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Justia Tax Law Opinion Summaries
Kathrein v. City of Evanston, IL
In 2008 the Kathreins challenged Evanston’s Affordable Housing Demolition Tax under the Fifth and Fourteenth Amendments. The Tax required a property owner seeking to demolish any residential building to pay the greater of $10,000 per building, or $3,000 per unit. The measure is to “provide a source of funding for the creation, maintenance, and improvement of safe and decent affordable housing; proceeds go to the city’s Affordable Housing Fund. The Kathreins alleged that a developer, learning of the Tax, lowered his bid on their property. The sale fell through. The Kathreins also alleged the unconstitutionality of the Tax Injunction Act (TIA), 28 U.S.C. 1341, which forbids federal courts to enjoin assessment or collection “of any tax under State law,” so long as there is a remedy in state court. The district court dismissed. A Seventh Circuit panel reversed in part, holding that the Demolition Tax was a regulatory device, not a tax under the TIA, because it provided a deterrent against demolition of residential buildings and raised little revenue. Before the district court could resolve remaining claims on remand, the Seventh Circuit, en banc, rejected the approach to identifying a tax taken in the Kathrein case, holding that an “exaction[] designed to generate revenue” was a tax, contrasted to fines “designed … to punish,” and fees that “compensate for a service,” but did not directly overrule the Kathrein decision. The district court applied the new holding and again dismissed. The Seventh Circuit affirmed, stating that the decision of the en banc court did effect an intervening change in the law. View "Kathrein v. City of Evanston, IL" on Justia Law
Estate of Thouron v. United States
Sir John Thouron died in 2007 at the age of 99, leaving a substantial estate. Thouron’s grandchildren are his only heirs. His named executor retained Smith, an experienced tax attorney. The Estate’s tax return and payment were due November 6, 2007. On that date, the Estate requested an extension of time and made a payment of $6.5 million, much less than it would ultimately owe. The Estate timely filed its return in May 2008 and requested an extension of time to pay. It made no election to defer taxes under 26 U.S.C. 6166, it had conclusively determined it did not qualify. The provision allows qualifying estates to elect to pay tax liability in installments over several years. The IRS denied as untimely the Estate’s request for an extension and notified the Estate that it was imposing a failure-to-pay penalty. The Estate unsuccessfully appealed administratively. The Estate then filed an appropriate form and paid all outstanding amounts, including a penalty of $999,072, plus accrued interest, then filed a request with the IRS for a refund. After not receiving a response from the IRS, the Estate filed a complaint, alleging that its failure to pay resulted from reasonable cause, reliance on Smith’s advice, and not willful neglect and was not subject to penalty. The district court granted the government summary judgment, holding that under Supreme Court precedent the Estate could not show reasonable cause. The Third Circuit vacated, reasoning that the precedent did not apply to reliance on expert advice. View "Estate of Thouron v. United States" on Justia Law
United States v. Williams-Ogletree
Ogletree ran a tax preparation service. Robtrel and Larryl provided Ogletree with birth dates and social security numbers of individuals unlikely to file tax returns; Ogletree filed false returns using that information and her Electronic Filers Identification Number. They also generated false W2 statements to support the claims. In 2006 Ogletree filed 200 fraudulent returns, seeking refunds of $834,548. The actual loss to the IRS was $652,730.In 2007, Robtrel established a tax business and obtained EFINs for new tax preparation entities. Ogletree claims she withdrew from the conspiracy and did not file fraudulent tax returns in 2007 or later. Robtrel and Larryl continued the scheme into 2008, when they were caught. Charged with conspiracy to defraud the U.S. government, 18 U.S.C. 286, and presenting a false claim against the IRS, 18 U.S.C. 287 and 2, Robtrel and Larryl pleaded guilty, but Ogletree went to trial. Her attorney did not present any witnesses, but argued that the government did not establish that Ogletree had joined the conspiracy or knowingly filed false returns, noting that the witnesses all identified Robtrel and Larryl and that no one had identified Ogletree. She was convicted and sentenced to 51 months imprisonment, the low end of the sentencing range. The Seventh Circuit affirmed her sentence, rejecting challenges to the loss calculation, to a finding that she participated in the tax fraud scheme in 2007, and that the district court did not adequately consider the section 3553 sentencing factors. View "United States v. Williams-Ogletree" on Justia Law
Haury v. CIR
Appellant, a software engineer, filed no federal individual income tax return for 2007. The Commissioner issued a notice of deficiency alleging unpaid taxes, penalties, and interest of more than $250,000 based on a substitute return prepared by the IRS. On appeal, appellant challenged the Tax Court's IRA rollover and business bad debt rulings. The court concluded that appellant's April 30, 2007 contribution was a qualifying partial rollover contribution under I.R.C. 408(d)(3)(D) and appellant was entitled to reduce his taxable IRA distributions by $120,000. Accordingly, the court reversed the Tax Court's decision as to this issue. The court concluded that the Tax Court did not clearly err in finding that appellant failed to prove that his dominant motivation for making the four loans in question made them deductible bad debts when they became worthless in December 2007. The court remanded for a redetermination of the deficiency. View "Haury v. CIR" on Justia Law
Posted in:
Tax Law, U.S. 8th Circuit Court of Appeals
In re: Long-distance Telephone Service Federal Excise Tax Refund
