Justia Tax Law Opinion Summaries

Articles Posted in US Court of Appeals for the Seventh Circuit
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In 2011-2013, rather than retiring many older semi-tractors and purchasing all new replacements, Schneider bought 61 new tractors, and overhauled 982 existing tractors using new and refurbished parts packaged together in “glider kits.” Schneider’s older tractors were lighter and realized better fuel economy than newer models. Schneider’s tax advisors counseled that Schneider would have to pay the 12% excise tax (26 U.S.C. 4051) if it bought new tractors but a “safe harbor” (4052) permits companies to repair or modify tractors they already own, which have already been taxed. Each glider kit contained a cab, chassis, radiator, front axle, front suspension, front wheels, front tires, front brakes, brake system, and trailer connections; 912 were “powered glider kits” and included a remanufactured engine. The transmission, driveline, rear axle, rear suspension, and rear-wheel hubs—and sometimes the fuel tank, fifth wheel, and rear brakes, were generally reused.The IRS concluded that only six tractors qualified for the safe harbor. Schneider paid $9,387,403.73 plus interest, thensought a refund, which the IRS denied. The Seventh Circuit reversed. That Schneider elected to refurbish its tractors using powered glider kits does not disqualify those tractors from the safe harbor, which does not contemplate any measurement apart from this 75% test. The court remanded for a determination of whether the cost of Schneider’s refurbishments exceeded 75% of the “retail price of a comparable new article.” View "Schneider National Leasing Inc v. United States" on Justia Law

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Married since 1967, John and Frances Rogers filed joint federal income tax returns for many years. They underreported their tax obligations many times; the misreporting was the product of a fraudulent tax scheme designed by John, a Harvard‐trained tax attorney. The Seventh Circuit has affirmed the Tax Court’s rulings in favor of the IRS every time.Frances challenged two Tax Court decisions denying her “innocent spouse relief,” 26 U.S.C. 6015. The Seventh Circuit affirmed, having previously affirmed the denial of Frances’s request for innocent spouse relief for the 2004 tax year. The Tax Court took considerable care assessing Frances’s claims, denying them largely on the basis that she was aware of too many facts and too many warning signs during the relevant tax years to escape financial responsibility for the clear fraud perpetrated on the U.S. Treasury. The Tax Court applied the correct standard, with the possible exception of one factual error in its 2018 opinion regarding the couple’s lavish lifestyle but any error was harmless. Frances holds a master’s degree in biochemistry, a law degree, an M.B.A., and a doctorate in education. She assisted in managing her husband’s law firm while he sought treatment for alcoholism; she fired the office manager, maintained accounting records, endorsed and deposited checks, and paid expenses. View "Rogers v. Commissioner of Internal Revenue" on Justia Law

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Gasoline is subject to an excise tax. The combined fuel excise taxes account for more than 80% of the annual revenue collected for the Highway Trust Fund. The 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act. introduced new credits that fuel producers could use to offset their fuel excise taxes, including one for using “alternative fuels” to create “alternative fuel mixtures” (AFM credit), 26 U.S.C. 6426(e).U.S. Venture buys fuel from various suppliers and combines it with different additives before selling the finished product to retailers. Since 2012 U.S. Venture has commonly added butane to the gasoline it produces and sells. Butane is a type of gas, made from both natural gas and petroleum. It has long been considered a fuel additive, with suppliers adding it to gasoline since at least the 1960s.In 2017. U.S. Venture first sought an AFM tax credit for producing and selling fuel that contained a mixture of gasoline and butane. The IRS rejected its position. The district court and Seventh Circuit affirmed. There is nothing alternative about gasoline containing a butane additive, as indicated by a combination of statutory provisions defining the scope of the alternative fuel mixture tax credit. View "U.S. Venture, Inc. v. United States" on Justia Law

