Justia Banking Opinion Summaries

Articles Posted in Tax Law
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The Bank Secrecy Act, 31 U.S.C. 5311, and its implementing regulations require certain individuals with foreign financial interests to file annual disclosures, subject to penalties. In 2008, Bedrosian filed an inaccurate Report of Foreign Bank and Financial Accounts (FBAR), omitting from the report the larger of his two Swiss bank accounts. If this omission was accidental, the IRS could fine Bedrosian up to $10,000; if he willfully filed an inaccurate FBAR, the penalty was the greater of $100,000 or half the balance of the undisclosed account at the time of the violation. Believing Bedrosian’s omission was willful, the IRS imposed a $975,789.17 penalty—by its calculation, half the balance of Bedrosian’s undisclosed account. Following Bedrosian’s refusal to pay the full penalty, the IRS filed a claim in federal court.The Third Circuit affirmed the district court in finding Bedrosian’s omission willful and ordering him to pay the IRS penalty in full. While the IRS failed to provide sufficient evidence at trial showing its $975,789.17 penalty was no greater than half his account balance, Bedrosian admitted this fact during opening statements and thus relieved the government of its burden of proof. View "Bedrosian v. United States Department of the Treasury" on Justia Law

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The Fifth Circuit affirmed the judgment of the tax court and held that MoneyGram, a global payment services company, is not a "bank" under the tax code, 26 U.S.C. 581, because customers do not give MoneyGram money for safekeeping, which is the most basic feature of a bank. The court explained that purchasers of money orders are not placing funds with MoneyGram for safekeeping. Nor are the financial institutions that use MoneyGram to process official checks doing so for the purpose of safekeeping. In this case, examining the substance of MoneyGram's business confirms how the company has long described itself on its tax returns: as a nondepository institution. Therefore, without deposits, MoneyGram cannot be a bank. View "MoneyGram International, Inc. v. Commissioner of Internal Revenue" on Justia Law

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The Supreme Court reversed the judgment of the Appellate Court insofar as it upheld the trial court's order directing Defendants to reimburse Plaintiff for property taxes and insurance premiums, holding that the ordered relief was inconsistent with the remedial scheme available to a mortgagee in a strict foreclosure.At issue was whether a trial court may order a mortgagor to reimburse a mortgagee for the mortgagee's advancements of property taxes and insurance premiums during the pendency of an appeal from a judgment of strict foreclosure. The trial court ordered Defendants to reimburse Plaintiff for such property tax and insurance premium payments, and the Appellate Court affirmed. The Supreme Court reversed in part, holding (1) the trial court abused its discretion in directing Defendants to make monetary payments to Plaintiff outside of a deficiency judgment; and (2) the Appellate Court's judgment is affirmed in all other respects. View "JPMorgan Chase Bank, National Ass'n v. Essaghof" on Justia Law

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The Greens opened a Union Bank of Switzerland (UBS) account around 1980, with their daughter, Kimble, as a joint owner. Kimble directed UBS to maintain the account as a numbered account and to retain all correspondence at the bank. Kimble married an investment analyst who agreed to preserve the secrecy of the account. The couple’s joint federal tax returns did not report any income derived from the UBS account nor disclose the existence of the foreign account. After the couple divorced, Kimble's tax returns were prepared by a CPA, who never asked whether she had a foreign bank account. In 2003-2008, Kimble’s tax forms, signed under penalty of perjury, represented that she did not have a foreign bank account.In 2008, Kimble learned of the Treasury Department’s investigation into UBS for abetting tax fraud; she retained counsel. UBS entered into a deferred prosecution agreement that required UBS to unmask numbered accounts held by U.S. citizens. Kimble was accepted into the Offshore Voluntary Disclosure Program (OVDP) and agreed to pay a $377,309 penalty. Kimble withdrew from the OVDP without paying the penalty.The IRS determined that Kimble’s failure to report the UBS account was willful and assessed a penalty of $697,299, 50% of the account. Kimble paid the penalty but sought a refund. The Federal Circuit affirmed summary judgment against Kimble, finding that she violated 31 U.S.C. 5314 and that her conduct was “willful” under section 5321(a)(5). The IRS did not abuse its discretion in setting a 50% penalty. View "Kimble v. United States" on Justia Law

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Norman, a school teacher, opened a “numbered” Swiss bank account with UBS in 1999. Statements for the account list only the account number, not Norman’s name or address. From 2001-2008, her balance ranged between $1.5 million-$2.5 million. Norman was actively involved in managing and controlling her account. She gave UBS investment instructions and prohibited UBS from investing in U.S. securities on her behalf, which helped prevent disclosure of her account to the IRS. She took withdrawals in cash. In 2008, Norman expressed displeasure when she was informed of UBS’s decision to “no longer provide offshore banking” and to work “with the US Government to identify the names of US clients who may have engaged in tax fraud.” Just before UBS publicly announced this plan, Norman closed her UBS account, transferring her funds to another foreign bank. Under 31 U.S.C. 5314(a), U.S. persons who have relationships with foreign financial agencies are required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury Department. When the IRS discovered her account during an audit, Norman initially expressed shock to learn that she had a foreign account and subsequently tried to claim that she did not control the account. The Federal Circuit affirmed a Claims Court finding that Norman willfully failed to file an FBAR in 2007 and the IRS properly assessed a penalty of $803,530 for this failure. View "Norman v. United States" on Justia Law

