Justia Tax Law Opinion Summaries

Bancorp owns the 792 and 037 patents, for tracking value of life insurance policies in separate accounts, under which the policy owner pays a premium beyond that required for the death benefit and specifies types of assets in which additional funds are invested. Corporations use the policies to insure employees’ lives and fund retirement benefits on a tax-advantaged basis. The value of a separate account policy fluctuates; owners must report the value of their policies. The patents provide a computerized means for tracking book and market values and calculating stable value guarantee. Bancorp sued Sun Life for infringement. In another suit, the court invalidated the 792 patent for indefiniteness. Bancorp and Sun Life stipulated to conditional dismissal on collateral estoppel. The Federal Circuit reversed the other case. The district court vacated dismissal then granted summary judgment of invalidity under section 101 (ineligible abstract ideas) without addressing claim construction and analyzing each claim as a process claim. Applying “the machine-or-transformation test,” specified computer components are only objects on which claimed methods operate, and the central processor is a general purpose computer programmed in an unspecified manner for a process that can be completed manually. The claims “do not transform the raw data into anything other than more data and are not representations of any physically existing objects.” The Federal Circuit affirmed. View "Bancorp Servs., L.L.C. v. Sun Life Assurance Co. of Canada" on Justia Law

Normally, if a partner contributes property, his basis in the partnership increases, and, when the partnership assumes a partner’s liability, his basis decreases. A Son-of-BOSS transaction recognizes acquisition (here, short-sale proceeds) and disregards acquisition of offsetting liability (obligation to close out the short-sale), to generate tax loss or reduce gain from sale of an asset. In their first such transaction, plaintiffs used partnerships to convert $66 million in taxable gain anticipated from stock sales into capital losses. Their partnership interests were held by tax-exempt charitable remainder unitrusts at the time of sale so that gain would escape taxation. The CRUTs terminated thereafter and assets were distributed to plaintiffs, purportedly tax free. The IRS determined that transfers to the CRUTs were shams to be disregarded; imposed basis and capital gain/loss adjustments, and alternative penalties; and asserted that the transactions did not increase amounts at risk under I.R.C. 465. Plaintiffs conceded capital gain and loss adjustments, but otherwise challenged the determinations. The Claims Court dismissed the determination that trust transfers were shams, believing it lacked jurisdiction; entered summary judgment in favor of plaintiffs on the ground that their concession to adjustments rendered valuation misstatement penalties moot; granted the government summary judgment on penalties for negligence, substantial under-statement, and failure to act in good faith; and imposed a penalty. The Federal Circuit reversed the dismissal, vacated summary judgment for plaintiff, and held that plaintiffs’ appeal was premature. View "Alpha I, L.P. v. United States" on Justia Law

In 1996, Dominion, a power company, replaced coal burners in two of its plants, temporarily removing the units from service for two to three months. During that time, Dominion incurred interest on debt unrelated to the improvements. On its tax returns, Dominion deducted some of that interest. The IRS disagreed, citing Treasury Regulation 1.263A-11(e)(1)(ii)(B), as requiring Dominion to capitalize half ($3.3 million) of that interest over several years, instead of deducting it in a single tax year. The Claims Court granted summary judgment to the IRS. The Federal Circuit reversed. The associated property rule in Treasury Regulation 1.263A-11(e)(1)(ii)(B), as applied to property temporarily withdrawn from service, is not a reasonable interpretation of the Tax Reform Act of 1986, I.R.C. 263A (Capitalization and Inclusion in Inventory Costs of Certain Expenses). Treasury acted contrary to 5 U.S.C. 706(2) in failing to provide a reasoned explanation when it promulgated that regulation. View "Dominon Res., Inc. v. United States" on Justia Law

The claims court found that the taxpayers were not entitled to refunds of $142,277.55 and $725,205.28 paid to the IRS for tax deficiencies in tax year 1992 and tax year 1995. The taxpayers disputed whether the IRS properly mailed the two notices of deficiency prior to December 31, 2000, tolling the statute of limitations and making the 1992 and 1995 assessments timely. The Federal Circuit affirmed in part. Use of the form prescribed in the Internal Revenue Manual for establishing compliance with the notice of deficiency mailing requirement (PS Form 3877) is not a prerequisite to the government demonstrating mailing of a notice of deficiency, but some corroborating evidence of both the existence and timely mailing of the notice of deficiency is required. The IRS presented such corroborating evidence for the 1992 notice of deficiency but not as to the 1995 notice. View "Welch v. United States" on Justia Law

