Justia Tax Law Opinion Summaries

Articles Posted in US Court of Appeals for the Second Circuit
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New York State appealed from the district court's consolidated judgments invalidating the State's Opioid Stewardship Act (OSA), which requires opioid manufacturers and distributors to make an annual payment to fund statewide opioid-related services but prohibits them from passing the costs of those payments through to their customers.The Second Circuit held that the OSA's opioid stewardship payment is a tax within the meaning of the Tax Injunction Act (TIA), and that the district court should have dismissed plaintiff's challenges to the payment under the TIA for lack of jurisdiction. After considering the factors in Entergy Nuclear Vt. Yankee, LLC v. Shumlin, 737 F.3d 228, 232–33 (2d Cir. 2013), and San Juan Cellular Telephone Co. v. Public Service Commission, 967 F.2d 683, 685 (1st Cir. 1992), the court concluded that the primary purpose of the opioid stewardship payment is to raise revenue, not to punish or regulate plaintiffs and other licensees who are required to make the payment. Accordingly, the court reversed the judgments, except insofar as they relate to the pass-through prohibition, which is not before the court. View "Association for Accessible Medicines v. James" on Justia Law

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Neither the 1794 Treaty of Canandaigua nor the 1842 Treaty with the Seneca Nation create an individualized exemption from federal income taxes for income "derived from" Seneca land. In this case, petitioners filed suit in tax court seeking a redetermination of their 2008 and 2009 joint individual tax returns, in which they sought an exemption for income derived from their gravel operation, contending that their gravel sales during 2008 and 2009 were exempt from federal income taxes pursuant to the two treaties.The Second Circuit affirmed the tax court's determination that neither treaty created an exemption and rejected petitioners' argument suggesting otherwise because petitioners' view is premised upon the erroneous presumption that an exemption from federal taxes for income derived from land held in trust for American Indians extends to land that remains in the possession of the Seneca Nation of Indians. The court also noted that, to the extent the 1842 Treaty with the Seneca creates an exemption from taxes on Seneca land, that exemption does not cover income derived from Seneca land by individual enrolled members of the Seneca Nation. View "Perkins v. Commissioner" on Justia Law

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The Second Circuit affirmed the tax court's determination that petitioners held Wrentham House, a historic mansion in Newport, Rhode Island, as a capital asset eligible for capital loss deduction rather than as real property used in a taxpayer's trade or business eligible for ordinary loss deduction.The court held that the tax court did not err in determining that (i) petitioners held Wrentham House as a capital asset at the time of its sale and were therefore eligible upon its sale to deduct the loss only as a capital loss, and that (ii) petitioners were liable for late-filing additions to tax and accuracy-related penalties. View "Keefe v. Commissioner" on Justia Law

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The Second Circuit vacated the district court's dismissal of Pfizer's claim against the United States for overpayment interest on its delayed tax refund. The court held that jurisdiction of Pfizer's claim for overpayment lies exclusively with the United States Court of Federal Claims. The court explained that overpayment interest is a straightforward claim against the federal government that was covered by the Tucker Act. Accordingly, the court transferred the case to the Court of Federal Claims. View "Pfizer Inc. v. United States" on Justia Law

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The Second Circuit affirmed the district court's dismissal of plaintiff's second amended complaint (SAC) for failure to state a claim. The SAC alleged that Costco charged its customers sales tax on the full price of items subject to a manufacturer's discount in situations where New York law provided that Costco, rather than the customer, was liable for the tax. The court held that these claims must be brought in a New York administrative proceeding under New York Tax Law 1139, which provided the exclusive remedy for claims that a tax, penalty, or interest was erroneously, illegally or unconstitutionally collected. Likewise, the district court properly dismissed plaintiff's unjust enrichment claims and his claim under New York General Business Law 349. View "Guterman v. Costco Wholesale Corp." on Justia Law