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Plaintiffs were financing companies that sought tax refunds under Michigan’s bad-debt statute, MCL 205.54i, for taxes paid on vehicles financed through installment contracts. Defendant Department of Treasury (the Department) denied the refund claims on three grounds: (1) MCL 205.54i excluded debts associated with repossessed property; (2) plaintiffs failed to provide RD-108 forms evidencing their refund claims; and (3) the election forms provided by plaintiff Ally Financial Inc. (Ally), by their terms, did not apply to the debts for which Ally sought tax refunds. The Court of Claims and the Court of Appeals affirmed the Department’s decision on each of these grounds. The Michigan Supreme Court held the Court of Appeals erred by upholding the Department’s decision on the first and third grounds but agreed with the Court of Appeals’ decision on the second ground. Accordingly, the Court of Appeals was affirmed as to the second ground, and the matter reversed in all other respects. The case was remanded to the Court of Claims for further proceedings. View "Ally Financial, Inc. v. Michigan State Treasurer" on Justia Law

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In 2001, McMahan and his wholly owned corporation participated in a tax shelter called “Son of BOSS” that “is a variation of a slightly older alleged tax shelter,” BOSS, an acronym for ‘bond and options sales strategy.’” BOSS “was aggressively marketed by law and accounting firms in the late 1990s and early 2000s” and involves engaging in a series of transactions to create an “artificial loss [that] may offset actual—and otherwise taxable— gains, thereby sheltering them from Uncle Sam.” The Internal Revenue Service considers the use of this shelter abusive and initiated an audit of McMahan’s 2001 tax return in 2005. In 2010, the IRS notified McMahan it was increasing his taxable income for 2001 by approximately $2 million. In 2012, McMahan filed suit against his accountant, American Express, which prepared his tax return, and Deutsche Bank, which facilitated the transactions necessary to implement the shelter. McMahan claimed these defendants harmed him by convincing him to participate in the shelter. The Seventh Circuit affirmed the rejection of all the claims by dismissal or summary judgment. McMahan’s failure to prosecute prejudiced the accountant and Amex defendants and the Deutsch Bank claim was untimely. View "McMahan v. Deutsche Bank AG" on Justia Law

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During the savings-and-loan crisis in the 1970s and 1980s, many “thrift” institutions failed. The Federal Savings and Loan Insurance Corporation, as insurer and regulator, encouraged healthy thrifts to take over failing ones in “supervisory mergers.” FSLIC provided incentives, including allowing acquiring thrifts to operate branches in states other than their home states and “RAP” rights. Regulations mandated that each thrift maintain a minimum capital of at least 3% of its liabilities, an obstacle for healthy thrifts acquiring failing ones. RAP permitted acquiring thrifts to use Generally Accepted Accounting Principles to treat failing thrifts’ excess liabilities as “supervisory goodwill,” which could be counted toward the acquiring thrifts’ minimum regulatory capital requirement and amortized over 40 years. Home Savings entered into supervisory mergers. Branching and RAP rights are considered intangible assets for tax purposes and are generally subject to abandonment loss and amortization deductions. In 2008, Home’s successor, WMI, sought a refund for tax years 1990, 1992, and 1993 based on the amortization of RAP rights and the abandonment of Missouri branching rights, proffering valuation testimony from its expert, Grabowski, about fair market value. The Ninth Circuit found WMI did “not prove[], to a reasonable degree of certainty, Home’s cost basis in the Branching and RAP rights.” WMI also filed suit in the Claims Court, seeking a refund for tax years 1991, 1994, 1995, and 1998, based on the amortization of RAP rights and the abandonment of Florida, Illinois, New York, and Ohio branching rights, with a valuation report from Grabowski. The Federal Circuit affirmed the Claims Court's rejection of the claims; Grabowski’s assumptions about the nature of RAP rights were inconsistent with market realities and, at times, unsupported. View "WMI Holdings Corp. v. United States" on Justia Law

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Citibank provided sales financing to Illinois retailers who offered customers the option of financing their purchases, including the amount of Illinois tax due on the purchases. Citibank originated or acquired consumer charge accounts and receivables from the retailers on a non-recourse basis. When a customer financed a purchase using that account, Citibank remitted to the retailer the amount the customer financed, which included some or all of the purchase price and the sales tax owed based on the selling price. The retailers then remitted the sales tax to the state. Under the agreements between Citibank and the retailers, Citibank acquired “any and all applicable contractual rights relating thereto, including the right to any and all payments from the customers and the right to claim Retailer’s Occupation Tax (ROT) refunds or credits.” Citibank filed a claim for tax refunds under 35 ILCS 120/6 for ROT taxes paid through retailers on transactions that ultimately resulted in uncollectible debt. The Department denied Citibank’s claim. The Illinois Supreme Court reinstated the denial, noting the legislature’s clearly expressed preference in the statutory framework for reporting, remission, and refund only through the retailer. Sophisticated lending institutions no doubt anticipate the eventuality of default and can order their commercial relationships accordingly. View "Citibank, N.A. v. Illinois Department of Revenue" on Justia Law

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The Supreme Court affirmed the North Carolina Business Court’s substantive decision interpreting N.C. Gen. Stat. 105-130.5(b)(1) so as to preclude The Fidelity Bank from deducting “market discount income” relating to discounted United States obligations for North Carolina corporate income taxation purposes. The Supreme Court, however, reversed the Business Court’s decision to dismiss the second of two judicial review petitions that Fidelity Bank filed in these cases and remanding that matter to the North Carolina Department of Revenue with instructions to vacate that portion of the Department’s second amended final agency decision relating to the deductibility issue for lack of subject matter jurisdiction, holding that the Business Court’s decision to dismiss the portions of the second judicial review petition challenging the Department’s decision concerning the deductibility issue in the second amended final agency decision was erroneous. View "Fidelity Bank v. N.C. Department of Revenue" on Justia Law