Justia Tax Law Opinion Summaries

ABA Retirement, a not‐for‐profit corporation created by the American Bar Association to provide its members and their employees with a retirement plan qualified to take advantage of income tax benefits, created master retirement plans for adoption by lawyers and law firms. In 1999 ABA Retirement hired State Street Bank to act as sole Plan trustee. ABA Retirement directors ceased to be trustees. ABA Retirement still maintained the IRS‐approved master tax‐qualified retirement plans and acted as Plan fiduciary, with authority to engage, monitor, and fire its trustee. It was responsible for Plan documents (ensuring that they were tax‐qualified), oversight of vendors, contract negotiations, and approval of State Street’s marketing plan. State Street had authority to engage and fire investment advisors, but was required to consult with ABA Retirement. The Plan paid ABA Retirement a fee for its services in connection with the Program based on a percentage of l invested assets. ABA Retirement received the interest on the funds. In 2000, 2001, and 2002, ABA Retirement reported gross income of $1,601,217 to $1,861,258. Its taxable income for those years was $384,972 to $672,098; it held assets worth $3.5 million. On tax returns ABA Retirement described itself as an employee benefit fund, and its product as retirement plans. In 2004 ABA retirement sought tax‐exempt status. In 2005, the IRS determined that ABA Retirement did not qualify for the exemption. ABA Retirement filed claims for refunds on taxes it paid from 2000-2002; those were denied. ABA Retirement filed suit, arguing that it was a tax‐exempt “business league” under 26 U.S.C. § 501(c)(6), from 2000 to 2002, and entitled to a refund. The district court granted summary judgment in favor of the government. The Seventh Circuit affirmed.View "ABA Ret. Funds v. United States" on Justia Law

Appellant-taxpayer Elaine Hoiska appealed the Vermont State Appraiser’s valuation of her property in the Town of East Montpelier. She argued that the appraisal incorrectly treated her property as comprising two contiguous lots under common ownership, and accordingly assigns a higher value to the property than if it were a single developable lot. More specifically, appellant took issue with the appraiser’s legal conclusion that she legally subdivided the land in 1978 by procuring a survey, not filed in the land records, that includes a line purportedly dividing the lot into two parcels. Upon review, the Supreme Court agreed that the state appraiser’s findings did not support the legal conclusion that appellant effectively subdivided her property in 1978, and reversed. View "Hoiska v. Town of East Montpelier" on Justia Law

Schlumberger Limited conducts its business in Alaska through a wholly owned subsidiary, Schlumberger Technology Corporation. Schlumberger Technology's primary business is oilfield services, but it also owns all of Schlumberger Limited's associated companies incorporated in the United States and operates all of Schlumberger Limited’s domestic businesses. Schlumberger Technology files a consolidated federal tax return for all of Schlumberger Limited’s domestic subsidiaries. For tax years 1998-2000, Schlumberger Technology filed Alaska corporate income tax returns that included only the domestic subsidiaries working in the oilfield services business. In September 2003, a Department of Revenue auditor concluded that Schlumberger Limited was engaged in a unitary business with Schlumberger Technology. Based on these conclusions, the Department issued a notice of assessment for additional corporate income taxes of $429,739 plus interest. Schlumberger Technology argued on appeal of the assessment that under the Internal Revenue Code, domestic corporations were taxed on their worldwide income, but entitled to claim a tax credit against their United States income tax liability for taxes paid to foreign countries. Foreign corporations, on the other hand, are taxed differently. The issue this case presented to the Supreme Court centered on the application of Alaska's Net Income Tax Act (ANITA). ANITA incorporates certain provisions of the Internal Revenue Code, unless the federal provisions are "excepted to or modified by other provisions" of the act. ANITA required a corporation to report its income and the income of certain affiliates and to exclude "80 percent of dividend income received from foreign corporations." The Internal Revenue Code had a different formula; it required a foreign corporation to report only income "effectively connected with the conduct of a trade or business within the United States." Schlumberger Technology argued that since ANITA has no explicit exception for Internal Revenue Code (section 882), this sourcing rule was incorporated by reference. Thus, Schlumberger Technology argued that the foreign dividends paid to Schlumberger Limited should not have been included in its taxable income under ANITA. In response, the State argued that the provisions of ANITA applied to all business income of the taxpayer, not just income derived from sources in the United States. Upon review of the matter, the Alaska Supreme Court concluded that the Internal Revenue Code provision in question here was not adopted by reference because it was inconsistent with the formula provided by ANITA. The Court affirmed the decision of the Department of Revenue. View "Schlumberger Technology Corp. v. Alaska Dept. of Revenue" on Justia Law

