Justia Tax Law Opinion Summaries

Joseph Boswell, Sr. was convicted by a jury of bankruptcy fraud and tax evasion. Boswell operated a business servicing pizza ovens and stopped reporting income and paying taxes around 1995. He filed for bankruptcy in 2011, claiming significant back taxes owed. The government alleged that Boswell used various corporate entities, nominally owned by family members, to conceal assets from the IRS and creditors. During his bankruptcy, Boswell reported minimal assets and income, despite evidence suggesting he controlled significant funds through these entities.The United States District Court for the Western District of Louisiana oversaw the initial trial. Boswell moved to dismiss the bankruptcy fraud charge, arguing it was untimely and that the indictment was improperly sealed. The district court denied this motion, finding the government had a legitimate reason for sealing the indictment. Boswell also requested a bill of particulars, which the court denied, and he was ultimately convicted on both counts. The district court sentenced him to sixty months in prison and ordered restitution to the IRS.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court found that the government failed to demonstrate a legitimate prosecutorial purpose for sealing the indictment, which meant the statute of limitations was not tolled, rendering the bankruptcy fraud charge untimely. Consequently, the court reversed Boswell's conviction on the bankruptcy fraud charge. However, the court affirmed the tax evasion conviction, finding sufficient evidence to support the jury's verdict. The court also upheld the district court's jurisdiction to impose restitution while the appeal was pending and found no cumulative errors warranting a new trial for the tax evasion charge. View "USA v. Boswell" on Justia Law

In 2008, Indu Rawat, a nonresident alien, sold her 29.2% partnership interest in Innovation Ventures, LLC, a U.S. company, for $438 million. Of this amount, $6.5 million was attributable to a gain on the company's inventory. The key issue was whether this inventory gain constituted U.S.-source income subject to U.S. taxes.The Commissioner of Internal Revenue determined that the $6.5 million inventory gain was U.S.-source income and thus taxable, notifying Rawat that she owed approximately $2.3 million in taxes. Rawat paid the amount but petitioned the Tax Court for a refund, arguing that the inventory gain was foreign-source income and therefore not subject to U.S. taxes. The Tax Court sided with the Commissioner, holding that under § 751(a) of the Internal Revenue Code, Rawat must be taxed as though she had sold the inventory directly, making the gain U.S.-source income.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. The court concluded that § 751(a) does not treat inventory gain as income from the sale of inventory but merely subjects it to ordinary income taxation if it is otherwise taxable. Therefore, the inventory gain Rawat realized from selling her partnership interest is foreign-source income, not subject to U.S. taxes. The court reversed the Tax Court's decision, holding that Rawat's inventory gain was not U.S.-source income and thus not taxable. View "Rawat v. Commissioner of Internal Revenue" on Justia Law

Mesquite Power, LLC owns the Mesquite Power Plant, which operates under a Power Purchase Agreement (PPA) guaranteeing specific electrical capacity to buyers in exchange for fixed payments. For the 2019 tax year, the Arizona Department of Revenue (ADOR) valued the plant at $196,870,000 using a cost-based approach as mandated by A.R.S. § 42-14156. Mesquite challenged this valuation in tax court, arguing that it exceeded the market value of the property, which they claimed was $105,000,000 based on the income approach, excluding income from the PPA.The Arizona Tax Court ruled partially in favor of Mesquite, determining that the PPA was a non-taxable, intangible asset and should not be included in the property valuation. However, the court allowed for the possibility that cash flows from the PPA could be considered in the valuation. At trial, Mesquite's expert valued the property at $105,000,000 using the income approach without the PPA, while ADOR's expert valued it at $432,000,000, including the PPA income. The tax court sided with Mesquite, setting the value at $105,000,000. ADOR appealed.The Arizona Court of Appeals reversed the tax court's decision, holding that the PPA must be considered in the property valuation as it enhances the value of the plant. The court emphasized that any competent appraisal must reflect the property's current usage, which includes the PPA.The Arizona Supreme Court reviewed the case and concluded that income from the PPA may be considered under the income approach if it is relevant to the property's income derivable as a power plant. The court also clarified that A.R.S. § 42-11054(C)(1) does not mandate the consideration of the PPA under the "current usage" requirement. The Supreme Court reversed the tax court's judgment and remanded the case for further proceedings, allowing both parties to offer new valuations consistent with this opinion. The Court of Appeals' opinion was vacated. View "MESQUITE v. ADOR" on Justia Law

