Quality Stores made severance payments to employees who were involuntarily terminated in its Chapter 11 bankruptcy. The payments were made pursuant to plans that did not tie payments to the receipt of state unemployment insurance and varied based on job seniority. Quality Stores paid and withheld taxes required under FICA, 26 U.S.C. 3101. Later, believing that the payments should not have been taxed as FICA wages, Quality Stores sought a refund on behalf of itself and about 1,850 former employees. The IRS neither allowed nor denied the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The district court and Sixth Circuit affirmed. The Supreme Court reversed, finding that the severance payments were taxable FICA wages. FICA defines “wages” broadly as “all remuneration for employment.” Severance payments are a form of remuneration made only to employees in consideration for employment. By varying according to a terminated employee’s function and seniority, the Quality Stores severance payments confirm the principle that “service” “mea[ns] not only work actually done but the entire employer-employee relationship for which compensation is paid.” FICA’s exemption for severance payments made because of "retirement for disability,” would be unnecessary were severance payments generally not considered wages. FICA has contained no general exception for severance payments since 1950. The Internal Revenue Code, section 3401(a), also has a broad definition of “wages” and specifies that “supplemental unemployment compensation benefits,” which include severance payments, be treated “as if” they were wages; simplicity of administration and consistency of statutory interpretation indicate that the meaning of “wages” should generally be the same for income-tax withholding and for FICA calculations. View "United States v. Quality Stores, Inc." on Justia Law

El Paso appealed the district court's grant of summary judgment to the IRS, denying El Paso's tax refund claim. El Paso contended that the IRS, in settling a tax dispute with El Paso involving a refund and set-off, failed to adhere to the assessment and collection procedures provided by the Internal Revenue Code when setting off El Paso's deficiency against its refunds. El Paso contended that this failure barred the IRS from collecting unpaid taxes from El Paso. The court concluded that it had jurisdiction over the suit where it was unwilling to apply the variance doctrine to deprive the taxpayer from asserting federal court jurisdiction over the suit for refund. On the merits, the court held that, where the IRS and a taxpayer enter into a closing agreement, which sets out the liabilities and overpayments of the taxpayer, the IRS could comply with the mitigation provisions of the Code by "assessing and collecting" any net deficiency from the years covered by the closing agreement, or by "refunding or crediting" any net overpayment for those years. This case involved "refunding" an overpayment and the Government refunded El Paso's net overpayment within one year of the execution of the Closing Agreement. The "refunding" thus occurred within the applicable statutory period of limitations as per the mitigation provisions. The IRS acted within its authority in applying El Paso's deficiencies to offset its overpayment. Accordingly, the court affirmed the judgment of the district court. View "El Paso CGP Co., et al. v. United States" on Justia Law

New Jersey and Pennsylvania municipalities sued the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing Finance Agency (FHFA) (collectively, the Enterprises). Fannie Mae and Freddie Mac are federally-chartered but privately owned corporations that issue publicly traded securities, created by Congress to establish and stabilize secondary markets for residential mortgages, 12 U.S.C. 1716; 12 U.S.C. 1451. Fannie and Freddie purchase mortgages from third-party lenders, pooling them together and selling securities backed by those mortgages. In the wake of the housing market collapse of 2008, Fannie and Freddie owned many defaulted and overvalued subprime mortgages. They went bankrupt, and Congress created the FHFA to act as conservator for Fannie and Freddie. Congress exempted the Enterprises from all state and local taxation, with an exception for taxes on real property. The plaintiffs sought declaratory judgments that the Enterprises were not exempt from paying state and local real estate transfer taxes. The district courts dismissed. In a consolidated appeal, the Third Circuit affirmed. View "Delaware Cnty. v. Fed. Hous. Fin. Agency" on Justia Law

The Tariff Act of 1930 permits the Department of Commerce to impose two types of duties on imports that injure domestic industries: antidumping duties on goods sold in the U.S. "at less than ... fair value,” 19 U.S.C. 1673 and countervailing duties on goods that receive “a countervailable subsidy” from a foreign government, 1671(a). Commerce has long collected both types of duties from market economy importers. In 2012, Congress enacted legislation that overruled the Federal Circuit’s 2011 decision, GPXI, and permitted imposition of both antidumping and countervailing duties with respect to importers from non-market economy (NME) countries. Because this law is retroactive and does not require Commerce to adjust for any double counting that may result from the retroactive imposition of both countervailing and antidumping duties, Wireking, an importer affected by the change, claimed that it violated the Ex Post Facto Clause of Article I, Section 9 of the U.S. Constitution. The Court of International Trade upheld the new law. The Federal Circuit affirmed. Wireking did not show that the absence of a retrospective double-counting provision negates the law’s predominantly remedial impact. The 2012 law is not punitive and does not violate the Ex Post Facto Clause. View "Guangdong Wireking Housewares v. United States" on Justia Law

In 2008, the IRS levied defendant John Williamson's wife's wages to collect his back taxes dating back thirty years. The IRS sent a notice of the levy, which Defendant returned, writing across the document: "Refused for cause. Return to sender, unverified bill." He enclosed an affidavit explaining why he did not need to pay income taxes. Subsequent notices of the levy were also returned. Later that year, Defendant sent an invoice for $909,067,650.00 to two IRS agents who had worked on the matter, listing the value of real and personal property allegedly seized by the IRS, added damages for various alleged torts, and then trebled the total "for racketeering." A grand jury indicted Defendant and Mrs. Williamson on two counts: (1) "endeavor[ing] to impede the due administration of the Internal Revenue Code by filing a false and fraudulent Claim of Lien;" and (2) "fil[ing] . . . a false lien and encumbrance against the real and personal property [of the IRS agents] on account of the performance of [their] official duties." Mrs. Williamson pled guilty to the second count in return for dismissal of the first count against her. Defendant, however, proceeded to trial. His defense was essentially that he genuinely believed his lien was proper. A forensic psychologist testified that Defendant suffered from a delusional disorder that prevented him from abandoning his beliefs even when confronted with overwhelming evidence that he was wrong. Defendant requested instructions that would support his "genuine belief" defense to both charges, but the court rejected them and the jury returned verdicts of guilty on the two charges. Defendant was sentenced to four months in prison and three years of supervised release. Defendant appealed his conviction, claiming the district court erred by not giving the requested jury instructions. Finding no reversible error, the Tenth Circuit affirmed. View "United States v. Williamson" on Justia Law

