Justia Tax Law Opinion Summaries

Appellant, a software engineer, filed no federal individual income tax return for 2007. The Commissioner issued a notice of deficiency alleging unpaid taxes, penalties, and interest of more than $250,000 based on a substitute return prepared by the IRS. On appeal, appellant challenged the Tax Court's IRA rollover and business bad debt rulings. The court concluded that appellant's April 30, 2007 contribution was a qualifying partial rollover contribution under I.R.C. 408(d)(3)(D) and appellant was entitled to reduce his taxable IRA distributions by $120,000. Accordingly, the court reversed the Tax Court's decision as to this issue. The court concluded that the Tax Court did not clearly err in finding that appellant failed to prove that his dominant motivation for making the four loans in question made them deductible bad debts when they became worthless in December 2007. The court remanded for a redetermination of the deficiency. View "Haury v. CIR" on Justia Law

26 U.S.C. 4251 imposes an excise tax on amounts paid for toll telephone service. Technological advances changed cost structures and, as a result, telephone companies began charging only by elapsed transmission time. The IRS, however, continued to collect the tax. Five courts of appeals, including this court, held that section 4251 did not permit the Service to tax telephone service with distance-invariant pricing. Around the same time, plaintiffs (Cohen, Sloan, and Gurrola) filed separate putative class-action suits challenging the tax. After Cohen and Sloan filed their complaint, the Service issued without notice and comment Notice 2006-50, declaring that the Service would no longer tax telephone service priced without regard to distance and established a procedure to refund illegally collected excise taxes. On appeal, plaintiffs challenged the district court's refusal to direct the Service on remand to issue a refund rule and from its denial of their interim request for fees. The court rejected plaintiffs' contention that the district court erred in vacating Notice 2006-50 and remanding, without specifically instructing the Service to promulgate a new refund procedure. Here, the only statutory failure was of notice and comment. Absent a statutory duty to promulgate a new rule, a court cannot order it. The court also concluded that the district court did not abuse its discretion in denying fees. The district court found the government's position to be substantially justified because several circuit judges agreed with the government and dissented from the Cohen I and Cohen II opinions. Accordingly, the court affirmed the judgment of the district court. View "In re: Long-distance Telephone Service Federal Excise Tax Refund" on Justia Law

The Internal Revenue Service issued four summonses to banks in the Eastern and Western Districts of Oklahoma for records involving nursing homes owned by Sam Jewell. Under federal law, the IRS had to notify Jewell at least 23 days before the examination date. Because the IRS waited too long to mail the notices, Jewell received the notices less than 23 days before the records were to be examined. Alleging inadequate notice, Jewell filed petitions to quash the summonses. The two courts split on how to interpret the notice requirement: the Western District of Oklahoma granted the government's summary judgment motion and denied Jewell's petition to quash, noting that he received the summonses in time to file his petition; the Eastern District of Oklahoma granted Jewell's petition to quash and denied the government's motion to dismiss, reasoning that the IRS failed to comply with the notice requirement. Jewell appealed the Western District's ruling, and the government appeals the Eastern District's. The Tenth Circuit held that the IRS could not obtain an order enforcing the summonses, affirming the ruling of the Eastern District of Oklahoma and reversing the ruling of the Western District of Oklahoma (with instructions to grant Jewell's petition to quash the two summonses).View "Jewell v. United States" on Justia Law

The Commissioner appealed the Tax Court's grant of summary judgment to petitioner on his pro se petition for review of a tax deficiency determination. At issue was whether the Tax Court erred as a matter of law in holding that petitioner and his wife were entitled to the first-time homebuyers tax credit even though, when considered as a single marital unit, they did not qualify for the credit under 26 U.S.C. 36(c) of the Internal Revenue Code. Section 36(c) requires that for a married couple to qualify for the first-time homebuyer tax credit, both spouses collectively must meet the same statutory requirements, either as first-time homebuyers under section 36(c)(1) or as long-time residents under section 36(c)(6). The court held that the Tax Court's decision was directly contrary to the plain language of the statute and should be reversed. View "Packard v. Commissioner of IRS" on Justia Law

Plaintiff, trustee for the estate of debtor, attempted to avoid eight transfers made by debtor to the IRS as payment for the income tax liability of debtor's principal. The bankruptcy court ruled in favor of the United States as to the first seven transfers. The bankruptcy court concluded that plaintiff succeeded in proving constructive fraud and ruled that the IRS was an initial transferee from whom plaintiff could seek recovery. The district court affirmed with regard to the first seven transfers but reversed as to the eighth. The district court concluded that the IRS could not be held liable as an initial transferee because it qualified for the mere conduit exception. The court affirmed, viewing the transaction as sufficiently similar to the deposit of funds into a bank account to conclude that the IRS acted as a mere conduit. View "Menotte v. United States" on Justia Law

The district court held that ICP had proven that defendants' allocation of Low Income Housing Tax Credits (LIHTC) in Dallas resulted in disparate impact on African-American residents under the Fair Housing Act (FHA), 42 U.S.C. 3604(a) and 3605(a). At issue was the correct legal standard to be applied to disparate impact claims under the FHA. The court adopted the HUD burden-shifting approach found in 24 C.F.R. 100.500 for claims of disparate impact under the FHA and remanded to the district court for application of this standard in the first instance. View "Inclusive Communities Project v. TX Dept. of Housing, et al." on Justia Law

