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Interior Glass Systems, Inc. v. United States

United States Court of Appeals, Ninth Circuit

June 26, 2019

Interior Glass Systems, Inc., Plaintiff-Appellant,
v.
United States of America, Defendant-Appellee.

          Argued and Submitted September 13, 2018 San Francisco, California

          Appeal from the United States District Court for the Northern District of California D.C. No. 5:13-cv-05563-EJD Edward J. Davila, District Judge, Presiding

          John P. McDonnell (argued), Law Offices of John P. McDonnell, Los Altos, California, for Plaintiff-Appellant.

          Teresa E. McLaughlin (argued) and Geoffrey J. Klimas, Attorneys; David A. Hubbert, Acting Assistant Attorney General; Thomas Moore, Assistant United States Attorney; Brian Stretch, United States Attorney; Tax Division, United States Department of Justice, Washington, D.C.; for Defendant-Appellee.

          Before: A. Wallace Tashima, Johnnie B. Rawlinson, and Paul J. Watford, Circuit Judges.

         SUMMARY[*]

         Tax

         The panel affirmed the district court's summary judgment in favor of the United States in a tax refund action by taxpayer Interior Glass Systems, Inc.

         Taxpayer joined a Group Life Insurance Term Plan (GLTP) to fund a cash-value life insurance policy owned by its sole shareholder and only employee. Under Notice 2007-83, the Internal Revenue Service requires disclosure of certain "listed transactions" that involve cash-value life insurance policies, because of their potential for use in tax-avoidance schemes. The parties agree that taxpayer's transaction satisfies three of the four elements of a listed transaction. The district court determined that taxpayer's transaction-joining the GLTP-was substantially similar to a listed transaction and should have been disclosed, and the panel agreed.

         The panel also held that taxpayer's procedural due process rights were not violated when it was required to pay penalties for non-disclosure in full before seeking judicial review. The panel held that taxpayer was not entitled to pre-collection judicial review under Jolly v. United States, 764 F.2d 642 (9th Cir. 1985).

          OPINION

          WATFORD, CIRCUIT JUDGE

         The Internal Revenue Service (IRS) requires taxpayers to disclose their participation in certain transactions, known as "listed transactions," that the agency has designated for close scrutiny. 26 C.F.R. § 1.6011-4(a), (b)(2); see 26 U.S.C. § 6011(a). To compel compliance with this obligation, Congress has authorized the IRS to impose monetary penalties on those who fail to file the required disclosure statement. 26 U.S.C. § 6707A(a). The IRS determined that the taxpayer in this case, Interior Glass Systems, Inc., failed to disclose its participation in a listed transaction in three different tax years and imposed a penalty of $10, 000 per year. Interior Glass paid the penalties and then challenged their imposition by seeking an administrative refund. When that challenge failed, the company filed this action in the district court to recover the money it had been forced to pay. See 28 U.S.C. § 1346(a)(1); 26 U.S.C. § 7422(a). The district court granted the government's motion for summary judgment, concluding that the penalties were properly imposed.

         On appeal, Interior Glass raises two principal arguments. First, it contends that the penalties were wrongly imposed because it did not actually participate in a listed transaction and thus had nothing to disclose. Second, Interior Glass contends that its due process rights were violated because it was not afforded an opportunity for ...


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