Justia Tax Law Opinion Summaries

Articles Posted in US Court of Appeals for the Eighth Circuit
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The Eighth Circuit reviewed a case for the second time regarding “whether a South Dakota tax on nonmember activity on the Flandreau Indian Reservation (the Reservation) in Moody County, South Dakota is preempted by federal law. On remand, and after a six-day video bench trial, the district court entered judgment in favor of the Tribe, concluding again that federal law preempts the imposition of the tax.   The Eighth Circuit reversed and remanded. The court explained that in light of guideposts from the Supreme Court, even with the evidence that the district court heard at trial, the court cannot conclude that the federal regulation in IGRA regarding casino construction is extensive. The court reasoned that even with a more factually developed record than the court considered on summary judgment, the Bracker balancing test does not weigh in favor of preemption under IGRA because the extent of federal regulation over casino construction on tribal land is minimal, the impact of the excise tax on the tribal interests is minimal, and the State has a strong interest in raising revenue to provide essential government services to its citizens, including tribal members. The district court thus erroneously entered judgment in favor of the Tribe based on IGRA’s preemption of the excise tax. View "Flandreau Santee Sioux Tribe v. Michael Houdyshell" on Justia Law

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Appellant made deferred cash payments to his ex-wife, Appellee, pursuant to a marriage termination agreement (MTA) that Appellee “waives any right to . . . permanent spousal maintenance.” At issue is whether those payments were nonetheless “spousal maintenance” payments under Minn. Stat. Section 518.552.The Eighth Circuit concluded that the answer is clearly no and therefore affirm the decision of the United States Tax Court denying Appellant deductions under now-repealed alimony provisions of the Internal Revenue Code for $51M in cash payments he made to Appellee during his 2012 and 2013 federal income tax years.The court concluded that that Minnesota law unambiguously establishes that the MTA was not a spousal maintenance agreement. Rather, it was a contractual division of marital property. Contractual obligations under a divorce agreement fall under the general rule that causes of action survive their personal representatives. Minn. Stat. Section 573.01. That being so, Minnesota law unambiguously provides that the payments in question were not deductible because Appellant’s liability to make the payments would survive Appellee’s death. This is consistent with the stated purpose of Section 71(b)(1)(D). View "Andrew Redleaf v. CIR" on Justia Law

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In June 2019, Plaintiffs submitted a FOIA request to the IRS seeking disclosure of the terms of a third-party authentication process set forth within IRM Sec. 21.1.3.3, pertaining to the tax professional authentication process. in August 2019, the IRS denied Plaintiffs' request citing the material was properly withheld pursuant to 5 U.S.C. Sec. 552(b)(7)(E), and then plaintiffs filed an action in federal court.The district court granted the IRS’s motion for summary judgment, rejecting Plaintiffs' request for an in-camera review of the documents.The Eighth Circuit reversed, remanding for the district court to conduct an in-camera inspection of the documents. To meet its burden under 5 U.S.C. Sec. 552(b)(7)(E), the IRS must prove the withheld material was “compiled for law enforcement purposes." Here, to effectively determine whether the IRS meets the requirements of 5 U.S.C. Sec. 552(b)(7)(E), an in-camera review is necessary. Thus, the district court erred in failing to hold an in-camera review. View "T. Keith Fogg v. Internal Revenue Service" on Justia Law

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Appellant, an asphalt-paving company incorporated under Iowa law, had not paid dividends since the 1970s but has paid its shareholders “management fees” for at least twenty years. There were no written agreements between Appellant and its shareholders regarding fees paid for management services, nor was there an employment contract between Appellant and its president. Appellant claimed deductions on its tax returns for management fees for tax years 2012 through 2014. The Commissioner denied these deductions on the ground that Appellant failed to establish that it had incurred or paid the management fees for ordinary and necessary business purposes. At the tax-court proceeding, each party proffered expert witnesses. The tax court excluded the testimony of Appellant’s experts and sustained the Commissioner’s decision on the ground that the fees were not paid as compensation for services but were instead disguised distributions of corporate earnings.   The Eighth Circuit affirmed the judgment of the tax court, affirming the Commissioner’s denial of the Appellant’s claimed tax deductions and management fees paid to its shareholders. The court reviewed the tax court’s decision to exclude expert testimony for an abuse of discretion and held that the expert witness would not help the trier of fact understand the evidence or determine a fact in issue. Further, the court concluded that the tax court did not err in finding that Appellant failed to meet its burden to show that any of the management fees paid were reasonable. View "Aspro, Inc. v. CIR" on Justia Law

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Tyler owned a Minneapolis condominium. She stopped paying her property taxes and accumulated a tax debt of $15,000. To satisfy the debt, Hennepin County foreclosed on Tyler’s property and sold it for $40,000. The county retained the net proceeds from the sale. Tyler sued the county, alleging that its retention of the surplus equity—the value of the condominium in excess of her $15,000 tax debt—constituted an unconstitutional taking, an unconstitutionally excessive fine, a violation of substantive due process, and unjust enrichment under state law.The Eighth Circuit affirmed the dismissal of her complaint. Minnesota’s statutory tax-forfeiture plan allocates the entire surplus to various entities with no distribution of net proceeds to the former landowner; the statute abrogates any common-law rule that gave a former landowner a property right to surplus equity. Nothing in the Constitution prevents the government from retaining the surplus where the record shows adequate steps were taken to notify the owners of the charges due and the foreclosure proceedings. View "Tyler v. Minnesota" on Justia Law

