Justia Tax Law Opinion Summaries

Articles Posted in U.S. 6th Circuit Court of Appeals
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In 2000-2001Alioto spent several hundred thousand dollars of his own money on expenses relating to a new business (BRT) involving use of “celebrity talent” to create internet advertising. Alioto became involved in BRT after being approached by the actor, John Ratzenberger, and claims that he believed he would be reimbursed by Ratzenberger for funds expended on behalf of the business, but was never fully repaid. Alioto filed a Chapter 7 bankruptcy petition, listing $341,363 outstanding loans owed to him from BRT as part of his assets. Alioto sought to deduct the unreimbursed funds as losses for tax year 2005 and to carry forward some of these losses as deductions for tax years 2006 and 2007. The IRS denied the deductions and issued notices of deficiency. The Tax Court agreed. The Sixth Circuit affirmed, upholding determinations that any business losses occurred prior to 2005, 26 U.S.C. 165(a) and that the losses did not amount to theft under section 165 (e). View "Alioto v. Comm'r of Internal Revenue" on Justia Law

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The Companies manufacture and distribute high-speed cigarette rolling machines that retailers offer to customers who want to roll their own roll cigarettes. Treasury and the Bureau are charged with enforcing the excise tax on tobacco products, 26 U.S.C. 5701. Before the Bureau issued Ruling 2010-4, retailers offering the Companies’ machines to customers were not liable for the excise tax because they were not considered manufacturers. The Ruling deems the retailers manufacturers, and requires them to acquire manufacturer permits and pay the excise tax. The Companies sought, and the district court granted, a preliminary injunction prohibiting enforcement of the Ruling. During the pendency of appeal, Congress passed and the President signed into law the Moving Ahead for Progress in the 21st Century Act, which authorized funding for highways and other transit programs, with partial funding to come from amendment of the definition of “manufacturer of tobacco products” to include retailers who make roll-your-own machines available to customers, thereby achieving the same result as the Ruling. The Sixth Circuit vacated and directed that the case be dismissed. The statutory amendment mooted the controversy and the Anti-Injunction Act precluded the court’s exercise of jurisdiction View "Ryo Mach. Rental, LLC, v. U.S. Dep't of Treasury" on Justia Law

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Lesley and Fogg presented the Benistar 419 Plan to the Ouwingas, their accountant, and their attorney, providing a legal opinion that contributions were tax-deductible and that the Ouwingas could take money out tax-free. The Ouwingas made substantial contributions, which were used to purchase John Hancock life insurance policies. In 2003, Lesley and Fogg told the Ouwingas that the IRS had changed the rules; that the Ouwingas would need to contribute additional money; and that, while this might signal closing of the “loophole,” there was no concern about tax benefits already claimed. In 2006, the Ouwingas decided to transfer out of the Plans. John Hancock again advised that there would be no taxable consequences and that the Plan met IRS requirements for tax deductible treatment. The Ouwingas signed a purported liability release. In 2008, the IRS notified the Ouwingas that it was disallowing deductions, deeming the Plan an “abusive tax shelter.” The Ouwingas filed a class action against Benistar Defendants, John Hancock entities, lawyers, Lesley, and Fogg, alleging conspiracy to defraud (RICO, 18 U.S.C. 1962(c), (d)), negligent misrepresentation, fraudulent misrepresentation, unjust enrichment, breach of fiduciary duty, breach of contract, and violations of consumer protection laws. The district court dismissed. The Sixth Circuit reversed, View "Ouwinga v. Benistar 419 Plan Servs., Inc." on Justia Law

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In 1998, Harchars filed a Chapter 13 petition. The government was a creditor because of a tax arrearage. A reorganization plan was confirmed, requiring that they pay in full priority tax claims and pay five cents on the dollar, over 43 months, unsecured, nonpriority claims by the government and similarly-situated creditors. In 2000, Harchars pursued an adversary proceeding, alleging injury caused by the government’s practice of “freezing” computer-automated refunding of tax overpayments to Chapter 13 debtors and refusal to issue a refund for their 1999 return until after the bankruptcy court resolved its motion to modify the plan to include the refund in plan funding. Harchars opposed the motion, explaining that they had separated, husband was no longer employed, and the refund was needed for living expenses. After Harchars filed amended schedules, the IRS withdrew its motion and issued the refund with interest. The bankruptcy court concluded that the IRS had not violated the automatic stay by manually processing or withholding the tax refund. The district court affirmed and held that a due-process claim was barred by sovereign immunity and that Harchars did not identify any provision of the plan that had been violated. The Sixth Circuit affirmed and dismissed the claims. View "Harchar v. United States" on Justia Law

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Customers who rent rooms from the online travel companies pay those companies a higher “retail” rate; the online travel companies pay the hotels an agreed-upon “wholesale” rate, plus any taxes applicable to the “wholesale” price. Ohio allows municipalities and townships to levy excise taxes on “transactions by which lodging by a hotel is or is to be furnished to transient guests.” Ohio Rev. Code 5739.08.The municipalities alleged that the online travel companies violated local tax laws by failing to pay the local occupancy tax on the revenue they collect in the form of the difference between the “wholesale” room rate and the higher “retail” rate charged by the online travel companies. In granting the travel companies’ motion to dismiss, the district court determined that the companies had no obligation under any of the ordinances, regulations, or resolutions to collect and remit guest taxes because the laws created tax-collection obligations only for “vendors,” “operators,” and “hotels.” The Sixth Circuit affirmed. The language of the laws is aimed expressly at taxing the cost of furnishing hotel lodging, and does not purport to tax the additional fees charged by the online travel companies. View "City of Columbus v. Hotels.com, L.P." on Justia Law

