December 3, 2013
The Supreme Court this morning ruled 9-0 in favor of the government on both issues in Woods, holding that: (1) there is partnership-level TEFRA jurisdiction to consider the appropriateness of a penalty when the partnership is invalidated for lack of economic substance; and (2) the 40% valuation overstatement penalty can apply in that setting on the theory that the basis of a sham partnership is zero and therefore the taxpayers overstated their basis. See our prior coverage here. The opinion, authored by Justice Scalia, is concise and appears to resolve definitively both issues that had previously divided the … Read More
November 20, 2013
The government has filed its opening brief in the Quality Stores case, which involves the question whether severance payments made pursuant to an involuntary reduction in force are subject to FICA taxation. See our prior coverage here. The brief is considerably shorter than the page limit, as the government has sought to take a relatively simple approach to an issue that in the past has generated complex and detailed briefs and opinions.
The government’s primary submission is that the Court needs to focus its attention on the FICA statute and not be distracted by the income tax withholding statute … Read More
November 5, 2013
The Supreme Court has scheduled oral argument in the Quality Stores case for the afternoon of Tuesday, January 14. Two other cases will be argued in the morning session, and the Court will then break for lunch and reconvene at 1:00 for the Quality Stores argument, in which each side is given 30 minutes for argument. A decision is expected no later than the end of June.… Read More
October 11, 2013
The Supreme Court held oral argument in United States v. Woods on October 9. As we have previously reported, the case presents two distinct questions: (1) a TEFRA jurisdictional question concerning whether the court could determine the applicability of the valuation overstatement penalty in a partnership-level proceeding; and (2) the merits question whether the 40% penalty applied when the partnership was found not to have economic substance and therefore the basis claimed by the taxpayers in the partnership was not recognized.
Most of the argument time for both advocates was spent on the jurisdictional issue, as the Justices often … Read More
October 1, 2013
The Supreme Court, not surprisingly, granted cert this morning in the Quality Stores case. As we have previously reported (see our prior coverage here), the Court is now poised to resolve a conflict between the Sixth Circuit and the Federal Circuit regarding whether severance payments paid to employees pursuant to an involuntary reduction in force are “wages” subject to FICA taxation. Notably, Justice Kagan did not participate in the order granting the petition, perhaps because she had some involvement in the case during her tenure as Solicitor General. Her recusal creates the theoretical possibility that the Court could … Read More
September 3, 2013
Linked below is the government’s reply brief in support of its petition for certiorari. The reply attempts to counter the taxpayer’s argument that the conflict between the Sixth Circuit and the Federal Circuit is unimportant because all taxpayers will choose to avoid the Federal Circuit in the future. See our previous report here. The government criticizes this argument for seeking to preserve a “forum shopping” opportunity and also remarks that “there is no reason to assume that other courts of appeals” faced with this issue will follow the Sixth Circuit’s reasoning rather than that of the Federal Circuit. The … Read More
August 28, 2013
The government has filed its reply brief in the Supreme Court in Woods. See our reports on the opening briefs here and here. The discussion of the jurisdictional issue focuses less on the textual analysis set forth in the government’s opening brief and more on the policy implications of adopting the taxpayers’ position. The government asserts that the taxpayers’ reading of the statute would effectively “negate Congress’s grant of authority to courts in partnership-level proceedings to determine the applicability of penalties.”
On the merits, the reply brief devotes most of its attention to responding to the taxpayers’ threshold … Read More
August 15, 2013
The taxpayer has filed its brief in opposition in the Supreme Court in Quality Stores. (See our earlier report on the certiorari petition here.) The government has the option of filing a reply brief, which has no specific due date, but likely would be filed no later than early September.
The brief in opposition argues at length that the Sixth Circuit’s decision is correct on the merits. With respect to the government’s reliance on a circuit conflict, the taxpayer describes this as a “shallow conflict” that does not justify a grant of certiorari. Specifically, the taxpayer … Read More
July 31, 2013
The taxpayers have filed their response brief in the Supreme Court in the Woods case, contending first that the courts lacked jurisdiction to impose the penalties requested by the IRS and, second, that, if jurisdiction exists, the Fifth Circuit correctly held that the valuation misstatement penalty could not be imposed.
On the jurisdictional point, the brief emphasizes the same basic point made by the courts that have questioned jurisdiction in similar partnership cases (see our previous report here) – namely, that the statute allows for partnership-level jurisdiction in a TEFRA proceeding only over a penalty that relates to adjustment … Read More
July 3, 2013
The taxpayer has obtained an extension until July 31 to respond to the government’s petition for certiorari in Quality Stores.… Read More