In 1997, the United Kingdom imposed a one-time “windfall tax” on 32 U. K. companies privatized between 1984 and 1996 by the Conservative government. The companies had been sold to private parties through an initial sale of shares, known as “flotation.” Many of the companies became more efficient and earned substantial profits in the process. PPL, part owner of a privatized company, claimed a credit for its share of the bill in its 1997 federal income-tax return, relying on IRC section 901(b)(1), which states that any “income, war profits, and excess profits taxes” paid overseas are creditable against U. S. income taxes. Treasury Regulation 1.901–2(a)(1) states that a foreign tax is creditable if its “predominant character” “is that of an income tax in the U. S. sense.” The IRS rejected PPL’s claim, but the Tax Court held that the U. K. windfall tax was creditable. The Third Circuit reversed. A unanimous Supreme Court reversed, holding that the U. K. tax is creditable under section 901. Creditability depends on whether the tax, if enacted in the U. S., would be an income, war profits, or excess profits tax. A tax’s predominant character is that of an income tax “[i]f ... the foreign tax is likely to reach net gain in the normal circumstances in which it applies.” The windfall tax’s predominant character is that of an excess profits tax, a category of income tax in the U. S. sense. The Labour government’s conception of “profit-making value” as a backward¬-looking analysis of historic profits is not a typical valuation method; it is a tax on realized net income disguised as a tax on the difference between two values, one of which is a fictitious value calculated using an imputed price-to-earnings ratio. The windfall tax is economically equivalent to the difference between the profits each company actually earned and the amount the Labour government believed it should have earned given its flotation value. For most companies, the substantive effect was a 51.71 percent tax on all profits above a threshold, “a classic excess profits tax.” View "PPL Corp. v. Comm'r of Internal Revenue" on Justia Law

The Virgin Islands, a U.S. territory, does not share the same sovereign independence as the states; the power to pass rules and regulations governing territories rests with Congress. Congress passed legislation applying the Internal Revenue Code to the Virgin Islands, 48 U.S.C. 1397, “except that the proceeds of such taxes shall be paid into the treasuries of said islands.” Bona fide VI residents are granted a full exemption from paying federal income taxes if they file a territorial tax return and fully pay territorial taxes to the Virgin Islands Bureau of Internal Revenue (VIBIR), I.R.C. 932(c). This exemption is significant because Congress authorized the VI government to create an Economic Development Program granting substantial tax incentives to certain taxpayers. Between 2001 and 2004 Taxpayers claimed bona fide VI residency and eligibility for the tax benefits granted by the Economic Development Program; they filed tax returns with the VIBIR and paid taxes only to the VI government. Taxpayers did not file federal income tax returns. In late 2009-2010, Taxpayers were issued IRS tax prepayment deficiency notices challenging their claims of residency. The district court dismissed Taxpayers’ challenges on grounds that the Tax Court was the only proper forum. The Third Circuit affirmed. View "McGrogan v. Comm'r of Internal Revenue" on Justia Law

Allen Davis exercised an option to purchase additional shares in CNG, a closely-held corporation but did not report the option as income on his federal income tax return. On appeal, Davis and CNG taxpayers challenged their respective deficiency notices in the Tax Court. The Tax Court determined that Davis should have included the value of the shares he received from the option's exercise in his 2004 gross income and sustained the Commissioner's deficiency notice. The Tax Court upheld the CNG taxpayers' deductions. Because the court held that CNG granted Davis the option in connection with the performance of services and that he should have included the value of the shares he received as ordinary income under 26 U.S.C. 83(a), the court also upheld CNG taxpayers' deductions, which were proper under section 83(h). Accordingly, the court affirmed the judgment of the Tax Court. View "Davis v. Commissioner of IRS" on Justia Law

In 1990, Chin Lee established a defined-benefit plan, which he converted in 1996 into a profit-sharing plan, both of which were qualified plans. Chin's sole proprietorship contributed funds to the Plan from 1990 to 1995. These funds were invested entirely in U.S. government obligations, the interest on which was tax-exempt. In their 2005 and 2006 tax filings, Chin and Yvonne Lee reported Plan distributions and claimed deductions for federal obligation interest that the Plan earned in those and in earlier years. The Utah State Tax Commission disallowed these deductions, concluding that the Lees' distributions from the Plan were not exempt from state taxation even though the Plan assets were invested solely in U.S. government obligations. The Supreme Court affirmed, holding that no portion of the Plan distributions was tax-exempt, as (1) the distributions from the Plan qualified for a tax exemption only if the Plan acted as a conduit, allowing the funds to retain their tax-exempt character after distribution; and (2) the Lees' qualified profit-sharing plan was a non-conduit entity, and thus, the funds did not retain their character as interest on U.S. obligations upon distribution to the Lees. Therefore, the distributions were fully taxable by Utah. View "Lee v. Utah State Tax Comm'n " on Justia Law

Deckers imported UGG® Classic Crochet boots having a knit upper portion and a rubber sole. They do not have laces, buckles, or fasteners, can be pulled on by hand, and extend above the ankle. At liquidation, Customs classified the boots under Subheading 19.35, covering: “Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials: Footwear with outer soles of rubber or plastics: Other: Footwear with open toes or open heels; footwear of the slip-on type, that is held to the foot without the use of laces or buckles or other fasteners, the foregoing except footwear of subheading 6404.19.20 and except footwear having a foxing or foxing-like band wholly or almost wholly of rubber or plastics applied or molded at the sole and overlapping the upper” and subject to a duty rate of 37.5 percent. Deckers sought reclassification under subheading 6404.19.90, covering“[f]ootwear with outer soles of rubber . . . uppers of textile materials” that is “[v]alued [at] over $12/pair,” subject to a duty rate of nine percent. Customs rejected an argument that the term “footwear of the slip-on type” only encompasses footwear that does not extend above the ankle. The Trade Court granted the government summary judgment. The Federal Circuit affirmed. View "Deckers Outdoor Corp. v. United States" on Justia Law

