Justia Tax Law Opinion Summaries

Debtor filed for bankruptcy on September 25, 2007, and was granted a discharge by the bankruptcy court pursuant to 11 U.S.C. 727. Debtor then filed an adversary proceeding in the bankruptcy court against the Commission on December 3, 2008, seeking a declaration that two years of her pre-petition state income tax debts were subject to that discharge. The bankruptcy court dismissed debtor's complaint because she failed to timely file her Mississippi tax returns, her returns were not "returns" for the purposes of discharge under the Bankruptcy Code. The court agreed and concluded that debtor's 1998 and 1999 tax returns did not comply with the filing requirements of applicable Mississippi tax law and were, therefore, not "returns" for discharge purposes. Accordingly, the court affirmed the judgment of the bankruptcy court.

This action arose from a complaint filed in 2006 with the Mississippi Commission on Judicial Performance against a then Mississippi Supreme Court Justice. The justice was ultimately acquitted of various criminal charges and his wife plead guilty to tax evasion. After the cessation of the criminal prosecution, the prosecuting U.S. Attorney, relative to plaintiff, filed a complaint with the Commission. Accordingly to the justice and his wife, the U.S. Attorney unlawfully attached their tax and other financial records obtained during the criminal investigation to the complaint. Plaintiff served as a member of the Commission and participated in the Commission's investigation of the justice. Although the Commission dismissed the complaint, counsel to the justice and his wife sent plaintiff two letters threatening legal action based on his role in the investigation. Plaintiff responded by filing a complaint seeking a declaratory judgment of immunity from suit for conduct arising out of his duties with the Commission. The justice's wife subsequently filed counterclaims against plaintiff, asserting various federal and state law causes of action arising, in relevant part, from plaintiff's alleged disclosure of the Commission's confidential investigation. The court held that the judgment of the district court, insofar as it denied immunity to plaintiff for his filing of the declaratory relief action, was reversed, and the case remanded to the district court for further proceedings.

This case stemmed from petitioners', the sole shareholders of two Subchapter S corporations, India Music and HRI, engagement in the business of importing and selling music, making those entities related parties under Internal Revenue Code, 26 U.S.C. 267. At issue was whether the Commissioner effected a change in a taxpayer's method of accounting for the purposes of section 481 when he required that taxpayer to postpone a deduction from gross income pursuant to section 267(a)(2). The court held that because it concluded that a section 267(a)(2) disallowance constituted a change in a taxpayer's method of accounting under section 481, the court affirmed the judgment of the Tax Court.

Plaintiff partnership was formed for the purpose of facilitating the acquisition of a portfolio of Chinese nonperforming loans (NPLs). The IRS determined that plaintiff was a sham partnership that need not be respected for tax purposes and that plaintiff's allocation of the $200 million loss to the deducting partner should be disallowed. At issue on appeal are the income-tax consequences of three interrelated transactions entered into by plaintiff and its three members. The court held that the district court correctly held that, while the acquisition of an interest in a portfolio of Chinese NPLs had economic substance, the plaintiff partnership was a sham that must be disregarded for federal income-tax purposes. As a consequence, that acquisition must be recharacterized as a direct sale. The court also held that the district court was correct to disallow all accuracy-related penalties on the ground that plaintiff had reasonable cause for, and exhibited good faith in, reporting the positions it took on its 2002 partnership return. Accordingly, the judgment was affirmed.

Appellants, owners of interstate natural gas pipelines subject to a 25% ad valorem tax under Louisiana Constitution article 7, section 18, brought and won a state court suit alleging certain intrastate pipelines were unconstitutionally given more favorable tax treatment by being taxed only 15% from 1994-2003. At issue was whether the state court's revaluation process violated the Due Process, Equal Protection, and Commerce Clauses, via 42 U.S.C. 1983, where that court ordered appellants' tax liability to be recalculated under the same fair-market-value determination process to which the intrastate pipelines were subjected. The court held that the district court properly dismissed appellants' suit because their federal claims were barred by the Tax Injunction Act, 28 U.S.C. 1341, which deprived the federal courts of jurisdiction over suits that sought to interfere with the administration of state tax systems so long as the state provided an adequate procedural vehicle for raising the claims and where appellants have raised their claims in state court and the Louisiana courts did not cease to provide a plain, speedy, or efficient remedy for appellants' injuries. Accordingly, the district court properly granted defendants' motion to dismiss.

This case stemmed from the transportation excise tax that National Airlines (National) owed the government. Plaintiff appealed the district court's summary judgment determination that, pursuant to 26 U.S.C. 6672, he was personally liable for the excise taxes that National collected from its passengers but failed to pay over to the United States during his tenure as National's CEO. The court affirmed the judgment of the district court and held that the district court properly found that plaintiff was a "responsible person" and that his failure to pay taxes was willful as defined by this circuit's precedents.

Fabian Muyaba, Joseph Mudekunye, and three co-defendants were charged in a 39-count indictment stemming from their tax-fraud conspiracy. Muyaba, Mudekunye, and one co-defendant were convicted in a joint jury trial. Muyaba challenged the sufficiency of the evidence to support his convictions; the district court's applying two Sentencing Guidelines enhancements; and its ordering part of his sentence to run consecutively. Mudekunye challenged the district court's failure to sever his trial from Muyaba's and his sentence as being procedurally unreasonable. The court held that, in light of the significant disparity between Mudekunye's sentence and the top of the correct Guidelines range and the absence of any evidence suggesting that the court would have sentenced him to 97 months imprisonment irrespective of the correct Guidelines range, Mudekunye had shown a reasonable probability of a lesser sentence and therefore, demonstrated that the district court's clear error affected his substantial rights. The court also held that the substantial disparity between the imposed sentence and the applicable Guidelines range warranted the exercise of the court's discretion to correct the error and Mudekunye's sentence was vacated and remanded for resentencing. Accordingly, the court affirmed the district court's judgment on every ground with the exception of Mudekunye's sentence.

Appellant defaulted on his mortgage payments and filed for bankruptcy under Chapter 13 of the Bankruptcy Code in order to prevent foreclosure on his home. In his proposed Chapter 13 bankruptcy plan, appellant sought to "modify" the Internal Revenue Service's secured claims for long-overdue tax deficiencies into long-term debt payable over a period of fifteen years. The court held that appellant could not do so because those tax deficiencies were not debts whose pre-bankruptcy payment terms included a final payment date that fell beyond the five-year term of appellant's Chapter 13 plan. Accordingly, the court affirmed the challenged portion of the order of the bankruptcy court denying confirmation and remanded for further proceedings.

This appeal stemmed from a construction firm's attempt to obtain a refund of federal employment taxes and an abatement of interest and penalties. At issue was whether remittances of employment withholding taxes by plaintiff constituted tax payments or deposits. The court held that the district court correctly determined that the remittances were payments and refunds of these payments were subject to the time limitations of 26 U.S.C. 6511.

Petitioner appealed the Tax Court's ruling that her settlement proceeds, received as a result of a discrimination suit against her employer, was taxable income in 2006. At issue was whether the $50,000 lump sum payment to "resolve and settle all differences, disputes, and controversies between the parties" in an action concerning various employment-related claims was excludable from a taxpayer's income under Internal Revenue Code 104(a)(2). The court held that the Tax Court did not err in concluding that the settlement proceeds were income where petitioner failed to demonstrate that her employer intended to allocate any specific portion or the entire amount of the settlement for her personal physical injury or physical illness.