Justia Tax Law Opinion Summaries

Two companies, Dine Brands Global, Inc. and The Walt Disney Company, filed separate lawsuits against the Michigan State Treasurer, Rachael Eubanks, seeking declaratory and injunctive relief under the Uniform Unclaimed Property Act (UUPA). The Treasurer had initiated multistate examinations of the companies' records to check compliance with the UUPA's reporting and remittance requirements. The examinations, conducted by Kelmar Associates, LLC, identified unclaimed property dating back to 2002. The companies disputed the findings and argued that the statute of limitations barred the Treasurer from collecting the identified property.The Oakland Circuit Court granted summary disposition in favor of the companies, ruling that the examinations were not "actions or proceedings" under the UUPA and did not toll the statute of limitations. The court enjoined the Treasurer from enforcing the collection of the disputed property. The Michigan Court of Appeals affirmed the circuit court's judgments, agreeing that the examinations did not toll the statute of limitations.The Michigan Supreme Court reviewed the case and held that the phrase "action or proceeding" in the UUPA includes both formal lawsuits and administrative procedures like examinations. However, the Court also held that the commencement of an examination does not toll the statute of limitations. The Court noted that the statute of limitations continues to run during an examination and that the Treasurer must initiate an examination within the applicable time frame.The Supreme Court reversed the Court of Appeals' decisions that excluded examinations from the definition of "action or proceeding." The Court remanded the cases to the Court of Appeals to determine whether a holder's duty to comply with the results of an examination is distinct from the annual duty to report and remit unclaimed property, which would affect the statute of limitations for post-examination enforcement actions. View "Dine Brands Global Inc v. Eubanks" on Justia Law

Actavis Laboratories FL, Inc. ("Actavis") filed Abbreviated New Drug Applications (ANDAs) with the FDA to market generic versions of branded drugs. The manufacturers of these branded drugs, who hold New Drug Applications (NDAs) and patents, sued Actavis for patent infringement under the Hatch-Waxman Act. This Act considers the submission of an ANDA with a Paragraph IV certification as an act of patent infringement if it seeks FDA approval before the expiration of the patents. Actavis incurred significant litigation expenses defending these suits and deducted these expenses as ordinary business expenses on its tax returns.The IRS disagreed, treating these expenses as capital expenditures related to the acquisition of an intangible asset (FDA approval) and issued Notices of Deficiency. Actavis paid the assessed taxes and sued in the Court of Federal Claims for a refund, arguing that the litigation expenses were deductible. The Court of Federal Claims ruled in favor of Actavis, holding that the litigation expenses were deductible as ordinary business expenses.The United States Court of Appeals for the Federal Circuit reviewed the case. The court considered whether the litigation expenses were ordinary business expenses or capital expenditures. Applying both the "origin of the claim" test and the IRS regulation under C.F.R. § 1.263, the court concluded that the expenses were deductible. The court found that the origin of the claim was the patent infringement suit, not the pursuit of FDA approval, and that the litigation did not facilitate the acquisition of the FDA-approved ANDA. Therefore, the court affirmed the decision of the Court of Federal Claims, allowing Actavis to deduct the litigation expenses as ordinary business expenses. View "ACTAVIS LABORATORIES FL, INC. v. US " on Justia Law

The Village of Arlington Heights filed a complaint against the City of Rolling Meadows in Cook County circuit court to recover misallocated sales tax revenue. Cooper’s Hawk Winery and Restaurants, located in Arlington Heights, was mistakenly coded in the Illinois Department of Revenue (IDOR) records as being in Rolling Meadows. As a result, sales taxes generated by Cooper’s Hawk from June 2011 to March 2020 were disbursed to Rolling Meadows. Arlington Heights discovered the error in March 2020 and notified IDOR, which reimbursed Arlington Heights for six months of tax revenues but advised them to seek an agreement with Rolling Meadows for the remaining funds. Unable to reach an agreement, Arlington Heights filed a complaint seeking the misallocated taxes.The trial court dismissed the complaint for lack of jurisdiction, citing the Illinois Supreme Court’s decision in City of Chicago v. City of Kankakee, which held that IDOR has exclusive jurisdiction over tax disputes. The Appellate Court, First District, reversed the trial court’s decision, finding that the trial court had jurisdiction over straightforward sales tax disputes that do not require agency expertise, relying on Village of Itasca v. Village of Lisle.The Illinois Supreme Court reviewed the case and determined that IDOR has exclusive jurisdiction over tax matters, including misallocation disputes, as established in City of Chicago v. City of Kankakee. The court found that the statutory framework grants IDOR the authority to handle tax disputes and that the trial court’s jurisdiction is limited to cases involving unlawful rebate agreements. The court concluded that the trial court correctly dismissed Arlington Heights’ complaint for lack of subject-matter jurisdiction and reversed the appellate court’s judgment. The trial court’s dismissal of the complaint was affirmed. View "Village of Arlington Heights v. City of Rolling Meadows" on Justia Law

