Justia Tax Law Opinion Summaries

Sirius Solutions, L.L.L.P. is a limited liability limited partnership organized under Delaware law, operating as a business-consulting firm. The partnership consisted of both limited partners and a general partner, Sirius Solutions GP, L.L.C. For the tax years 2014, 2015, and 2016, Sirius reported all ordinary business income as allocated to its limited partners and excluded those distributive shares from net earnings from self-employment, claiming an exemption under 26 U.S.C. § 1402(a)(13) for limited partners. This resulted in Sirius reporting zero net earnings from self-employment in each year.The Internal Revenue Service audited Sirius’s returns and, through Notices of Final Partnership Administrative Adjustment, determined that Sirius’s limited partners did not qualify as “limited partners” for purposes of the statutory exception. Therefore, the IRS reclassified the distributive shares of income as subject to self-employment tax, substantially increasing Sirius’s net earnings from self-employment for the years at issue. Sirius petitioned the United States Tax Court for readjustment, and the cases for all three years were consolidated. The Tax Court, relying on its decision in Soroban Capital Partners LP v. Commissioner, 161 T.C. 310 (2023), held that only passive investors qualify as “limited partners” under § 1402(a)(13), and thus upheld the IRS’s adjustments.On appeal, the United States Court of Appeals for the Fifth Circuit reviewed the meaning of “limited partner” under § 1402(a)(13). The Fifth Circuit held that a “limited partner” is a partner in a state-law limited partnership who has limited liability, rejecting the narrower “passive investor” test applied by the Tax Court and IRS. The Fifth Circuit vacated the Tax Court’s decision and remanded for further proceedings, instructing that the distributive shares of limited partners with limited liability should be excluded from self-employment earnings for tax purposes. View "Sirius Solutions v. Commissioner of Internal Revenue" on Justia Law

Jones Apparel, a company that designs and sells apparel, shoes, and accessories, sold merchandise to DSW, Inc. from 2010 through 2016. All merchandise was initially shipped to DSW’s distribution center in Columbus, Ohio. DSW subsequently transferred merchandise from the distribution center to its retail stores, many of which are located outside Ohio. Jones Apparel did not know at the time of sale or shipment how much merchandise would remain in Ohio or be sent elsewhere. After paying Ohio’s Commercial Activity Tax (CAT) on the gross receipts from these sales, Jones Apparel later claimed that much of the merchandise ultimately left Ohio and sought a refund for the portion of receipts it believed should not have been taxed.Jones Apparel filed CAT-refund claims with the Ohio Tax Commissioner, arguing that the relevant gross receipts lacked an Ohio situs. The Tax Commissioner denied the claim, reasoning that shipping labels and bills of lading showed delivery to Ohio and that accepting secondary evidence regarding subsequent shipment outside Ohio could create administrative problems. Jones Apparel appealed to the Ohio Board of Tax Appeals (BTA), which held a hearing. The BTA acknowledged that evidence obtained after initial delivery could theoretically establish that goods were ultimately received outside Ohio, but found that Jones Apparel had failed to provide sufficient documentary evidence to establish the amount of gross receipts for merchandise transported out of Ohio. The BTA affirmed the denial of the refund claim.On further appeal, the Supreme Court of Ohio reviewed the BTA’s decision for reasonableness and lawfulness. The court rejected the Tax Commissioner’s argument that only contemporaneous records should be considered in situsing determinations, finding no such statutory requirement. However, the court held that Jones Apparel did not meet its burden of providing documentary evidence to establish the amount of gross receipts that left Ohio, as required by statute. Therefore, the Supreme Court of Ohio affirmed the BTA’s decision denying the refund. View "Jones Apparel Group/Nine West Holdings v. Harris Tax Commr." on Justia Law

