Inc. The Shockleys timely filed Federal income tax returns for calendar year 2001 reporting gains from the May 31, 2001, SCC stock sale.

On or about February 24, 2002, the Internal Revenue Service (IRS) received SCCs Form 1120 for the short tax year of January 1, 2001, through May 31, 2001. That form reported a Washington, D.C., mailing address for SCC. On February 18, 2005, the IRS issued multiple notices of deficiency relating to SCCs short tax year ending May 31, 2001. The IRS also sent a notice of deficiency to “Shockley Communications Corporation” at the Washington, D.C., address reported on the 2001 Form 1120, determining a deficiency in tax of $41,566,515, a penalty under section 6662 (available here) of $8,313,303, and an addition to tax under section 6651(a)(1) (available here) of $2,078,276. The IRS calculated the determined deficiency and the penalty with respect to gain allegedly realized by SCC as a result of the sale of assets acquired and later sold by SCA LLC. However, this notice was returned to the IRS as undeliverable, and no petition was filed in the Tax Court in response.

On February 18, 2005, the IRS also sent a notice of deficiency to “Shockley Communications Corporation, Terry K & Sandra K Shockley, Officers & Shareholders” at the then- home address of the Shockleys in Madison, Wisconsin (the Madison notice). On May 25, 2005, a petition was filed in the Tax Court in response to the Madison notice (docket No. 9699-05). The petition stated that it was “filed on behalf of Petitioner subject to the invalidity of the Notice of Deficiency and the failure to properly serve the corporation as required by statute.” Without conceding the jurisdiction of the Tax Court, the Shockleys tendered a "Limited and Special Petition.”

A letter dated May 18, 2005, from the Shockleys to the Clerk of the Tax Court was also attached and was served on the Commissioner with the petition. In the letter, the Shockleys expressed concern that the notice was addressed to both SCC and the Shockleys as officers and shareholders and was mailed to their then-home address, which had never been SCCs address. The Shockleys also expressed concern that the notice might be directed to them in an individual or some representative capacity.  In an answer filed July 29, 2005, the Commissioner admitted that the Madison notice was sent to the personal residence of the Shockleys but alleged that this was a courtesy copy and that a copy of the notice of deficiency was also sent to the last known address of SCC at the Washington, D.C., address.

On April 26, 2007, the Tax Court case (docket No. 9699-05) was dismissed for lack of jurisdiction because SCC lacked legal capacity to proceed in the case through the Shockleys. The order of dismissal for lack of jurisdiction stated that the parties agreed that the case should be dismissed on this ground and thus the Court did not determine the validity of the notice of deficiency.

On September 6, 2007, the IRS assessed the following amounts against SCC for the tax year ending May 31, 2001: (1) Corporate income tax of $41,566,515; (2) an addition to tax under section 6651 of $2,078,276; (3) an accuracy-related penalty under section 6662 of $8,313,303; and (4) interest of $26,953,309.60.

On appeal, the 11th Circuit turned to the Internal Revenue Code as applied to the facts. First, the 11th Circuit noted that generally under section 6501(a) (available here) the IRS has 3 years to assess a tax (or additional tax) against a taxpayer.  But under section 6503 (available here), "[t]he running of the period of limitations provided in section 6501 or 6502 (or section 6229, but only with respect to a deficiency described in paragraph (2)(A) or (3) of section 6230 (a)) on the making of assessments or the collection by levy or a proceeding in court, in respect of any deficiency as defined in section 6211 (relating to income, estate, gift and certain excise taxes), shall (after the mailing of a notice under section 6212 (a)) be suspended for the period during which the Secretary is prohibited from making the assessment or from collecting by levy or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter."

The 11th Circuit then determined that the question was whether the petition filed by the Shockleys (which was dismissed because they did not have the authority to file on behalf of SCC) gave the IRS additional time to issue the statutory notice of deficiency by operation of section 6503.  In concluding that it did, and thus reversing the Tax Court, the 11th Circuit began with the well established rule that statutes of limitations are strictly construed in favor of the Government, citing to Badaracco v. Commr, 464 U.S. 386, 391, 395, (1984) (available here).  The 11th Circuit held as follows: "In short, Congress established a mechanical, bright-line test that would suspend the limitations period of § 6501 automatically upon the placing of any “proceeding in respect of the deficiency” on the Tax Court docket. To interpret § 6503(a)(1) otherwise would present the IRS with the Hobsons choice of deciding between assessing the taxpayers liability at the risk of doing so prematurely, and waiting until the resolution of the proceeding at the risk of doing so too late."

Based on that interpretation of section 6503 as applied to section 6501, the 11th Circuit quickly dispensed with the case and determined that the Tax Court’s decision that the statute of limitations was not suspended was in error, and reversed and remanded the case to the Tax Court for further consideration.

The takeaway from this decision is that Tax Court petitions filed without authority may have unintended consequences.  Accordingly, every single move in Tax Court litigation must be analyzed for possible ramifications, not only in the Tax Court, but in the Courts of Appeal.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating in the Tax Court, the U.S. District Courts, the Court of Federal Claims, and the U.S. Courts of Appeal in both civil and criminal tax cases.  You can reach an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.