Justia Tax Law Opinion Summaries

Frank Bibeau, a member of the Minnesota Chippewa Tribe, argued that his self-employment income from his law practice on the Leech Lake Reservation was exempt from federal taxation. For the 2016 and 2017 tax years, Bibeau reported his income on a joint federal income tax return with his wife, claiming a net operating loss carryforward that shielded his income from taxes but not from self-employment taxes. After receiving a notice from the IRS regarding his tax debts, Bibeau requested a Collection Due Process (CDP) hearing, arguing his income was exempt. The IRS disagreed and issued a notice of determination to collect the tax.Bibeau petitioned the United States Tax Court, asserting that Indians are generally exempt from federal taxes or that treaties between the U.S. and the Chippewa exempted his income. The Tax Court ruled against him, stating that Indians are subject to federal tax laws unless a specific law or treaty provides otherwise. The court found that neither the Indian Citizenship Act of 1924 nor the 1837 Treaty between the U.S. and the Minnesota Chippewa Tribe contained a specific exemption from federal taxation.The United States Court of Appeals for the Eighth Circuit reviewed the case de novo. The court held that as U.S. citizens, Indians are subject to federal tax requirements unless specifically exempted by a treaty or act of Congress. The court found that Bibeau failed to point to any statute or treaty that specifically exempted his self-employment income from taxation. The court also noted that the Indian Citizenship Act of 1924 and the 1837 Treaty did not provide such an exemption. Consequently, the Eighth Circuit affirmed the Tax Court’s decision, holding that Bibeau’s self-employment income is subject to federal self-employment taxes. View "Bibeau v. CIR" on Justia Law

The case revolves around a request for disclosure of certain redacted contents of the Internal Revenue Manual under the Freedom of Information Act (FOIA) by T. Keith Fogg. The redacted contents pertain to the IRS's unique authentication procedures used in special situations to prevent unauthorized disclosure of sensitive taxpayer information, identity theft, and criminal fraud. The IRS claimed these redacted contents were exempt from FOIA disclosure under Exemption 7(E) as they were records or information compiled for law enforcement purposes.The District Court for the District of Minnesota initially granted summary judgment to the IRS, holding that Exemption 7(E) applied to the redacted contents. Fogg appealed to the United States Court of Appeals for the Eighth Circuit, which reversed the grant of summary judgment and remanded the case to the district court for an in-camera inspection of the redacted contents.Upon inspection, the district court again concluded that Exemption 7(E) applied to the redacted contents as they served a law enforcement purpose and involved exceptional situations of a heightened risk of fraud or identity theft. The court granted summary judgment to the IRS once more.On appeal, the United States Court of Appeals for the Eighth Circuit affirmed the district court's decision. The court found that the redacted contents were techniques and procedures used for law enforcement investigations, akin to background checks. The court also concluded that the IRS had met its burden under the foreseeable harm requirement, showing that disclosure of the redacted contents would foreseeably harm the IRS's interest in preventing circumvention of the law. View "Fogg v. IRS" on Justia Law

Meyer, Borgman & Johnson, Inc. (MBJ), a structural engineering firm, sought research tax credits for expenses incurred in creating designs for building projects. MBJ claimed approximately $190,000 in tax credits for the years ending September 30, 2010, 2011, and 2013. The Commissioner of Internal Revenue denied these credits.The United States Tax Court affirmed the Commissioner's decision, ruling that MBJ's research was "funded" within the meaning of 26 U.S.C. § 41(d)(4)(H), and therefore, MBJ did not qualify for the credits. The Tax Court's decision was based on a summary judgment.The United States Court of Appeals for the Eighth Circuit reviewed the Tax Court's decision de novo. MBJ argued that the Tax Court erred because its right to payment was contingent on the success of its research, and its contracts had inspection, acceptance, and quality assurance provisions. MBJ claimed that its payments were contingent on the success of its research because it was required to create a design that met all the owner's requirements, complied with all pertinent codes and regulations, and was sufficiently detailed for a contractor to successfully construct it.However, the Court of Appeals disagreed with MBJ's arguments. It found that MBJ's contracts did not expressly or by clear implication make payment contingent on the success of MBJ’s research. The court distinguished between "successful performance"—meeting detailed, barometers of success—and "proper performance"—providing deliverables pursuant to a general professional standard of care and promising work free from negligence, error, or defects. The court found that MBJ's contracts fell into the latter category.The Court of Appeals affirmed the Tax Court's ruling that MBJ’s research did not merit the research tax credit. View "Meyer, Borgman & Johnson, Inc. v. CIR" on Justia Law

Show Me State Premium Homes wants its purchase of a foreclosed property to be free and clear of all other interests, including those belonging to the United States. Getting what it wants would require a “judicial sale.” After removing the case the United States filed a motion to dismiss. Its position was that there could be no foreclosure without a judicial sale. The district court agreed, declined to exercise supplemental jurisdiction over what remained, and remanded to state court.   The Eighth Circuit affirmed the judgment of the district court but modified the dismissal of the ejectment and damages claims to be without prejudice. The court explained that a buyer’s interest is only “inchoate” before it gets a valid deed, not after. And here, title vested once the bond company “exercised its right to have the legal title transferred.” No “judicial sale” ever took place, and it is too late to hold one now, meaning that the interests held by the United States have never been foreclosed. View "Show Me State Premium Homes, LLC v. George McDonnell" on Justia Law

