Justia Tax Law Opinion Summaries

This case arose out of the Tax Court’s determination that Petaluma was a sham entity and so would be disregarded for tax purposes, resulting in the potential imposition of penalties against individual partners for underreporting their taxable income. At issue in this third appeal was whether the Tax Court had jurisdiction at the current, partnership-level stage to determine the applicability of the penalties to the individual partners, or whether that determination instead must await the commencement of separate, partner-level proceedings against each partner. Assuming that a regulation in fact is necessary to create jurisdiction in the Tax Court, the court concluded that a different (and permanent) regulation is the operative one for purposes of conferring jurisdiction. Therefore, the court concluded that the Tax Court had jurisdiction to decide the applicability of penalties to Petaluma's partners. View "Petaluma FX Partners v. Commissioner" on Justia Law

This appeal involves a Son of BOSS tax shelter, which abuses the partnership form of doing business by “employ[ing] a series of transactions to create artificial financial losses that are used to offset real financial gains, thereby reducing tax liability.” At issue was whether and when the Tax Court may apply a penalty to a taxpayer who underpays his taxes by participating in a partnership that was nothing more than an intricate tax shelter. In this case, the parties recognize that United States v. Woods answered the questions about the Tax Court’s jurisdiction over penalties and outside basis. Taxpayer concedes rightly that the Tax Court properly applied his penalty when that court conducted its review of the partnership and its items, and the court affirmed the Tax Court on this point. In turn, the IRS acknowledges correctly that the Tax Court lacked jurisdiction to determine that the Tigers Eye partners had no basis in the partnership, and the court reversed the portion of the Tax Court’s decision that did so. The court remanded for further proceedings. View "Logan Trust v. Commissioner" on Justia Law

Costco withheld federal and state payroll taxes from plaintiff's award for lost wages. The trial court, under Lisec v. United States, ruled that the withholding was improper and denied Costco's motion for acknowledgment of satisfaction of the judgment. The court noted that in the 23 years since Lisec, the IRS and the vast majority of federal appellate courts have broadly interpreted the applicable Internal Revenue Code (IRC) provisions as requiring an employer to withhold payroll taxes for all "wages" arising from the employer-employee relationship, even after that relationship has terminated. Therefore, the court adopted this prevailing view and concluded that Costco properly withheld the payroll taxes. The court reversed and remanded with instructions. View "Cifuentes v. Costco Wholesale Corp." on Justia Law

Plaintiffs-taxpayers were indebted to the state for delinquent tax debts. The Department of Finance & Administration filed certificates of indebtness against Plaintiffs with respect to the tax delinquencies and assessed interest on Plaintiffs prior to and after the filing of certificates of indebtedness. Plaintiffs filed a complaint for declaratory and injunctive relief against Defendant, in his official capacity as Director of the Department, alleging illegal-exaction claims and due-process violations. Defendant moved to dismiss the complaint pursuant to Ark. R. Civ. P. 12(b)(1) and (6), alleging that Appellants had failed to plead facts necessary to establish subject-matter jurisdiction and failed to plead facts on which relief may be granted. The circuit court dismissed with prejudice Appellants’ complaint. The Supreme Court affirmed, holding that the circuit court did not err in (1) dismissing Appellants’ illegal-exaction claims where Appellants did not claim that the underlying tax delinquency was illegal; and (2) ruling that Appellants failed to plead facts to support their due-process-violation claims. View "Sanford v. Walther" on Justia Law

The Patient Protection and Affordable Care Act (42 U.S.C 18001) includes “guaranteed issue” and “community rating” requirements, which bar insurers from denying coverage or charging higher premiums based on health; requires individuals to maintain health insurance coverage or make a payment to the IRS, unless the cost of buying insurance would exceed eight percent of that individual’s income; and seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 per cent and 400 percent of the federal poverty line. The Act requires creation of an “Exchange” in each state— a marketplace to compare and purchase insurance plans; the federal government will establish “such Exchange” if the state does not. The Act provides that tax credits “shall be allowed” for any “applicable taxpayer,” only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under [42 U.S.C. 18031],” An IRS regulation interprets that language as making credits available regardless of whether the exchange is established by a state or the federal government. Plaintiffs live in Virginia, which has a federal exchange. They argued Virginia’s Exchange does not qualify as “an Exchange established by the State,” so they should not receive any tax credits. That would make the cost of buying insurance more than eight percent of their income, exempting them from the coverage requirement. The district court dismissed their suit. The Fourth Circuit and Supreme Court affirmed. Tax credits are available to individuals in states that have a federal exchange. Given that the text is ambiguous, the Court looked to the broader structure of the Act and concluded that plaintiffs’ interpretation would destabilize the individual insurance market in any state with a federal exchange. It is implausible that Congress meant the Act to operate in that manner. Congress made the guaranteed issue and community rating requirements applicable in every state, but those requirements only work when combined with the coverage requirement and tax credits. View "King v. Burwell" on Justia Law

