Justia Tax Law Opinion Summaries

The IRS may penalize taxpayers who fail to report a “listed transaction” that the agency determines is similar to one already identified as a tax-avoidance scheme, 26 U.S.C. 6707A(a), (c)(2). IRS Notice 2007-83 listed employee-benefit plans with cash-value life insurance policies. In 2013, Mann created trusts for its co-owners that paid the premiums on their cash-value life insurance policies. Mann deducted the expenses on its tax forms, and the owners counted the death benefits as income. None of them reported the trusts as a listed transaction.In 2019, the IRS determined that the trusts failed to comply with Notice 2007-83 and imposed penalties, which were paid. After the IRS refused requests for refunds, the taxpayers filed suit. The district court granted the IRS summary judgment on a claim that the Notice violated the Administrative Procedures Act’s notice-and-comment requirements. The Sixth Circuit reversed, concluding that Notice 2007- 83 was a legislative rule that lacked exemption from the requirements; “we must set [Notice 2007-83] aside” and “need not address the taxpayers’ remaining claims.”Before the district court ruled on remand, the IRS refunded the past penalties with interest and agreed not to apply the Notice to anyone within the Sixth Circuit. The district court concluded that it retained jurisdiction to set aside and vacate the Notice nationwide. The Sixth Circuit vacated. The taxpayers sought a refund of past tax penalties and prospective relief against Notice 2007-83; the IRS’s actions mooted their claim and left nothing more for the court to do. View "Mann Construction, Inc. v. United States" on Justia Law

Freed fell behind approximately $1,100 on his property taxes. Thomas, Gratiot County’s treasurer, foreclosed on Freed’s property and sold it at a public auction for $42,000. The County retained the entire proceeds. Freed sued the County and Thomas under 42 U.S.C. 1983, alleging an unconstitutional taking under the Fifth and Fourteenth Amendments and an unconstitutional excessive fine under the Eighth Amendment.Following a remand, the district court granted Freed summary judgment on his Fifth Amendment claim, rejecting Freed’s argument that he was entitled to the fair market value of his property, minus his debt, and holding that Freed was owed just compensation in the amount of the difference between the foreclosure sale and his debt, plus interest from the date of the foreclosure sale. Freed was owed about $40,900 plus interest, $56,800 less than he was seeking. The court also held that Freed’s claims against Thomas were barred by qualified immunity and denied Freed’s subsequent motion for attorney’s fees. The Sixth Circuit affirmed. Following a public sale, a debtor is entitled to any surplus proceeds from the sale, which represent the value of the equitable title extinguished. Thomas did not violate a right that was clearly established at the time of her alleged misconduct. View "Freed v. Thomas" on Justia Law

Jarrett produces Tezos tokens cryptocurrency by “staking.” Jarrett claims staking uses existing Tezos tokens and computing power to produce new tokens, so he owes tax on the tokens only when he sells or transfers them and “realizes” income, 26 U.S.C. 61(a). The IRS's position was that Jarrett realized income when he received each token. Jarrett’s 2019 staking yielded 8,876 Tezos tokens; he “did not sell, exchange, or otherwise dispose of these tokens during 2019.” He reported those tokens as income and paid tax, then asked the IRS for a refund ($3,793). After six months, Jarrett filed a refund lawsuit, 28 U.S.C. 1346(a)(1), seeking a judgment that Jarrett was entitled to a refund; costs and attorney’s fees; and an injunction preventing the IRS “from treating tokens created by the Jarretts as income.”The Attorney General approved Jarrett’s refund request. The IRS issued a $4,001.83 refund check and a “Notice of Adjustment.” Preferring to litigate the case to judgment, Jarrett has “not cashed, and [does] not intend to cash, this check.” The district court dismissed the case as moot. The Sixth Circuit affirmed. Refund lawsuits exist for a single purpose: “the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” The IRS satisfies its repayment obligation when it issues and mails a refund check for the full amount of the overpayment. View "Jarrett v. United States" on Justia Law

