Justia Tax Law Opinion Summaries

The parties' dispute arose out of transactions originating from the savings and loan crisis during the 1970's and 1980's. Washington Mutual appealed a judgment entered in favor of the Government after a bench trial in a tax refund action. The Ninth Circuit affirmed, holding that Washington Mutual did not meet its burden of establishing a cost basis for its intangible assets. The panel concluded that the district court held Washington Mutual to the correct burden; did not make any clearly erroneous factual findings; permissibly determined that the cumulative fundamental flaws underlying the Grabowski Model rendered it incapable of producing a reliable value for the Missouri Branching Right; and was thus not required to sua sponte assign a value to that Right. Even assuming the Missouri Branching Right could be valued, Washington Mutual nonetheless failed to show reversible error as to the denial of its abandonment deduction. View "Washington Mutual v. United States" on Justia Law

This case involved ad valorem property taxes: the land at issue had been exempted from some property taxes because it was specially assessed as nonexclusive farm use zone farmland. When that special assessment ends, the property ordinarily has an additional tax levied against it. The question here was whether an exception created by ORS 308A.709(5) applied to excuse the payment of that additional tax. The Tax Court agreed with the Department of Revenue and concluded that the exception was not available. The Port of Morrow appealed. The Oregon Supreme Court concluded that the statutory text on which this case turned, “the date the disqualification [from special assessment] is taken into account on the assessment and tax roll,” meant the date the disqualification became effective on the assessment and tax roll. As a result of that holding, the Supreme Court affirmed. View "Boardman Acquisition LLC v. Dept. of Rev." on Justia Law

Deadline for petition to Tax Court is jurisdictional and cannot be waived for equitable reasons. When spouses file a joint tax return, each is jointly and severally liable for the tax due, 26 U.S.C. 6013(d); the IRS may grant relief where it would be “inequitable to hold the individual liable.” Rubel and her ex-husband filed joint income tax returns, 2005-2008. They had an unpaid tax liability for each year. In 2015, Rubel sought relief under the innocent spouse relief provisions. On January 4, 2016, the IRS denied relief for tax years 2006-2008. On January 13, the IRS sent a denial for 2005. The determinations stated that Rubel could appeal to the Tax Court within 90 days; Rubel needed to file a petition by April 4 for the 2006-2008 tax years and by April 12 for 2005. Rubel submitted additional information to the IRS. In a March 3 letter, the IRS stated that it “still propose[d] to deny relief” and, incorrectly, “Your time to petition … will end on Apr. 19.” Rubel mailed a petition on April 19. The Third Circuit affirmed the Tax Court’s dismissal. The deadline set forth in 26 U.S.C. 6015(e)(1)(A), is jurisdictional and cannot be altered, regardless of the equities of the case. View "Rubel v. Commissioner Internal Revenue" on Justia Law

The Eighth Circuit affirmed the disqualification of tax-exempt status of an Employee Stock Ownership Plan (ESOP) because it exceeded the I.R.C. 415 contribution limit. In this case, the Tax Court did not clearly err in basing its findings of fact on the IRS's uncontested Explanation of Items, which established that DNA Pro Ventures' 2008 contribution to Dr. Daniel Prohaska's ESOP account substantially exceeded the section 415 contribution limit for that year. View "DNA Pro Ventures v. Commissioner" on Justia Law

Employee stock options, when exercised, constitute compensation, on which the employer must remit taxes under the Railroad Retirement Tax Act. Beginning in 1996, the railway began including stock options in the compensation plans of some employees, taking the position that income from the exercise of those stock options was not a form of “money remuneration” that would be taxable to the railway under the Act, 26 U.S.C. 3231(e)(1), which defines “compensation” as “any form of money remuneration paid to an individual for services rendered as an employee.” The Act requires the railroad to pay an excise tax equal to a specified percentage of its employees’ wages, and to withhold a percentage of employee wages as their share of the tax. The railroad retirement tax rates are much higher than social security tax rates. The IRS, the district court, and the Seventh Circuit concluded that the exercise of the stock options was compensation. The equivalence of stock to cash is actually signaled in the statutory exceptions for qualified stock options and for other forms of noncash employee benefits. View "Grand Trunk Western Railroad Co. v. United States" on Justia Law

District court has authority to consider whether tax debtor’s property should be subject to a forced sale. Cardaci owned Holly Construction. In 2000-2001, the business floundered; Cardaci used $49,600 in taxes withheld from his employees’ wages to pay suppliers and wages, including his $20,000 salary, rather than payroll taxes. Cardaci, now 58, has not had a regular income since 2009 and has medical problems. Beverly Cardaci, 62, earns $62,000 a year as a teacher. The Cardacis bought their Cape May County home in 1978; two adult children live with them part-time, without paying rent. The district court determined that the house has a fair market value of $150,500. It has no mortgage. The government sought to force its sale, to use half of the proceeds to pay Cardaci’s tax liability, with the remainder for Beverly. The court considered various equitable factors, declined to force the sale, fixed an imputed monthly rental value of $1,500 and ordered Cardaci to pay half of that to the IRS each month. Cardaci defaulted on his monthly payment obligation and failed to provide required proof of homeowner’s insurance. The Third Circuit remanded for recalculation of the factors weighing for and against a sale and for recalculation of the Cardacis’ respective interests in the property. View "United States v. Cardaci" on Justia Law