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Jeffers underreported his 2008 income and was audited. The IRS assessed additional taxes and penalties. Jeffers filed his 2009 tax return late, reporting that he owed more than $12,000 in taxes without including any payment. The IRS assessed the unpaid amount plus interest and penalties. An installment agreement was terminated when he failed to make payments. In 2012, the IRS mailed Jeffers proper notice of the tax lien on his property with respect to unpaid debt from the 2008 and 2009 tax periods, 26 U.S.C. 6320(a), 6321, explaining the right to a Collection Due Process (CDP) hearing. Jeffers did not request one. He filed amended returns claiming he was owed refunds. In 2017, the IRS notified Jeffers of its intent to levy on his property. This time, Jeffers timely requested a CDP hearing.The officer found the liability issue precluded because Jeffers had a prior opportunity to raise the issue in 2012. The Office of Appeals issued a notice of determination sustaining the proposed levy action. The Tax Court granted the IRS summary judgment. The Seventh Circuit affirmed. Jeffers could not challenge his underlying tax liability because he received notice of the federal tax lien and had the opportunity to dispute his tax liability then. The settlement officer was not obligated to consider the amended tax returns because there is no right to have one’s amended return considered. View "Jeffers v. Commissioner of Internal Revenue" on Justia Law

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For more than a decade, Van Den Heuvel received cash payments from VHC, a company founded by his father and owned by his family. These payments primarily supported Ron’s business ventures but also helped him pay personal taxes and cover other personal expenses. Ron did not pay VHC back. The company wrote down these payments as “bad debts” for which it received tax deductions. After a years-long audit, the IRS concluded that VHC never intended to be paid back and that these payments were not bona fide debts qualifying for the deduction under either 26 U.S.C 166 or 162.The Tax Court upheld this determination and rejected VHC’s alternative theories as to why the payments qualified for a deduction. The Seventh Circuit affirmed.VHC bears the burden of demonstrating that its payments to Ron were bona fide debts that arose from a debtor-creditor relationship in which it expected Ron to pay VHC back in full. VHC has not shown that it presented such evidence to the Tax Court or that the Tax Court made grave errors in its evaluation of the evidence. View "VHC, Inc. v. Commissioner of Internal Revenue" on Justia Law

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Blake, who has an MBA, engaged in a fraudulent tax scheme but claims unnamed users in internet chat rooms persuaded him to pursue his hidden federal “legacy trusts.” Blake filed eight different individual tax returns using fraudulent information, at one point faking his own death. He was convicted of presenting a false or fictitious claim to a U.S. agency, 18 U.S.C. 287, and theft of government money, 18 U.S.C. 641. Blake’s base offense level was six; 16 levels were added for an intended loss in excess of $1.5 million (U.S.S.G. 2B1.1(b)(1)(I)). Two more levels were added for obstruction of justice (3C1.1). Blake’s guidelines range was 51–63 months' imprisonment. Blake objected to including in the loss calculation $900,000 in claimed refunds in the 2008–2010 filings, arguing he was not responsible for those filings. He also claimed $300,000 should be the intended loss amount because he intended to obtain only his “legacy trust” funds which he believed were about that amount. Under Blake’s calculations, his guidelines range was 33–41 months.The district court rejected his arguments. The Seventh Circuit affirmed his sentence of 36 months in prison plus restitution. The district court did not commit reversible error. Blake's ineffective assistance of counsel claim was dismissed without prejudice as “better raised on collateral review.” View "United States v. Blake" on Justia Law

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Rogers designed and implemented a scheme to generate artificial but tax‐deductible losses for high‐income U.S. taxpayers. The “DAD” scheme worked through a partnership’s acquisition of highly distressed or uncollectible accounts receivable from retailers located in Brazil and subsequent conveyance of interests in the receivables to U.S. taxpayers, who deemed them uncollectible and used the concocted loss to reduce their tax liability. DAD schemes were outlawed in the American Jobs Creation Act of 2004. Rogers then devised a modified transactional structure employing trusts.The Seventh Circuit agreed with the Tax Court that the structural modifications only perpetuated fraudulent tax avoidance and that the Sugarloaf partnership was a sham before and after purported changes. All of Sugarloaf’s income for 2006, 2007, and 2008 should be allocated to an entity wholly owned by Rogers that served as Sugarloaf’s tax matters partner. The court warned that the IRS, Tax Court, and Seventh Circuit “have devoted substantial resources over multiple proceedings to deciphering foreign and domestic transactions, understanding complex tax structures, and separating the fair from the fraud. None of this has gone well for Rogers or his partnership, the Sugarloaf Fund ... caution to those who persist in pressing claims lacking any merit.” View "Sugarloaf Fund, LLC v. Commissioner of Internal Revenue" on Justia Law

