Justia Legal Ethics Opinion Summaries

Sir John Thouron died in 2007 at the age of 99, leaving a substantial estate. Thouron’s grandchildren are his only heirs. His named executor retained Smith, an experienced tax attorney. The Estate’s tax return and payment were due November 6, 2007. On that date, the Estate requested an extension of time and made a payment of $6.5 million, much less than it would ultimately owe. The Estate timely filed its return in May 2008 and requested an extension of time to pay. It made no election to defer taxes under 26 U.S.C. 6166, it had conclusively determined it did not qualify. The provision allows qualifying estates to elect to pay tax liability in installments over several years. The IRS denied as untimely the Estate’s request for an extension and notified the Estate that it was imposing a failure-to-pay penalty. The Estate unsuccessfully appealed administratively. The Estate then filed an appropriate form and paid all outstanding amounts, including a penalty of $999,072, plus accrued interest, then filed a request with the IRS for a refund. After not receiving a response from the IRS, the Estate filed a complaint, alleging that its failure to pay resulted from reasonable cause, reliance on Smith’s advice, and not willful neglect and was not subject to penalty. The district court granted the government summary judgment, holding that under Supreme Court precedent the Estate could not show reasonable cause. The Third Circuit vacated, reasoning that the precedent did not apply to reliance on expert advice.View "Estate of Thouron v. United States" on Justia Law

The Tax Court upheld the IRS’ disallowance of losses claimed by various LLCs that had been created by a tax attorney as tax shelters and a 40 percent penalty for a “gross valuation misstatement,” 26 U.S.C. 6662(a). An LLC is generally treated as a partnership for tax purposes, so that its income and losses are deemed to flow through to the owners and are taxed to them rather than to the business. How much income or loss should be recognized on the owners’ tax returns is now determined by an audit of the business. The LLCs at issue were formed to reduce taxes by transferring the losses of a bankrupt Brazilian electronics retailer to create what is called a distressed asset/debt (DAD) tax shelter, based on a tax loophole closed by the American Jobs Creation Act of 2004, 26 U.S.C. 704(c) the year after creation of the tax shelters at issue. The Seventh Circuit affirmed, characterizing the LLCs as entities without economic substance, not recognized for federal tax law purposes. View "Superior Trading, LLC v. Comm'r of Internal Revenue" on Justia Law

Ten valuation complaints were filed by a salaried employee on behalf of a corporate entity as the property owner. In each case, the county board of revision (BOR) ordered a decrease in value. The school board argued before the board of tax appeals (BTA) that the original complaints should be dismissed because a salaried employee of the corporation who was not himself a lawyer but purported to act on behalf of the corporate owner signed the complaints. The school board acknowledged that Ohio Rev. Code 5715.19(A)(1) explicitly authorizes salaried corporate employees to file on behalf of the corporate owner but argued that the statute cannot be given effect because that kind of filing constitutes the unauthorized practice of law. The BTA granted the school board's motion and ordered that the appeals be remanded to the BOR to be dismissed for lack of jurisdiction. The Supreme Court reversed, holding that the complaints properly invoked the jurisdiction of the BOR where the legislature acted within its authority in amending section 5715.19(A)(1) to permit a salaried employee of a corporation who is not a lawyer to file a complaint on behalf of the corporation. Remanded. View "Marysville Exempted Village Sch. Dist. Bd. of Educ. v. Union County Bd. of Revision" on Justia Law

Sideman, the legal representative for a taxpayer who was under criminal investigation by the IRS, appealed from the district court's order enforcing an IRS administrative summons to produce the taxpayer's documents. Sideman argued that producing the documents would be testimonial in violation of the taxpayer's Fifth Amendment rights. The district court's finding that the IRS could independently authenticate the tax records contained in the identified collection of boxes and folders currently held by Sideman was not clearly erroneous. Accordingly, the court held that the district court did not err in applying the foregone conclusion exception when enforcing Sideman's compliance with the summons. View "United States v. Sideman & Bancroft, LLP" on Justia Law

This action arose from a complaint filed in 2006 with the Mississippi Commission on Judicial Performance against a then Mississippi Supreme Court Justice. The justice was ultimately acquitted of various criminal charges and his wife plead guilty to tax evasion. After the cessation of the criminal prosecution, the prosecuting U.S. Attorney, relative to plaintiff, filed a complaint with the Commission. Accordingly to the justice and his wife, the U.S. Attorney unlawfully attached their tax and other financial records obtained during the criminal investigation to the complaint. Plaintiff served as a member of the Commission and participated in the Commission's investigation of the justice. Although the Commission dismissed the complaint, counsel to the justice and his wife sent plaintiff two letters threatening legal action based on his role in the investigation. Plaintiff responded by filing a complaint seeking a declaratory judgment of immunity from suit for conduct arising out of his duties with the Commission. The justice's wife subsequently filed counterclaims against plaintiff, asserting various federal and state law causes of action arising, in relevant part, from plaintiff's alleged disclosure of the Commission's confidential investigation. The court held that the judgment of the district court, insofar as it denied immunity to plaintiff for his filing of the declaratory relief action, was reversed, and the case remanded to the district court for further proceedings. View "Lampton v. Diaz, Jr., et al." on Justia Law

Taxpayers appealed the district court's denial of their Rule 60(b) motion to vacate a 1967 tax judgment against them. Taxpayers argued that the government committed fraud on the court during their 1967 suppression hearing and their subsequent appeal to this court. Taxpayers also argued that the judgment should be vacated under United States v. Throckmorton because taxpayers' business associate who sometimes served as their attorney, gave information to the government. The court concluded that, although the evidence uncovered by taxpayers showed some misconduct on the part of the government, it was insufficient to demonstrate fraud on the court. The court also held that because taxpayers have not shown that the business associate was their attorney rather than their business associate at the time he informed on taxpayers, the court rejected taxpayers' Throckmorton claim.

A jury found defendant, a licensed attorney, responsible for trust fund recovery penalties imposed by the IRS pursuant to 26 U.S.C. (I.R.C.) 6672 for unpaid employment taxes owed by Iowa Trade Bindery, Inc. (ITB). Defendant appealed the district court's judgment and "all adverse rulings and orders in this case." The court held that the district court did not abuse its discretion in admitting defendant's signed Form 2751 and an IRS officer's testimony about the form, or by instructing the jury with respect to the form and its effect. The court also held that the district court did not err in denying defendant's motion for judgment as a matter of law where the jury's verdict was supported by substantial evidence. The court concluded that defendant's remaining claims were without merit. Accordingly, the court affirmed the judgment of the district court.

Defendant, convicted under 18 U.S.C. 371 of conspiracy to defraud the United States while serving as in-house general counsel to the company involving the company's filing of false tax returns with the IRS. He was sentenced to 41 months of imprisonment, followed by three years of supervised release, and ordered to pay restitution to the IRS. The Sixth Circuit affirmed. The jury instructions adequately addressed the elements of conspiracy. There was no need for mention of the attorney-client privilege or of an attorney's potential obligation to report illegal activity. The government’s theory of liability was not dependent on whether defendant had an affirmative duty to inform, yet failed to do so; conviction did not turn on whether defendant's actions were governed by the attorney-client privilege. There was sufficient evidence to support the conviction.