Plaintiffs, two brothers, were the sole shareholders of Crown C Corporation. The corporation obtained life insurance on each brother so that if one died, the corporation could use the proceeds to redeem his shares. When one brother died, the Internal Revenue Service assessed taxes on his estate, which included his stock interest in the corporation. According to the IRS, the corporation’s fair market value includes the life insurance proceeds intended for the stock redemption. The brother's estate argues otherwise and sued for a tax refund. The district court agreed with the IRS.   The Eighth Circuit affirmed. The court explained that here the estate argues that the court should look to the stock-purchase agreement to value of the brother’s shares because it satisfies these criteria. But the estate glosses over an important component missing from the stock purchase agreement: some fixed or determinable price to which we can look when valuing the brother’s shares. Further, the Treasury regulation that clarifies how to value stock subject to a buy-sell agreement refers to the price in such agreements and “the effect, if any, that is given to the . . . price in determining the value of the securities for estate tax purposes.” 26 C.F.R. Section 20.2031-2(h). Here, the stock-purchase agreement fixed no price nor prescribed a formula for arriving at one. Further, the court explained that the proceeds were simply an asset that increased shareholders’ equity. A fair market value of the brother's shares must account for that reality. View "Thomas Connelly v. United States" on Justia Law

Defendant was charged with thirteen charges related to fraud and tax evasion. Defendant insisted on representing himself, despite the District Court’s thorough colloquy. Ultimately, Defendant was convicted and sentenced to 97 months imprisonment, followed by three years of supervised release.Defendant appealed on several grounds, including insufficiency of the evidence, the district court’s acceptance of his expressed desire to represent himself, evidentiary issues, and sentencing issues. The court rejected Defendant’s appellate issues in turn and affirmed his conviction.However, on the government’s cross-appeal, the court vacated the judgment. The District Court erred in failing to award the government the costs of the prosecution. View "United States v. Jeffrey Kock" on Justia Law

Defendant was found guilty by a jury on a three-count indictment charging him with failure to file a tax return and tax evasion for personal returns in 2014 and 2015. After considering and denying Defendant’s post-trial motions for a new trial and acquittal, the district court sentenced Defendant to 36 months imprisonment and ordered him to pay over $350,000 in restitution. Defendant appealed, arguing that the district court abused its discretion when it (1) allowed for the expert testimony of the Special Agent (SA), (2) denied Defendant’s motions for a new trial and acquittal, and (3) ruled for the government on a Jencks Act issue.   The Eighth Circuit affirmed. The court found that here, the SA did not directly testify to Defendant’s mental state but rather to the modus operandi of tax evasion criminals. Therefore, the district court did not abuse its discretion by admitting the SA’s expert testimony. Further, the court found that had the SA testified about specific cases that he had worked on in the past, these statements may have been related. But the general testimony given by the SA describing common types of tax evasion does not trigger Jencks Act disclosure of all statements from prior investigations related generally to tax evasion. Finally, the court explained that regardless of whether the government was required to prove that UAD was a C corporation or “a corporation not expressly exempt from tax,” the court held that the evidence was sufficient for a jury to convict on the indictment. View "United States v. Gary Primm, Jr." on Justia Law

DirecTV and Dish Network (“Defendants”) provide video services in part through the Internet. The City of Creve Coeur filed this class action in Missouri state court on behalf of local government authorities, seeking a declaratory judgment that Defendants are liable under the Video Services Providers Act (“VSPA”) and implementing local ordinances, plus injunctive relief, an accounting of unpaid fees, and damages. Defendants removed the action based on diversity jurisdiction and the Class Action Fairness Act (CAFA). After the state court entered an interlocutory order declaring that VSPA payments are fees, rather than taxes, DirecTV filed a second notice of removal, arguing this order established the required federal jurisdiction. The district court granted Creve Coeur’s motion to remand.   The Eleventh Circuit affirmed on different grounds. The court explained that the district court’s remand order plainly stated that the remand was based on comity principles as articulated in Levin, not on “state-tax based comity concerns.” Comity as a basis to remand was raised and fully argued in the first remand proceeding. Federal courts have long precluded two bites at this apple. Second, the Supreme Court in Levin emphatically stated that the century-old comity doctrine is not limited to the state-tax-interference concerns that later led Congress to enact the TIA. Third, the state court’s December 2020 Order addressed, preliminarily, only the VSPA fee-or-tax issue under state law. It did not address the broader considerations comity addresses. The state court order in no way overruled or undermined the basis for the district court’s first remand order. Therefore, DirecTV failed to establish the essential basis for a second removal. View "City of Creve Coeur v. DirecTV LLC" on Justia Law

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

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