Justia Tax Law Opinion Summaries

The Ibrahims, immigrants from Somalia Have very limited English. In 2011, Oday Tax Service, whose employees spoke Somali, prepared their returns. Ibrahim’s return claimed “head of household” status, which was improper because he was living with his wife. After receiving a notice of deficiency, he filed a petition with the Tax Court, seeking to change his status to “married filing jointly” to receive a credit and refund. The Internal Revenue Code prohibits joint returns after a taxpayer has filed a “separate return,” received a deficiency notice, and filed a petition, 26 U.S.C. 6013(b). Section 6013(b)(1) does not define “separate return.” The Tax Court ruled that head-of- household returns are separate returns, so Ibrahim was prohibited from filing jointly. The Eighth Circuit reversed and remanded, reasoning that under the Code’s plain language “separate return” refers only to married filing separately, 26 U.S.C. 1(d), 6654(d)(1)(C)(ii), 7703(b). Since Ibrahimdid not file a separate return within the meaning of section 6013(b)(1), section 6013(b)(2)(B) does not prohibit him from amending his status to married filing jointly. View "Ibrahim v. Comm'r of Internal Revenue" on Justia Law

Heckman did not report, as income, a distribution from his employee stock ownership plan into his individual retirement account of investments worth $137,726 on his 2003 tax return. The IRS issued a notice of deficiency in 2010. The plan was not eligible for favorable tax treatment under 26 U.S.C. 401(a), so the distribution constituted taxable income. Heckman petitioned the tax court, arguing that the deficiency notice was untimely, because the statute of limitations expired three years after the filing of his return. The tax court determined that a six-year statute of limitations applied and held Heckman liable for a deficiency of $38,623. The Eighth Circuit affirmed. Under 26 U.S.C. 6501(a), the IRS must assess a deficiency within three years. Section 6501(e)(1)(A) extends that period to six years if the taxpayer “omits from gross income” an amount in excess of 25 percent of the gross income stated on the return. The distribution exceeded 25 percent of Heckman’s gross income for 2003. An amount is not considered “omitted” from gross income if it is “disclosed in the return, or in a statement attached to the return,” in an adequate manner. Heckman did not disclose the distribution. View "Heckman v. Comm'r of Internal Revenue" on Justia Law

Slone Broadcasting sold essentially all of its assets to Citadel Broadcasting for $45 million. The shareholders of Slone Broadcasting then sold all their shares to Berlinetta for $33 million. The IRS concluded that the substance of the stock sale is that the shareholders received a liquidating distribution from the corporation and the form of this transaction should be disregarded for federal tax law purposes. The shareholders argued, however, that the transaction was a legitimate stock sale transaction and its form must be respected. The tax court agreed with the shareholders. The court concluded that when the Commissioner claims a taxpayer was “the shareholder of a dissolved corporation” for purposes of 26 C.F.R. 301.6901-1(b), but the taxpayer did not receive a liquidating distribution if the form of the transaction is respected, a court must consider the relevant subjective and objective factors to determine whether the formal transaction “had any practical economic effects other than the creation of income tax losses.” In this case, the court cannot resolve this dispute because the tax court failed to apply the correct legal standard for characterizing the stock sale transaction for the purposes of federal transferee liability. Accordingly, the court vacated and remanded for the tax court to apply the proper legal standard under Comm'r v. Stern. View "Slone v. CIR" on Justia Law

Respondent City of Nashua appealed a Superior Court order ruling that it could properly consider a tax abatement for the 2012 tax year for petitioner-taxpayer Nashua Coliseum, LLC. On appeal, the parties proposed contrary interpretations of RSA 76:17-c, II (2012), the statutory provision that addressed the effect of a successful abatement appeal on subsequently assessed taxes. The City argued that, under the plain language of the statute, Coliseum had not satisfied all of the prerequisites for the statute to apply. The City further argued that the statute was inapplicable because of the parties’ settlement agreement, which stated that the abated value would not be deemed to be the correct assessment value for purposes of the statute. Based upon a plain reading of the statutory language, the Supreme Court agreed with the City that the statute required the superior court to find that the assessment value was incorrect in order for the taxpayer to be excused from complying with the filing deadlines otherwise applicable to tax abatement requests. Accordingly, the trial court's order was reversed and the case remanded for further proceedings. View "Nashua Coliseum, LLC v. City of Nashua " on Justia Law

This is an appeal of a federal income tax refund suit filed by the Estate of George Batchelor (“Estate”). Counts I and II of the Estate’s three-count complaint involve Batchelor’s personal income taxes for 1999 and 2000. Count III concerns the Estate’s attempt to claim a credit for its 2005 income taxes for payments it made in settlement of various lawsuits against Batchelor. The court concluded that the district court erred in applying res judicata to bar the government’s claims in Counts I and II and reversed the district court's decision. Since the Estate has failed to identify an applicable deduction identified in 26 U.S.C. 691(b), the court found no error in the district court’s determination that the Estate cannot avoid section 642(g)’s bar on double deductions, and therefore affirmed on Count III. View "Batchelor-Robjohns v. United States" on Justia Law

