Justia Tax Law Opinion Summaries

Airport Tech Partners, LLP and Stentor Company, LLC (collectively, Airport Tech) brought a declaratory judgment action against the State, arguing that section 137.115.1 violates the uniformity clause of the Missouri Constitution. Airport Tech claimed it had taxpayer standing to challenge the statute because a lower assessment of airport property owned by Kansas City likely would result in a high tax burden for Airport Tech. The trial court concluded that Airport Tech lacked standing to seek a declaratory judgment because it presented only speculation that the statute relied on affected the level of the airport property’s assessment. The Supreme Court affirmed, holding that the trial court correctly concluded that Airport Tech simply sought to attack the assessment of another’s property as a way to lower its own taxes. View "Airport Tech Partners, LLP v. State" on Justia Law

In 2005, Henderson, Kentucky required, “every person or business entity engaged in any business, trade, occupation, or profession” within city limits to pay 1% of its previous year’s net profits for the privilege of doing business there. The net-profits calculation depends on information reported on IRS forms. Because the 2005 law and federal tax law recognize fiscal year filers, while a previous municipal tax was based on the calendar year, the city decided to transition by taxing fiscal-year taxpayers by reference to their 2006 returns alone, essentially forgiving some tax liability. Phillips, a certified public accountant, assailed the tax before the city council and while advising his clients. Phillips did not pay his $500 bill and was convicted of a misdemeanor for failure to file. A state appellate court threw out the conviction. Phillips sued in federal court for violations of his rights to procedural due process and equal protection. The district court rejected both claims. The Sixth Circuit affirmed, noting that Phillips suffered no loss of property; Phillips never paid the tax. The city has not tried to collect by civil action, nor has it revoked Phillips’ license. The Constitution does not prohibit all differential enforcement of municipal laws. Administrative convenience alone can justify a tax-related distinction. View "Phillips v. McCollom" on Justia Law

In 2004, AT&T Corp. filed refund claims with the Finance and Administration Cabinet arguing that, under Ky. Rev. Stat. 139.505, AT&T was entitled to refunds for tax years 2002 and 2003. The Cabinet granted a partial refund for AT&T’s 2002 claim. In 2008, AT&T filed refund claims for tax years 2004 through 2008. In 2011, AT&T filed a declaration of rights action bringing administrative and as-applied constitutional challenges to the amendments to section 139.505. The circuit court dismissed the case, determining that AT&T’s challenges must be adjudicated by the Kentucky Board of Tax Appeals (KBTA) before the court would address AT&T’s facial constitutional challenges. The court of appeals reversed, concluding that the facial constitutional issue was one that the KBTA could not decide, but that the other claims were properly dismissed. The Supreme Court reversed the court of appeals’ decision and reinstated the trial court’s order of dismissal, holding that there were several administrative issues that must be resolved prior to addressing the constitutional claims. View "Commonwealth v. AT&T Corp." on Justia Law

Certain counties filed a declaratory action against online travel companies (OTCs) arguing, inter alia, that the Tourist Development Tax (TDT) applies to the difference between the total monetary amounts the OTCs’ customers pay to them and the lesser monetary amount the OTCs remit to the hotels (a difference known as the “markup charges.”) The circuit court granted summary judgment for the OTCs, concluding (1) the TDT does not clearly impose any tax on the amount the OTCs charge their customers by way of markup charges; and (2) the OTCs, not the customers, are the entities who exercise the privilege that is taxable under the TDT. The First District Court of Appeal affirmed, holding that the privilege being exercised for purposes of the TDT is renting rooms to tourists, not the other way around. The Supreme Court approved the First District’s Decision by answering the certified question to clarify that the “local option tourist development act” imposes a tax only on the amount the property owner receives for the rental of transient accommodations and not on the total amount of consideration an online travel company receives from tourists who reserve accommodations using the online travel company’s website. View "Alachua County v. Expedia, Inc." on Justia Law

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