Justia Tax Law Opinion Summaries

Articles Posted in US Court of Appeals for the Fifth Circuit
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Plaintiffs, two private citizens and eighteen states, filed suit challenging the individual mandate requirement of the Patient Protection and Affordable Care Act (ACA). The individual mandate required individuals to maintain health insurance coverage and, if individuals did not maintain this coverage, they must make a payment to the IRS called a shared responsibility payment. Plaintiffs argued that the individual mandate was no longer constitutional because: (1) Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 538 (2012), rested the individual mandate's constitutionality exclusively on reading the provision as a tax; and (2) a 2017 amendment, which changed the amount of the shared responsibility payment to zero dollars, undermined any ability to characterize the individual mandate as a tax because the provision no longer generates revenue, a requirement for a tax. Plaintiffs further argued that the individual mandate was essential to, and inseverable from, the rest of the ACA and thus the entire ACA must be enjoined. The Fifth Circuit affirmed in part and vacated in part the district court's judgment, holding that there is a live case or controversy because the intervenor-defendant states have standing to appeal and, even if they did not, there remains a live case or controversy between plaintiffs and the federal defendants; plaintiffs have Article III standing to bring this challenge to the ACA because the individual mandate injures both the individual plaintiffs, by requiring them to buy insurance that they do not want, and the state plaintiffs, by increasing their costs of complying with the reporting requirements that accompany the individual mandate; the individual mandate is unconstitutional because it can no longer be read as a tax, and there is no other constitutional provision that justifies this exercise of congressional power; and, on the severability question, the court remanded to the district court to provide additional analysis of the provisions of the ACA as they currently exist. View "Texas v. United States" on Justia Law

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The Fifth Circuit affirmed the district court's decision holding that a $52 million payment from taxpayer's predecessor in interest to the predecessor's subsidiary was not a bad debt under 26 U.S.C. 166 or an ordinary and necessary business expense under 26 U.S.C. 162. In this case, BJ Parent's $52 million payment to BJ Russia created no debt owed to BJ Parent, and the payment discharged no guarantor obligation of BJ Parent's. Therefore, the court held that the payment was not deductible as a bad debt under Section 166. Furthermore, the court held that the IRS correctly disallowed any deduction based on the Free Financial Aid (FFA) as an ordinary and necessary business expense under section 162. The court explained that the FFA was not an expense of BJ Parent, and it was not provided to pay any expense of BJ Russia. The court reasoned that even if BJ Parent's long-term strategy included recapitalizing its Russian subsidiary to meet Russian capitalization requirements, this did not itself make the funds deductible. View "Baker Hughes, Inc. v. United States" on Justia Law

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The Fifth Circuit vacated the district court's final judgment in an action alleging that an IRS test for determining certain liabilities was facially unconstitutional. The court held that Freedom Path did not have standing to bring this facial challenge and therefore the court dismissed the action based on lack of jurisdiction. In this case, plaintiff's claimed chilled speech injury was not fairly traceable to the text of Revenue Ruling 2004-6. View "Freedom Path, Inc. v. IRS" on Justia Law

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The Commissioner issued a final partnership administrative adjustment that determined PBBM was not entitled to a charitable contribution deduction to the North American Land Trust and assessed a penalty for the overvaluation of the conservation easement. The Fifth Circuit affirmed the district court's disallowance of a readjustment. The court held that while the contribution protected the conservation purpose of preserving land for outdoor recreation by the general public under 26 U.S.C. 170(h)(4)(A)(i), it did not meet the perpetuity requirement of section 170(h)(5)(A). Accordingly, the donation did not qualify for a deduction. Finally, the court found no error in the tax court's valuation of the easement or its determination of a penalty. View "PBBM-Rose Hill, Ltd. v. Commissioner" on Justia Law