The case involves a dispute between Pima County and the State of Arizona regarding the reimbursement of desegregation expenses. Following amendments to Arizona Revised Statutes (A.R.S.) § 15-910 in 2018, the State ceased reimbursing Pima County for desegregation expenses that exceeded the Arizona Constitution’s 1% limit on residential property taxes. The key issue was whether these expenses, previously classified as "primary property taxes," should still be reimbursed by the State under the new statutory framework.The Arizona Tax Court initially ruled in favor of Pima County, holding that the State must reimburse the desegregation expenses as additional state aid for education. The court found the State's interpretation of the amended statute unworkable and inconsistent with the constitutional mandate. The State appealed this decision.The Arizona Court of Appeals reversed the Tax Court's decision, concluding that the legislature had the authority to amend the statutory scheme and reclassify the desegregation expenses as secondary property taxes. The court reasoned that the new classification did not violate the Arizona Constitution, as the legislature's amendments were within its purview to alter statutory tax classifications.The Arizona Supreme Court reviewed the case and affirmed the Court of Appeals' decision. The Court held that the 2018 amendments to A.R.S. § 15-910 effectively reclassified desegregation expenses as secondary property taxes, which are not subject to reimbursement under A.R.S. § 15-972(E). The Court concluded that the State is not required to reimburse Pima County for these expenses, as the new classification aligns with the legislative intent and does not violate the constitutional 1% limit on residential property taxes. The case was remanded to the Tax Court for the entry of judgment in favor of the State. View "PIMA COUNTY v. STATE OF ARIZONA" on Justia Law

Frank Bibeau, a member of the Minnesota Chippewa Tribe, argued that his self-employment income from his law practice on the Leech Lake Reservation was exempt from federal taxation. For the 2016 and 2017 tax years, Bibeau reported his income on a joint federal income tax return with his wife, claiming a net operating loss carryforward that shielded his income from taxes but not from self-employment taxes. After receiving a notice from the IRS regarding his tax debts, Bibeau requested a Collection Due Process (CDP) hearing, arguing his income was exempt. The IRS disagreed and issued a notice of determination to collect the tax.Bibeau petitioned the United States Tax Court, asserting that Indians are generally exempt from federal taxes or that treaties between the U.S. and the Chippewa exempted his income. The Tax Court ruled against him, stating that Indians are subject to federal tax laws unless a specific law or treaty provides otherwise. The court found that neither the Indian Citizenship Act of 1924 nor the 1837 Treaty between the U.S. and the Minnesota Chippewa Tribe contained a specific exemption from federal taxation.The United States Court of Appeals for the Eighth Circuit reviewed the case de novo. The court held that as U.S. citizens, Indians are subject to federal tax requirements unless specifically exempted by a treaty or act of Congress. The court found that Bibeau failed to point to any statute or treaty that specifically exempted his self-employment income from taxation. The court also noted that the Indian Citizenship Act of 1924 and the 1837 Treaty did not provide such an exemption. Consequently, the Eighth Circuit affirmed the Tax Court’s decision, holding that Bibeau’s self-employment income is subject to federal self-employment taxes. View "Bibeau v. CIR" on Justia Law

Kenneth and Anita Wolke Brooks purchased 85 acres of land in Georgia for $1.35 million, subdivided it, and granted a conservation easement on a 41-acre parcel to Liberty County. They claimed a $5.1 million charitable deduction on their tax returns for this easement. The IRS disallowed the deductions for 2010, 2011, and 2012, citing non-compliance with the Internal Revenue Code and regulations, and imposed accuracy-related penalties for gross valuation misstatements.The Brookses challenged the IRS's notice of deficiency in the United States Tax Court. The Tax Court upheld the IRS's disallowance of the deductions and the imposition of penalties. The court found that the Brookses failed to provide a contemporaneous written acknowledgment of the donation, did not submit an adequate baseline report to Liberty County, and misrepresented their basis in the property. The court also found that the valuation of the easement was grossly overstated.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the Tax Court's decision. The court held that the Brookses did not meet the statutory requirements for a charitable deduction due to the lack of a proper contemporaneous written acknowledgment and an inadequate baseline report. The court also agreed with the Tax Court's finding that the Brookses' valuation of the easement was speculative and unsupported, justifying the 40 percent penalty for gross valuation misstatements. The court concluded that the Tax Court did not abuse its discretion in admitting the IRS Civil Penalty Approval Form into evidence despite its late disclosure. View "Brooks v. Commissioner of Internal Revenue" on Justia Law

Carlton Loeber, the trustor of an irrevocable trust owning two undeveloped properties within the Lakeside Joint School District, sought to place an initiative on the ballot to exempt taxpayers over 65 from any district parcel tax on undeveloped parcels. The district declined to call the election, citing cost concerns and legal objections. Loeber filed a petition for a writ of mandate to compel the district to place the initiative on the ballot. The trial court dismissed the petition, ruling that Loeber lacked standing.The trial court found that Loeber did not have a direct and substantial interest in the initiative because he did not personally own property in the district and failed to show that the trust could qualify for the exemption. The court also rejected Loeber’s public interest standing argument, noting the lack of public engagement and the significant cost to the district. The court concluded that the public need was not weighty enough to warrant the application of the public interest exception.The California Court of Appeal, Sixth Appellate District, reviewed the case and determined that Loeber had standing under the public interest exception, given the significant public right at issue concerning the initiative power. However, the court concluded that the proposed initiative did not fall within the scope of Article XIII C, Section 3 of the California Constitution, which allows initiatives to reduce or repeal local taxes. The court held that the initiative, which sought to create a new exemption for certain taxpayers, did not constitute "reducing" a tax within the meaning of the constitutional provision. Consequently, the district was not obligated to call an election on the initiative. The judgment was modified to deny the writ petition and affirmed as modified. View "Loeber v. Lakeside Joint School District" on Justia Law

