Justia Tax Law Opinion Summaries

Carlos and Ana Carachure filed a lawsuit against the City of Azusa, claiming the City violated article XIII D of the California Constitution by charging sewer and trash franchise fees that exceeded the cost of providing those services and using the fees to fund general city services. The City argued that the Carachures failed to exhaust their administrative remedies because they did not follow the statutory procedures for a refund, which require paying the fees under protest and filing a claim for a refund. The trial court agreed with the City and entered judgment in its favor.The Superior Court of Los Angeles County ruled that the Carachures were required to file a claim for a refund with the City before seeking judicial relief, as they claimed the fees were illegally collected or assessed. The court denied the Carachures' petition for a writ of mandate and entered judgment for the City. The Carachures filed a motion for a new trial and to vacate the judgment, arguing the trial court relied on inapplicable property tax cases and the current version of the Revenue and Taxation Code. The trial court denied the motion.The Court of Appeal of the State of California, Second Appellate District, Division Seven, reviewed the case and reversed the trial court's judgment. The appellate court held that the Carachures' constitutional challenge to the City's collection and use of franchise fees seeks relief outside the scope of the statutory claims procedure for refunds. The court concluded that the Carachures did not have to file a claim for a refund before bringing this action, as their challenge was not an action for a refund governed by section 5472 and Article 2 of the Revenue and Taxation Code. The judgment was reversed, allowing the Carachures to proceed with their constitutional claims. View "Carachure v. City of Azusa" on Justia Law

Ronald E. Byers owes the United States for unpaid income taxes, interest, and penalties. The government filed a suit to enforce its federal tax liens through the judicial sale of Ronald’s home, which he solely owns but shares with his wife, Deanna L. Byers. The Byerses agreed to the sale but argued that Deanna is entitled to half of the proceeds because the property is their marital homestead. The district court granted the government’s motion for summary judgment, ruling that Deanna lacked a property interest in the home and was not entitled to any sale proceeds.The United States District Court for the District of Minnesota found that Deanna did not have a property interest in the home under Minnesota law, which only provides a contingent interest that vests upon the owner's death. The court concluded that Deanna’s interest did not rise to the level of a property right requiring compensation under federal law. The court ordered that Ronald is liable for the tax debt, the government’s liens are valid, and the property can be sold with proceeds applied to Ronald’s tax liabilities.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the district court’s decision. The appellate court held that Minnesota’s homestead laws do not provide Deanna with a vested property interest in the home that would entitle her to compensation from the sale proceeds. The court distinguished this case from United States v. Rodgers, noting that Minnesota law does not afford the same level of property rights to a non-owner spouse as Texas law does. Therefore, the court upheld the summary judgment in favor of the government, allowing the sale of the property to satisfy Ronald’s tax debt. View "United States v. Byers" on Justia Law

Great Oaks Water Company, a private water retailer, sued the Santa Clara Valley Water District, alleging that the district’s groundwater pumping charges were unlawful taxes levied without voter approval, violating Proposition 26. Great Oaks argued that the charges exceeded the reasonable costs of the governmental activity and were unfairly allocated, benefiting other water users to which Great Oaks had no access. Additionally, Great Oaks contended that the district’s use of ad valorem property taxes to subsidize agricultural groundwater pumping charges was unconstitutional.The trial court ruled in favor of the water district, finding that the groundwater charges did not exceed the costs of the district’s overall water management program. The court held that it was reasonable to use these charges to pay for the program because non-agricultural groundwater pumpers, like Great Oaks, received significant benefits from it. The charges were deemed reasonably allocated on a volumetric basis, and the agricultural discount was found constitutionally valid as it was funded by ad valorem property taxes, not by non-agricultural pumpers.The California Court of Appeal for the Sixth Appellate District affirmed the trial court’s decision. The appellate court concluded that the groundwater charges were not “taxes” under Proposition 26 because they fell under exceptions for specific benefits conferred or government services provided directly to the payor. The court found that the water district proved by a preponderance of the evidence that the charges were no more than necessary to cover the reasonable costs of the governmental activity and that the costs were fairly allocated to Great Oaks. The court also upheld the use of ad valorem taxes to fund the agricultural discount, finding no violation of the California Constitution or the Water Code. View "Great Oaks Water Co. v. Santa Clara Valley Water Dist." on Justia Law

Adam Earnest, Christopher Randell, and James Klish were involved in preparing and filing fraudulent tax returns through Sunbelt Tax Services, a company owned by Earnest. They falsely claimed millions of dollars in education credits for their clients. Previously, Earnest and Randell had worked at American Tax Service, where they engaged in similar fraudulent activities. Despite being audited and penalized by the IRS for these activities, they continued their fraudulent practices at Sunbelt. The IRS discovered that Sunbelt filed 4,509 tax returns claiming $4,899,653 in education credits without proper documentation.The defendants were charged in February 2022 with conspiracy to defraud the United States and assisting in the preparation of false tax returns. After a seven-day trial, a jury found Earnest, Randell, and Klish guilty of conspiracy, and Earnest and Randell were also found guilty of aiding and assisting in the preparation of false tax returns. The government estimated a total tax loss of $10,078,767, which included returns filed at both American and Sunbelt. The district court overruled objections to this calculation but conservatively estimated the loss to be between $3.5 million and $9.5 million. Earnest was sentenced to 100 months, Klish to 50 months, and Randell to 70 months in prison.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court affirmed the district court's judgment, rejecting the defendants' arguments regarding the admission of evidence from their time at American, the summary chart exhibit, and claims of constructive amendment of the indictment. The court also found sufficient evidence to support Earnest's conviction for aiding and assisting in the preparation of a false tax return and upheld the district court's tax loss calculation and denial of a mitigating role reduction for Klish. View "United States v. Earnest" on Justia Law

