Justia Tax Law Opinion Summaries

Taxpayer, having challenged a penalty in a pre-assessment hearing, may not again contest its liability in a CDP hearing. The employer had an employee‐benefit plan with one employee-participant and took tax deductions for its payments into the plan. The employee claimed no income. The IRS proposed a section 6707A penalty for the company’s failure to report its participation in the plan; deficiency penalties; a section 6662(a) penalty, for making a substantial understatement and acting with negligence or disregard of the rules or regulations; and a section 6662A penalty, for making an understatement related to a reportable transaction that was disclosed inadequately. An appeals officer sustained a $200,000 penalty. After the IRS assessed the penalty and issued a final notice of intent to levy, the company requested a Collection Due Process (CDP) hearing. An appeals officer reviewed transcripts from the earlier pre-assessment hearing and determined that the Appeals Office had already considered a liability challenge to the same penalty, so that section 6330(c)(2)(B) precluded another liability challenge. The Federal Circuit affirmed summary judgment for the government. Under section 6330(c)(4)(A)’s plain language, because the company raised the issue of its liability in a prior hearing before the Appeals Office, and participated meaningfully in that hearing, the company could not contest its liability again in its CDP hearing. View "Our Country Home Enterprises, Inc. v. Commissioner of Internal Revenue" on Justia Law

This tax dispute arose out of a failed real estate investment that resulted in significant tax consequences for Germaine Harmon, the widow of one of the original investors. Harmon challenged the Commissioner of Revenue’s assessment of her 2010 Minnesota income-tax liability, which the Commissioner based on a Schedule K-1 filed by the partnership in charge of the foreclosed real estate investment. The Supreme Court affirmed the tax court’s grant of summary judgment in favor of the Commissioner, holding that the tax court did not err by determining that Harmon failed to overcome the presumption of validity of the Commissioner’s assessment of taxes. View "Harmon v. Commissioner of Revenue" on Justia Law

Pennsylvania statute, prohibiting payment of fire insurance proceeds to named insured when there are delinquent property taxes, is not limited to situations where the named insured is also responsible for those taxes. Conneaut Lake Park, in Crawford County, included a historic venue, “the Beach Club,” owned by the Trustees. Restoration operated the Club under contract with the Trustees. Restoration insured the Club against fire loss through Erie. When the Club was destroyed by fire, Restoration submitted a claim. In accordance with 40 Pa. Stat 638, Erie required Restoration to obtain a statement of whether back taxes were owed on the property. The statement showed $478,260.75 in delinquent taxes, dating back to 1996, before Restoration’s contract, and owed on the entire 55.33-acre parcel, not just the single acre that included the Club. Erie notified Restoration that it would transfer to the taxing authorities $478,260.75 of the $611,000 insurance proceeds. Erie’s interpleader action was transferred after the Trustees filed for bankruptcy. Restoration argued that Section 638 applied only to situations where the owner of the property is insured and where the tax liabilities are the financial responsibility of the owner. The Third Circuit reinstated the bankruptcy court holding, rejecting Restoration’s argument. The statute does not include any qualifications. When Restoration insured the Club, its rights to any insurance proceeds were subject to the claim of the taxing authorities. Without a legally cognizable property interest, Restoration has no cognizable takings claim. View "In re: Trustees of Conneaut Lake Park, Inc." on Justia Law

“Lowrie v. United States,” (824 F.2d 827 (10th Cir. 1987)), is still the controlling case law in matters challenging “activities leading up to and culminating in” an assessment. The Green Solution was a Colorado-based marijuana dispensary being audited by the Internal Revenue Service for tax deductions and credits taken for trafficking in a “controlled substance.” Green Solution sued the IRS seeking to enjoin the IRS from investigating whether it trafficked in a controlled substance in violation of federal law, and seeking a declaratory judgment that the IRS was acting outside its statutory authority when it made findings that a taxpayer trafficked in a controlled substance. Green Solution claimed it would suffer irreparable harm if the IRS were allowed to continue its investigation because a denial of deductions would: (1) deprive it of income, (2) constitute a penalty that would effect a forfeiture of all of its income and capital, and (3) violate its Fifth Amendment rights. The IRS moved to dismiss for lack of subject matter jurisdiction. According to the IRS, Green Solution’s claim for injunctive relief was foreclosed by the Anti-Injunction Act (AIA), which barred suits “for the purpose of restraining the assessment or collection of any tax.” Similarly, the IRS asserted that the claim for declaratory relief violated the Declaratory Judgment Act (DJA), which prohibited declaratory judgments in certain federal tax matters. The district court dismissed the action with prejudice for lack of subject matter jurisdiction, relying on “Lowrie.” Green Solution timely appealed, contending the district court had jurisdiction to hear its claims because the Supreme Court implicitly overruled Lowrie in “Direct Marketing Association v. Brohl,” (135 S. Ct. 1124 (2015)). The Tenth Circuit concluded it was still bound by Lowrie and affirmed. View "Green Solution Retail v. United States" on Justia Law