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Plaintiff appealed the district court's summary judgment determination that her late husband was personally liable under 26 U.S.C. 6672 for over $4.3 million in penalties for the unpaid withholding taxes of his medical practice. The Fifth Circuit reversed the denial of the motion for reconsideration; affirmed the district court's determination that the husband's $100,000 loan was unencumbered for purposes of section 6672 liability; vacated the remainder of the summary judgment because there was a genuine issue of material fact as to whether his medical practice had $4.3 million in available, unencumbered funds after the husband learned of the unpaid taxes; and remanded for further proceedings. View "McClendon v. United States" on Justia Law

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The Fifth Circuit affirmed the judgment of the Tax Court and held that the Tax Court correctly determined that IRS Appeals did not abuse its discretion by concluding that the IRS properly assessed taxpayers' tax liabilities. Furthermore, the Tax Court did not exceed its jurisdiction by analyzing the closing agreement in order to reach that holding. The court also held that the Tax Court's interpretation of the closing agreement was also correct, as well as its conclusion that IRS Appeals did not abuse its discretion by rejecting taxpayers' offer-in-compromise. View "Estate of Robert C. Duncan v. CIR" on Justia Law

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The Fifth Circuit affirmed the district court's grant of the Government's motion to dismiss taxpayers' action seeking a refund for an overpayment because it was time-barred. The court agreed with the district court and the government that the claim was filed after the general limitations period in I.R.C. 6511(a) and that the special limitations period in I.R.C. 6511(d)(3)(A) did not apply as the overpayment was not attributable to foreign taxes for which credit was allowed. View "Schaeffler v. United States" on Justia Law

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Under Federal Rule of Appellate Procedure 13, the statutory 90-day window to appeal a Tax Court decision to this court runs from either: 1) the entry of the Tax Court decision being appealed or 2) if a party moves to vacate or revise the Tax Court's decision, from the entry of the Tax Court's ruling on that motion to vacate or revise the decision. At issue was whether a party may file successive motions to vacate or revise with the effect of extending the time to appeal into perpetuity. The Fifth Circuit held that successive motions to vacate or revise a Tax Court decision, raising substantially the same grounds as the first motion, will not affect the time period in which a party may appeal a Tax Court decision. The court explained that, where successive post-decision motions are filed in the Tax Court, the statutory 90-day window to appeal the Tax Court decision runs from the Tax Court's ruling on the first motion to vacate or revise filed. In this case, the court dismissed the appeal for lack of appellate jurisdiction because the notice was filed more than 90 days after the Tax Court disposed of the first motion to vacate. View "Annamalai v. CIR" on Justia Law

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The Fifth Circuit affirmed the trial court's conclusion that the $19 million given to petitioner to invest was not a tax-free loan. The court affirmed the trial court's finding that the money became income to petitioner when he diverted it for his personal use, because he was realizing an economic benefit from the money; affirmed the tax court's imposition of penalties resulting from negligence or disregard of rules or regulations, because petitioner failed to show the complete disclosure of relevant facts to his accountants that would compel a good faith defense of reliance; and affirmed the tax court's decision allowing the IRS to recompute the amount of the deficiency after the tax court ruled that all the money was income to petitioner, as oppose to petitioner's corporation. View "Sun v. Commissioner" on Justia Law

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The hotel occupancy tax applies only to the discounted room rate paid by the online travel company (OTC) to the hotel. The Fifth Circuit vacated the district court's judgment in a class action asserting that the service fee an OTC charges for facilitating a hotel reservation was included in the "cost of occupancy", and thus subject to the municipalities' hotel occupancy tax ordinances. The court applied City of Houston v. Hotels.com, L.P., 357 S.W.3d 706, 707, and held that OTCs in this case were not liable because the only monetary amounts at issue in this class action were those not included in the scope of the hotel occupancy tax base. The Houston court explained that, under the plain meaning of the ordinance, the cost of occupancy was the amount for which three conditions were satisfied: the consideration at issue must have been paid or charged for the use or possession, or the right to use or possess, a hotel room; the amounts to be taxed must have been paid by the occupant of such room; and the amount to be taxed must have been paid to such hotel. Therefore, the court rendered judgment for the OTCs in this case. View "City of San Antonio, Texas v. Hotels.com, L.P." on Justia Law