Justia Tax Law Opinion Summaries

Articles Posted in US Court of Appeals for the Sixth Circuit
by
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

by
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

by
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

by
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

by
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

by
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

by
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

by
When an Ohio county forecloses on a tax-delinquent, occupied property, it ordinarily sells the property at an auction, keeps proceeds to cover the outstanding taxes, and returns leftover funds to the owner. Ohio municipalities may surrender their tax interest in tax-delinquent vacant properties and transfer clear title to land banks, which may revitalize the property, sell it, or demolish the home to prepare for new neighborhoods. When counties choose the land bank route the owner's surplus equity vanishes.Harrison inherited a partial interest in her mother’s Dayton home, which had a $20,000 property tax delinquency. Montgomery County started foreclosure proceedings. The County Board of Revision transferred the home (estimated fair market value, $22,600) to the county’s land bank. Harrison never received the surplus equity; the statute offers no way to pay it.Harrison filed a purported class action under the Takings Clause. The district court dismissed, citing claim preclusion because Harrison could have raised federal takings claims at several points during the foreclosure process. The Sixth Circuit reversed, noting that federal takings law changed during the operative period. A property owner now may bring section 1983 federal takings claims in federal court “as soon as their property has been taken” without first exhausting state remedies. The Tax Injunction Act, 28 U.S.C. 1341, does not bar the suit; Harrison does not challenge Ohio’s “collection” of delinquent taxes nor seek to halt foreclosures. The court remanded for consideration of the merits. View "Harrison v. Montgomery County" on Justia Law

by
The IRS began a criminal investigation of Gaetano, who owns Michigan cannabis dispensaries. Portal 42, a software company that provides the cannabis industry with point-of-sale systems, confirmed that Gaetano was a client. Agents served a summons, ordering Portal 42 to produce records “and other data relating to the tax liability or the collection of the tax liability or for the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws concerning [Gaetano] for the periods shown.” The IRS did not notify Gaetano about the summons. Portal 42 sent the IRS an email with a hyperlink to the requested records. An IRS computer specialist copied the documents. None of the personnel in the IRS’s Criminal Investigation Division have viewed the records.Gaetano filed a petition under 26 U.S.C. 7609, seeking to quash the summons, arguing that the IRS should have notified Gaetano about the summons and that it was issued in bad faith. The Sixth Circuit affirmed the dismissal of the action for lack of subject-matter jurisdiction because Gaetano lacked standing. Section 7609 waives the government’s sovereign immunity to allow taxpayers to bring an action to quash certain third-party IRS summonses. An exception applies because the summons here was issued by an IRS criminal investigator “in connection” with an IRS criminal investigation and the summoned party is not a third-party recordkeeper. Without a statutory waiver of sovereign immunity, subject-matter jurisdiction cannot obtain. View "Gaetano v. United States" on Justia Law

by
Freed owed $735.43 in taxes ($1,109.06 with penalties) on his property valued at about $97,000. Freed claims he did not know about the debt because he cannot read well. Gratiot County’s treasurer filed an in-rem action under Michigan's General Property Tax Act (GPTA), In a court-ordered foreclosure, the treasurer sold the property to a third party for $42,000. Freed lost his home and all its equity. Freed sued, 42 U.S.C. 1983, citing the Takings Clause and the Eighth Amendment.The district court first held that Michigan’s inverse condemnation process did not provide “reasonable, certain, and adequate” remedies and declined to dismiss the suit under the Tax Injunction Act, which tells district courts not to “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 state court, 28 U.S.C. 1341. The court reasoned that the TIA did not apply to claims seeking to enjoin defendants from keeping the surplus equity and that Freed was not challenging his tax liability nor trying to stop the state from collecting. The TIA applied to claims seeking to enjoin enforcement of the GPTA and declare it unconstitutional but no adequate state court remedy existed. The court used the same reasoning to reject arguments that comity principles compelled dismissal. After discovery, the district court sua sponte dismissed Freed’s case for lack of subject matter jurisdiction, despite recognizing that it was “doubtful” Freed could win in state court. The Supreme Court subsequently overturned the "exhaustion of state remedies" requirement for takings claims.The Sixth Circuit reversed without addressing the merits of Freed’s claims. Neither the TIA nor comity principles forestall Freed’s suit from proceeding in federal court. View "Freed v. Thomas" on Justia Law