Justia Tax Law Opinion Summaries

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

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

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

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

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

Igboba was convicted on 18 counts under 18 U.S.C. 286, 18 U.S.C. 1343, 18 U.S.C. 287, and 18 U.S.C. 1028A(a)(1), (b), and (c)(5), based on his participation in a conspiracy to defraud the government by preparing and filing false federal income tax returns using others’ identities. He was sentenced to 162 months’ imprisonment, followed by three years of supervised release, and required to pay restitution, special assessment, and forfeiture sums.The Sixth Circuit affirmed, rejecting arguments that when the district court increased his base offense level based on the total amount of loss his offense caused, U.S.S.G. 2B1.1(b)(1), it failed to distinguish between the loss caused by his individual conduct and that caused by the entire conspiracy and that the district court erred in applying a two-level sophisticated-means enhancement, section 2B1.1(b)(10). the district court could rightly attribute $4.1 million in losses to “acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by” Igboba. The court noted his “sophisticated” use of technology and multiple aliases. View "United States v. Igboba" on Justia Law

Technica makes high-end audio equipment and claimed tax credits for increasing research activities under 26 U.S.C. 41 for several tax years. The R&D tax credit is available when taxpayers increase certain research expenses over time, with the increase measured in part against research costs from the five-year period from 1984-1988, taken as a percentage of the company’s gross receipts during those years (the fixed-base percentage). For the 2002–2005 and 2011 tax years, the IRS issued a notice of deficiency. Rather than litigate, Technica and the government reached settlement agreements, which were approved by the Tax Court. The settlements did not address the details but simply listed the dollar amounts of the agreed-upon deficiencies. According to Technica, these amounts were determined by a “specific agreement” as to the fixed-base percentage.With respect to the 2006–2010 tax years, Technica paid the amount requested by the IRS then sued for a refund, arguing that the government was judicially estopped from claiming that the .92% fixed-base percentage did not apply. The district court agreed, finding that because the government had entered into settlements for the other tax years using that same fixed-base percentage, it was judicially estopped from now arguing that the percentage was incorrect.The Sixth Circuit reversed. A court order memorializing a settlement agreement generally does not constitute judicial acceptance of the facts underpinning that agreement, and the orders approved by the Tax Court did not actually include the .92% rate. View "Audio Technica U.S., Inc. v. United States" on Justia Law

Byers received notice from Chase Bank that IRS Agent Conroy had requested information in connection with the IRS’s investigation into her then-husband. The notice stated that “[t]he requested information includes information that relates to you.” Conroy sent Byers a letter, informing her that she was under investigation for violating 26 U.S.C. 6700 and/or 6701, issued a document request, and requested an interview. Byers refused. Byers received copies of IRS summonses that Conroy had issued, directing her banks to provide, for 2007-2018, “any and all documents … related to . . . Andrea Byers and any other corporation or name Andrea Byers used . . . including but not limited to multiple entities. Bank of America responded to the summons but Conroy has not opened the envelope containing the response due to Byers’s pending petition to quash.The government successfully moved for dismissal of Byers’s petitions and for enforcement of the summonses. The Sixth Circuit affirmed, noting the IRS’s broad authority to collect information related to taxpayers’ potential liabilities. The IRS was not required to establish a “reasonable basis” for its investigation before its summonses could be enforced. The IRS made a prima-facie showing in support of enforcing its summonses. She did not establish that the IRS abused the district court’s process in seeking enforcement of the summonses. View "Byers v. Internal Revenue Service" on Justia Law

Hoffman owns the historic Tremaine Building in Cleveland, Ohio. Over a decade ago, Hoffman donated an easement in the façade of the building and certain airspace restrictions associated with the building to the American Association of Historic Preservation (AAHP). Hoffman agreed not to alter the historic character of the façade or to build in the airspace above or next to the building—subject to certain conditions. Hoffman then sought a $15 million tax deduction for its donation of a “qualified conservation contribution,” I.R.C. 170(f)(3)(B)(iii). The IRS and Tax Court concluded that Hoffman was not entitled to a deduction because the donation was not “exclusively for conservation purposes.”The Sixth Circuit affirmed. To be deductible, the donation must protect the conservation purposes “in perpetuity,” I.R.C. 170(h)(5)(A) and include “legally enforceable restrictions” that will prevent the donor from using its retained interest in the property in a way “inconsistent with the [donation’s] conservation purposes.” The donation agreement gives Hoffman the right to propose changes to the facade or airspace, after which AAHP has a 45-day window in which to prevent those changes. If the organization misses that window—for whatever reason—it loses the ability to stop the change. The provision violates the “perpetuity” requirement. View "Hoffman Properties II, L.P. v. Commissioner of Internal Revenue" on Justia Law

Torres was a long-time employee at Vitale’s Italian Restaurants located throughout Western Michigan. Although Torres and other Vitale’s employees often worked more than 40 hours per week, they allege that they were not paid overtime rates for those hours. Vitale’s required the workers to keep two separate timecards, one reflecting the first 40 hours of work, and the other, reflecting overtime hours. The employees were paid via check for the first card and via cash for the second. The pay was at a straight time rate on the second card. Torres alleged that employees were deprived of overtime pay and that Vitale’s did not pay taxes on the cash payments.Torres sought damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961. The district court dismissed, holding that the remedial scheme of the Fair Labor Standards Act (FLSA), 29 U.S.C. 201, precluded the RICO claim. The Sixth Circuit reversed in part. The claims based on lost wages from the alleged “wage theft scheme” cannot proceed. However, the FLSA does not preclude RICO claims when a defendant commits a RICO-predicate offense giving rise to damages distinct from the lost wages available under the FLSA. The court remanded Torres’s claim that Vitale’s is liable under RICO for failure to withhold taxes. View "Torres v. Vitale" on Justia Law