Juan and Catherine Reyes, both United States citizens, maintained a jointly-held foreign bank account in Switzerland that contained over two million dollars, representing the majority of their assets and a significant source of their income. Despite being asked by both their accountant and the IRS about foreign accounts, the Reyeses did not disclose their interest in the account on tax forms for 2010, 2011, and 2012, nor did they file the required Report of Foreign Bank and Financial Accounts (FBAR). After the IRS discovered the omission and assessed civil penalties for willful failure to file FBARs for those years, the Reyeses did not pay, resulting in the United States initiating suit to convert those penalties into a money judgment.The United States District Court for the Eastern District of New York granted summary judgment in favor of the United States, finding that the Reyeses' conduct was at least reckless and therefore "willful" under 31 U.S.C. § 5321. The court imposed enhanced penalties and also applied a six percent late payment penalty under 31 U.S.C. § 3717(e)(2) and relevant Treasury regulations. The Reyeses contested both the determination of willfulness and the application of the late payment penalty, arguing that recklessness should not suffice for willfulness and that the penalty rate should be discretionary.Reviewing the case de novo, the United States Court of Appeals for the Second Circuit held that "willful" as used in 31 U.S.C. § 5321 encompasses reckless conduct, aligning its interpretation with that of other circuits and Supreme Court precedent. It further determined that the undisputed evidence established the Reyeses acted recklessly and that summary judgment was appropriate. The appellate court also concluded that the six percent late payment penalty imposed by the district court was mandatory under controlling Treasury Department regulations. The Second Circuit affirmed the judgment of the district court in all respects. View "United States of America v. Reyes" on Justia Law

The case concerns a property owner who challenged the assessed valuation of his residential property by the county assessor. After receiving a tax assessment notice valuing his home at $732,661, the property owner met with the assessor to contest the figure, citing his home’s 2013 purchase price as more accurate. The assessor, after review, reduced the assessment twice—first lowering the quality rating of the home and then making a minor adjustment for siding type—ultimately setting the value at $674,465. The property owner appealed the assessment, objecting to the timing of evidence disclosure by the assessor and arguing that the assessed value should reflect actual sales in the neighborhood or a realtor’s market evaluation instead of the mass appraisal system used.The Laramie County Board of Equalization held a hearing on the appeal, admitting both parties’ evidence, including the assessor’s exhibits, which were received by the property owner three days later than the statutory deadline but still twenty-seven days before the hearing. The Board found the assessor’s methods and use of the state-mandated Computer Assisted Mass Appraisal (CAMA) system proper, and concluded that the property owner failed to provide credible evidence that the valuation was incorrect or unlawful. The Board affirmed the assessment. The property owner appealed to the State Board of Equalization, which remanded briefly for procedural reasons, after which the Board reaffirmed its decision. The State Board and then the District Court of Laramie County both affirmed.The Supreme Court of Wyoming reviewed the case and held that the County Board did not abuse its discretion in admitting the assessor’s evidence, given the minimal delay and lack of prejudice. It also held that the property owner did not meet his burden to rebut the presumption of correctness in the assessor’s valuation, which was supported by substantial evidence and in accordance with law. The Supreme Court affirmed the lower courts’ decisions. View "Johnston v. Ernst" on Justia Law

The plaintiffs in this case are trustees who own a property in Kīhei, Maui, which they use as a vacation home for personal use. In 2021, Maui County reclassified their property as a “short-term rental” based solely on zoning, not actual use, resulting in a higher property tax rate. The plaintiffs paid the assessed taxes but did not utilize the administrative appeals process available through the Maui County Board of Review. Instead, they filed a class action in the Circuit Court of the Second Circuit, seeking a refund and alleging that the County’s collection of the higher taxes was unconstitutional, violated due process, and resulted in unjust enrichment.The Circuit Court of the Second Circuit granted the County’s motion to dismiss, finding it lacked subject matter jurisdiction. The court determined that under Hawai‘i Revised Statutes chapter 232 and Maui County Code chapter 3.48, the proper procedure for contesting real property tax assessments—including constitutional challenges—requires first appealing to the County Board of Review and, if necessary, then to the Tax Appeal Court. Because the plaintiffs bypassed these required steps and missed the statutory deadline to appeal, the court dismissed the case with prejudice.On appeal, the Supreme Court of the State of Hawai‘i affirmed the circuit court’s dismissal. The Supreme Court held that the Tax Appeal Court has exclusive jurisdiction over appeals regarding real property tax assessments, including those raising constitutional issues, and found that the plaintiffs’ claims were time-barred due to their failure to timely pursue the established administrative remedies. As a result, the Supreme Court affirmed the circuit court’s judgment dismissing the plaintiffs’ claims for lack of subject matter jurisdiction. View "Piezko v. County of Maui" on Justia Law