The Tax Tribunal erred by concluding that MCL 211.7n, a statute specifically exempting from taxation the real or personal property owned and occupied by nonprofit educational institutions, controlled over the more general statute, MCL 211.9(1)(a), which authorized a tax exemption for educational institutions without regard to the institution’s nonprofit or for-profit status. SBC Health Midwest, Inc., challenged the city of Kentwood’s denial of its request for a personal property tax exemption in the Tax Tribunal. SBC Health, a Delaware for-profit corporation, had requested a tax exemption under MCL 211.9(1)(a) for personal property used to operate the Sanford-Brown College Grand Rapids. The Michigan Supreme Court held the nonprofit requirement in MCL 211.7n did not negate a for-profit educational institution like SBC Health from pursuing an exemption under MCL 211.9(1)(a). The tax exemption outlined in the unambiguous language in MCL 211.9(1)(a) applies to all educational institutions, for-profit or nonprofit, that meet the requirements specified in MCL 211.9(1)(a). View "SBC Health Midwest, Inc. v. City of Kentwood" on Justia Law

At issue in this case was whether the Commerce Clause’s limitations on a state’s power to tax interstate commerce bar property taxes levied on natural gas held in Texas without a destination while awaiting future resale and shipment to out-of-state customers. The court of appeals found the tax in this case valid. The Supreme Court affirmed, holding (1) a nondiscriminatory tax on surplus gas held for future resale does not violate the Commerce Clause; and (2) the tax levied in this case withstands constitutional scrutiny, and because it does not violate the Commerce Clause, neither does it violate Tex. Tax Code 11.12, which provides a state-law exemption for taxes that would otherwise violate federal law. View "Etc Marketing, Ltd. v. Harris County Appraisal District" on Justia Law

At issue in this case was the adjustment of the valuation of three subclasses of residential real property in Douglas County. The Tax Equalization and Review Commission (TERC) issued an order to show cause why it should not increase the valuation of two properties by seven percent and decrease the valuation of a third property by eight percent. TERC voted to adjust the valuations. Douglas County filed a motion to reconsider, which the TERC commissioners overruled. The Supreme Court affirmed in part and reversed in part, holding (1) TERC’s order to decrease the valuation of one property by eight percent was not supported by competent evidence and was arbitrary, capricious, and unreasonable; (2) TERC’s order to increase the valuation of the other two properties was supported by competent evidence and was not arbitrary, capricious, and unreasonable; and (3) TERC did not abuse its discretion by denying Douglas County’s motion to reconsider its order. View "County of Douglas v. Nebraska Tax Equalization & Review Commission" on Justia Law

The principal issue in this case was whether taxpayers could bring federal or state tort claims to challenge tax assessments, or instead must rely on the normal state tax appeals process. The taxpayers here are trucking companies that were assessed unemployment taxes after the Washington State Employment Security Department audited and reclassified their employment relationship with owner-operators who owned and leased out their own trucking equipment. The trucking companies, joined by their trade organization, Washington Trucking Associations, brought this suit asserting a civil rights claim under 42 U.S.C. 1983 and a state common law claim for tortious interference with business expectancies. The superior court dismissed the suit, holding that the trucking companies must challenge the tax assessments through the state tax appeals process. The Court of Appeals reversed in part, holding that the comity principle precluded the section 1983 claim only "to the extent that [Washington Trucking Associations] and the [trucking companies] seek damages based on the amounts of the assessments, but not to the extent that they seek damages independent of the assessment amounts." The Supreme Court reversed the Court of Appeals and reinstated the superior court's dismissal of both the federal and state claims. View "Wash. Trucking Ass'ns v. Emp't Sec. Dep't" on Justia Law

8x8 provides telephone services via Voice over Internet Protocol (VoIP). Customers use a digital terminal adapter, containing 8x8’s proprietary firmware and software. Customers’ calls are switched to traditional lines and circuits when necessary; 8x8 did not pay Federal Communications Excise Tax (FCET) to the traditional carriers, based on an “exemption certificate,” (I.R.C. 4253). Consistent with its subscription plan, 8x8 collected FCET from its customers and remitted FCET to the IRS. In 2005, courts held that section 4251 did not permit the IRS to tax telephone services that billed at a fixed per-minute, non-distance-sensitive rate. The IRS ceased collecting FCET on “amounts paid for time-only service,” stated that VoIP services were non-taxable, and established a process seeking a refund of FCET that had been exacted on nontaxable services, stating stated that a “collector” can request a refund if the collector either “establishes that it repaid the amount of the tax to the person from whom the tax was collected”; or “obtains the written consent of such person to the allowance of such credit or refund.” The IRS denied 8x8’s refund claim. The Claims Court concluded that 8x8 lacked standing and granted the government summary judgment. The Federal Circuit affirmed; 8x8 did not bear the economic burden of FCET, but sought to recover costs borne by its customers, contrary to the Code. The court rejected an argument that FCET was “treated as paid” during the transfer of services to traditional carriers. View "8x8, Inc. v. United States" on Justia Law

Musa owns and operates a restaurant in Milwaukee. The IRS determined that Musa made misrepresentations on his tax returns, including underreporting his federal income taxes by more than $500,000 for the years 2006-2010. The Tax Court upheld that determination, plus a civil fraud penalty of more than $380,000. The Seventh Circuit affirmed, rejecting, as “heavy on chutzpah but light on reasoning or any sense of basic fairness,” Musa’s argument that after his fraud was discovered, the Commissioner should have allowed him additional deductions on his individual tax returns based on amended employment tax returns in which Musa had corrected earlier false underreporting of wages. The court noted that he made those corrections after the statute of limitations had run on the Commissioner’s ability to collect the correct amounts of employment taxes that Musa’s amended returns admitted were due. The court also rejected Musa’s argument that the Tax Court erred by permitting the Commissioner to amend his answer to add the affirmative defense of the duty of consistency under tax law, and then erred by granting partial summary judgment to the Commissioner on that defense. View "Musa v. Commissioner of Internal Revenue" on Justia Law