Justia Tax Law Opinion Summaries

Nate and Jaya Maniktala, shareholders of an S-corporation, claimed research and development tax credits on their joint tax returns for 2018 and 2019. The IRS subsequently determined that the corporation was not entitled to the credits and issued a notice of deficiency to the Maniktalas, stating that they had until March 19, 2024, to file a petition with the United States Tax Court to contest the deficiency. However, the Maniktalas did not receive the notice until July 9, 2024, and filed their petition on July 19, 2024, well after the 90-day deadline.The United States Tax Court dismissed the Maniktalas’ petition, ruling that it lacked jurisdiction because the petition was not filed within the statutory period prescribed by 26 U.S.C. § 6213(a). The Maniktalas appealed, contending that the 90-day deadline is not jurisdictional and, therefore, is subject to equitable tolling, which could allow their late filing to be considered.The United States Court of Appeals for the Eighth Circuit reviewed the case de novo. The court held that the filing deadline in 26 U.S.C. § 6213(a) is not jurisdictional but is instead a claim-processing rule. The court concluded that Congress did not clearly attach jurisdictional consequences to the 90-day deadline and that the deadline is presumptively subject to equitable tolling. The court found no clear statutory language rebutting this presumption. The Eighth Circuit reversed the Tax Court’s decision and remanded the case for the Tax Court to determine, in the first instance, whether the Maniktalas qualify for equitable tolling of the filing deadline. View "Maniktala v. CIR" on Justia Law

The case concerns the founder and sole shareholder of a corporation (VPX), who elected to treat the company as a Subchapter S Corporation for federal tax purposes. After VPX and affiliated entities filed for Chapter 11 bankruptcy, a reconstituted board removed the founder from his executive and board positions, though he remained the sole shareholder. The company’s assets were later sold, and its remaining interests were vested in a trust under the reorganization plan. The founder then sought confirmation that the bankruptcy automatic stay did not prohibit him from revoking the corporation’s Subchapter S status or, alternatively, for relief from the stay to do so.The United States Bankruptcy Court for the Southern District of Florida denied his motions, holding that the Subchapter S election constituted property of the bankruptcy estate and was therefore protected by the automatic stay. The founder appealed this decision to the United States District Court for the Southern District of Florida, which denied the trustee’s motion to dismiss the appeal as moot, consolidated the appeals, and certified a direct appeal to the United States Court of Appeals for the Eleventh Circuit.The United States Court of Appeals for the Eleventh Circuit addressed several issues, including mootness, the law of the case, and whether Subchapter S status is property of the bankruptcy estate. The court held that a corporate debtor’s Subchapter S election is not property of the bankruptcy estate because the election belongs to the shareholder, not the corporation. The court found the appeal neither constitutionally nor equitably moot, determined that procedural hurdles were met, and reversed the bankruptcy court’s denial of the founder’s motions. The case was remanded for further proceedings consistent with the Eleventh Circuit’s opinion. View "Owoc v. The Liquidating Trustee on Behalf of the Liquidating Trust" on Justia Law

Tesoro, a company operating an oil refinery in the City of Carson, was assessed for underpayment of the City’s oil industry business license tax following an audit. Tesoro paid the assessed deficiency under protest and filed a claim for a tax refund with the City clerk, using the form prescribed under the California Government Claims Act (GCA). The City denied this claim. Tesoro then filed a lawsuit seeking a refund, arguing that the City was barred from seeking the payment due to expiration of the limitations period and because the City’s method for calculating the tax was unlawful.In the Los Angeles County Superior Court, the City demurred, contending that Tesoro failed to exhaust the City’s local administrative remedies—specifically, the procedures in the Carson Municipal Code requiring a taxpayer to seek a refund first from the finance director and then, if necessary, to appeal to the city manager—before filing a claim under the GCA. The trial court sustained the demurrer. The California Court of Appeal, Second Appellate District, Division Four, affirmed, holding that Tesoro had not demonstrated that the GCA preempted the City’s local administrative review process.The Supreme Court of California granted review to determine whether a local government may require a taxpayer seeking a refund to comply with local administrative procedures before submitting a claim under the GCA, or whether the GCA preempts such requirements. The Supreme Court held that the GCA occupies the entire field of presentation requirements for claims for money or damages against local public entities, including claims for local tax refunds. The Court concluded that the sections of the Carson Municipal Code imposing additional administrative prerequisites are preempted by state law and may not be enforced. The judgment of the Court of Appeal was reversed. View "Tesoro Refining & Marketing Co. LLC v. City of Carson" on Justia Law