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An involuntary Chapter 11 bankruptcy petition was filed against Quality Stores, which eventually closed operations and terminated all employees. Under the Pre-Petition Plan, severance pay was based on job grade. Payments were made on the normal payroll schedule, not tied to receipt of unemployment compensation, and not attributable to particular services. The Post-Petition Plan was designed to encourage employees to defer their job searches; the lump-sum payments were not tied to receipt of unemployment compensation, nor attributable to provision of particular services. Quality reported the payments as wages and withheld income tax, paid the employer’s share of FICA tax, and withheld each employee’s share of FICA. Of $1,000,125 at issue, $382,362 is attributed to the Pre-Petition Plan, $214,000 for the employer share and $168,362 for the employee share; $617,763 is attributed to the Post- Petition Plan, $357,127 for the employer share and $260,636 for the employee share. Quality argued that the payments were not wages but supplemental unemployment compensation benefits, not taxable under FICA, and sought a refund of the employer share and the shares of consenting employees. When the IRS did not act, Quality filed an adversary action in the bankruptcy court, which ordered a full refund. The district court and Sixth Circuit affirmed. View "United States v. Quality Stores, Inc." on Justia Law

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Barbara, an analyst at the Cleveland Clinic, and Anthony, a stay-at-home father for two-year-old triplets and ten-year-old, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. 701. On Schedule B listing assets, they included a joint interest in “Anticipated 2009 Income Tax Refund,” value “unknown.” On their joint returns for 2009, they listed: adjusted gross income: $59,402; total tax liability: $2,934; total credits: $2,934; payroll taxes withheld: $6,777; and total federal tax refund: $8,542. On line 51, “Tax and Credits,” they listed $2,903 for the Child Tax Credit (CTC). On line 65, “Payments,” they listed $1,097 for additional CTC. They amended Schedule B, changing the unknown value of their tax refund. They specified $4,000 as the portion of their refund due to the CTC and $4,542 for the portion not due to the CTC. They amended Schedule C of the bankruptcy petition, to list the $4,000 portion as exempt pursuant to Ohio Rev. Code 2329.66(A)(9)(g). The Trustee objected, arguing that $2,903 of the CTC, the so-called “non-refundable portion,” was not exempt. The bankruptcy court sustained the Trustee’s objection, reducing the exemption to $1,907. The Bankruptcy Appellate Panel affirmed. The Sixth Circuit affirmed View "Zingale v. Rabin" on Justia Law

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Federal tax assessments against husband arose out of his failure to file returns, report income, or pay tax, 1986 through 1993. Unpaid taxes, penalties, and interest totaled $901,052.17 as of January 2010. Wife paid $40,227.30 in full satisfaction of a separate assessment based on an audit of her 2000 return, resulting in dismissal of claims against her personally. The district court granted summary judgment to the government with respect to the assessment against husband and reduced the tax liability to judgment. The government moved for foreclosure of the lien and sale of the entire property. Since the property was held by the couple as tenants by the entirety, husband’s individual tax lien attached to his partial contingent survivorship interest in the property, which would have minimal value if sold separately. The court found that the property would bring $160,000 at a foreclosure sale and was subject to a mortgage of $14,572.36. Wife, age 60, testified to her limited income and sentimental attachment to the home where she had lived for 29 years. The court declined to force a sale (26 U.S.C. 7403). The Sixth Circuit reversed and remanded for reconsideration under the "Rodgers" factors. View "United States v. Winsper" on Justia Law

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The National Association of Insurance Commissioners helps to coordinate the state-based regulations of insurance, creating model statutes and regulations and releasing actuarial guidelines. Actuarial Guideline 33 (1995), describing how insurance companies should handle accounting questions connected to annuities sold after 1980. The new guidance prompted plaintiff to change the way it calculated financial reserves for roughly 200,000 annuity contracts it had issued over the prior 15 years, increasing its reserves by approximately $59 million—about 1.2 percent. The company’s parent claimed a deduction for part of that increase on its federal taxes for the following year and sought to do the same for the next nine years, 26 U.S.C. 807(f) The IRS concluded that insurers could not use Guideline 33 in calculating reserves for annuity contracts issued before its effective date. The company paid the disputed taxes under protest and sought to recover $11 million in overpayments and several million more in interest. The district court concluded that Guideline 33 clarified the pre-1995 requirements rather than changing them, granting the company summary judgment. The Sixth Circuit affirmed. View "Am. Fin. Group & Consol. Subsidiaries v. United States" on Justia Law

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The debtor filed a voluntary bankruptcy petition and her Chapter 13 plan. A few weeks later, she filed her Michigan state income tax return, showing that she owed $4,900 for the 2008 tax year. She did not make payment, but later filed a proof-of-claim on behalf of the Michigan Department of Treasury, which meant that the tax debt would be paid through her Chapter 13 plan. Treasury objected, arguing that this was a post-petition claim under 11 U.S.C. 1305, which gives only a creditor the option of filing; debtor responded that the claim was permitted under section 501(c). The bankruptcy court overruled the objection; the district court affirmed The Sixth Circuit affirmed. The tax debt is entitled to priority under section 507(a)(8), (i) and (iii), so the post-petition protective claim on behalf of Treasury is treated under section 502(i) as a prepetition claim. A debtor is permitted to file a prepetition claim on behalf of a creditor that fails to timely file. View "In re: Hight" on Justia Law