Defendant, a manager at the Ford Motor Company, was convicted of four counts of willful income tax evasion in violation of 26 U.S.C. 7201 for failing to report and then concealing kickbacks received from Ford vendors during each of the 2001 through 2004 tax years. The court concluded that there was more than sufficient evidence for a reasonable jury to find beyond a reasonable doubt, with respect to each count, that defendant committed an act of tax evasion within six years of the indictment; the district court did not err in not suppressing defendant's involuntary statements made during an agent's interview; the district court did not abuse its discretion in denying defendant's motion for a Franks v. Delaware hearing; the district court's tax loss findings were not clearly erroneous; in any event, the court need not consider the tax loss findings issues because defendant made no showing that the items in question - individually or in combination - would have lowered his base offense level by reducing the net tax loss; defendant's sentence was reasonable where the district court did not abuse its considerable discretion in fashioning an appropriate sentence; and the court rejected defendant's restitution claims. Accordingly, the court affirmed the judgment. View "United States v. Perry" on Justia Law

Attorney represented MC Holdings, LLC, a landowner in Davis County, and Keo Rental, LLC, a landowner in Van Buren County, both of whom desired to protest the property-tax assessment made by their county assessors. Attorney sent the protests to the respective county boards of review on the deadline for such filings but inadvertently switched the two petitions. Consequently, the Davis County Board of Review received the Van Buren County petition with the Davis County cover letter, and vice versa. The Davis County and Van Buren County boards of review denied the protests as improperly filed, finding Attorney's clients did not file a timely protest. The boards of review denied Attorney's applications for reconsideration. The district court denied summary judgment requested by the boards, finding the cover letters constituted substantial compliance with the statutory requirements for a protest. The Supreme Court affirmed, holding that the Davis County Board had jurisdiction to consider the motion for reconsideration. Remanded. View "MC Holdings, LLC v. Davis County Bd. of Review" on Justia Law

Chrysler Group, LLC, a motor vehicle manufacturer, reimbursed two buyers of defective vehicles the full purchase price, including sales tax, pursuant to Nevada's lemon law. Thereafter, Chrysler sought refunds of the sales taxes that the vehicles' retailers had collected and remitted when they originally sold the vehicles to the buyers. The Department of Taxation had previously refunded lemon law sales tax reimbursements to manufacturers but denied Chrysler's refund requests because the state attorney general's office advised the Department that there was no statutory authority for such refunds. The district court concluded that Chrysler was entitled to a refund. The Supreme Court reversed, holding that Nevada law did not allow for such a refund and the Department was not required to adhere to its prior erroneous interpretation of the law. View "State, Dep't of Taxation v. Chrysler Group LLC" on Justia Law

Turner, the author of Tax Free!, instructed readers to escape income taxation by using common law trust organizations (colatos), and established FAR to assist in implementing colatos. In 1991, Turner enlisted Leveto, the owner of a veterinary clinic, as a FAR member. FAR created Center, a foreign colato, and appointed Leveto as the general manager and Turner as a consultant. Leveto “sold” his clinic to Center, which “hired” Leveto as its manager. Leveto continued to control the clinic, but stopped reporting its income. Center did not pay taxes because it distributed the income to other foreign colatos, which, Turner claimed, “transformed” it to untaxable foreign source income. Leveto began to market Tax Free! In 1995, the IRS began a criminal investigation. In 2001, Turner and Leveto were charged with conspiracy to defraud the IRS by concealing Leveto’s assets, 18 U.S.C. 371. Turner moved to exclude recorded conversations between Leveto and an undercover agent and foreign bank records seized from Leveto’s office and residence. The district court admitted the conversations, reasoning that they furthered an unindicted conspiracy to impede tax collection efforts, and held that the government properly authenticated the foreign bank documents. Turner was convicted, sentenced to 60 months’ imprisonment, and ordered to pay $408,043 in restitution, without any findings about his ability to pay. The Third Circuit affirmed. View "United States v. Turner" on Justia Law

The Commonwealth of the Northern Marina Islands obtained two tax judgments in the U.S. district court against the Millars for unpaid taxes. The Millards, who previously resided in the Commonwealth, relocated before the Commonwealth was able to obtain the judgments. The Commonwealth commenced proceedings as a judgment creditor asseking a turnover order against garnishees holding assets of the Millars. The Commonwealth named a Canadian bank (Bank) headquartered in Toronto, with a branch in New York, as a garnishee under the theory that the Millards maintained accounts in a foreign subsidiary of Bank. The district court denied the Commonwealth's motion for a turnover order against Bank. The Court of Appeals accepted certification to answer questions of law, holding (1) for a court to issue a post-judgment turnover order pursuant to N.Y. C.P.L.R. 5225(b) against a banking entity, the entity itself must have actual, not merely constructive, possession or custody of the assets sought; and (2) therefore, it is not enough that the banking entity's subsidiary might have possession or custody of a judgment debtor's assets. View "Commonwealth of N. Mariana Islands v. Canadian Imperial Bank of Commerce" on Justia Law