In 2005 Ellis formed CST, to engage in the business of used automobile sales in Harrisonville, Missouri. CST's members were Ellis's self-directed IRA and Brown, an unrelated full-time CST employe. Ellis’s IRA was to provide an initial capital contribution of $319,500 in exchange for a 98 percent ownership and Brown would purchase the remaining interest for $20. Ellis was the general manager, with “full authority to act on behalf of” the company. Ellis subsequently established the IRA with First Trust, received money from a 401(k) established with his previous employer, and deposited that amount in his IRA. He directed First Trust to acquire shares of CST. Ellis reported the transfers from his 401(k) to the IRA as non-taxable rollover contributions. CST paid Ellis a salary of $9,754 in 2005 and $29,263 in 2006, which was reported as income on the Ellises’ joint tax returns. The IRS sent the Ellises a notice of deficiency, identifying a $135,936 income-tax deficiency for 2005 or, alternatively, a $133,067 deficiency for 2006; it imposed a $27,187 accuracy penalty for 2005 or, alternatively, a $26,613 accuracy penalty and $19,731 late-filing penalty for 2006. The Commissioner determined that Ellis engaged in prohibited transactions under 26 U.S.C. 4975(c) by directing his IRA to acquire an interest in CST with the expectation that CST would employ him, and receiving wages from CST, so that the account lost its IRA status and its entire fair market value was treated as taxable income. The tax court and Eighth Circuit agreed. View "Ellis v. Comm'r of Internal Revenue" on Justia Law

Weatherford Artificial Lift Systems, Inc. (Weatherford) provided oil-field services that included hydraulic fracturing to the oil-and-gas production industry in the state. The Arkansas Department of Finance and Administration (ADFA) conducted an excise-tax audit of Weatherford’s purchases and sales for the period of 2006 through 2009. Weatherford paid the entire amount and then brought this lawsuit to recover the amount paid. The circuit court found that “proppants” were “equipment” under Ark. Code Ann. 26-52-402 and thus exempt from taxation. Therefore, the circuit court concluded that Weatherford was entitled to judgment in the amount of $1,356,440 with interest. The Supreme Court affirmed, holding that the circuit court did not err in concluding that the proppants in this case were equipment. View "Walther v. Weatherford" on Justia Law

Hardy filed for Chapter 13 bankruptcy relief. On her Schedule B, Hardy stated that she would be receiving a 2012 tax refund. On her Schedule C, Hardy claimed the majority of the refund as exempt. She noted that $2,000 of the refund was attributable to federal Child Tax Credit (CTC), 26 U.S.C. 24(d). She claimed that the CTC was a "public assistance benefit" that would be exempt from the bankruptcy estate under Missouri law. The bankruptcy court sustained the trustee’s objection, finding that the CTC was not a public assistance benefit because the purpose of the credit was to "reduce the tax burden on working parents and to promote family values" and because the full credit was available to head-of-household filers with Modified Adjusted Gross Incomes (MAGI) of up to $75,000 and joint-married filers with MAGIs of up to $110,000. The Bankruptcy Appellate Panel affirmed, stating Hardy did not present evidence that only lower income families were eligible for the refundable portion of the credit. The Eighth Circuit reversed, reasoning that Congress demonstrated intent to help low-income families through amendments to the Additional Child Tax Credit statute, sp the credit at issue qualifies as a public assistance benefit. View "Hardy v. Fink" on Justia Law

Grace Cathedral filed an exemption application for the tax year 2010 pertaining to additional buildings added to an exempt church parcel. Regarding the building at issue in this appeal, Grace Cathedral stated that the building would be “made available to visitors in need to temporary housing, free of charge, while they visit the church to participate in worship services.” The tax commissioner denied Grace Cathedral’s claimed exemptions. The Board of Tax Appeals (BTA) upheld that determination. The Supreme Court reversed, concluding that, under the circumstances of this case, the building’s use in facilitating attendance at religious services qualified for exemption under Faith Fellowship Ministries, Inc. v. Limbach. View "Grace Cathedral, Inc. v. Testa" on Justia Law

Harley-Davidson, Inc. and several of its subsidiaries sued the Franchise Tax Board for a tax refund. The trial court sustained the Board's demurrer to Harley-Davidson's commerce clause challenge to Revenue and Taxation Code provisions that allowed intrastate unitary businesses to choose annually whether to compute their tax using the combined reporting method or the separate accounting method but required interstate unitary businesses to compute their tax using only the combined reporting method. After review of the Board's arguments on appeal, the Court of Appeal concluded the trial court erred in sustaining the demurrer because the statutory scheme facially discriminated on the basis of an interstate element in violation of the commerce clause. The Court reversed the judgment in that respect and remanded to the trial court to determine in the first instance whether the taxation scheme withstands strict scrutiny (that is, whether it "'advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.'") On a separate issue, the trial court determined after a bench trial that two Harley-Davidson subsidiaries were taxable by California during the tax years 2000 through 2002. Harley-Davidson argued the trial court erred by finding those subsidiaries bore a sufficient nexus to this state to overcome due process and commerce clause limitations on taxing foreign entities. The Court of Appeal disagreed on this and affirmed the judgment. View "Harley-Davidson v. Franchise Tax Bd." on Justia Law