In 2021, Contango Resources, LLC purchased oil and gas production and processing facilities in Fremont and Sweetwater Counties, Wyoming. In 2022, the Fremont County Assessor assessed the taxable value of the property located in Fremont County. Contango appealed the assessment to the Fremont County Board of Equalization, arguing that the County Assessor and her expert consultant failed to properly use the purchase price of the property in their valuations and used improper trending and depreciation factors. The County Board upheld the valuation.The State Board of Equalization and the district court both affirmed the County Board's decision. Contango then appealed to the Wyoming Supreme Court. The main issues on appeal were whether the County Board’s decision to uphold the County Assessor’s rejection of the property’s purchase price as a starting point for valuation was supported by substantial evidence and in accordance with law, and whether the County Board’s decision to uphold the County Assessor’s application of trending and depreciation factors in the valuation was in accordance with law.The Wyoming Supreme Court affirmed the lower court's decision. The Court held that the County Assessor was justified in rejecting the purchase price as a starting point for valuation due to the lack of detailed information and the complexity of the Purchase and Sale Agreement (PSA). The Court also found that the Assessor’s use of trending and depreciation factors outside those recommended by the Department of Revenue was permissible under the Department’s rules, as long as the sources were credible. The Court concluded that the County Board’s rulings were supported by substantial evidence and in accordance with law. View "Contango Resources, LLC v. Fremont County" on Justia Law

Lonnie Hubbard, a pharmacist, was convicted of operating an illegal "pill mill" and sentenced to 30 years in prison. The government confiscated his assets, including over $400,000 from his individual retirement account (IRA), as part of the criminal forfeiture. The IRS later claimed that this seizure constituted taxable income for Hubbard, resulting in a tax deficiency notice for over $180,000 in taxes and penalties.The United States Tax Court agreed with the IRS, ruling that the transfer of the IRA funds to the IRS was a taxable event for Hubbard. The court held that the funds qualified as Hubbard's income because they discharged an obligation he owed. Consequently, the court ordered Hubbard to pay the taxes and penalties.The United States Court of Appeals for the Sixth Circuit reviewed the case and reversed the Tax Court's decision. The Sixth Circuit held that the forfeiture order granted the IRS ownership of the IRA, meaning the IRS, not Hubbard, was the payee or distributee of the funds. The court concluded that the withdrawal of the IRA funds by the IRS did not constitute taxable income for Hubbard, as he no longer owned or controlled the IRA at the time of the withdrawal. The court emphasized that the tax code requires the payee or distributee of withdrawn IRA funds to pay the taxes, and in this case, the IRS was the payee or distributee. Therefore, Hubbard was not liable for the taxes on the forfeited IRA funds. The court reversed the Tax Court's decision and remanded the case for further proceedings consistent with its opinion. View "Hubbard v. Commissioner of Internal Revenue" on Justia Law

The case involves five public utilities operating in California, including Pacific Bell Telephone Company and AT&T Mobility LLC, which challenged the property tax rates imposed by Merced County for the fiscal years 2017-2018 and 2018-2019. The utilities argued that the tax rates applied to their properties exceeded the permissible rates under Section 19 of Article XIII of the California Constitution, which they interpreted as requiring utility property to be taxed at the same rate as non-utility property.In the Superior Court of Merced County, the utilities sought partial refunds of the property taxes paid, claiming that the tax rates levied on them were higher than the average tax rates in the county. The County demurred, relying on the precedent set by the Sixth District in County of Santa Clara v. Superior Court, which held that Section 19 does not mandate the same tax rate for utility property as for locally assessed property. The utilities conceded that Santa Clara was binding but sought to challenge its holding on appeal. The Superior Court dismissed the case, and the utilities filed a timely notice of appeal.The California Court of Appeal, Fifth Appellate District, reviewed the case de novo and affirmed the lower court's judgment. The court held that Section 19 of Article XIII of the California Constitution does not require utility property to be taxed at the same rate as non-utility property. Instead, the court interpreted the relevant language as an enabling clause, allowing utility property to be subject to taxation, rather than a limiting clause mandating equal tax rates. The court found that the historical context, language, and structure of Section 19 supported this interpretation, and thus, Merced County's application of the tax rates did not violate the constitutional provision. View "Pacific Bell Telephone Co. v. County of Merced" on Justia Law