Taxpayers petitioned the Tax Court for a redetermination of $18,030 in deficiencies and penalties for tax years 2009 through 2011. On the trial date, the IRs Commissioner submitted a “Stipulation of Settled Issues” signed by the parties. The document states that it “reflects” the parties’ “agreement as to the disposition of adjustments,” but contained no mention of agreement concerning the fact or amount of a deficiency for any of the relevant tax years. At the Commissioner’s request, the Tax Court granted the parties 30 days to file “decision documents” in lieu of trial. The Commissioner calculated a total deficiency of $12,252 and a penalty of $0. When the couple refused to agree to this amount, the Commissioner asked the Tax Court to enter a decision adopting the Commissioner’s figures. The taxpayers sought more time to produce an agreement, but the Tax Court granted the Commissioner’s motion on the ground that “the parties’ computations for decision and proposed decisions consistent with their settlement agreement” were overdue. The Seventh Circuit vacated. In light of the parties’ disagreement over the taxpayers’ liability, the Tax Court erred by entering a judgment without holding a trial. View "Hussain v. Comm'r of Internal Revenue" on Justia Law

Plaintiff, the Town of Groton, filed a tax appeal contesting the validity of a sales and use tax assessment issued by Defendant, the Commissioner of Revenue Services, in the amount of $240,653. The trial court dismissed the appeal. Plaintiff appealed, contending that the trial court improperly concluded that the fees collected for refuse removal services provided to industrial, commercial, or income producing real properties were subject to the sales tax. The Supreme Court reversed, holding that the trial court improperly determined that consideration existed to support Defendant’s assessment of Plaintiff for sales tax in connection with its revenue neutral program for the collection of refuse generated by commercial, industrial, or income producing real properties. View "Groton v. Comm’r of Revenue Servs." on Justia Law

Z Street filed suit against the Commissioner, alleging that the “Israel Special Policy” violates the First Amendment. Z Street alleges that the agency has an “Israel Special Policy” under which applications from organizations holding “political views inconsistent with those espoused by the Obama administration” receive increased “scrutin[y]” that results in such applications “tak[ing] longer to process than those made by organizations without that characteristic.” The court agreed with the district court that Z Street seeks not to restrain “the assessment or collection” of a tax, but rather to obtain relief from unconstitutional delay, the effects of which it is now suffering. Accordingly, the court affirmed the district court's denial of the Commissioner's motion to dismiss. View "Z Street v. Koskinen" on Justia Law

In this appeal, both parties agree that the tax court lacked jurisdiction to consider the petition filed by taxpayers challenging the seizure of their funds by the IRS. At issue was why, and the reason the tax court lacked jurisdiction. The court concluded that the tax court’s December 2013 denial of both parties’ motions and its terse order undercut any contention that it resolved precisely why jurisdiction was lacking in this case. Therefore, the court vacated the December order and remanded to the tax court to give that court an opportunity to state its reasons for dismissing the petition. Because the costs claim will be affected by the grounds of the tax court’s jurisdictional ruling, the court vacated the tax court’s denial of taxpayers’ motion for costs and leave it to the tax court to decide taxpayers’ motion anew, in light of the jurisdictional rationale it adopts; because the tax court’s December order did not address taxpayers’ alternative ground for jurisdiction, the tax court must first determine, on remand, whether the parties have preserved their arguments concerning this issue; and the court lacked jurisdiction to consider a new argument taxpayers attempt to raise for the first time on appeal regarding a collection due process hearing. View "Edwards v. Commissioner" on Justia Law

In 2011, the IRS required tax preparers who were neither attorneys nor CPAs to pass a certification exam and obtain an identification number. H&R, a nation-wide tax service, passed anticipated costs to its customers by charging a “Compliance Fee.” H&R explained at its offices and on its website that the fee would cover only the costs to comply with the new laws. In 2011, the fee was $2; in 2012, the fee was $4. Perras sued on behalf of himself and a putative class. Perras alleged that the amount collected exceeded actual compliance costs. Perras sued under the Missouri Merchandising Practices Act. The district court compelled arbitration of the 2011 claims. Later, the court declined to certify the class, agreeing that the proposed class met the requirements under Federal Rule of Civil Procedure 23(a) of “numerosity, commonality, typicality, and fair and adequate representation,” but Rule 23(b)(3), requires that “the questions of law or fact common to class members predominate over any questions affecting only individual members.” The Eighth Circuit affirmed, reasoning that the Supreme Court of Missouri would likely conclude that the MMPA does not cover the out-of-state transactions. The law applicable to each class member would be the consumer-protection statute of that member’s state; questions of law common to the class members do not predominate over individual questions. View "Perras v. H&R Block" on Justia Law