R S B C O v. United States, 104 F.4th 551

Background

RSBCO, a limited partnership and subsidiary of Argent Financial Group, was required to file over 21,000 IRS information returns for the 2012 tax year.
RSBCO's operations manager, Gregory Smith, failed to file processable returns by the deadline, ultimately correcting the filings 3.5 months late due to his clinical depression.
The IRS assessed penalties exceeding $500,000 for late and inaccurate filings; RSBCO paid and sought a refund, claiming "reasonable cause" for the delay.
The core trial issue was whether RSBCO’s filing delay was excused under IRS regulations, particularly whether Smith’s depression constituted either a significant mitigating factor or an event beyond RSBCO's control.
A jury found for RSBCO, and the district court awarded a refund plus attorney’s fees and costs; the United States appealed, arguing erroneous jury instructions and improper fee awards.
The Fifth Circuit vacated the verdict and fee award, finding the jury instruction regarding "impediments" fatally inconsistent with the applicable Treasury Regulation, and remanded for a new trial.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether jury instructions on “reasonable cause”—specifically, events beyond filer’s control (“impediments”)—were correct under IRS regulation	RSBCO argued that Smith’s depression was an event beyond RSBCO’s control and the instructions properly let the jury consider this.	The US argued the instructions were legally erroneous, overbroad, and misapplied the regulation’s nuance and requirements.	Court held the instruction was legally erroneous and could have affected the outcome; verdict vacated.
Whether the district court erred in instructing the jury on “mitigators” (mitigating factors)	RSBCO asserted mitigators are not limited to filing history and may include other factors as allowed by the regulation.	The US argued mitigators should be limited to factors akin to those listed in the regulation, primarily past filing history.	Court held mitigator instruction was not error; regulation allows broader scope.
Whether the district court’s verdict form allowed proper determination of basis for jury’s reasonable cause finding	RSBCO contended the form reflected sufficient jury agreement on grounds for reasonable cause.	The US argued the combined question on mitigating factors and impediments made it impossible to determine the jury’s basis.	Court agreed with the US; verdict form prevented determination of grounds and required a new trial.
Whether RSBCO should retain its attorney fees/costs award	RSBCO contended as prevailing party, it was entitled to recover fees and costs.	The US argued this was premature due to flawed verdict and legal errors below.	Award vacated because RSBCO ceased to be a prevailing party after verdict vacated.

Key Cases Cited

Johnson v. Sawyer, 120 F.3d 1307 (5th Cir. 1997) (sets standard for appellate review of jury instructions)
Bloate v. United States, 559 U.S. 196 (2010) (interpreter of statutory/ regulatory language; difference between illustrative/exhaustive lists)
In re Crocker, 941 F.3d 206 (5th Cir. 2019) (canon against surplusage in regulatory interpretation)
Bender v. Brumley, 1 F.3d 271 (5th Cir. 1993) (preservation of jury instruction objections for appeal)