A private, for-profit corporation, The GEO Group, Inc., which operates correctional facilities under contracts with federal and state government entities, was assessed a deficiency in sales and use taxes by the Texas Comptroller. GEO Group challenged the deficiency, arguing that the purchases made for operating the facilities were tax-exempt as they were made on behalf of government clients. The Comptroller denied the claim, and GEO Group paid the additional taxes and sued for a refund in district court.The trial court conducted a bench trial and ruled against GEO Group, finding that it failed to prove by clear and convincing evidence that it was an "agent" or "instrumentality" of the government, thus not qualifying for the tax exemption. The court of appeals affirmed the trial court's judgment, holding that GEO Group's relationship with its government clients was too attenuated to warrant a tax exemption and that the trial court did not err in applying a heightened standard of proof.The Supreme Court of Texas reviewed the case and concluded that the correct standard of proof for GEO Group to prove its entitlement to a tax exemption is by a preponderance of the evidence, not clear and convincing evidence. However, the court agreed with the lower courts that GEO Group is not an "agent" or "instrumentality" of the federal or state government under the relevant statutes and rules. Therefore, GEO Group is not entitled to a tax refund. The Supreme Court of Texas affirmed the judgment of the court of appeals. View "The GEO Group, Inc. v. Hegar" on Justia Law

In late 2008, the IRS assessed Arthur and Gigi Stover a significant tax bill, which they could not pay. The Government waited until 2020 to initiate a collection suit, nearly twelve years later. Generally, the Government has ten years to sue for unpaid taxes, but this period can be extended if the taxpayer requests an installment agreement. The IRS records indicated that the Stovers requested such an agreement on December 12, 2008. However, Arthur Stover testified that they did not contact the IRS about a payment plan until 2009 through their CPA.The United States District Court for the Western District of North Carolina granted summary judgment to the Government, finding no genuine issue of material fact regarding the date of the installment agreement request. The court held that the request tolled the statute of limitations, making the Government's collection action timely.The United States Court of Appeals for the Fourth Circuit reviewed the case and found that there was a genuine dispute of material fact regarding the date of the installment agreement request. Arthur Stover's deposition testimony suggested that the request could not have been made until 2009, contradicting the IRS records. The court concluded that summary judgment was improper because the conflicting evidence created a genuine issue of fact that should be resolved by a factfinder.The Fourth Circuit vacated the district court's grant of summary judgment and remanded the case for further proceedings. The main holding was that summary judgment is not appropriate when there is a genuine dispute of material fact regarding the date that dictates the timeliness of the Government's suit. View "United States v. Stover" on Justia Law

Angeline and Frank Brozovich appealed a tax order issued by the Commissioner of Revenue, which assessed them $10,864.58 in unpaid individual income tax, penalties, and interest for tax years 2019 and 2020. The assessment was based on the finding that the Brozoviches improperly deducted over $105,000 in losses related to their residential real estate in Bainbridge Island, Washington. The primary issue was whether Angeline qualified as a “real estate professional” under Internal Revenue Code § 469(c)(7)(B) for those tax years.The Minnesota Tax Court held a trial and determined that Angeline did not qualify as a real estate professional because she failed to submit credible evidence that she met the minimum requirement of 750 hours or more on qualifying services in support of renting the Bainbridge Island Property during the years at issue. The tax court also found that other deductions claimed by the Brozoviches, including those related to renting the property to their son, credit card interest payments, and a lawncare payment, were improperly claimed.The Minnesota Supreme Court reviewed the case and affirmed the tax court’s decision. The court held that the tax court had jurisdiction to decide cases arising under Minnesota tax law that incorporate federal tax law. It also held that the tax court did not err in determining that Angeline was not a real estate professional and that some of the claimed deductions were unsupported by the evidence offered. The court found no clear error in the tax court’s factual findings and concluded that the tax court’s decision was supported by the evidence as a whole. View "Brozovich v. Commissioner of Revenue" on Justia Law

Hollydale Land LLC (Hollydale) owned a golf course in Hennepin County, Minnesota, which was taxed under the Minnesota Open Space Property Tax Law. This law allows for reduced tax assessments on properties used for recreational purposes, with deferred taxes calculated based on the difference between the market value and the reduced value. When Hollydale sold the golf course, Hennepin County assessed seven years of deferred taxes totaling $2,622,720.41. Hollydale paid the amount but contested the calculation, arguing that the County failed to cap the market value at the bona fide sale price.Hollydale filed a petition in district court, later transferred to the tax court, challenging the County's assessment. Hennepin County moved to dismiss the petition, arguing it was untimely because Hollydale should have challenged the valuations annually. The tax court denied the motion, holding that the petition was timely as it was filed within 60 days of the notice of deferred taxes, thus the tax court had jurisdiction.Hennepin County sought certiorari review of the tax court's order. The Minnesota Supreme Court reviewed whether the tax court's order denying the motion to dismiss was a "final order" under Minn. Stat. § 271.10, subd. 1, which would allow for immediate appeal. The court reaffirmed its decision in Beuning Family LP v. County of Stearns, which held that such orders are not final and thus not immediately appealable. The court also declined to exercise discretionary review under Minn. R. Civ. App. P. 105.1, finding no compelling reason for immediate appeal and determining that judicial economy would be better served by allowing the tax court to resolve the merits of the case.The Minnesota Supreme Court dismissed the writ of certiorari, concluding that the tax court's order was not a final order and that the interests of justice did not warrant discretionary review. View "County of Hennepin v. Hollydale Land LLC" on Justia Law