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The Eighth Circuit agreed with the tax court and held that taxpayers were not entitled to a new hearing because a revenue officer included notes and correspondence about a meeting with their attorney in the official file that was later made available to the settlement officer who reviewed the case. The court explained that, under the administrative-file rule, contemporaneous statements may permissibly be included in the file as long as they are pertinent to the revenue officer's consideration of the case, even if they would otherwise be prohibited. In this case, there is no dispute that the statements in the notes and letters were contemporaneous. Furthermore, the statements were not gratuitous. Therefore, taxpayers are not entitled to a new hearing. View "Stewart v. Commissioner of Internal Revenue" on Justia Law

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After the IRS concluded that Mayo, a tax-exempt organization under IRC 501(c)(3), owed unrelated business income tax (UBIT) on certain investment income it received from the investment pool it manages for its subsidiaries, the IRS issued a Notice of Proposed Adjustment and reaffirmed its position in a 2013 Technical Advice Memorandum. In this refund action, the parties dispute the $11,501,621 in UBIT for tax years 2003, 2005-2007, and 2010-2012. At issue is whether Mayo is a "qualified organization" exempted from paying unrelated business income tax on "unrelated debt-financed income" under section 514(c)(9)(C)(i) and whether it its a qualified organization under section 170(b)(1)(A)(ii) because it is an educational organization. The district court held that the Treasury Regulation is invalid "because it adds requirements -- the primary-function and merely-incidental tests -- Congress intended not to include in the statute."The Eighth Circuit concluded that Treasury Regulation 1.170A-9 is valid, but only in part, and that application of the statute as reasonably construed by the regulation to Mayo's tax years in question cannot be determined as a matter of law on this summary judgment record. Accordingly, the court reversed the district court's invalidation of Treasury Regulation 1.170A-9 to the extent it is not inconsistent with IRC 170(b)(1)(A)(ii) and remanded for further proceedings. View "Mayo Clinic v. United States" on Justia Law

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This opinion supersedes the opinion issued on December 15, 2020, as rehearing by panel was granted on February 10, 2021.The Eighth Circuit reversed the tax court's grant of taxpayer's motion for summary judgment in an action where the Commissioner had determined that because taxpayer was not a bona fide resident of the United States Virgin Islands (USVI), she and her husband owed federal income tax for the 2003 and 2004 tax years. It is undisputed that taxpayers did not intend to file tax returns with the IRS, but only with the USVI's Bureau of Internal Revenue (VIBIR).The court rejected claims that taxpayer and her husband met the USVI nonresident filing requirements, beginning the three-year statute of limitations in 26 U.S.C. 6501(a) and barring the IRS's claims. In this case, the VBIR's action of sending some of their tax documents to the IRS or their action of filing the returns with the Virgin Islands alone do not meet the filing requirements. Therefore, the court reversed the tax court's finding that taxpayer and her husband could assert the statute of limitations as a defense. View "Coffey v. Commissioner" on Justia Law

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The Eighth Circuit reversed the tax court's grant of appellees' motion for summary judgment in an action where the Commissioner determined that because Judith S. Coffey was not a bona fide resident of the United States Virgin Islands (USVI), she and James L. Coffey owed federal income tax for the 2003 and 2004 tax years. The Coffeys invoked the three-year statute of limitations in 26 U.S.C. 6501(a), and the USVI intervened.The court held that the statute of limitations in section 6501(a) begins only when a return is filed. In this case, because the Coffeys did not meticulously comply with requirements to file with the IRS, the court concluded that the statute of limitations never began. The court rejected the Coffeys' and the USVI's contentions that filing returns solely with the Virgin Islands Bureau of Internal Revenue began the three-year statute of limitations in section 6501(a). The court explained that without a filing, the documents are not an honest and genuine attempt to satisfy the tax law and are not filed returns. View "Coffey v. Commissioner of Internal Revenue" on Justia Law

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The Eighth Circuit affirmed the district court's dismissal of Boechler's petition for review of a notice of determination from the Commissioner of the IRS based on lack of jurisdiction. Under 26 U.S.C. 6330(d)(1), a party has 30 days to file a petition for review. In this case, Boechler filed one day after the filing deadline had passed.The court held that the statutory text of section 6330(d)(1) is a rare instance where Congress clearly expressed its intent to make the filing deadline jurisdictional. The court also held that Boechler failed to demonstrate that the filing deadline is arbitrary and irrational. Rather, given the rational reasons for the calculation method, and Boechler's inability to identify any actual discrimination or discriminatory intent, the court held that the 30-day filing deadline from the date of determination does not violate the Fifth Amendment. Therefore, Boechler's petition was untimely and thus properly dismissed. View "Boechler, P.C. v. Commissioner" on Justia Law