BNSF filed suit seeking refunds of certain taxes that it, and its predecessor companies, paid under the Railroad Retirement Tax Act (RRTA), 26 U.S.C. 3201 et seq. The court concluded that, at least as applied to Non-Qualified Stock Options (NQSOs), the term "compensation", as used and defined by the RRTA, was inherently ambiguous; the IRS's definition was reasonable as applied to the NQSOs; although RRTA "compensation" may exclude certain in-kind benefits such as free rail passes that would otherwise be compensation under section 3121, the court concluded that NQSOs were properly included as "compensation" under the RRTA as interpreted by Treasury Regulation 31.3231(e)-1; the court's conclusion found firm support in the purpose, structure, and legislative history of the RRTA; and therefore, NQSOs were properly taxed as compensation under the RRTA. The court also concluded that, although the informal claims that BNSF filed for the employee tax paid on moving-expense benefits in 1996 and 1997 may satisfy the informal clams doctrine, it was undisputed that BNSF failed to perfect those claims prior to filing the present suit. Accordingly, BNSF's refund claims for those years must be dismissed. The court further concluded that a more reasonable interpretation of section 3231(e)(1)(iii) permitted exclusion of payments to employees for traveling expenses and bona fide and reasonable expenses related to travel, an interpretation harmonizing section 3231(e)(1)(iii) and section 3231(e)(5) as required by the specific-general canon and the rule against superfluities. Therefore, the court reversed and remanded for further proceedings. View "BNSF Railway Co. v. United States" on Justia Law

In 2009 Betty and Wayne submitted a tax return on behalf of a Betty Phillips Trust, signed by Betty, who was listed as the trustee, claiming income of $47,997. A second return on behalf of a Wayne Phillips trust, was signed by Wayne, but Betty was listed as trustee. This return reported income of $1,057,585. Both returns claimed that all income had gone to pay fiduciary fees, so that the trusts had no taxable income. The Wayne Trust claimed a refund of $352,528. The Betty Trust claimed $15,999. The IRS issued a check for $352,528. They endorsed the check and deposited it into a joint account. The returns were fraudulent. The IRS had no record of any taxes being paid by the trusts. In December, the IRS served summonses. That month, the couple withdrew $244,137 remaining from their refund proceeds using 13 different locations. They followed the same strategy the next year, but did not receive checks. A jury convicted Betty of conspiracy to defraud the government with respect to claims (18 U.S.C. 286), and of knowingly making a false claim to the government (18 U.S.C. 287.1). The district court sentenced her to 41 months’ imprisonment and ordered them to pay $352,528 in restitution. The Seventh Circuit affirmed, rejecting claims that the court improperly admitted evidence, and that the government constructively amended the indictment and violated Betty’s right against self‐incrimination.View "United States v. Phillips" on Justia Law

Appellants, two couples, challenged the Tax Court's decisions disallowing their claims of dependency exemption deductions and child tax credits for a child of each husband's prior marriage. For each couple, the only tax year at issue, a year in which the ex-wife, the custodial parent, failed to sign a document stating that she "will not claim such child as a dependent" that year, even though she had agreed to provide that document if her ex-husband paid all required child support. The court reviewed the Tax Court's interpretation of the governing statute de novo and concluded that its decisions were consistent with the plain language of 26 U.S.C. 152(e)(2). Accordingly, the court affirmed the judgment of the district court. View "Armstrong, et al. v. C.I.R." on Justia Law

The Internal Revenue Service and several oil companies agreed to settle a tax dispute over a jointly-developed pipeline system in a closing agreement. After entering the agreement, Phillips Petroleum Company (now ConocoPhillips Company) acquired Arco Transportation (one of the original signatories to the agreement). In 2000 and 2001, Conoco revisited the tax implications of its acquisition and claimed "going-forward" and "basis-increase" deductions on its amended consolidated tax returns. The IRS refunded Conoco's 2000 going-forward deductions, but disputed the remaining deductions. The parties took the dispute to federal district court, where the district court decided the issue on cross-motions for summary judgment. The court rejected Conoco's position and granted summary judgment to the IRS. Conoco appealed. After its review, the Tenth Circuit concluded that "going-forward" deductions were impermissible for interests that Arco Transportation did not own as of July 1, 1977, and "basis-increase" deductions were impermissible because the Closing Agreement did not fix the amount of a liability or exempt that liability from section 461(h) of the Internal Revenue Code. Thus, the Court held that Conoco was not entitled to the going-forward or basis-increase deductions. View "United States v. ConocoPhillips Company" on Justia Law

Petitioners challenged the Commissioner's disallowance of a $30 million deduction on the Estate's tax return for a lawsuit pending at the time of Gertrude Saunders' death (the Stonehill Claim). The court concluded that the Stonehill Claim was disputed at the date of the decedent's death, and its estimated value as of that date was not ascertainable with reasonable certainty. Therefore, the tax court properly disallowed the Estate's deduction, but correctly allowed a deduction in the amount paid to settle the Stonehill Claim after the decedent's death. Accordingly, the court affirmed the judgment of the district court. View "Estate of Saunders v. CIR" on Justia Law