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Jacobsen’s former wife, Lemmens, embezzled $400,000 from her employer, income that was not reported on the couple’s jointly filed income taxes. After Lemmens was convicted, the IRS audited the couple’s joint tax returns for 2010 and 2011 and proposed total net adjustments attributable to omitted embezzlement income of over $300,000, with corresponding deficiencies and accuracy-related penalties of over $150,000. Jacobsen sought relief under the tax code’s “innocent spouse” provision, 26 U.S.C. 6015(b), and equitable relief provision, section 6015(f). The Tax Court granted Jacobsen innocent spouse relief for 2010 but denied all relief for 2011. The Seventh Circuit affirmed. Jacobsen acknowledged that with the exception of his knowledge for 2011, the Tax Court correctly assessed the positive, negative, or neutral impact of each of the seven factors listed in Revenue Procedure 2013-34 and acknowledged that he had “reason to know” of the embezzlement income by the time he filed their 2011 tax return. He argued that the Tax Court erred when it concluded that he had actual knowledge of the unreported income for 2011. While the Tax Court could have easily decided that Jacobsen was entitled to equitable relief, nothing in the record indicates the Tax Court misapprehended the weight to be accorded Jacobsen’s knowledge or treated it as a decisive factor barring relief. View "Jacobsen v. Commissioner of Internal Revenue" on Justia Law

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Before 2008, Cook County ordinances required the Assessor to assess single-family residential property at 16%, commercial property at 38%, and industrial property at 36% of the market value. In 2000-2008, the Assessor actually assessed most property at rates significantly lower than the ordinance rates. In 2008, the Assessor proposed to “recalibrate” the system. The plaintiffs claim that their assessment rates may have been lawful but were significantly higher than the actual rates for most other property owners and that they paid millions of dollars more in taxes in 2000-2008 than they would have if they were assessed at the de facto rates. The taxpayers exhausted their remedies with the Board of Review, then filed suit in state court, citing the Equal Protection Clause, Illinois statutory law and the Illinois Constitution. Years later, their state suit remains in discovery.Claiming that Illinois law limits whom they can name as a defendant, what evidence they can present, and what arguments they can raise, the taxpayers filed suit in federal district court, which held that the Tax Injunction Act barred the suit. The Act provides that district courts may not “enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State,” 28 U.S.C. 1341. The Seventh Circuit reversed, noting the County’s concession that Illinois’s tax-objection procedures do not allow the taxpayers to raise their constitutional claims in state court. This is the “rare case in which taxpayers lack an adequate state-court remedy.” View "A.F. Moore & Associates, Inc. v. Pappas" on Justia Law

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Insurance executive Menzies sold over $64 million in his company’s stock but did not report any capital gains on his 2006 federal income tax return. He alleges that his underpayment of capital gains taxes (and related penalties and interest imposed by the IRS) was because of a fraudulent tax shelter peddled to him and others by a lawyer, law firm, and financial services firms. Menzies brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Illinois law. The district court dismissed all claims. The Seventh Circuit affirmed in part. Menzies’s RICO claim falls short on the statute’s pattern-of-racketeering element. Menzies failed to plead not only the particulars of how the defendants marketed the same or a similar tax shelter to other taxpayers, but also facts to support a finding that the alleged racketeering activity would continue. A fraudulent tax shelter scheme can violate RICO; the shortcoming here is one of pleading and it occurred after the district court authorized discovery to allow Menzies to develop his claims. Menzies’s Illinois state law claims were untimely as to the lawyer and law firm defendants. The claims against the remaining financial services defendants can proceed. View "Menzies v. Seyfarth Shaw LLP" on Justia Law