A married couple separated after the husband made a substantial prepayment to the IRS for their 2021 tax liability. Both parties subsequently filed separate tax returns for that year, and the tax preparer allocated the prepayment to the wife’s return. While the divorce proceedings were ongoing, the husband sought a court order to reallocate the prepayment. In February 2023, the District Court of Campbell County ordered the parties to file an amended joint tax return for 2021 and held them jointly and severally liable for any tax assessments related to that return. Despite this order, the couple’s tax preparer filed both a joint return and an amended individual return for the husband on the same day, which led to confusion and complications with the IRS regarding the prepayment.Following the entry of the divorce decree, which incorporated the court’s prior directives, the wife moved for an order to show cause, alleging the husband had not complied with the requirement to file a joint return. An evidentiary hearing was held, during which the court found the husband’s testimony regarding his conduct not credible and determined he had willfully frustrated the completion of the joint return by filing an amended individual return. The court ordered the husband to withdraw all other tax returns for 2021 except the joint return and to pay penalties and interest resulting from delays.The Supreme Court of Wyoming reviewed the case, applying an abuse of discretion standard and examining whether the district court’s findings were clearly erroneous. The court affirmed the lower court’s contempt order, holding that the district court did not err in its timing determination, did not abuse its discretion in finding contempt, and did not exceed the scope of the decree by ordering withdrawal of returns or monetary sanctions. The court concluded that the husband willfully disobeyed a clear court order and failed to prove inability to comply. View "Morrison v. Hinson-Morrison" on Justia Law

Several agricultural property owners in Cochise County challenged their 2023 property tax assessments, which valued both their land and the permanent crops (specifically, orchard trees and vineyard vines) growing upon it. The county assessor had applied the statutory income approach to value the land but then separately valued the permanent crops using standard market-based appraisal methods, ultimately combining these values to determine the total property value for tax purposes. The owners argued that, under Arizona law, permanent crops should not be valued separately from the land and must be included within the statutory income-based valuation method used for agricultural property.The Arizona Tax Court agreed with the property owners, finding that the relevant statutes did not distinguish between the land and permanent crops for valuation purposes. The court granted summary judgment for the owners, holding that both the land and permanent crops should be valued together under the income approach outlined in A.R.S. § 42-13101. The court also determined that permanent crops were not expressly classified as improvements to land under the statutes. The Arizona Court of Appeals affirmed the tax court’s decision, supporting the unified valuation method for agricultural land and permanent crops.The Supreme Court of the State of Arizona granted review to clarify the statutory framework for valuing agricultural property with permanent crops. The Court held that when land with permanent crops qualifies as agricultural property under A.R.S. § 42-12151, it must be valued exclusively using the income approach prescribed by § 42-13101. Assessors may not separately assign market value to permanent crops using standard appraisal methods. The Court also held that administrative guidance to the contrary is unenforceable to the extent it conflicts with this statutory framework. The Supreme Court affirmed the tax court’s judgment and vacated the court of appeals’ opinion. View "A & P RANCH LTD v COCHISE COUNTY" on Justia Law

