WALTMAN
v.
UNITED STATES
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The court held that the penalty under 26 U.S.C. § 6700 applies to each individual sale of an interest in a tax shelter, not just the total income derived from all sales.
Plaintiff sought a refund of an IRS penalty assessed under 26 U.S.C. § 6700 for organizing a fraudulent tax shelter. The IRS assessed a penalty based …
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HODGES, Chief Judge.
The parties have filed cross-motions for partial summary judgment. This is a civil action for a refund of $5,400.00 the Plaintiff has paid on a $36,000.00 penalty assessed against him by the Internal Revenue Service pursuant to Title 26, U.S.C. § 6700.
The issue before the Court is one of statutory construction. Section 6700 provides, in pertinent part:
Any person who organizes ... or participates in
the sale
of any interest in an entity or plan or arrangement ... and ... makes or furnishes (in connection with
such organization or
sale) ... a gross valuation overstatement as to any material matter, shall pay a
penalty equal
to the greater of $1,000 or 10 percent of the gross income derived or to be derived by such person from
such activity.
(Emphasis added.)
1
The Plaintiff asserts that since the gross income, as determined by the IRS, derived by him in connection with this investment scheme was $31,125.00, the maximum penalty which could be assessed against him is $3,112.50 (10% of $31,125.00).
2
The Defendant claims that the Plaintiff’s motion is incorrect for two reasons. First, the Defendant claims that the Plaintiff’s figure of $31,125.00 is incorrect. Second, the Defendant claims that Section 6700 should be construed as allowing the penalty provision to be applicable to each individual sale of an interest in the tax shelter rather than being applicable only against the total income derived from the cumulative tax shelter activities.
3
When construing a statute, the plain meaning of the words is to be used.
Griffin v. Oceanic Contractors, Inc.,
458 U.S. 564, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1981). “Our task is to give effect to the will of Congress, and where its will has been expressed in reasonably plain terms, that language must ordinarily be regarded
*720
as conclusive.”
Id.
at 571, 102 S.Ct. at 3250 (citations omitted).
The penalty provision of Section 6700 provides for a maximum penalty of the greater of $1,000.00 or 10% of the gross income derived from such “activity.” The prohibited “activity” is the sale of an “interest” in a tax shelter. In this case, the Plaintiff is alleged to have sold thirty (30) prohibited “interests” to investors in a fraudulent tax shelter. Therefore, under the plain meaning of the statute, the Plaintiff could be assessed the greater of $1,000.00 or 10% of gross income derived from each “sale” of the prohibited interests.
Accordingly, the Plaintiffs motion for partial summary judgment is DENIED and the Defendant’s motion for partial summary judgment is GRANTED.
4
IT IS SO ORDERED.
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Illya Bond v. United States, 872 F.2d 898 (9th Cir. 1989)…of decisions by the court of appeals, but district courts are divided as to which interpretation to follow. Some have held that the government is correct. See Johnson v. United States, 677 F.Supp. 529, 531 (E.D.Mich.1988); Waltman v. United States, 618 F.Supp. 718, 720 (M.D.Fla.1985). Other courts have determined that Bond’s position is the proper interpretation. In re Tax Refund Litigation, 698 F.Supp. 439, 443-44 (E.D.N.Y.1988); Hersch v. U.S., 685 F.Supp. 325, 330-31 (E.D.N.Y.1988); Spriggs v. United State…
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Gates v. United States, 874 F.2d 584 (8th Cir. 1989)…m such activity. . But see Popkin v. United States, 699 F.Supp. 893, 88-2 U.S. Tax Cas. (CCH) ¶9461 (N.D.Ga.1988) (penalty assessed per transaction); Johnson v. United States, 677 F.Supp. 529, 531 (E.D. Mich. 1988) (same); Wattman v. United States, 618 F.Supp. 718, 720 (M.D.Fla.1985) (same). . Individuals who aid and abet in the understatement of tax liability must pay a penalty "with respect to each such document” (26 U.S.C. § 6701(a) (1982)). Similarly, a penalty for failure to supply a taxpayer identifica…
Authorities Cited
- Griffin v. Oceanic Contractors, Inc., 458 U.S. 564 (U.S. 1982)