Justia Tax Law Opinion Summaries

Articles Posted in US Court of Appeals for the Sixth Circuit
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To dispute a property tax assessment under Detroit ordinances and Michigan state law, taxpayers “make complaint on or before February 15th" before the Board of Assessors. Any person who has complained to the Board of Assessors may appeal to the Board of Review. For the Michigan Tax Tribunal to have jurisdiction over an assessment dispute, “the assessment must be protested before the board of review.” On February 14, 2017, Detroit mailed tax assessment notices to Detroit homeowners, including an “EXTENDED ASSESSORS REVIEW SCHEDULE” that would conclude on February 18, just four days later. At a City Council meeting on February 14, the city announced: “The Assessors Review process will end this year February the 28th.” News outlets reported the extension and that Detroit had waived the requirement of appearance before the Board of Assessors so residents could appeal directly to the Board of Review. Detroit did not distribute individualized mailings to so inform homeowners.Plaintiffs filed a class action, alleging violations of their due process rights; asserting that Michigan’s State Tax Commission assumed control of Detroit’s flawed property tax assessment process from 2014-2017 so that its officials were equally responsible for the violations; and claiming that Wayne County is “complicit” and has been unjustly enriched. The district court dismissed for lack of subject matter jurisdiction, citing the Tax Injunction Act and the principle of comity. The Sixth Circuit reversed, finding that a state remedy is uncertain. View "Howard v. City of Detroit" on Justia Law

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VanDemark owns the Used Car Supermarket, which sells cars from two lots in Amelia, Ohio. In 2013-2014, VanDemark funneled away his customers’ down payments and left them off his tax returns. He used this stashed-away cash to finance the mortgage on his mansion.The Sixth Circuit affirmed VanDemark’s convictions for helping prepare false tax returns, 26 U.S.C. 7206(2), structuring payments, 31 U.S.C. 5324(a)(3), and making false statements to federal agents, 18 U.S.C. 1001. The down payments were taxable upon receipt, not, as VanDemark argued, when customers purchased the cars after leasing them. With respect to his missing 2013 personal return, the court stated that a defendant is guilty even if he helps prepare, without presenting, the fraudulent return. View "United States v. VanDemark" on Justia Law

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After a judicial foreclosure proceeding for delinquent property taxes, the county generally sells the land at a public auction and pays any proceeds above the delinquency amount to the owner upon demand. Ohio's 2008 land-bank transfer procedure for abandoned property permits counties to bring foreclosure proceedings in the County Board of Revision rather than in court and authorizes counties to transfer the land to landbanks rather than sell it at auctions, “free and clear of all impositions and any other liens.” The state forgives any tax delinquency; it makes no difference whether the tax delinquency exceeds the property’s fair market value. The Board of Revision must provide notice to landowners and the county must run a title search. Owners may transfer a case from the Board to a court. After the Board’s foreclosure decision, owners have 28 days to pay the delinquency and recover their land. They also may file an appeal in a court of general jurisdiction. Owners cannot obtain the excess equity in the property after the land bank receives it.After Tarrify’s vacant property was transferred to a landbank, Tarrify sued under 42 U.S.C. 1983, claiming that the transfers constituted takings without just compensation. The Sixth Circuit affirmed the denial of Tarrify’s motion to certify a class of Cuyahoga County landowners who purportedly suffered similar injuries. While the claimants share a common legal theory—that the targeted Ohio law does not permit them to capture equity in their properties after the county transfers them to a land bank—they do not have a cognizable common theory for measuring the value in each property at the time of transfer. View "Tarrify Properties, LLC v. Cuyahoga County" on Justia Law