A married couple divorced after more than two decades together, having had four children during their marriage. At the time of their separation, two children were already adults, and the youngest two were still minors or in high school. The parties agreed to a bifurcated divorce, settling some issues but leaving child support and the division of marital assets unresolved. Key disputes included child support obligations for their adult daughter, who was intellectually disabled and living in an assisted facility, the classification of a $100,000 early inheritance received by the husband, and the equitable division of marital property, including responsibility for capital gains taxes after selling marital real estate.The Superior Court of the State of Alaska, Third Judicial District, Palmer, conducted a trial on these issues. The court found that the wife had primary physical custody of the adult daughter and ordered the husband to pay child support, both retroactively through the daughter’s graduation and ongoing support until she began receiving Social Security benefits. The court classified the $100,000 inheritance as marital property, in part because it was deposited into a shared account and used to pay marital debt. The court divided the marital estate unequally, awarding 55% to the wife, based mainly on her role as homemaker and the husband’s higher earning potential, and denied the husband’s request for reimbursement for post-separation expenditures on the property (Ramsey credit). The court also made the husband responsible for 55% of the capital gains tax liability.On appeal, the Alaska Supreme Court affirmed the superior court’s rejection of the husband’s claims of judicial bias, its child support order, its classification of marital property, its denial of the Ramsey credit, and the overall division of the marital estate. However, it remanded for further findings on the allocation of capital gains tax liability, holding that the superior court must make additional findings explaining its unequal division of that debt. View "Cline v. Duckett" on Justia Law

A corporation operating sleep clinics in Alaska sought a favorable tax exemption available to certain small businesses under Alaska law, which incorporates standards from federal law. The clinic conducted diagnostic sleep studies for patients, often based on physician referrals, and maintained accreditation as an independent diagnostic testing facility. Its staff included certified polysomnographic technologists and a board-certified medical director who reviewed patient referrals and ensured tests were appropriate. The clinic marketed itself based on the expertise and training of its staff.After the clinic claimed the small business tax exemption for 2016-2018, the Alaska Department of Revenue denied the exemption in 2020, concluding the clinic performed services in the “field of health” and thus was ineligible. The clinic challenged this, first through an informal conference and then by appeal to the Office of Administrative Hearings (OAH). The OAH upheld the denial, finding that the clinic’s operations—involving a highly trained medical director, certified staff, and significant interaction with patients—constituted services in the field of health. The OAH also determined the State’s denial was timely, interpreting the relevant statute to require assessment of exemption eligibility as of the first day of the tax year, not a decision by that date. The Superior Court affirmed, rejecting the clinic’s arguments and also finding that a later-issued IRS private letter ruling (PLR) did not alter the outcome, since it was based on different facts.On appeal, the Alaska Supreme Court affirmed the Superior Court’s decision. The court held: (1) the State’s denial of the exemption was timely under the statutory framework; (2) substantial evidence supported the finding that the clinic performed services in the field of health, relying on the professional qualifications required, the medical director’s role, and the clinic’s patient interactions; and (3) the later IRS PLR did not bind the State or require a different result. The exemption denial was thus affirmed. View "Alyeska International, Inc. v. State of Alaska" on Justia Law

Charles Littlejohn, seeking to influence the outcome of a presidential election and raise support for tax policy changes, obtained employment as a consultant with the Internal Revenue Service in 2017 for the purpose of unlawfully accessing and leaking confidential tax returns. He stole and leaked the tax returns of then-President Donald Trump, as well as the tax records of approximately 7,600 wealthy Americans and 600 entities. Littlejohn provided these records to media outlets, including the New York Times and ProPublica, resulting in substantial reputational, economic, and personal harm to numerous victims. He attempted to conceal his actions by destroying evidence and deleting files. The leaks caused ongoing distress, with unpublished data still held by ProPublica, leaving victims fearful of further exposure.The United States District Court for the District of Columbia accepted Littlejohn’s guilty plea to one count of unauthorized disclosure under 26 U.S.C. § 7213(a)(1). The court calculated a Sentencing Guidelines range of one to one-and-a-half years, after considering an upward departure due to the scope and harm of the offense. At sentencing, the court imposed the statutory maximum of five years in prison, three years of supervised release, and monetary penalties, citing the targeted nature of the offenses, elaborate planning, and continuing harm to victims.Reviewing the case, the United States Court of Appeals for the District of Columbia Circuit examined procedural and substantive challenges to the sentence. The court found no procedural error, determining the district court did not predetermine the sentence, rely on erroneous facts, improperly consider outside influence, or fail to explain its variance. Substantively, the appellate court concluded the sentence was reasonable given the gravity and scope of the offenses. The court affirmed the district court’s judgment, holding that both the procedural and substantive aspects of Littlejohn’s sentence satisfied legal standards. View "USA v. Littlejohn" on Justia Law

