John Jacoby v. Idlewild Country Club

This case was resolved at the pleading stage, so we recount the facts as alleged in Jacoby's complaint. In 2004 Jacoby joined the Idlewild Country Club, a golf and social club in suburban Chicago. He served on the club's board of directors from 2007 to 2022, including a stint as president from 2012 to 2021.

In 2021 the board approved a plan for an irrigation project on the club's property. The plan required club members to pay a $3,000 special assessment to cover the cost of the work. The assessment was spread over five years in annual installments of $600 per member. But the club incentivized full prepayment by offering five guest passes (with a golf cart) and five dinners for two to members who paid the entire assessment the first year. Jacoby took the prepayment option, paid the assessment in full in 2021, and received the promised benefits.

As planned, Idlewild assessed its members a $600 annual charge in 2021 and 2022. Because Jacoby had paid the assessment in full, his prepaid "irrigation account"

still contained $1,800 at the end of 2022.

Jacoby's relationship with the club soured sometime that same year when he accused the board's new president of cheating in a golf tournament. He resigned from Idlewild effective November 30, 2022. Jacoby alleges that he had an understanding with the club's manager that his membership would continue through the end of the year and that any charges remaining or incurred on his membership account would be offset by the balance in his prepaid irrigation account. Notwithstanding this agreement, Idlewild's record of Jacoby's account reflected unpaid dues and charges totaling $790.82 through December 2023. Relying on his understanding with the club's manager, Jacoby paid nothing further.

Idlewild declared Jacoby's account overdue, banned him from the premises based on his unpaid balance, and sent the bill to the club's attorney to initiate collection litigation. Jacoby contends that these actions were retaliatory for accusing the new club president of cheating. He disputed the debt, and the club's attorney eventually dropped the collection effort. On December 30, 2023, Idlewild invoiced Jacoby for $790.82 and thereafter filed a Form 1099-C with the IRS reporting that in 2023 it had canceled a debt Jacoby owed to it in the amount of $790.28, slightly less than the December 2023 invoice. The discrepancy is likely a typographical error.

Jacoby responded by suing Idlewild under § 7434 alleging that the Form 1099-C was fraudulent. He claimed that he did not owe any debt to the club, and even if he did, the club never informed him that the debt had been forgiven. The suit ran aground at

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the start because Jacoby's claim was foreclosed by our decision in Cavoto. We held there that the § 7434 remedy does not apply to Form 1099-C. Id. Applying the "clear holding"

of Cavoto, the district judge dismissed the case.

Jacoby appeals, arguing that Cavoto was wrongly decided and should be overruled. Before taking up his challenge to circuit precedent, we turn to § 7434 itself. The statute gives taxpayers a damages remedy against "any person" who "willfully files a fraudulent information return" with the IRS. § 7434(a). An injured plaintiff may recover statutory damages of $5,000 or actual damages plus costs and reasonable attorney's fees, whichever is greater. § 7434(b). But the cause of action is available only for a limited set of information returns. Congress narrowed the scope of the remedy by way of a cross-reference to a provision in a part of the Internal Revenue Code that prescribes penalties for failure to comply with tax information reporting requirements. See generally 26 U.S.C. §§ 6721-6726. More specifically, § 7434(f) provides that the information returns for which the remedy is available are those "described in section 6724(d)(1)(A)."

Subparagraph A of § 6724(d)(1), the cross-referenced provision, lists nine specific categories of information returns; the list does not mention Form 1099-C in particular or returns relating to debt cancellation more generally. See § 6724(d)(1)(A). Instead, information returns relating to debt cancellation are included in an adjacent subparagraph of the cross-referenced statute: Subparagraph B, right next door, contains a longer list of other categories of information returns and specifically refers to returns

"required by … section 6050P (relating to returns relating to the cancellation of indebtedness by certain financial entities)." § 6724(d)(1)(B)(x). The categories listed in subparagraph B, as we've mentioned, are not covered by the narrow definition of