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In 2001, Presbyterian, a nonprofit, organized a partnership to operate an affordable housing community under the Low-Income Housing Tax Credit (LIHTC), 26 U.S.C. 42, program. SunAmerica, the limited partner, contributed $8,747,378 in capital for 99.99% of the $11,606,890 LIHTC credit. The partnership agreement gave Presbyterian (for one year following the 15-year LIHTC Compliance Period) a right of first refusal (ROFR) to purchase the property for less than the fair market value and a unilateral option to purchase for fair market value under specific circumstances. Before the end of the Compliance Period, Presbyterian expressed its desire to acquire the Property. After the Compliance Period, the General Partners told SunAmerica that they had received a bona fide offer from Lockwood and that Presbyterian could exercise its ROFR. SunAmerica filed suit.The district court granted SunAmerica summary judgment, reasoning that the Lockwood offer did not constitute a bona fide offer because it was solicited for the purpose of triggering the ROFR. The Sixth Circuit reversed and remanded for trial. The ROFR provision must be interpreted in light of the LIHTC’s goals, including making it easier for nonprofits to regain ownership of the property and continue the availability of low-income housing. The district court erred in concluding that the evidence “overwhelming[ly]” showed that the General Partners did not intend to sell. View "SunAmerica Housing Fund 1050 v. Pathway of Pontiac, Inc." on Justia Law

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Downstream fuel producers pay an excise tax, 26 U.S.C. 4081(a)(1)(A). Revenues from the tax fund the Highway Trust Fund. In 2004, Congress sought to incentivize renewable fuels without undermining highway funding. Under the American Jobs Creation Act, a fuel producer can earn the “Mixture Credit” by mixing alcohol or biodiesel into its products. The Mixture Credit applies “against the [excise] tax imposed by section 4081,” section 6426(a)(1). Under section 6427(e), a producer can also receive the Mixture Credit as direct, nontaxable payments, to the extent the Mixture Credit exceeds the excise tax liability. The Highway Revenue Act now appropriates the full amount of a producer’s section 4081 excise tax to the Highway Trust Fund “without reduction for credits under section 6426,” section 9503(b)(1).In 2010-2011, Delek claimed $64 million in Mixture Credits and subtracted that amount from its cost of goods sold, increasing Delek’s gross income and its income tax burden. In 2015, Delek filed a refund claim (more than $16 million), arguing that its Mixture Credits were “payments” that could only satisfy, but not reduce, the excise tax amount, so that subtracting the Mixture Credit from its cost of goods sold was a mistake. The IRS denied the claim. The Sixth Circuit affirmed summary judgment in the government’s favor, rejecting Delek’s “novel theory: The credit is a “payment” that satisfies, but does not reduce, its excise tax liability.” View "Delek US Holdings, Inc. v. United States" on Justia Law

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Under the “individual mandate” within the Patient Protection and Affordable Care Act of 2010, non-exempt individuals must either maintain a minimum level of health insurance or pay a “penalty,” 26 U.S.C. 5000A, the “shared responsibility payment” (SRP). The McPhersons did not maintain health insurance for part of 2017, and Juntoff did not maintain health insurance in any month in 2018. They did not pay their SRP obligations. In each of their Chapter 13 bankruptcy cases, the IRS filed proofs of claim and sought priority treatment as an “excise/income tax”: for Juntoff, $1,042.39, and for the McPhersons, $1,564.The bankruptcy court confirmed their plans, declining to give the IRS claims priority as a tax measured by income. The Bankruptcy Appellate Panel reversed. DIstinguishing the Sebelius decision in which the Supreme Court determined that the SRP constituted a “penalty” for purposes of an Anti-Injunction Act analysis and a “tax” under a constitutionality analysis, the Panel concluded that the SRP is not a penalty but a tax measured by income. It is “calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the average annual premium the individual would have to pay for qualifying private health insurance.” View "In re: Juntoff" on Justia Law

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Under 26 U.S.C. 170(h), taxpayers who donate an easement to a land conservation organization may be eligible to claim a charitable deduction on their federal income tax returns if the easement’s conservation purpose is guaranteed to extend in perpetuity. A Department of Treasury rule, 26 C.F.R. 1.170A-14(g)(6), provides that if unforeseen changes to the surrounding land make it “impossible or impractical” for an easement to fulfill its conservation purpose; the conservation purpose may still be protected in perpetuity “if the restrictions are extinguished by judicial proceeding and all of the donee’s proceeds . . . from a subsequent sale or exchange of the property are used by the donee” to further the original conservation purpose. Proceeds are calculated by a formula in 1.170A-14(g)(6)(ii), the “proceeds regulation.”After the IRS denied its charitable deduction, Oakbrook challenged the proceeds regulation, arguing that, in promulgating this rule, Treasury violated the notice-and-comment requirements of the Administrative Procedure Act; that Treasury’s interpretation of section 170(h) is unreasonable; and that the proceeds regulation is arbitrary. The Sixth Circuit affirmed the Tax Court in rejecting those arguments. Oakbrook’s deed to the conservation trust violated the proceeds regulation by ascribing a fixed rather than proportionate value upon judicial extinguishment, and by subtracting from this amount any post-donation improvements that Oakbrook made to the land. View "Oakbrook Land Holdings, LLC v. Commissioner of Internal Revenue" on Justia Law