In 2006 Finkl, a Chicago steel producer, initiated termination of its defined benefit pension plan under the Employment Retirement Income Security Act, apparently anticipating merger with another company. The Plan was amended in 2008, to include Section 11.6, a special provision for distributions in connection with the contemplated termination, to apply if a participant “ha[d] not begun to receive a benefit under the Plan at the time benefits are to be distributed on account of termination of the Plan.” In May 2008, Finkl decided not to terminate the Plan. Section 11.6 was deleted. Finkl notified the IRS that the Plan was not going to terminate. Seven Finkl employees sued, alleging that they were entitled to an immediate distribution of benefits while they were still working for Finkl and that repeal of Section 11.6 violated the anti-cutback terms of the Plan, I.R.C. 411(d)(6), and ERISA, 29 U.S.C. 1054(g). The IRS sent Finkl a favorable determination letter that the Plan had retained its tax qualified status. In 2011, the Seventh Circuit affirmed the district court’s award of summary judgment to Finkl. The employees then pursued a claim in the Tax Court, which ruled that they were collaterally estopped by the Seventh Circuit decision from challenging the 2009, determination letter, which concluded that the Plan had not been terminated and continued to qualify for favorable tax treatment. The Seventh Circuit affirmed. View "Carter v. Comm'r of Internal Revenue" on Justia Law

Quality Stores made severance payments to employees who were involuntarily terminated in its Chapter 11 bankruptcy. The payments were made pursuant to plans that did not tie payments to the receipt of state unemployment insurance and varied based on job seniority. Quality Stores paid and withheld taxes required under FICA, 26 U.S.C. 3101. Later, believing that the payments should not have been taxed as FICA wages, Quality Stores sought a refund on behalf of itself and about 1,850 former employees. The IRS neither allowed nor denied the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The district court and Sixth Circuit affirmed. The Supreme Court reversed, finding that the severance payments were taxable FICA wages. FICA defines “wages” broadly as “all remuneration for employment.” Severance payments are a form of remuneration made only to employees in consideration for employment. By varying according to a terminated employee’s function and seniority, the Quality Stores severance payments confirm the principle that “service” “mea[ns] not only work actually done but the entire employer-employee relationship for which compensation is paid.” FICA’s exemption for severance payments made because of "retirement for disability,” would be unnecessary were severance payments generally not considered wages. FICA has contained no general exception for severance payments since 1950. The Internal Revenue Code, section 3401(a), also has a broad definition of “wages” and specifies that “supplemental unemployment compensation benefits,” which include severance payments, be treated “as if” they were wages; simplicity of administration and consistency of statutory interpretation indicate that the meaning of “wages” should generally be the same for income-tax withholding and for FICA calculations. View "United States v. Quality Stores, Inc." on Justia Law

El Paso appealed the district court's grant of summary judgment to the IRS, denying El Paso's tax refund claim. El Paso contended that the IRS, in settling a tax dispute with El Paso involving a refund and set-off, failed to adhere to the assessment and collection procedures provided by the Internal Revenue Code when setting off El Paso's deficiency against its refunds. El Paso contended that this failure barred the IRS from collecting unpaid taxes from El Paso. The court concluded that it had jurisdiction over the suit where it was unwilling to apply the variance doctrine to deprive the taxpayer from asserting federal court jurisdiction over the suit for refund. On the merits, the court held that, where the IRS and a taxpayer enter into a closing agreement, which sets out the liabilities and overpayments of the taxpayer, the IRS could comply with the mitigation provisions of the Code by "assessing and collecting" any net deficiency from the years covered by the closing agreement, or by "refunding or crediting" any net overpayment for those years. This case involved "refunding" an overpayment and the Government refunded El Paso's net overpayment within one year of the execution of the Closing Agreement. The "refunding" thus occurred within the applicable statutory period of limitations as per the mitigation provisions. The IRS acted within its authority in applying El Paso's deficiencies to offset its overpayment. Accordingly, the court affirmed the judgment of the district court. View "El Paso CGP Co., et al. v. United States" on Justia Law

New Jersey and Pennsylvania municipalities sued the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing Finance Agency (FHFA) (collectively, the Enterprises). Fannie Mae and Freddie Mac are federally-chartered but privately owned corporations that issue publicly traded securities, created by Congress to establish and stabilize secondary markets for residential mortgages, 12 U.S.C. 1716; 12 U.S.C. 1451. Fannie and Freddie purchase mortgages from third-party lenders, pooling them together and selling securities backed by those mortgages. In the wake of the housing market collapse of 2008, Fannie and Freddie owned many defaulted and overvalued subprime mortgages. They went bankrupt, and Congress created the FHFA to act as conservator for Fannie and Freddie. Congress exempted the Enterprises from all state and local taxation, with an exception for taxes on real property. The plaintiffs sought declaratory judgments that the Enterprises were not exempt from paying state and local real estate transfer taxes. The district courts dismissed. In a consolidated appeal, the Third Circuit affirmed. View "Delaware Cnty. v. Fed. Hous. Fin. Agency" on Justia Law