Justia Tax Law Opinion Summaries

Lumber, a tax-exempt insurance trust (26 U.S.C. 501(c)(9)), purchased life insurance issued by GAMHC. GAMHC converted from an insurer owned by policyholders to one owned by stockholders. In 2003, Lumber received a $1,474,442.30 liquidating distribution and a statement that the entire “initial distribution . . . will constitute long-term capital gain.” Lumber reported the gain on its return for fiscal year 2004 and paid capital gains tax of $200,686. Lumber received additional distributions of $285,647 and $213,567, which it reported as taxable capital gains on its 2006 and 2008 returns. The IRS had adopted the position that a policyholder’s proprietary interest in a mutual insurance company had a tax basis of zero. In 2008, the Claims Court rejected that position. Lumber sought refunds for 2004, 2006, and 2008. The IRS delayed a ruling until the Federal Circuit affirmed, then allowed Lumber’s claims for 2006 and 2008 and refunded $42,847 and $32,035, but denied Lumber’s claim for 2004, citing the three-year limitations period. The district court granted Lumber summary judgment, concluding that the mitigation provisions, I.R.C. 1311-1314, permitted correcting the erroneous recognition of gain. The Eighth Circuit reversed. Allowing taxpayers to reopen closed tax years based upon a favorable change in, or reinterpretation of, the laws would be inconsistent with the congressional intent in enacting the mitigation provisions to “preserve unimpaired the essential function of the statute of limitations.” View "Ill. Lumber & Material v. United States" on Justia Law

The IRS received information from French authorities concerning United States persons with undisclosed bank accounts at HSBC and issued summonses to the Chabots requesting that they appear to give testimony and produce documents about their foreign bank accounts for the period from January 1, 2006, to December 31, 2009. The Chabots’ attorney notified the IRS that the Chabots would not appear, were asserting their Fifth Amendment privilege against self-incrimination, and would not produce the requested documents. The IRS amended the two summonses, limiting their scope to only those documents required to be maintained under 31 C.F.R. 1010.420. The Chabots continued to claim the Fifth Amendment privilege, and the IRS filed a petition to enforce the amended summonses.The Chabots appealed the district court's grant of the petition. The Third Circuit affirmed, noting that six other circuits have held that these records fall within the required records exception to the Fifth Amendment privilege. View "United States v. Chabot" on Justia Law

Zavadil organized AS and was its sole owner until he sold it to an employee stock ownership plan and received a $28,760,000 note, payable in annual installments. Zavadil served without compensation as CEO and on the board of directors. In 2004 and 2005, AS paid Zavadil’s personal expenses. Zavadil reimbursed the company monthly by personal check. AS recorded Zavadil’s personal expenses on a ledger after Zavadil used his company credit card or instructed an employee to issue a check. AS’s creditors required that all ledger accounts, including Zavadil’s, be paid off at the end of each month. In some months, however, Zavadil’s personal bank account had insufficient funds; Zavadil would write a personal check and AS brought the ledger balance to zero. At the beginning of the next month, AS advanced funds to Zavadil to cover the check, recorded the advance as an expense, and then cashed the personal check received the previous month. The IRS issued a notice of deficiency. The tax court ruled in favor of the Zavadils on charitable contributions made before July 2005, finding that Zavadil reimbursed AS and bore the economic burden; disallowed charitable deductions made later, because Zavadil did not demonstrate that he bore the economic burden; and disallowed unreimbursed expenses, finding Zavadil failed to introduce credible evidence regarding the nature and purpose of the payments. The tax court assessed deficiencies (about $260,000, with penalties) and the Eighth Circuit affirmed. View "Zavadil v. Comm'r of Internal Revenue Serv." on Justia Law

The Tax Court issued its final order and decision, granting taxpayer relief from joint and several income tax liabilities and denied taxpayer’s motion for attorney’s fees and litigation costs. At issue was whether a unilateral concession by the IRS is a settlement, for purposes of the Qualified Offer Rule (QOR) of the Internal Revenue Code, codified at 26 U.S.C. 7430(c)(4)(E). In this case, taxpayer made a qualified offer to settle her tax liability. The IRS's concession that taxpayer was entitled to full relief and owed no tax liability is not a settlement within the meaning of section 7430(c)(4)(E)(ii)(I). The court concluded that the IRS was unwilling to settle this case on the terms and at the times offered by taxpayer, and the IRS cannot sidestep the consequences of such refusal by conceding the issues after taxpayer had effectively presented the case for disposition by the court. Accordingly, the court reversed the Tax Court's decision and found that taxpayer is a prevailing party for purposes of section 7430. The court reversed and remanded for the Tax Court to determine costs and attorney's fees. View "Knudsen v. Commissioner" on Justia Law