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IRS Notice 2007-83, entitled “Abusive Trust Arrangements Utilizing Cash Value Life Insurance Policies Purportedly to Provide Welfare Benefits” designates certain employee-benefit plans featuring cash-value life insurance policies as listed “tax avoidance" transactions. A cash-value life insurance policy combines life insurance coverage with a cash-value investment account. The IRS believes these transactions run the risk of allowing small business owners to receive cash and other property from the business “on a tax-favored basis.” The regulation requires reporting of transactions involving cash-value life insurance policies connected to employee-benefit plans.Taxpayers claimed that the IRS skipped the notice-and-comment process before promulgating this legislative rule as required by the Administrative Procedure Act, 5 U.S.C. 551, 553–59, 701–06. The Sixth Circuit reversed the district court and found the regulation invalid. The Notice was a “legislative rule,” with the “force and effect of law,” not a policy statement or interpretation. Congress did not expressly exempt the IRS from the APA’s requirements. View "Mann Construction, Inc. v. United States" on Justia Law

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Polselli underpaid his federal taxes. The IRS has made formal assessments against him; the outstanding balance is over $2 million. While investigating assets to satisfy those liabilities, IRS Officer Bryant learned that Remo used entities to shield assets and that Remo “may have access to and use of” bank accounts held in the name of his wife, Hanna. Bryant served a summons on a bank, seeking account and financial records of Hanna “concerning” Remo. Remo was a client of the law firm Abraham & Rose; Bryant served the firm with a summons. The firm asserted attorney-client privilege and represented that it did not retain any of the requested documents. Bryant then issued identical summonses against banks, seeking any financial records of Abraham & Rose and a related law firm, “concerning” Remo. Bryant did not notify Hanna or the law firms of the bank summonses.After receiving notices from their banks, Hanna and the law firms petitioned to quash the summonses, alleging that the IRS failed properly to notify them under 26 U.S.C. 7609(a). The district court and Sixth Circuit agreed with the IRS that 7609(b)(2) and (h) waived sovereign immunity only for parties entitled to notice of the summonses and because the IRS was seeking the bank records “in aid of the collection” of Remo’s assessed liability, there was no entitlement to notice under 7609(c)(2)(D)(i). The district court, therefore, lacked subject-matter jurisdiction. View "Polselli v. United States Department of the Treasury" on Justia Law

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A subsidiary of Whirlpool Corporation with a single part-time employee in Luxembourg sold refrigerators and washing machines to Whirlpool in a series of complicated transactions involving Whirlpool-Mexico. By means of a 2007 corporate restructuring, neither the Luxembourgian subsidiary nor Whirlpool itself paid any taxes on the profits (more than $45 million) earned from those transactions. The IRS later determined that Whirlpool should have paid taxes on those profits.The Tax Court granted summary judgment to the Commissioner. The Sixth Circuit affirmed. An American corporation is taxed directly on foreign base company sales income (FBCSI) held by its “controlled foreign corporations” (CFCs), 26 U.S.C. 954(a)(2). Lux’s income from its sales of appliances to Whirlpool-US and Whirlpool-Mexico in 2009 is FBCSI. Section 954(d)(2) expressly prescribes that the sales income “attributable to” the “carrying on” of activities through Lux’s Mexican branch “shall be treated as income derived by a wholly-owned subsidiary” of Lux and that the income attributable to the branch’s activities “shall constitute foreign base company sales income of” Lux. View "Whirlpool Financial Corp. v. Commissioner of Internal Revenue" on Justia Law