Justia Tax Law Opinion Summaries

Spireas earned $40 million in technology license royalties in 2007-2008s. Royalties paid under a license agreement are usually taxed as ordinary income at 35 percent but Spireas claimed capital gains treatment (15 percent) under 26 U.S.C. 1235(a), which applies to money received “in consideration of” “[a] transfer . . . of property consisting of all substantial rights to a patent.” The IRS disagreed and gave Spireas notice of a $5.8 million deficiency for the two tax years. The Tax Court and Third Circuit affirmed. To qualify for automatic capital-gains treatment, income must be paid in exchange for a “transfer of property” that consists of “all substantial rights” to a “patent.” Not every transfer of “rights” qualifies because the statute grants capital gains treatment only to transfers of property. Spireas’s original theory was that he reduced the formulation to practice in 2000, giving him the required property interest, and later assigned his interest. Spireas later abandoned that theory, arguing that he transferred his rights prospectively in 1998. Because that was two years before the invention of the formulation, Spireas’s second position cannot depend on the legal standard of reduction to actual practice to establish that he held a property right at the time of transfer. Spireas’s sole claim on appeal was, therefore, waived. View "Spireas v. Commissioner of Internal Revenue" on Justia Law

The Duquesne entities filed tax returns as a consolidated taxpayer, which requires a mixed approach: calculating some aspects of the group’s taxes as though the entities were a single taxpayer and calculating others as if each were a separate taxpayer, 26 U.S.C. 1502. There is, nonetheless, the potential for the group to deflect its tax liability by using stock sales to claim a “double deduction” for a single loss at a subsidiary. In 2001, the Federal Circuit invalidated Treas. Reg. 1.1502-20, which prevented double deductions when the parent’s loss on its sale of stock occurred before the subsidiary recognized its loss, leaving intact the regulatory prohibition on double deductions where the transactions are structured so that the losses occur in reverse order. Duquesne group then arranged a series of transactions, so that on its 2001 tax return, it carried back $161 million of loss and claimed a tentative refund of $35 million. In 2002 the IRS issued temporary regulations that applied to stock losses occurring on or after March 7, 2002. Duquesne group incurred further stock losses in transactions after March 2002. The IRS determined that it had claimed a double deduction and disallowed $199 million of these losses under the Ilfeld doctrine, that the Code should not be interpreted to allow the taxpayer the practical equivalent of a double deduction absent a clear declaration of intent by Congress. The Tax Court granted the IRS summary judgment. The Third Circuit affirmed, concluding that the Ilfeld doctrine remains good law. View "Duquesne Light Holdings Inc v. Commissioner of Internal Revenue" on Justia Law

The Virgin Islands Bureau of Internal Revenue (BIR) sent the Hassens a final notice of intent to levy their property to satisfy an outstanding tax debt of $5,778.32 for the 2004 tax year and subsequently issued a levy against the Hassens’ bank account. In June and December 2013, the Hassens submitted letters requesting an installment agreement. The December letter reflects that the Hassens and the BIR engaged in discussions and that the BIR directed the Hassens to submit IRS Form 9465 to request an installment agreement. The Hassens failed to do so. Thereafter, the BIR issued four additional levies against the Hassens’ accounts. Rather than file an administrative claim as required by 26 U.S.C. 7433(d), the Hassens filed suit under section 7433(a), alleging that the additional levies violated 26 U.S.C. 6331(k)(2), which prohibits the issuance of any levy while a proposed installment agreement is pending. The district court determined that exhaustion of administrative remedies was not a jurisdictional prerequisite, but was a condition to obtain relief, and dismissed their complaint. The Third Circuit affirmed. To bring a claim under section 7433(a), a taxpayer must exhaust the administrative remedies under section 7433(d). While such exhaustion is not a jurisdictional requirement, it is mandatory. View "Hassen v. Government of the Virgin Islands" on Justia Law