Justia Tax Law Opinion Summaries

In 2012, the City of Country Club Hills City Council adopted an ordinance that provided to homeowners a 25 percent rebate of 2010 city property taxes paid in 2011, subject to the completion of an application by the homeowner and approval by the City Clerk. This was the city’s twelfth consecutive year of offering a rebate program. The application stated that the “FILING OF THIS APPLICATION DOES NOT GUARANTEE APPROVAL BY THE CITY OF COUNTRY CLUB HILLS.” The city prepared the rebate checks but never distributed them. In 2012, the Cook County treasurer overpaid the city by more than $6 million. The county successfully sued to collect the overpayment. Bell filed a purported class action under 42 U.S.C. 1983, arguing that refusal to issue the rebates amounted to an unconstitutional taking and asserting state law claims for conversion and unjust enrichment. The City Council then repealed the 2012 ordinance. The Seventh Circuit affirmed dismissal, agreeing that Bell had no constitutionally protected property interest in the expectation of a rebate, and that she had adequate state court remedies for her claims under state law. View "Bell v. City of Country Club Hills" on Justia Law

Michael and Christine Wu each have an individual retirement account (IRA); each contributed $200,000 after selling their home in 2007. For that tax year their maximum allowable deduction for IRA contributions was $4,000, and “excess contributions” incur a tax of up to 6% annually until withdrawn. 26 U.S.C. 219(b)(1), (b)(5)(A), 4973(a), (b). The Wus realized their mistake in 2010, informed the IRS, and corrected the problem by withdrawing the excesses from their accounts. The Wus paid the taxes for 2007-2009, and although they conceded liability for the first two years, they each sought a refund for tax year 2009, arguing that they had avoided incurring taxes for that year by adjusting the IRA account balances before the April 2010 filing deadline for their 2009 tax return. The IRS rejected this contention. The Wus filed suit under 28 U.S.C. 1346(a)(1). The district court and Seventh Circuit agreed with the government. Under section 4973(b), the consequence of taking a qualifying distribution under section 408(d)(4) is that the amount of the withdrawal “shall be treated as an amount not contributed,” but the Wus were not asking that their 2007 contributions be treated as if they were never contributed; they asked that those contributions be eliminated from the calculation for 2009 alone. View "Wu v. United States" on Justia Law

Pike County's Sny Island Levee Drainage District was organized in 1880 to protect from Mississippi River flooding and runoff. The Kansas City Southern and the Norfolk Southern operate main line railways over the District's flood plain. Illinois law permits the District to assess properties within its territory in order to maintain the levees. A new method, ​adopted in 2009, purported to calculate assessments based on the benefits the District conferred on each property, rather than based on acreage. After the Seventh Circuit enjoined use of the methodology, the District discontinued collecting annual assessments and implemented a one-time additional assessment, 70 ILCS 605/5. The District filed an assessment roll based on new benefit calculations, identifying the tax on KC as $91,084.59 and on Norfolk as $102,976.18, if paid in one installment..The Railroads again filed suit, alleging that the District used a formula that discriminated against them in violation of the Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. 11501. The Seventh Circuit affirmed judgment in favor of the District. The court rejected an argument that the comparison class against which their assessment should be measured is all other District properties, instead of the narrower class of commercial and industrial properties used by the district court. There was no clear error in the court’s assessment of a “battle of the experts.” View "Kansas City S. Ry. v. Sny Island Levee Drainage Dist" on Justia Law

King, now deceased, was a lawyer. For several years he failed to pay his quarterly payroll taxes. The IRS stated that it would grant his request for an installment payment plan, but requested additional financial information to determine his eligibility. Eventually, the IRS decided that King had enough income and assets to pay the taxes when they were due, plus penalties and interest that had accrued. He paid the taxes in October 2011 but requested abatement of interest accrued after the date on which the IRS told him it would honor his request for an installment plan. He argued that had the IRS informed him from the outset that he would not be allowed an installment plan, he would have paid the taxes sooner and would have owed less interest. The IRS denied the request. Although 26 U.S.C. 6404(a) allows abatement under certain circumstances, the IRS determined that the interest was “not excessive” and “was not erroneously or illegally assessed.” The Tax Court abated interest for two months, holding that the “failure to communicate … the deficiencies … was unfair.” The Seventh Circuit reversed, finding the Tax Court’s approach inconsistent with a Treasury Department regulation, 26 C.F.R. 301.6404–1(a), which eliminates the vagueness of “excessive” and leaves no room for consideration of “unfairness.” View "King v. Comm'r of Internal Revenue" on Justia Law

The Bickarts prepared and filed an income tax return containing false income and withholding amounts, supported by fabricated 1099‐OID forms, appearing to come from major financial institutions. The IRS paid a claimed refund of $115,412. Their legitimate refund would have been $263. The IRS discovered the fraud and sent a bill for $217,923. For years, the Bickarts engaged in obstructive conduct, sending a 1040‐V payment coupon and continuing to insist that the bill had been paid. They made baseless accusations against IRS agents. They were convicted of conspiring to file and filing a false claim to defraud the government, 18 U.S.C. 286 and 287. The Bickarts represented themselves at trial, asserting “sovereign citizen” claims and making nonsensical accusations. The PSR applied a two‐level enhancement for sophisticated means based on the fictitious Forms 1099‐OID and a two‐level enhancement for obstruction of justice, resulting in a guidelines imprisonment range of 33-41 months. Neither objected to the calculations. The court sentenced each defendant to 24 months in prison. Defendants objected to supervised release conditions requiring them to notify third parties of risks related to their criminal history when directed by the probation office. The court modified it to require the probation office to seek court approval. They also objected to the condition permitting a probation officer to visit them at home or at work at any reasonable time. The court overruled the objection. The Seventh Circuit vacated the third‐party notification condition, but otherwise affirmed the remaining conditions of supervised release and sentence. View "United States v. Bickart" on Justia Law