The defendant was convicted in 2003 of voluntary manslaughter, robbery, possession of a firearm, and received various sentence enhancements, including a prior strike, a firearm enhancement, and seven prior prison term enhancements, resulting in a sentence of 42 years and four months. Two restitution fines of $5,000 each were also imposed. In 2023, following legislative changes, the Department of Corrections and Rehabilitation identified the defendant as eligible for resentencing under Penal Code section 1172.75, which invalidated certain prior prison term enhancements. The defendant sought to have those enhancements stricken and also requested further modifications, including striking the prior strike and firearm enhancement, and imposing a lesser term for the manslaughter conviction.At the Superior Court of Sacramento County, during the resentencing hearing held in October 2024, the court struck the seven prior prison term enhancements, reducing the sentence to 35 years and four months. However, the court declined to strike the prior strike and firearm enhancement, and reimposed the original restitution fines and victim restitution. The updated abstract of judgment noted the restitution fines were “stayed.” The defendant appealed, raising constitutional and statutory challenges to the reimposition of the upper term, the denial of his request to strike the firearm enhancement under section 1385, and the continued imposition of the restitution fine.The California Court of Appeal, Third Appellate District, held that the trial court did not err by reimposing the upper term for voluntary manslaughter without requiring new findings of aggravating circumstances under amended section 1170, subdivision (b), because section 1172.75, subdivision (d)(4) exempts previously imposed upper terms from these requirements. The court also found no abuse of discretion or statutory error in declining to dismiss the firearm enhancement, as no applicable mitigating factors were established. However, the court concluded that the restitution fine originally imposed in 2003 must be vacated under section 1465.9, as more than ten years had elapsed. The judgment was affirmed as modified to vacate the restitution fine. View "P. v. Salstrom" on Justia Law

VVF Intervest, L.L.C., a contract manufacturer based in Kansas, produced bar soap for High Ridge Brands (HRB), the brand owner. HRB, an "asset light" entity, directed VVF to ship the soap from Kansas to a third-party distribution center in Columbus, Ohio. Subsequently, HRB resold most of the product to national retailers, and the soap was shipped out of Ohio to various locations. Between 2010 and 2014, VVF paid Ohio’s commercial-activity tax (CAT) on its gross receipts from these sales to HRB.After making these payments, VVF sought a refund from the Ohio tax commissioner, arguing that its gross receipts should not be sitused to Ohio since the products left the state soon after arrival. The tax commissioner denied the refund, emphasizing that the relevant sale for tax purposes was VVF’s sale to HRB, not HRB’s subsequent sales to retailers. VVF appealed to the Ohio Board of Tax Appeals, which held that the Columbus distribution center was merely an interim stop and that the gross receipts should not be sitused to Ohio. The board also found that VVF had not adequately preserved an alternative statutory argument regarding services and declined to rule on constitutional claims.The Supreme Court of Ohio reviewed the appeal and reversed the Board of Tax Appeals’ decision. The court held that under R.C. 5751.033(E), VVF’s gross receipts from sales to HRB are properly sitused to Ohio because HRB, as the purchaser, received the goods in Ohio. The court dismissed VVF’s alternative statutory argument for lack of jurisdiction and rejected VVF’s constitutional challenges under the Due Process, Commerce, and Equal Protection Clauses. Thus, VVF is not entitled to a refund of the CAT paid on these transactions. View "VVF Intervest, L.L.C. v. Harris" on Justia Law