26 U.S.C. 4251 imposes an excise tax on amounts paid for toll telephone service. Technological advances changed cost structures and, as a result, telephone companies began charging only by elapsed transmission time. The IRS, however, continued to collect the tax. Five courts of appeals, including this court, held that section 4251 did not permit the Service to tax telephone service with distance-invariant pricing. Around the same time, plaintiffs (Cohen, Sloan, and Gurrola) filed separate putative class-action suits challenging the tax. After Cohen and Sloan filed their complaint, the Service issued without notice and comment Notice 2006-50, declaring that the Service would no longer tax telephone service priced without regard to distance and established a procedure to refund illegally collected excise taxes. On appeal, plaintiffs challenged the district court's refusal to direct the Service on remand to issue a refund rule and from its denial of their interim request for fees. The court rejected plaintiffs' contention that the district court erred in vacating Notice 2006-50 and remanding, without specifically instructing the Service to promulgate a new refund procedure. Here, the only statutory failure was of notice and comment. Absent a statutory duty to promulgate a new rule, a court cannot order it. The court also concluded that the district court did not abuse its discretion in denying fees. The district court found the government's position to be substantially justified because several circuit judges agreed with the government and dissented from the Cohen I and Cohen II opinions. Accordingly, the court affirmed the judgment of the district court. View "In re: Long-distance Telephone Service Federal Excise Tax Refund" on Justia Law
Posted in:
Tax Law, U.S. D.C. Circuit Court of Appeals
Jewell v. United States
The Internal Revenue Service issued four summonses to banks in the Eastern and Western Districts of Oklahoma for records involving nursing homes owned by Sam Jewell. Under federal law, the IRS had to notify Jewell at least 23 days before the examination date. Because the IRS waited too long to mail the notices, Jewell received the notices less than 23 days before the records were to be examined. Alleging inadequate notice, Jewell filed petitions to quash the summonses. The two courts split on how to interpret the notice requirement: the Western District of Oklahoma granted the government's summary judgment motion and denied Jewell's petition to quash, noting that he received the summonses in time to file his petition; the Eastern District of Oklahoma granted Jewell's petition to quash and denied the government's motion to dismiss, reasoning that the IRS failed to comply with the notice requirement. Jewell appealed the Western District's ruling, and the government appeals the Eastern District's. The Tenth Circuit held that the IRS could not obtain an order enforcing the summonses, affirming the ruling of the Eastern District of Oklahoma and reversing the ruling of the Western District of Oklahoma (with instructions to grant Jewell's petition to quash the two summonses).View "Jewell v. United States" on Justia Law
Packard v. Commissioner of IRS
The Commissioner appealed the Tax Court's grant of summary judgment to petitioner on his pro se petition for review of a tax deficiency determination. At issue was whether the Tax Court erred as a matter of law in holding that petitioner and his wife were entitled to the first-time homebuyers tax credit even though, when considered as a single marital unit, they did not qualify for the credit under 26 U.S.C. 36(c) of the Internal Revenue Code. Section 36(c) requires that for a married couple to qualify for the first-time homebuyer tax credit, both spouses collectively must meet the same statutory requirements, either as first-time homebuyers under section 36(c)(1) or as long-time residents under section 36(c)(6). The court held that the Tax Court's decision was directly contrary to the plain language of the statute and should be reversed. View "Packard v. Commissioner of IRS" on Justia Law
Posted in:
Tax Law, U.S. 11th Circuit Court of Appeals
Menotte v. United States
Plaintiff, trustee for the estate of debtor, attempted to avoid eight transfers made by debtor to the IRS as payment for the income tax liability of debtor's principal. The bankruptcy court ruled in favor of the United States as to the first seven transfers. The bankruptcy court concluded that plaintiff succeeded in proving constructive fraud and ruled that the IRS was an initial transferee from whom plaintiff could seek recovery. The district court affirmed with regard to the first seven transfers but reversed as to the eighth. The district court concluded that the IRS could not be held liable as an initial transferee because it qualified for the mere conduit exception. The court affirmed, viewing the transaction as sufficiently similar to the deposit of funds into a bank account to conclude that the IRS acted as a mere conduit. View "Menotte v. United States" on Justia Law
Inclusive Communities Project v. TX Dept. of Housing, et al.
The district court held that ICP had proven that defendants' allocation of Low Income Housing Tax Credits (LIHTC) in Dallas resulted in disparate impact on African-American residents under the Fair Housing Act (FHA), 42 U.S.C. 3604(a) and 3605(a). At issue was the correct legal standard to be applied to disparate impact claims under the FHA. The court adopted the HUD burden-shifting approach found in 24 C.F.R. 100.500 for claims of disparate impact under the FHA and remanded to the district court for application of this standard in the first instance. View "Inclusive Communities Project v. TX Dept. of Housing, et al." on Justia Law
Carter v. Comm’r of Internal Revenue
In 2006 Finkl, a Chicago steel producer, initiated termination of its defined benefit pension plan under the Employment Retirement Income Security Act, apparently anticipating merger with another company. The Plan was amended in 2008, to include Section 11.6, a special provision for distributions in connection with the contemplated termination, to apply if a participant “ha[d] not begun to receive a benefit under the Plan at the time benefits are to be distributed on account of termination of the Plan.” In May 2008, Finkl decided not to terminate the Plan. Section 11.6 was deleted. Finkl notified the IRS that the Plan was not going to terminate. Seven Finkl employees sued, alleging that they were entitled to an immediate distribution of benefits while they were still working for Finkl and that repeal of Section 11.6 violated the anti-cutback terms of the Plan, I.R.C. 411(d)(6), and ERISA, 29 U.S.C. 1054(g). The IRS sent Finkl a favorable determination letter that the Plan had retained its tax qualified status. In 2011, the Seventh Circuit affirmed the district court’s award of summary judgment to Finkl. The employees then pursued a claim in the Tax Court, which ruled that they were collaterally estopped by the Seventh Circuit decision from challenging the 2009, determination letter, which concluded that the Plan had not been terminated and continued to qualify for favorable tax treatment. The Seventh Circuit affirmed. View "Carter v. Comm'r of Internal Revenue" on Justia Law