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Petitioner challenged the tax court's denial of her petition seeking a refund of her overpayment of 2012 income taxes. Although the Commissioner did not dispute that petitioner was overpaid or the amount of overpayment, the Commissioner argued -- and the tax court agreed -- that the tax court lacked jurisdiction to order a refund or credit of the overpayment.The Second Circuit agreed with petitioner's interpretation of the look back period in 26 U.S.C. 6512(b)(3) and held that "third year after the due date (with extensions)" refers in this case to the third year after the return due date, plus a six‐month extension period. The court held that "(with extensions)" has the same effect as does the similar language that existed in 26 U.S.C. 6511(b)(2)(A) at the time of section 6512(b)(3)'s amendment‐‐that is, the language expands the tax court's jurisdiction to order refunds and credits. Therefore the notice of deficiency in this case, mailed 26 months after the due date, was mailed during the third year and thus the tax court had jurisdiction to look back three years, which would reach the due date and allow petitioner to recover her overpayment. Accordingly, the court reversed and remanded for entry of judgment for petitioner. View "Borenstein v. Commissioner" on Justia Law

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The Second Circuit reversed the tax court's decision upholding 2008 tax deficiencies identified by the Commissioner upon application of the substance‐over‐form doctrine to recharacterize various lawful tax‐avoiding transactions as tax‐generating events for petitioners, their adult sons, a family trust, and a family‐controlled corporation. Specifically, petitioners challenged the tax court's decision to uphold a tax deficiency against them based on the Commissioner's recharacterization of Summa's tax‐deductible commission payments to a DISC as taxable dividends to Summa shareholders.The court held that the Commissioner was not precluded from defending the challenged recharacterization, but the substance‐over‐form doctrine did not support recharacterization of Summa's DISC commission payments as constructive dividends to its shareholders. Therefore, the court reversed the portion of the judgment holding petitioners liable for $77,850 in 2008 income taxes. View "Benenson v. Commissioner" on Justia Law

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The Second Circuit reversed the tax court's decision rejecting the Commissioner's claim that the Estate of Andrew J. McKelvey owed $41 million in taxes with respect to McKelvey's 2008 income tax return for omitting what the Commissioner alleged were short‐ and long‐term capital gains arising from the execution of new contracts extending the valuation dates of two variable prepaid forward contracts. The court remanded for determination of whether the termination of obligations that occurred when the new contracts were executed resulted in taxable short‐term capital gains, and calculation of the amount of long‐term capital gains that resulted from the constructive sales of the collaterized shares. View "Estate of Andrew J. McKelvey v. Commissioner" on Justia Law

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Section 6511(d)(3)(A) of the Internal Revenue Code, which establishes an elongated ten-year limitations period on refund claims resulting from foreign tax credits, was applicable only to overpayments attributable to foreign taxes for which the taxpayer elects to claim, but was not applicable to claims resulting from deductions for foreign taxes paid or accrued. The Second Circuit affirmed the district court's denial of taxpayer's claim for a deduction of foreign taxes under section 6511(d)(3)(A), holding that taxpayer's refund claim was time-barred. In this case, taxpayer's claim for refund was filed in December 2011 for an overpayment of taxes in 1995, that was attributable to its election to deduct foreign taxes paid in 2002. View "Trusted Media Brands, Inc. v. United States" on Justia Law

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Larson was involved with—and later convicted of crimes related to—the organization of fraudulent tax shelters. The IRS then required organizers/promoters to register tax shelters not later than the day of the first offering for sale, 26 U.S.C. 6111(a). Organizers/promoters who failed to register were subject to a penalty of the greater of one percent of the aggregate amount invested in the tax shelter, or $500. Eight years after the IRS notified Larson that he was under investigation, it informed him that it considered him an organizer with a duty to register and was subject to penalties of $160,232,0261 for failure to do so. The IRS Office of Appeals reduced the penalties to $67,661,349, stating that Larson would need to pay the remaining penalty and file a Claim for Refund if he wanted to contest the assessment. Larson paid $1,432,735 and filed his Refund Claim. The IRS rejected Larson’s claim for failure to pay the entire amount. Larson filed suit. The government moved to dismiss, arguing that because Larson had not paid the assessed penalties in full, the court lacked jurisdiction. The court agreed, concluding that application of the full-payment rule did not violate Larson’s due process rights. The Second Circuit affirmed, holding that the full‐payment rule applies to Larson’s section 6707 penalties and that his tax refund, due process, Administrative Procedure Act, and Eighth Amendment claims were properly dismissed. View "Larson v. United States" on Justia Law