Several Utah-based companies and individuals, including Standard Insurances and related entities, challenged actions taken by the Internal Revenue Service (IRS) following an audit. Standard Insurances, a micro-captive insurance company, had provided insurance to its affiliated companies, seeking certain federal tax benefits under 26 U.S.C. § 831(b). After an audit initiated in 2022, the IRS determined that Standard was not a legitimate micro-captive insurance company, issued deficiency notices, and adjusted the tax liabilities of Standard and its insureds. The IRS concluded that Standard’s transactions lacked economic substance and were not genuine insurance transactions, resulting in increased taxable income for Standard and decreased deductions for the insured entities.Following the issuance of deficiency notices, Standard petitioned the United States Tax Court for redetermination of its tax liabilities and made advance payments. While those proceedings remained pending, Standard filed suit in the United States District Court for the District of Utah, seeking declaratory and injunctive relief. The district court dismissed the case for lack of jurisdiction, finding that the claims were barred by the Declaratory Judgment Act (DJA) and the Tax Anti-Injunction Act (AIA), which prohibit suits in federal court that restrain the assessment or collection of federal taxes.On appeal, the United States Court of Appeals for the Tenth Circuit affirmed the district court’s dismissal. The Tenth Circuit held that Standard’s claims sought relief that would restrain the IRS’s assessment and collection of taxes, and thus were barred by the DJA and AIA. The court found that none of the judicially created exceptions to these statutes applied, as Standard had an available remedy in tax court and could pursue further review if necessary. The court rejected Standard’s arguments that its claims were not subject to the statutory bars and concluded that federal court jurisdiction was precluded in this instance. View "Standard Insurances v. IRS" on Justia Law

Kevin Clay and his associate founded a pharmaceutical sales company that marketed compounded prescriptions directly to patients, promising them a share of the insurance reimbursements for each prescription filled. The company partnered with a pharmacy willing to pay a portion of the insurance proceeds and recruited employees from a local business whose health plan covered these prescriptions. Patients were directed to a doctor who readily prescribed the creams, resulting in millions of dollars in reimbursements over two years. Clay established a public charity to reduce his tax burden but used its funds for personal expenses and failed to comply with nonprofit requirements.The United States District Court for the Northern District of Ohio oversaw Clay’s trial. A jury convicted him of conspiracy to commit healthcare fraud, healthcare fraud, and making a false statement to the IRS, but acquitted him of a separate tax charge. The court sentenced Clay to 51 months’ imprisonment and ordered restitution totaling nearly $7 million to both Fiat Chrysler and the IRS. Clay appealed his convictions, sentence, and restitution orders.The United States Court of Appeals for the Sixth Circuit reviewed the case. The court affirmed Clay’s convictions and rejected his challenges to the jury instructions and evidentiary rulings. However, it found error in the district court’s restitution orders and the application of a sentencing enhancement. Specifically, the Sixth Circuit held that restitution should not include payments for medically necessary prescriptions and that the apportionment of restitution must consider each defendant’s contribution and economic circumstances. The court also determined the restitution order to the IRS was not properly substantiated and included acquitted conduct. Finally, the case was remanded for further proceedings on restitution and for clarification or reconsideration of the leadership sentencing enhancement. View "United States v. Clay" on Justia Law

After serving more than a decade in the Illinois state legislature, the defendant established a lobbying and consulting firm and also sold life insurance for a private company. For several years, she correctly filed her tax returns and reported her income. However, beginning in 2014, she significantly underreported her income on her personal tax returns or failed to file altogether, despite substantial earnings from her business and insurance work. She was later terminated from her insurance position for fraudulent activity. The IRS discovered unreported income and issued a notice of tax liability, prompting her to amend one return and enter a payment plan, which she later abandoned.A grand jury indicted her on six counts, including making false statements on tax returns and willfully failing to file returns for herself and her company. The United States District Court for the Northern District of Illinois, Eastern Division, made several evidentiary rulings before and during trial, including excluding evidence of her amended tax return and payment plan, and limiting her expert’s testimony. The jury convicted her on four counts. The court denied her motion for judgment of acquittal and later sentenced her to one year of imprisonment and supervised release. She subsequently filed a motion to modify her sentence to make her eligible for good-time credits, which the district court denied.The United States Court of Appeals for the Seventh Circuit reviewed her convictions and the district court’s evidentiary rulings de novo and for abuse of discretion, respectively. The appellate court held that there was sufficient evidence for a rational jury to find willfulness, affirmed the exclusion of post-offense remedial evidence as within the district court’s discretion, found her challenge to the impeachment ruling waived since she did not testify, upheld the limitation on her expert’s testimony, and agreed that her motion to correct the sentence was untimely and properly denied. The Seventh Circuit affirmed the judgment. View "United States v. Collins" on Justia Law