The case revolves around Equinor Energy LP's appeal against the North Dakota State Tax Commissioner's denial of sales tax refunds. Equinor, an oil and gas producer, had purchased and paid North Dakota sales tax on oilfield equipment, including separators, for several facilities. The company applied for a refund, arguing that the equipment was installed into a system used to compress, process, gather, collect, or refine gas, thus qualifying for a tax refund. The Tax Commissioner approved a portion of the claim but denied the remaining refund claim related to the purchase of separators.The Tax Commissioner issued an administrative complaint requesting denial of the remaining requested refund amount. The Commissioner argued that initial separators used during production do not qualify for the exemption, which applies only to equipment installed downstream of the wellsite transfer meter, i.e., off the wellsite. An administrative law judge (ALJ) upheld the denial of the refund claim, and the Commissioner adopted the ALJ’s findings of fact and conclusions of law. Equinor appealed to the district court, which reversed the Commissioner’s order. However, on remand, the ALJ again recommended the denial of Equinor’s refund. The district court affirmed the final order of the Commissioner, leading to this appeal.The Supreme Court of North Dakota affirmed the district court's judgment. The court concluded that the Commissioner's interpretation was in accordance with the language of the relevant statute. The court found that the separators merely isolated the three component parts of the well stream and did not gather or compress gas. Therefore, they did not qualify for the tax exemption. The court also noted that the legislature's intent in using the phrases “recovered from,” “a system to compress gas,” or “a system to gather gas” was clear, and it was unnecessary to apply “the rule of last resort” and construe the ambiguity in favor of the taxpayer. View "Equinor Energy v. State" on Justia Law

The case involves the Perkins County Board of Equalization (the Board) and Mid America Agri Products/Wheatland Industries, LLC (Wheatland). Wheatland owns real property in Perkins County, Nebraska, which includes ethanol production facilities. In 2018, 2019, and 2020, Wheatland protested the valuations set by the Perkins County assessor on this property. The Board denied these protests and affirmed the valuations for all three tax years. Wheatland appealed the Board’s decisions to the Tax Equalization and Review Commission (TERC). TERC reversed the Board’s decisions and adopted lower valuations for each of the three tax years.The Board filed a petition for judicial review in the Nebraska Court of Appeals, alleging it was aggrieved by TERC's final decisions. The Board served summons on Wheatland more than 30 days after filing the petition, which is outside the statutory timeframe. However, before summons was served, the Board emailed a courtesy copy of the summons and petition to Wheatland’s counsel. Wheatland’s counsel then filed an appearance of counsel and a “Response to Petition for Review.”The Nebraska Supreme Court held that a voluntary appearance is not a permissible substitute for strict compliance with the statutory requirement to timely serve summons under § 77-5019(2)(b). The court noted that the Legislature has mandated service of summons as one of the jurisdictional prerequisites for judicial review of administrative decisions. Therefore, the court dismissed the matter for lack of jurisdiction. View "Perkins Cty. Bd. of Equal. v. Mid America Agri Prods." on Justia Law

The case revolves around a request for disclosure of certain redacted contents of the Internal Revenue Manual under the Freedom of Information Act (FOIA) by T. Keith Fogg. The redacted contents pertain to the IRS's unique authentication procedures used in special situations to prevent unauthorized disclosure of sensitive taxpayer information, identity theft, and criminal fraud. The IRS claimed these redacted contents were exempt from FOIA disclosure under Exemption 7(E) as they were records or information compiled for law enforcement purposes.The District Court for the District of Minnesota initially granted summary judgment to the IRS, holding that Exemption 7(E) applied to the redacted contents. Fogg appealed to the United States Court of Appeals for the Eighth Circuit, which reversed the grant of summary judgment and remanded the case to the district court for an in-camera inspection of the redacted contents.Upon inspection, the district court again concluded that Exemption 7(E) applied to the redacted contents as they served a law enforcement purpose and involved exceptional situations of a heightened risk of fraud or identity theft. The court granted summary judgment to the IRS once more.On appeal, the United States Court of Appeals for the Eighth Circuit affirmed the district court's decision. The court found that the redacted contents were techniques and procedures used for law enforcement investigations, akin to background checks. The court also concluded that the IRS had met its burden under the foreseeable harm requirement, showing that disclosure of the redacted contents would foreseeably harm the IRS's interest in preventing circumvention of the law. View "Fogg v. IRS" on Justia Law