Fitzgerald Truck Parts & Sales, LLC built and sold highway tractors by installing old engines and transmissions from salvage yards into new tractor kits. The IRS assessed unpaid excise taxes, penalties, and interest totaling $268 million, arguing that Fitzgerald's sales were subject to a 12% excise tax under 26 U.S.C. §§ 4051(a)(1) and 4052(a)(1). Fitzgerald claimed an exemption under 26 U.S.C. § 4052(f)(1), which provides a safe harbor if the cost of repairs or modifications does not exceed 75% of the retail price of a comparable new tractor. Fitzgerald won before a jury, and the government appealed.The United States District Court for the Middle District of Tennessee ruled in favor of Fitzgerald, rejecting the government's arguments that Fitzgerald's operations did not qualify for the safe harbor and that the tractors were not taxable when new under 26 U.S.C. § 4052(f)(2). The government then appealed to the United States Court of Appeals for the Sixth Circuit.The Sixth Circuit agreed with Fitzgerald that § 4052(f)(1) poses a bright-line, 75% test without any further qualitative inquiry, meaning Fitzgerald's vehicles constructed with used engines and transmissions could qualify for the safe harbor. However, the court found that § 4052(f)(2) forecloses this exemption for tractors that never triggered the excise tax when they were new. The court noted that Fitzgerald had not met its burden of proving that the tractors were taxable when new, as evidence suggested that some vehicles were first sold in tax-exempt transactions to entities abroad or state or local governments.The Sixth Circuit reversed the district court's judgment and remanded the case for further proceedings to determine whether each refurbished tractor, when new, incurred the excise tax under § 4051. View "Fitzgerald Truck Parts & Sales LLC v. United States" on Justia Law

Praxis Packaging Solutions, operating a manufacturing facility, applied for a tax exemption for its manufacturing equipment under Michigan law. The Township of Byron's assessor denied the application, stating the equipment did not meet the statutory definition of eligible manufacturing personal property (EMPP). The denial notice informed Praxis of its right to appeal to the March Board of Review but did not provide specific deadlines or meeting dates. Praxis's agents contacted the assessor for appeal details but were not informed of the deadlines. Praxis submitted an appeal letter after the Board had adjourned, and the Board did not consider the appeal.The Michigan Tax Tribunal dismissed Praxis's petition for lack of jurisdiction, as Praxis had not first appealed to the Board. The Court of Appeals reversed, holding that the Township's notice did not meet statutory requirements and deprived Praxis of due process, thus vesting the Tribunal with jurisdiction.The Michigan Supreme Court reviewed the case and held that the Township's notice did not violate due process. The Court found that the notice, combined with the separate notice of assessment, provided sufficient information about the appeal process. The Court emphasized that due process requires notice reasonably calculated to inform the taxpayer and provide an opportunity to be heard. Since Praxis received actual notice of the Board's meeting dates and the appeal process, the Court concluded that there was no due process violation.The Supreme Court reversed the Court of Appeals judgment and reinstated the Tax Tribunal's dismissal of Praxis's petition for lack of jurisdiction, as Praxis failed to timely protest the exemption denial before the Board. View "Sixarp LLC v. Township Of Byron" on Justia Law

A Utah-based transportation business, All Resort Group, became insolvent in 2013 due to poor management and financial malfeasance. Two shareholders misappropriated $145,000 in company funds to pay their personal federal tax liabilities. In 2017, the company filed for bankruptcy, and the trustee sought to recover the misappropriated funds under §544(b) of the Bankruptcy Code, invoking Utah’s fraudulent-transfer statute as the applicable law.The Bankruptcy Court ruled in favor of the trustee, holding that §106(a) of the Bankruptcy Code waived the Government’s sovereign immunity for the state-law cause of action nested within the §544(b) claim. The District Court adopted this decision, and the Tenth Circuit affirmed, concluding that §106(a) abolished the Government’s sovereign immunity in an avoidance proceeding under §544(b)(1).The Supreme Court of the United States reviewed the case and reversed the Tenth Circuit’s decision. The Court held that §106(a)’s sovereign-immunity waiver applies only to the §544(b) claim itself and not to the state-law claims nested within that federal claim. The Court emphasized that waivers of sovereign immunity are jurisdictional and do not create new substantive rights or alter pre-existing ones. The Court concluded that §106(a) does not modify the substantive requirements of §544(b) and that the trustee must still identify an actual creditor who could have voided the transaction under applicable law outside of bankruptcy proceedings. View "United States v. Miller" on Justia Law