Taxpayers filed original federal income tax returns for 2003 through 2006, followed by alleged amended returns seeking refunds for those same years. They filed original returns in 2007 and 2008, seeking refunds. In 2010, they filed a complaint seeking a claim for refund for tax years 2003 through 2008 and damages for a tax lien filed as a result of penalties. The Claims Court dismissed, finding that the statute of limitations had expired with regard to 2003 and that it lacked subject matter jurisdiction with respect to other years because amended returns and original returns that contained zeros in place of income did not constitute returns and were not proper claims for refund. Taxpayers did not allege any facts sufficient to state a plausible claim for a tax refund. The Federal Circuit affirmed. The amended returns replaced income previously reported, consistent with third-party information provided the IRS, with zeros; taxpayers took no action to obtain corrected third party forms that would corroborate the claims. The returns do not implicate an "honest and reasonable intent to supply information required by the tax code" or rise to the level of specificity required by regulation. View "Waltner v. United States" on Justia Law

In 1998, the Supreme Court held that the Harbor Maintenance Tax, 26 U.S.C. 4461-4462, was unconstitutional as applied to exports. U.S. Customs enacted procedures for refunds and established a separate HMT database with data from its ACS database, through which HMT payments had been processed. Customs discovered wide-spread inaccuracies in its HMT database, but was unable to make corrections related to payments made before July 1, 1990, because it no longer had original documents. Customs established different requirements for supporting documentation, depending on whether an exporter was seeking a refund of pre- or post-July 1, 1990 payments. Ford sought HMT refunds for both pre- and post-July 1, 1990, payments and has received more than $17 million, but claims that Customs still owes about $2.5 million. In addition to a FOIA Report of Ford’s pre-July 1, 1990 payments was drawn from information in the ACS database, Ford submitted an affidavit attesting that it was only claiming refunds of HMT paid on exports and declarations about the consistency and quality of its quarterly HMT payment records. Customs denied the claims. The Trade Court entered judgment in favor of the government. The Federal Circuit affirmed. The claims were insufficient because there still was high potential for error. View "Ford Motor Co. v. United States" on Justia Law

This tax case concerned the procedures to be followed when the IRS conducted a partnership proceeding under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), I.R.C. 6221-6233. Plaintiffs, individual taxpayers and limited partners in partnerships that were the subject of such proceedings, filed suit on grounds that the lack of deficiency notices rendered the IRS's assessments invalid. At issue was whether the IRS was required to issue notices of deficiency before assessing additional tax payments from plaintiffs. The court held that the assessments in this case amounted to computational adjustments and therefore, no deficiency notices were necessary. The court noted that the three remaining questions the court put to the parties as part of en banc rehearing each presumed that a deficiency notice was required. Because the court's holding here definitively contradicted that presumption, the court need not analyze those questions. Accordingly, the court affirmed the judgement of the Court of Federal Claims.

In 2000 the plaintiff acquired CMP and its subsidiary; in 2002 it acquired RGS and its subsidiary. Plaintiff acquired all liabilities; the companies and subsidiaries became part of a group of affiliated companies filing consolidated income tax returns pursuant to I.R.C. sect. 1501. Prior to the acquisition, the subsidiaries had overpaid taxes in some years. The plaintiff had underpaid and, after paying the deficiency and interest, requested a refund of interest, claiming entitlement to a net interest rate of zero on its deficiency because sect. 6621(d) allowed it to offset its underpayment with the overpayments by the subsidiaries. The IRS ignored the request. The Court of Federal Claims rejected the claim, finding that the plaintiff was not the "same" taxpayer as had overpaid. The Federal Circuit affirmed, reasoning that the taxpayer must be the same at the time of the overpayments and underpayments.

Plaintiff imported the LCD monitors and entered them under a subheading of the Harmonized Tariff Schedule of the United States for "Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: Input or output units, whether or not containing storage units in the same housing: Other: Display units: Other: Other." The Bureau of Customs and Border Protection classified and reliquidated the monitors under a subheading, dutiable at 5% ad valorem, for: "Reception apparatus for television, whether or not incorporating radiobroadcast receivers or sound or video recording or reproducing apparatus; video monitors and video projectors: video monitors: Color: With a flat panel screen: Other: Other. " The Court of International Trade upheld the designation. The Federal Circuit vacated and remanded because the Court of International Trade expressly did not reach the issue of the adequacy of the evidence for either a principal use or principal function.

The company claimed based $115 million in deductions for 2002, based on 26 sale-in lease-out (SILO) transactions with tax-exempt entities, including domestic transit agencies. After the IRS denied the deduction, the company paid under protest. The Court of Federal Claims denied a refund. The Federal Circuit affirmed, applying the substance-over-form doctrine. Noting that title is only one indicator of ownership, the court analyzed the economic substance of the transactions, particularly risk and the near-certainty that the entities would exercise repurchase options and retain possession of the assets. The claimed deductions were for depreciation on property (such as buses, rail cars, and telecommunications equipment) that the company never expected to own or operate, interest on debt that existed only on a balance sheet, and write-offs for the costs of transactions that amounted to nothing more than tax deduction arbitrage. The tax-exempt entities were, in essence, paid for allowing the company to use tax advantages that could not be used by those entities.