A public utility company that sells electricity to Maryland customers used equipment such as conductors, substations, and transformers to transmit and distribute electricity generated outside Maryland. The transmission process involved “stepping up” and “stepping down” voltage to deliver electricity at a level suitable for customer use. The utility believed that most of its equipment used for these purposes qualified for a state sales and use tax exemption for tangible personal property used directly and predominantly in a production activity, specifically the “processing” of electricity for resale. During an audit period, the utility paid sales and use tax on some, but not all, of its relevant equipment due to an accounting irregularity. Afterward, it requested a refund for the taxes it believed were paid in error.The Comptroller denied both the refund and a related assessment challenge, concluding the exemption did not apply. On appeal, the Maryland Tax Court determined that the conductor, substation, and transformer equipment qualified for the exemption because it was used directly and predominantly for processing electricity, but found that certain support structures and other items did not qualify. The Circuit Court for Anne Arundel County affirmed the Tax Court’s exemption ruling but held that most of the refund claim was untimely under the four-year statute of limitations for tax refund claims. The Appellate Court of Maryland affirmed most of the Tax Court’s rulings and instead applied a 30-day limitations period, making the entire refund claim timely.The Supreme Court of Maryland held that the utility’s transmission and distribution equipment performed “processing” and thus a production activity, qualifying for the exemption. The Court agreed that only the conductor, substation, and transformer equipment qualified and not the support structures. The Court also held that the general four-year limitations period applied, not the 30-day period, and that the utility was entitled to interest on the refunded amounts. The judgment was affirmed in part, reversed in part, and remanded for further proceedings. View "Comptroller v. Potomac Edison" on Justia Law

A developer purchased approximately 430 acres in Georgia and later sold a 103-acre tract to an investment company. This company, Savannah Shoals, LLC, planned to donate a conservation easement over the 103-acre tract. Expert testing determined that the property contained materials suitable for use as crushed rock aggregate, and an expert report valued the potential of an aggregate quarry on the property at $23.1 million. Savannah Shoals then completed a series of transactions to acquire and transfer membership interests in the property, after which it granted the conservation easement and claimed a $23 million tax deduction for its donation.The Internal Revenue Service (IRS) disallowed the deduction, arguing that Savannah Shoals had grossly overstated the value of the easement. The IRS issued a Final Partnership Administrative Adjustment, finding the deduction unsupported and imposing a 40% penalty for gross valuation misstatement. Savannah Shoals challenged these findings in the United States Tax Court. After a four-day trial with expert testimony, the Tax Court concluded that the property’s highest and best use was not as an aggregate quarry, but rather for low-density residential and recreational purposes. Relying on comparable sales and the actual transaction value, the Tax Court determined the easement’s value to be $480,000 and upheld the 40% penalty.On appeal, the United States Court of Appeals for the Eleventh Circuit reviewed the Tax Court’s decision. The Eleventh Circuit held that the Tax Court was not required to apply a specific four-factor test for highest and best use and that its focus on market demand and feasibility was appropriate under the law and regulations. The appellate court also found no abuse of discretion in the admission of expert testimony and concluded that the Tax Court’s factual findings were not clearly erroneous. The judgment of the Tax Court was affirmed. View "Savannah Shoals, LLC v. Commissioner of Internal Revenue" on Justia Law