The Adents filed joint federal income tax returns for 1998 and 2001, but did not pay. The IRS sent a demand. As of October 2012, they owed $90,681.26. Leonard also owed federal employment and unemployment taxes, totalling $65,637.17. The Adents jointly own their residence, Parcel A. Leonard and their son, Derek, jointly own mixed‐use condominium and commercial Parcel B. Joyce has office space for her business at Parcel B. Liens attached to Parcels A and B, 26 U.S.C. 6321. The government filed suit to foreclose the liens and obtain a sale of both Parcels. The Adents filed answers, but did not raise the statute of limitations. Leonard and Joyce stipulated that they owe the unpaid personal income taxes; Leonard stipulated that he owes the unpaid employment and unemployment taxes. The court entered judgment in favor of the government and found that, because there were no innocent party interests in Parcel A, it was required to order a sale. With regard to Parcel B, the court weighed the prejudice to the government of a partial sale and the prejudice to Derek of a total sale and found in favor of the government. The Seventh Circuit affirmed. The Adents waived their statute of limitations defense and presented no exceptional circumstances that overcome the severe prejudice to the government’s “paramount” interest. View "United States v. Adent" on Justia Law

After auditing the 2008-2010 returns filed by Integra, the IRS concluded that they owed more taxes. Integra hired Bastian, a lawyer and CPA. As the three-year limitations deadline, 26 U.S.C. 6501(a) for the 2008 tax year approached (February 15, 2012), Bastian signed a waiver. Negotiations failed. In November 2012 the IRS sent notices of deficiency, seeking nearly $800,000 for the three years, including a 20% penalty for filing substantially inaccurate returns. More negotiations ensued; the taxpayers did not contest revised calculations for 2009 and 2010, but contended that they owed nothing for 2008 because the notice was untimely. They argued that the waivers applied to the 2011 tax year, based on language that: “Federal Income tax due on any return(s) made by or for the above taxpayer(s) for the period(s) ended February 15, 2012 may be assessed at any time on or before December 31, 2012.” The IRS had typed the wrong year, overlooking that Integra’s 2008 tax “period ended” in November 2008. The Tax Court reformed the document to cure a mutual mistake, stating that Bastian is knowledgeable about tax law and had been dealing with the IRS about specific years. The Seventh Circuit affirmed. If the IRS believed that Bastian had tried to "hoodwink it," he might lose his credentials as a tax representative; everyone simply missed the error. View "Kunkel v. Comm'r of Internal Revenue" on Justia Law

In 2014 the Tax Court held that Roberts had deducted expenses from his horse‐racing enterprise on his federal income tax returns for 2005 and 2006 erroneously because the enterprise was a hobby rather than a business, 26 U.S.C. 183(a), (b)(2)..The court assessed tax deficiencies of $89,710 for 2005 and $116,475 for 2006, but ruled that his business had ceased to be a hobby, and had become a bona fide business, in 2007. The IRS has not challenged Roberts’ deductions since then and Roberts continues to operate his horse‐racing business. The Seventh Circuit reversed the Tax Court’s judgment upholding the deficiencies assessed for 2005 and 2006. A business is not transformed into a hobby “merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility.” The court noted instances demonstrating Roberts’ intent to make a profit. View "Roberts v. Comm'r of Internal Revenue" on Justia Law

Vee’s is a Subchapter S corporation wholly owned by Vee, who reports its income on his own tax returns. Vee sought a refund of $40,000 in penalties that the IRS had assessed because he took deductions for contributions to a benefit plan from 2004-2007 but did not file a Form 8886. In a separate Tax Court suit, the government is arguing that the deductions were improper. Contributions to multi-employer benefit plan, like the Vee's, are deductible unless the plan “maintains experience-rating arrangements with respect to individual employers,” 26 U.S.C. 419A(f)(6). Experience rating means that rather than pooling the risks and contributions of all the employees of the different employer-members to determine benefits, benefits are determined separately for each employer according to that employer’s contributions. If contributions go to purchase life insurance policies that accumulate cash value, the contributions are not tax deductible; such a plan is mainly an investment vehicle rather than insurance. Vee’s plan included no medical benefits. Vee’s contribution in ithe first year was $165,000, but the cost of the term life insurance purchased was only $5,400. The difference was invested to earn interest for and is the property of Vee. The district judge denied a refund. The Seventh Circuit affirmed. Vee’s plan was enough like the plan described in the IRS notice to require lForm 8886. View "Vee's Mktg., Inc. v. United States" on Justia Law

In 2014, the IRS issued an administrative summons to Titan, to inspect its 2009 records in connection with an audit of the company’s 2010 tax return. Titan had taken an operating-loss carryforward in the 2010 tax year for a loss that occurred in 2009. Titan had claimed this same loss in 2009; the IRS had already audited its return for that tax year. Titan refused to comply with the 2014 summons, citing 26 U.S.C. 7605(b), which provides that “only one inspection of a taxpayer’s books of account shall be made for each taxable year unless … the [Treasury] Secretary … notifies the taxpayer in writing that an additional inspection is necessary.” Because the Secretary had not issued this notice, Titan asserted that the reinspection of its 2009 records was not permitted. The district court ordered Titan to comply with the summons. The Seventh Circuit affirmed. Section 7605(b) applies if the IRS seeks to inspect a taxpayer’s records when auditing a tax liability for a given year when the agency has already inspected the records in auditing the taxpayer’s liability for that same tax year. It does not apply when the IRS seeks already-inspected records for an audit of a different tax year. View "United States v. Titan Int'l, Inc." on Justia Law