UT filed suit against the United States, seeking refund of the Social Security component of FICA taxes it paid with respect to the service of medical residents in 2005. The court affirmed the district court's denial of UT's motion for summary judgment and grant of the United States' motion for summary judgment, concluding that UT's residents are not "students" within the meaning of the student exclusion in Texas's 42 U.S.C. 418 agreement. Section 418 allows states to voluntarily opt-in to the Social Security system by entering into an agreement with the Commissioner of Social Security.View "University of Texas System, et al. v. United States" on Justia Law

International Business Machines Corporation (IBM) brought an action in the Court of Claims against the Department of Treasury to challenge the department's ruling that IBM was not entitled to apportion its business income tax base and modified gross receipts tax base using a three-factor apportionment formula provided in the Multistate Tax Compact (MCL 205.581 et seq.) and was instead required to apportion its income using the sales-factor formula in the Business Tax Act (MCL 208.1101 et seq.) when calculating its state taxes for 2008. IBM moved for summary judgment under MCR 2.116(C)(10), and the department moved for summary judgment under MCR 2.116(I)(2). After a hearing, the Court of Claims denied IBM's motion and granted the department's motion, holding that the BTA mandated the use of the sales-factor apportionment formula. The Court of Appeals affirmed in an unpublished opinion per curiam. After review, the Supreme Court concluded that IBM was entitled to use the Compact's three-factor apportionment formula for its 2008 Michigan taxes and that the Court of Appeals erred by holding otherwise on the basis of its erroneous conclusion that the Legislature had repealed the Compact's election provision by implication when it enacted the BTA. Furthermore, the Court held that IBM could use the Compact's apportionment formula for that portion of its tax base subject to the modified gross receipts tax of the BTA. View "International Business Machines Corp. v. Dept. of Treasury" on Justia Law

The Town of Charlestown appealed a decision of the New Hampshire Board of Tax and Land Appeals (BTLA) dismissing its petition for reclassification of current use parcels owned by taxpayer TransCanada Hydro Northeast, Inc. The Town asserted that, "[b]ecause the three parcels are part of a development involving land use for the purpose of generating electricity, they have been improperly classified as open space land under" RSA chapter 79-A. As a result, the Town requested that the BTLA revoke the current use status of the three parcels and require the Town's assessing officials to reclassify the parcels. The Town further requested that the BTLA issue an order requiring the assessing officials to reassess taxes for tax years 2007 through 2012. TransCanada objected, arguing that the three parcels were not improperly classified as open space land. After its review, the Supreme Court concluded that the BTLA did not err in dismissing the Town's petition for reclassification on the ground that the Town could unilaterally reclassify the land. As the Town agreed at oral argument, the Court did not address whether the Town could apply the reclassification retrospectively. View "Appeal of Town of Charlestown" on Justia Law

Two Ohio counties brought a class action on behalf of a class of all Ohio counties against the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing Finance Agency, as bankruptcy conservator for both Fannie Mae and Freddie Mac. The counties sought unpaid real property transfer taxes under Ohio law. The agencies responded that they are exempt, under their federal charters, from such state taxes. The district court dismissed. The Sixth Circuit affirmed, holding that the real property transfer taxes at issue are encompassed in the statutory exemptions from all taxation. Real property transfer taxes are excise taxes rather than taxes on real property which are an exception to those tax exemptions. Congress had the power to enact the exemptions under the Commerce Clause, and the enactment does not violate any constitutional provision. View "Bd. of Comm'rs of Montgomery Cnty. v. Fed Hous. Fin. Agency" on Justia Law

