Justia Tax Law Opinion Summaries

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

Validus, a foreign corporation, filed suit seeking a refund of excise taxes imposed under 26 U.S.C. 4371, which taxes certain types of "reinsurance." The government contends that “the best reading of the statute” establishes its applicability to reinsurance purchased by a reinsurer because such policies (known as “retrocessions”) are “a type of reinsurance,” and also that interpretation carries out Congress’s intent “to level the playing field” between domestic (U.S.) insurance companies subject to U.S. income taxes and foreign insurance companies that are not so burdened. Validus responds, however, that the plain text, considered in the context of reinsurance, and the statutory structure make clear that the excise tax does not apply to retrocessions, and further, the presumption against extraterritoriality resolves any doubt that the tax is inapplicable to Validus’s purchases of reinsurance from a foreign reinsurer. The court concluded that the text of the statute is ambiguous with respect to its application to wholly foreign retrocessions, and the ambiguity is resolved upon applying the presumption against extraterritoriality because there is no clear indication by Congress that it intended the excise tax to apply to premiums on wholly foreign retrocessions. Therefore, the court affirmed the district court's grant of summary judgment on Validus's refund claims. View "Validus Reinsurance v. United States" on Justia Law

Maryland has a “state” income tax, Md. Tax-Gen. Code 10–105(a), and a “county” income tax, sections 10–103, 10–106. Residents who pay income tax to another jurisdiction for income earned in that other jurisdiction get a credit against the state tax but not the county tax. Nonresidents who earn income from Maryland sources must pay the state income tax; nonresidents not subject to the county tax must pay a “special nonresident tax.” Residents who earned pass-through income from a Subchapter S corporation that earned income in several states claimed an income tax credit on their Maryland tax return for taxes paid to other states. The Comptroller allowed a credit against state income tax but not against county income tax and assessed a tax deficiency. The Court of Appeals of Maryland held that the tax unconstitutionally discriminated against interstate commerce. The Supreme Court affirmed: Maryland’s personal income tax scheme violates the dormant Commerce Clause. The Court noted previous decisions invalidating state tax schemes that might lead to double taxation of out-of-state income and that discriminated in favor of intrastate over interstate economic activity. That conclusion is not affected by the fact that these cases involved a tax on gross receipts rather than net income, and a tax on corporations rather than individuals. Maryland’s income tax scheme fails the internal consistency test; if every state adopted its tax structure, interstate commerce would be taxed at a higher rate than intrastate commerce. The scheme is inherently discriminatory and operates as a tariff. The Court rejected an argument that, by offering residents who earn income in interstate commerce a credit against the state portion of the tax, Maryland receives less tax revenue from residents who earn interstate, rather than intrastate, commerce income; the total tax burden on interstate commerce is higher. View "Comptroller of Treasury of Md. v. Wynne" on Justia Law

In 2012, the Iowa City Board of Review reclassified eighteen properties from commercial to residential for property tax purposes because the properties had recently been organized as multiple housing cooperatives. Two Iowa corporations organized the cooperatives under chapter 499A of the Iowa Code. The City of Iowa City appealed, arguing that the Board’s reclassification was improper because two natural persons, not two corporations, must organize multiple housing cooperatives under the Code. The City also argued that the organizers did not properly organize the cooperatives because each cooperative had more apartment units than members and section 499A.11 requires a one-to-one ratio. The district court granted summary judgment in favor of the Board and the intervening housing cooperatives. The Supreme Court affirmed, holding (1) two Iowa corporations may organize a multiple housing cooperative under chapter 499A; and (2) the Code does not require a one-apartment-unit-per-member ownership ratio for a multiple housing cooperative to be properly organized. View "City of Iowa City v. Iowa City Bd. of Review" on Justia Law

Dolphin Residential Cooperative, Inc. owned an apartment complex in Iowa City that consisted of twenty-two buildings comprising four hundred residential units. The Iowa City assessor classified the multiunit apartment buildings as commercial property for tax assessment purposes. Dolphin challenged this classification, arguing that because it was a multiple housing cooperative, organized under chapter 499A of the Iowa Code, the property should have been classified as residential property. The Iowa City Board of Review denied Dolphin’s request to reclassify the property, determining that because Dolphin was not properly organized under chapter 499A, Dolphin failed the organizational test for residential cooperatives adopted by the Supreme Court in Krupp Place 1 Coop, Inc. v. Board of Review. On appeal, the district court granted summary judgment in favor of Dolphin, concluding that Dolphin met the organizational test set forth in Krupp and ordering the Board to reclassify the subject property as residential property for tax assessment purposes. The Supreme Court reversed, holding that Dolphin was not properly established under section 499A.1(1), and therefore, the district court erred when it granted summary judgment to Dolphin and denied summary judgment to the Board. View "Dolphin Residential Coop., Inc. v. Iowa City Bd. of Review" on Justia Law

Plaintiff filed a putative class action suit against J.C. Christensen, alleging that J.C. Christensen violated the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692, by offering to settle his debt for less than the full amount without warning him that his total savings might be reduced by an increase in his tax liability. The district court dismissed the suit. The court held that a debt collector need not warn of possible tax consequences when making a settlement offer for less than the full amount owed to comply with the FDCPA. Accordingly, the court affirmed the judgment of the district court. View "Altman v. J.C. Christensen & Assoc." on Justia Law