Two companies, Dine Brands Global, Inc. and The Walt Disney Company, filed separate lawsuits against the Michigan State Treasurer, Rachael Eubanks, seeking declaratory and injunctive relief under the Uniform Unclaimed Property Act (UUPA). The Treasurer had initiated multistate examinations of the companies' records to check compliance with the UUPA's reporting and remittance requirements. The examinations, conducted by Kelmar Associates, LLC, identified unclaimed property dating back to 2002. The companies disputed the findings and argued that the statute of limitations barred the Treasurer from collecting the identified property.The Oakland Circuit Court granted summary disposition in favor of the companies, ruling that the examinations were not "actions or proceedings" under the UUPA and did not toll the statute of limitations. The court enjoined the Treasurer from enforcing the collection of the disputed property. The Michigan Court of Appeals affirmed the circuit court's judgments, agreeing that the examinations did not toll the statute of limitations.The Michigan Supreme Court reviewed the case and held that the phrase "action or proceeding" in the UUPA includes both formal lawsuits and administrative procedures like examinations. However, the Court also held that the commencement of an examination does not toll the statute of limitations. The Court noted that the statute of limitations continues to run during an examination and that the Treasurer must initiate an examination within the applicable time frame.The Supreme Court reversed the Court of Appeals' decisions that excluded examinations from the definition of "action or proceeding." The Court remanded the cases to the Court of Appeals to determine whether a holder's duty to comply with the results of an examination is distinct from the annual duty to report and remit unclaimed property, which would affect the statute of limitations for post-examination enforcement actions. View "Dine Brands Global Inc v. Eubanks" on Justia Law

Actavis Laboratories FL, Inc. ("Actavis") filed Abbreviated New Drug Applications (ANDAs) with the FDA to market generic versions of branded drugs. The manufacturers of these branded drugs, who hold New Drug Applications (NDAs) and patents, sued Actavis for patent infringement under the Hatch-Waxman Act. This Act considers the submission of an ANDA with a Paragraph IV certification as an act of patent infringement if it seeks FDA approval before the expiration of the patents. Actavis incurred significant litigation expenses defending these suits and deducted these expenses as ordinary business expenses on its tax returns.The IRS disagreed, treating these expenses as capital expenditures related to the acquisition of an intangible asset (FDA approval) and issued Notices of Deficiency. Actavis paid the assessed taxes and sued in the Court of Federal Claims for a refund, arguing that the litigation expenses were deductible. The Court of Federal Claims ruled in favor of Actavis, holding that the litigation expenses were deductible as ordinary business expenses.The United States Court of Appeals for the Federal Circuit reviewed the case. The court considered whether the litigation expenses were ordinary business expenses or capital expenditures. Applying both the "origin of the claim" test and the IRS regulation under C.F.R. § 1.263, the court concluded that the expenses were deductible. The court found that the origin of the claim was the patent infringement suit, not the pursuit of FDA approval, and that the litigation did not facilitate the acquisition of the FDA-approved ANDA. Therefore, the court affirmed the decision of the Court of Federal Claims, allowing Actavis to deduct the litigation expenses as ordinary business expenses. View "ACTAVIS LABORATORIES FL, INC. v. US " on Justia Law

The Village of Arlington Heights filed a complaint against the City of Rolling Meadows in Cook County circuit court to recover misallocated sales tax revenue. Cooper’s Hawk Winery and Restaurants, located in Arlington Heights, was mistakenly coded in the Illinois Department of Revenue (IDOR) records as being in Rolling Meadows. As a result, sales taxes generated by Cooper’s Hawk from June 2011 to March 2020 were disbursed to Rolling Meadows. Arlington Heights discovered the error in March 2020 and notified IDOR, which reimbursed Arlington Heights for six months of tax revenues but advised them to seek an agreement with Rolling Meadows for the remaining funds. Unable to reach an agreement, Arlington Heights filed a complaint seeking the misallocated taxes.The trial court dismissed the complaint for lack of jurisdiction, citing the Illinois Supreme Court’s decision in City of Chicago v. City of Kankakee, which held that IDOR has exclusive jurisdiction over tax disputes. The Appellate Court, First District, reversed the trial court’s decision, finding that the trial court had jurisdiction over straightforward sales tax disputes that do not require agency expertise, relying on Village of Itasca v. Village of Lisle.The Illinois Supreme Court reviewed the case and determined that IDOR has exclusive jurisdiction over tax matters, including misallocation disputes, as established in City of Chicago v. City of Kankakee. The court found that the statutory framework grants IDOR the authority to handle tax disputes and that the trial court’s jurisdiction is limited to cases involving unlawful rebate agreements. The court concluded that the trial court correctly dismissed Arlington Heights’ complaint for lack of subject-matter jurisdiction and reversed the appellate court’s judgment. The trial court’s dismissal of the complaint was affirmed. View "Village of Arlington Heights v. City of Rolling Meadows" on Justia Law