Appeal from the United States District Court for the Northern District of California D.C. Nos. 3:05-cv-04189-JL & 3:05-cv-04189-JL James Larson, Chief Magistrate Judge, Presiding.
The opinion of the court was delivered by: Kleinfeld, Circuit Judge
Argued and Submitted April 14, 2009 -- San Francisco, California
Before: Thomas G. Nelson, Andrew J. Kleinfeld and Milan D. Smith, Jr., Circuit Judges.
We address whether penalties on tax exempt organizations for late filing of informational returns may be reduced by district courts as a matter of discretion. We conclude that they may not be.
Labor unions do not have to pay income or other federal taxes.*fn1 But they do have to file informational returns disclosing their income, disbursements, etc.*fn2 Service Employees International Union ("SEIU") and its subsidiary 100 Oak Street Corporation ("Oak Street", SEIU's Oakland address) are labor organizations enjoying the tax exemption and burdened by the return requirement.
SEIU filed its 1999 informational return twenty months late, and Oak Street filed its 1998 informational return four months late. The IRS applied a statutory formula based on the length of delay and gross receipts, and imposed the penalties provided for by the statute.*fn3 SEIU had gross receipts of $11 million, Oak Street under $1 million, and the statutory formula generated penalties of $50,000 on the union and $2,460 on Oak Street. Neither SEIU nor Oak Street paid their penalties. The IRS sent to each a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing." The union and Oak Street each requested a "collection due process hearing" as provided for by statute with the IRS Office of Appeals.*fn4 They argued that the late filing should be excused for reasonable cause, because although their accountant had sent the returns in time for timely filing, and they had signed the returns months or years before they sent them for filing, their failure to send them in resulted from some sort of administrative oversight. They also argued that the penalties, $50,000 for the SEIU and $2,460 for Oak Street, were excessive. The IRS denied relief, noting various problems with the union's arguments, including lack of personal knowledge by one if its two affiants, absence of signatures on the affidavits by both affi-ants, and multiple delays.
SEIU and Oak Street did not pay the penalties or make offers in compromise.*fn5 Instead, they appealed to the United States Tax Court, seeking to overturn the IRS's decisions.*fn6
The Tax Court dismissed their appeals for lack of jurisdiction.*fn7
They then appealed to the district court for review of the IRS determinations.*fn8 They argued that the penalties should not have been imposed because they had "reasonable cause" under the statute*fn9 and even if not, should be reduced. On cross motions for summary judgment, the district court concluded that there was no "reasonable cause," but that as a matter of discretion the IRS should have reduced the penalties. The district court entered judgment in favor of the IRS, but for only 25% of the $50,000 penalty on SEIU and 50% of the $2,460 penalty on Oak Street, a net of $13,730 for the two of them ($12,500 for SEIU and $1,230 for Oak Street) instead of $52,460. The district court denied the IRS any prejudgment interest, but denied costs to the union and Oak Street.
The IRS appeals the reduction in the amounts of the penalties and argues that in its capacity as an appellate court, the district court had no jurisdiction to enter a money judgment. The union and Oak Street cross appeal the district court order denying them a costs award. The union does not cross appeal the ...