The Metamore Elevator Company filed complaints with the Fulton County Board of Revision (BOR) seeking to reduce the property value of two parcels and to remove grain storage bins from the real property assessment, claiming that they were business fixtures and thus should be classified as personal property not subject to real estate tax. The BOR left the assessed valuation unchanged. The Board of Tax Appeals (BTA) reversed, concluding that the storage bins were temporary structures and should be classified as personal property. The Supreme Court affirmed, holding that the BTA correctly applied the statues when it found that the grain storage bins were personal property. View "Metamora Elevator Co. v. Fulton County Bd. of Revision" on Justia Law

Between 2007 and 2012, Fountain, an IRS employee, helped orchestrate several schemes that involved filing false tax returns, claiming refunds under the Telephone ExciseTax Refund,the First Time Homebuyer Credit, or the American Opportunity Tax Credit. Fountain employed her knowledge of IRS fraud detection to avoid detection. Fountain and Ishmael enlisted people, including Johnson, to recruit claimants to provide their personal information in exchange for part of a cash refund. A jury convicted Fountain, Ishmael, and Johnson on multiple counts of conspiracy and filing false claims to the IRS, 18 U.S.C. 286, 287. Fountain was also convicted of Hobbs Act extortion and making or presenting false tax returns, 18 U.S.C. 1951(a); 26 U.S.C. 7206. Additionally, Johnson was convicted of filing false claims while on pretrial release. The court sentenced Fountain to 228 months in prison and ordered her to pay $1,740,221 in restitution; sentenced Ishmael to 144 months and $1,750,809 in restitution; and sentenced Johnson to 216 months in prison and to pay $1,248,592 in restitution. Each sentence fell within the Guidelines range after various enhancements were applied. The Third Circuit affirmed. View "United States v. Fountain" on Justia Law

n consolidated appeals, the issue central to all that was presented for the Supreme Court's review was whether petitioners, who sold their principal residences in arm’s-length transactions, were entitled to refunds of the real estate transfer tax under the real estate transfer tax exemption set forth in MCL 207.526(u) when the state equalized value of the properties at the time of sale was less than it was at the time of their original purchases. The Court held that petitioners were entitled to refunds under the real estate transfer tax exemption in these circumstances. The Court of Appeals was reversed and the cases remanded to the Tax Tribunal for further proceedings, including reinstatement of its judgments in favor of petitioners. View "Gardner v. Dept. of Treasury" on Justia Law

Petitioner appealed the Tax Court's decision assessing deficiencies and penalties for tax years 2004 and 2005, which arose from petitioner’s operation of a medical marijuana dispensary in San Francisco. The court concluded that the Tax Court properly concluded that I.R.C. 280E precludes petitioner from deducting, pursuant to I.R.C. 162(a), the ordinary and necessary business expenses associated with his operation of the dispensary because it is a trade or business consisting of trafficking in controlled substances prohibited by Federal law. Accordingly, the court affirmed the judgment. View "Olive v. Commissioner" on Justia Law

In 2009, Kent Cunningham filed an “Affidavit of Non-Ohio Domicile” for tax year 2008 declaring that he was “not domiciled in Ohio” at any during during the tax year. The tax commissioner issued Kent and his wife an assessment based upon the nonfiling and nonpayment of Ohio income tax for 2008. The Cunninghams filed a petition for reassessment. Noting a 2008 filing of an Ohio homestead-exemption application declaring that the Cunninghams’ Cincinnati, Ohio house was their principal place of residence, the commissioner concluded that the Cunninghams’ Affidavit of Non-Ohio Domicile contained a false statement and that the Cunninghams failed to rebut the presumption of Ohio domicile. The Board of Tax Appeals (BTA) reversed the commissioner’s determination with regard to Kent, concluding that Kent complied with the requirements of Ohio Rev. Code 5747.24(B)(1) and was, therefore, “irrefutably presumed to be not domiciled in Ohio for Ohio individual income tax purposes.” The Supreme Court reversed, holding (1) Kent’s explicit claim under section 5747.24(B)(1) to be domiciled outside Ohio did not bind the commissioner without regard to other statements and actions by Kent that indicated a domicile inside Ohio; and (2) the BTA erred by reversing the tax commissioner’s denial of the irrebuttable presumption created under section 5747.24(B)(1). View "Cunningham v. Testa" on Justia Law

Defendant-appellant Elizabeth Kupfer and her husband jointly filed federal income taxes for 2004-2006, but failed to report over $790,000 in gross income. The government charged defendant with three counts of tax evasion, one for each tax year. She admitted that she had failed to report a substantial amount of gross income, but denied that her under-reporting was willful. A jury disagreed and found defendant guilty on each of the three counts. Defendant appealed, arguing: (1) the trial court erred in instructing the jury; (2) the trial court erred in denying her request for a mistrial after she alleged a juror commented on other charges against defendant during jury deliberations; and (3) the trial court erred in calculating defendant's sentence. Upon review, the Tenth Circuit concluded that the trial court did miscalculate defendant's sentence. The sentence was vacated and the case remanded for resentencing. The Court affirmed the trial court in all other respects. View "United States v. Kupfer" on Justia Law