"information return" in § 7434(f). Based on this statutory text and structure, we held in Cavoto that "the remedy created by § 7434 is limited in scope." 634 F.3d at 924. We explained that "[t]he types of false 'information returns' for which an injured taxpayer may recover are limited to the nine listed in 26 U.S.C. § 6724(d)(1)(A)." Id. And "[t]hose nine do not include returns relating to the cancellation of indebtedness, i.e., a Form 1099-C." Id. Because returns relating to the cancellation of indebtedness are not mentioned in § 6724(d)(1)(A), we concluded that they are not covered by the remedy provided in § 7434. Id. Jacoby maintains that Cavoto was wrongly decided and offers an alternative reading of § 7434(f)'s cross-reference to § 6724(d)(1)(A). He argues that debt-cancellation returns filed by nonfinancial entities (like Idlewild) fall within the first of the nine

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categories listed in § 6724(d)(1)(A): "any statement of the amount of payments to another person required by section 6041(a) or (b) (relating to certain information at source)." § 6724(d)(1)(A)(i).

In relevant part, the "information at source" provision states as follows:

All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income … of $600 or more in any taxable year … shall render a true and accurate return to the Secretary … setting forth the amount of such gains, profits, and income … and the name and address of the recipient of such payment.

26 U.S.C. § 6041(a) (2023) (emphases added).¹ Jacoby reads this provision to require an information return whenever a nonfinancial entity or person forgives a debt of $600 or more. This is so, he argues, because the Internal Revenue Code treats the cancellation of debt as the "payment" of

"income" in the definition of "gross income." Id. § 61(a)(11). Jacoby contends that § 6041(a) requires any nonfinancial entity or person who forgives a debt of $600 or more to file an information return reporting the debt cancellation as income to the taxpayer. It therefore follows, he says, that the filer is subject to liability under § 7434 for filing a willfully false return.

Jacoby hasn't referred us to any authority suggesting that the IRS applies § 6041 in this way. And there's reason to doubt that it does. A separate provision of the tax code requires "an applicable financial entity" to file a Form 1099-C whenever it

"discharges (in whole or in part) the indebtedness of any person during any calendar year." 26 U.S.C. 6050P(a), (c)(1)(B) (emphasis added); see 26 C.F.R. § 1.650P-1(a)(4). (This type of information return, for sake of completeness, appears in subparagraph B of § 6724(d)(1)—in other words, the list not covered by § 7434's damages remedy. § 6724(d)(1)(B)(x).) That certain financial institutions must file a Form 1099-C reporting a

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debt cancellation is reason to infer that nonfinancial institutions may, but need not, file one.

Further, Jacoby's interpretation has implications far beyond the availability of the § 7434 remedy. If he's right about the interpretation of § 6041, then an information return is not merely voluntary when a nonfinancial entity or person forgives a debt; it is mandatory. And that, in turn, would trigger potential penalties for any debt forgiver who fails to file one. See §§ 6721, 6724(a).

In short, we're not so sure Jacoby's interpretation is correct. More to the point, it takes a compelling reason to overrule circuit precedent; mere disagreement with a rule previously announced is not sufficient. United States v. Rivers, 108 F.4th 973, 979 (7th Cir. 2024). And when the prior case interprets a statute, this principle "carries enhanced force." Kimble v. Marvel Ent., LLC, 576 U.S. 446, 456 (2015).

Jacoby hasn't met this standard. His interpretation of the relevant statutes is not obviously correct. Or more precisely, he has not persuaded us that Cavoto's reasoning is so obviously wrong that the case should be overturned. The uncertainty, potential breadth, and possible unintended consequences of his alternative interpretation are reasons enough to counsel against changing course. Nor has Jacoby pointed to any case from the Supreme Court or another circuit that undermines Cavoto, so our precedent remains entitled to considerable weight. Rivers, 108 F.4th at 979. Jacoby suggests that Cavoto should be reconsidered because the parties in that case appeared pro se on appeal and the case lacked a developed argument on this issue. That's not, on its own, an adequate justification to overrule circuit precedent. Because Jacoby has not given us a compelling reason to overturn Cavoto, we AFFIRM the judgment.

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