In 1997-2009, Chappelle managed Terra and withheld federal income, Social Security, and Medicare taxes (trust fund taxes) from Terra’s employees’ wages, 26 U.S.C. 3102, 3402, 7501, but failed to remit them to the IRS in 2007-2009. The IRS imposed “trust fund recovery penalties” on Chappelle. To avoid paying, Chappelle misstated his income and assets. He used business funds to pay personal expenses. He purchased real estate in others’ names rather than his own. Chappelle repeated this cycle in 2009-2016 after he closed Terra and sequentially opened three more companies. Chappelle repeatedly moved assets.In a 2016 IRS interview, Chappelle made false statements about his real estate purchases. Chappelle subsequently falsely claimed that the latest company did not have any employees and was entitled to a tax refund. Chappelle pleaded guilty to willfully attempting to evade the payment of the Trust Fund Recovery Penalties in 2008-2009. Chappelle’s PSR calculated a total tax loss of $1,636,228.28 and recommended increasing Chappelle’s offense level by two levels for his use of sophisticated means, U.S.S.G. 2T1.1(b). The district court overruled Chappelle’s objections, calculated his guideline range as 37-46 months, considered the 18 U.S.C. 3553(a) factors, and sentenced Chappelle to 38 months’ imprisonment. The Sixth Circuit affirmed, rejecting arguments that the court miscalculated the tax loss and erroneously found that his offense involved sophisticated means. View "United States v. Chappelle" on Justia Law

From 2014-2018, the Affordable Care Act’s individual mandate instructed most Americans to purchase health insurance, 26 U.S.C. 5000A(a) Juntoff opted not to buy the minimum health insurance and failed to make his Shared Responsibility Payment of 2.5% of the taxpayer’s income, subject to a floor and a ceiling. After he declared bankruptcy, the IRS tried to collect the Payment from him and filed a proof of claim in bankruptcy court. The agency asked for priority above other debtors under a provision that covers bankruptcy “claims” by “governmental units” for any “tax on or measured by income,” 11 U.S.C. 507(a)(8)(A). The bankruptcy court denied the request, reasoning that the Shared Responsibility Payment was not a “tax on or measured by income” but was a penalty. The Bankruptcy Appellate Panel reversed.The Sixth Circuit ruled in favor of the government. The Shared Responsibility Payment is a “tax” under section 507(a)(8) and is “measured by income.” View "In re: Juntoff" on Justia Law

In 2017, the County initiated an administrative tax foreclosure against BSI. The County Board of Revision (BOR) issued its final adjudication of foreclosure in June 2019. Because the County had opted for the alternative right of redemption, BSI had 28 days to pay the taxes before the County took title to the property. Days later, BSI filed a Chapter 11 bankruptcy petition, which automatically stayed the BOR’s final judgment and 28-day redemption period. The bankruptcy court granted the County relief from the stay on January 17, 2020. The BOR determined that the statutory redemption period expired on January 21, 2020. On January 30, rather than sell the property, the County transferred it to its land bank (Ohio Rev. Code 323.78.1). When a county sells foreclosed property at auction, it may not keep proceeds beyond the taxes the former owner owed; if the county transfers the property to the land bank, “the land becomes ‘free and clear of all impositions and any other liens.’”BSI filed suit, 42 U.S.C. 1983, alleging that a significant difference between the appraised value of the property and the amount that the County alleged BSI owed meant that the County’s action violated the Takings Clause. The district court dismissed the case under the two-year statute of limitations. The Sixth Circuit reversed. The limitations period began to run when the redemption period ended on January 21, 2020. If BSI paid its delinquent taxes during that period, the County would have been prohibited from taking the property. View "Beaver Street Investments, LLC v. Summit County, Ohio" on Justia Law

The Fox and Puchlak filed purported class actions, alleging that Michigan counties seized property to satisfy property-tax delinquencies, sold the properties, and kept the difference between the sales proceeds and the tax debts.. The suits assert that the counties committed takings without just compensation or imposed excessive fines in violation of the Michigan and federal constitutions. Genesee County’s insurance, through Safety, precludes coverage for claims “[a]rising out of . . . [t]ax collection, or the improper administration of taxes or loss that reflects any tax obligation” and claims “[a]rising out of eminent domain, condemnation, inverse condemnation, temporary or permanent taking, adverse possession, or dedication by adverse use.”Safety sought a ruling that it owed no duty to defend or to indemnify. The district court entered summary judgment, finding no Article III case or controversy between Safety and Fox and Puchlak. The court also held that Safety owes Genesee County no duty to defend. The Sixth Circuit affirmed. Safety lacks standing to sue Fox and Puchlak over its duty to defend and its claim for the duty to indemnify lacks ripeness. Safety owes no duty to defend; the alleged tax-collection process directly caused the injuries underlying each of Fox’s and Puchlak’s claims. View "Safety Specialty Insurance Co. v. Genesee County Board of Commissioners" on Justia Law