Determination of tax year for theft loss depends on multiple factors. The Adkinses invested in securities through a company that was actually operating a “pump and dump” scheme. At their 2000 peak, the Adkinses’ investments were valued at $3.6 million. In 2001, the value of their investments declined to $9,849. In 2002, the Adkinses, discovering the fraud, submitted a claim to the National Association of Securities Dealers. Their hearing was postponed pending federal indictments, which were handed down in 2004. While the charges were pending, in 2006, the Adkinses claimed a tax-year 2004 deduction for a $2,118,725 theft loss under 26 U.S.C. 165, with excess refund portions carried back over 2001– 2003. The IRS disallowed the Adkinses’ refund claims for all tax years but 2002. The Claims Court concluded that the Adkinses agreed, citing 26 C.F.R. 1.165-1(d)(3) because the Adkins had not shown that, in 2004, they could have “ascertained with reasonable certainty that they would not receive reimbursement of their losses.” The Federal Circuit vacated. Unless the plaintiff has chosen abandonment (or settlement or adjudication) as the factual predicate for their loss date, the existence of an ongoing lawsuit or arbitration is only one factor to be considered among many in determining the tax year for the loss. View "Adkins v. United States" on Justia Law

IRS Form 1040, filed after the IRS made an assessment of the taxpayer’s liability, did not constitute “returns” for purposes of determining the dischargeability in bankruptcy of tax debts under 11 U.S.C. 523(a)(1)(B). Giacchi filed his tax returns on time for the years 2000, 2001, and 2002 years after they were due and after the IRS had assessed a liability against him. In 2010, Giacchi filed for Chapter 7 bankruptcy; in 2012 he filed a Chapter 13 petition and brought an adversary proceeding seeking a judgment that his tax liability for the years in question had been discharged in the Chapter 7 proceeding. The district court and Third Circuit affirmed the bankruptcy court’s order denying the discharge. The tax debt was nondischargeable under 11 U.S.C. 523(a)(1)(B) because Giacchi had failed to file tax returns for 2000, 2001, and 2002, and Giacchi’s belatedly filed documents were not “returns” within the meaning of section 523(a)(1)(B) and other applicable law. View "Giacchi v. United States" on Justia Law

Unreliable corporate meeting minutes were properly excluded in tax fraud trial. Petrunak was the sole proprietor of Abyss, a fireworks business regulated by ATF. In 2001, ATF inspectors inspected Abyss and reported violations. An ALJ revoked Abyss’s explosives license. Abyss went out of business. Five years later, Petrunak mailed the inspectors IRS W-9 forms requesting identifying information and then sent them 1099s, alleging that Abyss had paid each of them $250,000. Because the inspector’s tax return did not include the fictional $250,000, the IRS audited her and informed her that she owed $101,114 in taxes; she spent significant time and energy unraveling the situation. Petrunak submitted those sham “payments” as business expenses; he reported a loss exceeding $500,000 in his personal taxes. Petrunak admitted to filing the forms and was charged with making and subscribing false and fraudulent IRS forms, 26 U.S.C. 7206(1). He sought to introduce corporate meeting minutes under the business records exception, claiming that the records would have demonstrated his state of mind in preparing the forms. The minutes included statements bemoaning that the IRS was not more helpful, and declarations that the ATF agents perjured themselves. The Seventh Circuit upheld exclusion of the records, noting that the records contained multiple instances of hearsay and had no indicia of reliability. View "United States v. Petrunak" on Justia Law

In connection with its operation of a land-based casino in New Orleans, Jazz Casino Company, L.L.C. (Jazz) entered into contracts with various hotels for rooms made available to casino patrons on a complimentary or discounted basis. Jazz was required to pay for a specific number of rooms for the duration of the contract even if the rooms were not used by Jazz patrons. As a result of these hotel room rentals, hotel occupancy taxes were remitted to the Louisiana Department of Revenue (Department). The taxes consisted of state general sales taxes and sales tax collected on behalf of the following three entities: Louisiana Tourism Promotion District, the Louisiana Stadium and Exposition District, and the New Orleans Exhibition Hall Authority. In August 2004, Jazz filed three claims for refund with the Department, alleging that Jazz overpaid hotel occupancy taxes for various hotel room rentals from October 1999, and June 2004. Following the denial of its claims by the Department, Jazz filed suit with the Louisiana Board of Tax Appeals, seeking a determination of overpaid taxes in accordance with La. R.S. 47:1621. Finding that these statutory duties were ministerial, the district court issued a writ of mandamus to the tax collector to compel payment of the tax refund judgment. The court of appeal reversed and recalled the writ due to the lack of evidence needed to obtain a writ of mandamus. Based on the ministerial nature of the constitutional and statutory duties owed by the tax collector in connection with the taxpayer’s refund judgment, the Supreme Court reversed the decision of the appellate court, and reinstated the district court’s judgment. View "Jazz Casino Co, LLC v. Bridges" on Justia Law