George Schussel’s former company fraudulently transferred millions of dollars to him in order to avoid paying income taxes. The IRS, which is authorized by statute to collect a person’s tax debt by reclaiming assets the debtor has transferred to someone else, claimed that Schussel was liable as a transferee for the company’s tax deficiencies. The United States Tax Court held Schussel liable for the company’s back taxes of over $4.9 million plus interest of at least $8.7 million. Schussel appealed, disputing the amount he owed the IRS as a result of the fraudulent transfers. The First Circuit reversed in part and affirmed in part, holding (1) the tax court erred in calculating prejudgment interest on the fraudulently transferred funds under the federal tax interest statute rather than assessing the prejudgment interest at the Massachusetts rate; (2) the tax court did not err in accepting as a proper measure of the assets Schussel received the actual amount transferred from the company into Schussel-controlled accounts; and (3) Schussel’s loans to the company to pay Schussel’s litigation expenses did not reduce the net amount transferred to him. View "Schussel v. Werfel" on Justia Law

In 2006, the Affiliated Group, including AmTrust, entered into a tax-sharing agreement (TSA) to allocate tax liability. In 2009, AFC, the parent of AmTrust, filed for Chapter 11 bankruptcy. The Office of Thrift Supervision closed AmTrust and placed it into FDIC receivership. AFC filed a consolidated 2008 tax return for the Affiliated Group showing a net operating loss of $805 million, with AmTrust’s losses accounting for $767 million of that total. After AFC claimed that any refund would belong to its bankruptcy estate, the parties agreed to deposit refunds in a segregated account pending adjudication. The IRS issued the Affiliated Group’s $194,831,455 refund to AFC. The FDIC claimed that $170,409,422, plus interest, belonged to AmTrust because that portion resulted from offsetting AmTrust’s 2008 net operating loss against its income in prior years. AFC concedes that AmTrust’s tax situation generated the refund. The FDIC sought a declaratory judgment. The district court granted AFC summary judgment, stating that the TSA’s use of terms such as “reimbursement” and “payment” established a debtor-creditor relationship between AFC and its subsidiaries as to tax refunds. The FDIC offered extrinsic evidence that the parties intended to create an agency or trust relationship under Ohio law with respect to tax refunds, but the district court rejected those arguments without analysis. The Sixth Circuit reversed and remanded for consideration of the FDIC’s evidence.View "Fed. Deposit Ins. Corp. v. AmFin Financial Corp." on Justia Law

Expedia (and several other hotel booking websites, collectively, "Petitioners") has been subject to approximately 80 underlying lawsuits by states, counties, and municipalities (collectively, taxing authorities) for purportedly failing to collect the right amount of local occupancy taxes from its hotel customers. Expedia tendered most of the suits to its insurer, Zurich, although some were tendered late. Zurich refused to defend Expedia on a number of grounds, including late tender and that the underlying suits may be excluded from the policies' coverage. The trial court declined to make a determination of Zurich's duty to defend Expedia, instead ordering discovery that Expedia claimed was prejudicial to the underlying actions. Petitioners sought adjudication of their summary judgment motion concerning their respective insurers' duty to defend them in cases brought by local taxing authorities. They further requested a stay of discovery in the coverage action that could prejudice them in the underlying litigation. Upon review of the matter, the Washington Supreme Court held that the trial court erred by delaying adjudication of Zurich's duty to defend Expedia. Accordingly, the Court vacated the trial court's order. The case was remanded to the trial court to determine Zurich's duty to defend Expedia in each of the 54 underlying cases subject to Expedia's motion. The trial court was furthermore ordered to stay discovery in the coverage action until it could make a factual determination as to which parts of discovery are potentially prejudicial to Expedia in the underlying actions. View "Expedia, Inc. v. Steadfast Ins. Co." on Justia Law