The 2021 American Rescue Plan Act (ARPA) set aside $195.3 billion in stimulus funds, to be distributed to states and the District of Columbia. Kentucky and Tennessee challenged ARPA’s requirement that states certify that they would comply with an “Offset Provision” that bars the states from enacting tax cuts and then using ARPA funds to “directly or indirectly offset a reduction" in net tax revenue resulting from such tax cuts. 42 U.S.C. 802(c)(2)(A). Because money is fungible, enacting any tax cut and then spending ARPA funds could be construed, the states argued, as impermissibly using those funds to “indirectly offset” a revenue reduction from the tax cut. A subsequent Treasury regulation (the Rule) offered a narrowing construction; the states asserted that this construction in no way follows clearly from the Offset Provision itself. The states argued they were coerced into relinquishing control over their sovereign taxing authority.The district court entered a permanent injunction. The Sixth Circuit vacated in part. Kentucky’s challenge is non-justiciable. After the promulgation of the Rule, the states offered no evidence of a concrete plan to violate the Rule. Kentucky offered no other theory of injury. Tennessee offered another theory of injury: that Treasury’s Rule burdened the state with compliance costs that it would not incur were enforcement of the Offset Provision enjoined. On the merits of Tennessee’s claim, the court affirmed the injunction; the Offset Provision is impermissibly vague under the Spending Clause. Treasury cannot use its Rule to impose compliance requirements that are not authorized by the Offset Provision itself. View "Kentucky v. Yellen" on Justia Law

The 2021 American Rescue Plan Act (ARPA), 42 U.S.C. 802, appropriated $195.3 billion in aid to the states and the District of Columbia. To get the money, states had to certify that they would comply with several conditions, including ARPA’s “Offset Provision,” which forbids a state from using the funds “to either directly or indirectly offset a reduction in the net tax revenue” that “result[s] from” a tax cut. Claiming that this condition amounted to a prohibition on tax cuts during ARPA’s “covered period,” and that such a condition would violate the Constitution in multiple respects, Ohio filed suit. The district court permanently enjoined enforcement of the Offset Provision on the ground that its terms are “unconstitutionally ambiguous” under the Spending Clause.The Sixth Circuit vacated the injunction, finding the case moot. The district court should not have reached the merits of the case, as Ohio failed to establish a justiciable controversy. Treasury later promulgated a regulation disavowing Ohio’s interpretation of the Offset Provision and explaining that it would not enforce the Provision as if it barred tax cuts per se. There is no reason to believe that Treasury will not abide by its disavowal of Ohio’s interpretation of the Offset Provision as it administers the statute. View "Ohio v. Yellen" on Justia Law

Oakland County took title to the plaintiffs’ homes under the Michigan General Property Tax Act, which (after a redemption period) required the state court to enter a foreclosure judgment that vested “absolute title” to the property in the governmental entity upon payment of the amount of the tax delinquency or “its fair market value.” The entity could then sell it at a public auction. No matter what the sale price, the property’s former owner had no right to any of the proceeds.In February 2018, under the Act, Oakland County foreclosed on Hall’s home to collect a tax delinquency of $22,642; the County then conveyed the property to the City of Southfield for that price. Southfield conveyed the property for $1 to a for-profit entity, the Southfield Neighborhood Revitalization Initiative, which later sold it for $308,000. Other plaintiffs had similar experiences.The plaintiffs brought suit under 42 U.S.C. 1983, citing the Takings Clause of the Fifth Amendment. The Sixth Circuit reversed the dismissal of the suit. The “Michigan statute is not only self-dealing: it is also an aberration from some 300 years of decisions.” The government may not decline to recognize long-established interests in property as a device to take them. The County took the property without just compensation. View "Hall v. Meisner" on Justia Law