I have recently penned a Law360 article discussing lessons learned from recent tax decisions impacting cannabis businesses.  We will continue to cover this topic on this blog.

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In United States v. Stein, the Eleventh Circuit recently decided a novel – but critical – issue for taxpayers.  It held that an affidavit that satisfies Rule 56 of the Federal Rules of Civil Procedure (the summary judgment rule) may create an issue of material fact precluding summary judgment, even if it is self-serving and uncorroborated.  The case centered around an IRS assessment.  IRS assessments are entitled to a presumption of correctness, which can be a difficult burden for taxpayers to overcome.

In 2015, the government sued Estelle Stein for outstanding tax assessments, late penalties, and interest for the 1996 and 1999-2002 tax years.  The government moved for summary judgment and tried to show that Ms. Stein had outstanding tax assessments by submitting her federal tax returns, account transcripts, and an affidavit from an IRS officer.  Ms. Stein responded with her own affidavit, stating that, “to the best of [her] recollection,” she had paid the taxes and penalties at issue.  Her affidavit also explained that she used an accounting firm to file the tax returns, that she remembered paying the taxes and penalties due, but that she did not have bank statements showing these payments.

The district court granted summary judgment for the government because, it explained, Ms. Stein did not produce any evidence documenting payments.  An Eleventh Circuit panel affirmed based on Mays v. United States, 763 F.2d 1295 (11th Cir. 1985).  In Mays, the court affirmed summary judgment for the government, holding that a taxpayer in a refund suit must not only show the government’s assessment is wrong, but also establish the “correct amount of the refund due.”  Mays further held that the taxpayer’s claim “must be substantiated by something other than tax returns, uncorroborated oral testimony, or self-serving statements.”

The Eleventh Circuit sitting en banc in Stein, however, disagreed and overruled Mays “to the extent it holds or suggests that self-serving and uncorroborated statements in a taxpayer’s affidavit cannot create an issue of material fact with respect to the correctness of the government’s assessment.”  Under Rule 56(a), summary judgment may be granted only when “there is no genuine dispute as to any material fact” and the moving party is “entitled to judgment as a matter of law.”  The Eleventh Circuit further held that nothing in the Federal Rules of Civil Procedure prohibit an affidavit from being self-serving.

Stein is a significant win for taxpayers, and it may make it easier for taxpayers to overcome the presumption of correctness that IRS assessments have enjoyed.