Wilson v. United States
6 F.4th 432
| 2d Cir. | 2021Background:
- Joseph Wilson was the sole owner and sole beneficiary of a foreign trust; in 2007 he liquidated the trust and received about $9.2 million.
- IRC §6048 requires U.S. owners to ensure the trust files an annual return (Form 3520-A) and requires beneficiaries to report distributions (Form 3520); §6677 imposes a 35% penalty for failures under §6048(c) (beneficiaries) and a 5% penalty for failures under §6048(b) (owners).
- Wilson failed to timely file Form 3520 and ensure the trust filed Form 3520-A for 2007; the IRS assessed and Wilson paid a 35% penalty ($3,221,183) based on the distributions, then sought a refund.
- After Wilson’s death, his estate sued; the district court granted partial summary judgment for the estate, concluding only the 5% owner penalty applied when owner and beneficiary are the same person.
- The Second Circuit reversed: it held the plain language of §§6048 and 6677 permits the 35% beneficiary penalty for failure to report distributions under §6048(c) even when the beneficiary is also the owner; vacated and remanded.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which penalty applies when the owner is also the beneficiary who failed to report a distribution? | Wilson: only the 5% owner penalty under §6677(b) applies. | U.S.: 35% beneficiary penalty under §6677(a) applies because §6048(c) requires beneficiaries to report distributions. | 35% penalty applies for failure to report distributions under §6048(c), even if the person is also the owner. |
| Does filing a single Form 3520/3520‑A eliminate the separate §6048(c) reporting duty? | Estate: a single Form 3520 (or trust Form 3520‑A) suffices; instructions permit relying on Form 3520‑A. | U.S.: statutory duties are distinct; choice of form doesn’t erase the separate reporting obligation. | Forms and instructions do not displace the statutory §6048(c) duty to report distributions. |
| Should IRS guidance or doctrines of deference and tax‑rule construction alter the result? | Estate: IRS instructions and lenity/deference favor the taxpayer. | U.S.: statute is unambiguous; Chevron/Skidmore inapplicable. | Statute unambiguous; no Chevron/Skidmore deference and no benefit of doubt to taxpayer required. |
Key Cases Cited
- Power Auth. v. M/V Ellen S. Bouchard, 968 F.3d 165 (2d Cir. 2020) (de novo review standard for statutory interpretation)
- United States v. Venturella, 391 F.3d 120 (2d Cir. 2004) (start statutory analysis with plain meaning)
- New York v. Nat'l Highway Traffic Safety Admin., 974 F.3d 87 (2d Cir. 2020) (textualist approach to statutory interpretation)
- McGirt v. Oklahoma, 140 S. Ct. 2452 (2020) (extratextual materials can only clarify, not create, statutory meaning)
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (framework for judicial deference to agency interpretations)
- United States v. Mead Corp., 533 U.S. 218 (2001) (limits on when Chevron deference applies)
- Gould v. Gould, 245 U.S. 151 (1917) (tax statutes construed in favor of taxpayers when ambiguous)