Justia Tax Law Opinion Summaries

The United States appealed the district court's holding in a Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), 26 U.S.C. 6221-6234, proceeding that valuation misstatement and substantial understatement tax penalties were inapplicable to NPR. The court concluded that, in this partnership-level proceeding, (1) valuation misstatement penalties under section 6662(e) and (h) were applicable; (2) a substantial underpayment penalty under section 6662(d) was applicable because there was no substantial authority for the tax treatment of the transactions at issue; (3) NPR failed to carry its burden of establishing a reasonable-cause defense under section 6664; and (4) the Taxpayers' respective, individual reasonable-cause defenses under section 6664 were partner-level defenses that the district court did not have jurisdiction to consider. Accordingly, the court affirmed the district court's judgment regarding the finality of the notice of a Final Partnership Administrative Adjustment (FPAA); reversed regarding the valuation misstatement and substantial underpayment penalties; reversed regarding NPR's reasonable-cause defense; and vacated regarding Taxpayers' reasonable-cause defenses. View "NPR Investments, L.L.C. v. United States" on Justia Law

Petitioners appealed the Tax Court's judgments upholding in part the deficiency asserted by the Commissioner related to research and development tax credits claimed by Farouk Systems, a company which petitioners were investors. The court concluded that the Tax Court did not abuse its discretion by limiting petitioners to the introduction of dozens of sample records of its laboratory tests as opposed to the over 4,500 pages that petitioners sought to admit where introduction of all the records would have resulted in needless delay, wasted time, and unnecessary cumulative evidence, which substantially outweighed the minimal probative value of the additional records; the court rejected petitioners' argument that the Tax Court's conclusion that they had not proven their case amounted to acceptance of a reversal of an unrecorded concession that the Commissioner would not "challenge the sufficiency of available documentary substantiation;" petitioners' argument that the Tax Court imposed an inappropriate "standard of exactitude" that required them to produce specific documentation was unsupported by the record; the Tax Court did not err in refusing to estimate the amount of credit due petitioners for the qualified services performed; the Tax Court's implicit inclusion that petitioners had not proven that Defendant Shami engaged in direct supervision was not clearly erroneous; the Tax Court did not clearly err in finding that petitioners had not proven whether Defendants Shami and McCall had engaged in qualified research and, if so, how much of their time was spent on such activities; petitioners waived their argument alleging that the Tax Court's findings was clearly erroneous because it ignored the fact that Shami was credited as an inventor on certain patents; and the Tax Court's failure to include the supply costs as proper qualified research expenses when calculating each petitioner's deficiency was clearly erroneous. Accordingly, the court affirmed in part, vacated in part, and remanded. View "Shami, et al. v. CIR" on Justia Law

Cheryl and John Gallenstein, Kentucky residents, purchased a boat in Indiana. The couple docked their boat in Indiana but chose Cincinnati as the hailing port. In 2003, the Division of Watercraft of the Ohio Department of Natural Resources issued a registration certificate to Cheryl. in 2005, the Ohio tax commissioner assessed a use tax, imposed a penalty, and assessed pre-assessment interest, determining that Cheryl’s use of the boat in Ohio, combined with her declaration of Cincinnati as the boat’s hailing port and her registration of the boat in Ohio created a nexus between the boat and Ohio and that she did not qualify for the transient use exception. The Board of Tax Appeals (BTA) affirmed. The Supreme Court reversed, holding that the BTA acted unreasonably and unlawfully in affirming the commissioner’s use tax, penalty, and pre-assessment interest because Cheryl qualified for the transient use exception contained in Ohio Rev. Code 5741.02(C)(4). View "Gallenstein v. Testa" on Justia Law

A Foundation, a nonprofit corporation, completely controlled an LLC, which owned and controlled a LP, which owned apartments. The Foundation was a community housing development organization (CHDO), but the LLC and LP were not. The day the LLC acquired the LP, it applied for a tax exemption under Tex. Tax Code Ann. 11.182, which provides exemptions for properties that a CHDO owns. The Galveston Central Appraisal District denied the exemption because the LLC did not own the property. The Foundation and the LP then sued for a declaration that they were entitled to the exemption. The trial court granted summary judgment for the District. The court of appeals reversed, concluding that a CHDO’s equitable ownership of property qualifies for an exemption under section 11.182(b) and that Plaintiffs’ application for an exemption was timely. The Supreme Court affirmed, holding (1) under AHF-Arbors at Huntsville I, LLC v. Walker County Appraisal District, equitable title to property was sufficient for the CHDO in this case to qualify for the tax exemption under section 11.182; and (2) The Foundation’s application was timely. View "Galveston Cent. Appraisal Dist. v. TRQ Captain's Landing" on Justia Law

Appellant sought review of orders and decisions issued by the Tax Court affirming the IRS's decision to impose a levy on his property to collect overdue income taxes. Appellant raised several challenges emanating from an IRS Office of Appeals Collection Due Process (CDP) hearing which resulted in the contested levy. The court denied the IRS's motion to transfer this case to the Eighth Circuit; the court had no occasion to decide in this case whether a taxpayer who is seeking review of a CDP decision on a collection method may file in a court of appeals other than the D.C. Circuit if the parties have not stipulated to venue in another circuit; nothing in the record indicated that the CDP hearing was tainted by ex parte communications between the Settlement Officer and other IRS employees; appellant failed to timely raise his claim regarding the senior Tax Court judge's recusal; the Tax Court's dismissal of appellant's tax liability for the year 2003 was moot; and appellant's challenge to the notice of determination imposing the levy was rejected where the court had no grounds to overturn the IRS's levy determination in this case. Accordingly, the court affirmed the decisions of the Tax Court. View "Byers v. Commissioner of IRS" on Justia Law

Plaintiff was a Maine-based law firm with affiliated law offices in other states. In an effort to determine the proper Maine income tax treatment for distributions to its New Hampshire partners, Plaintiff filed a Freedom of Access Act (Act) request with the Maine Revenue Service and the State Tax Assessor, ultimately seeking all allocation and apportionment formulas, methodologies, or calculations applicable to the determination of Maine income tax for nonresident partners in a partnership. The Revenue Service filed for in camera review of seven documents. After reviewing the documents in camera, the superior court determined that the documents were confidential and thus not subject to redaction or disclosure. The Supreme Court affirmed, holding that the documents that were covered by Plaintiff’s request for information consisted entirely of information deemed confidential pursuant to Me. Rev. Stat. Ann. 36, 191(1), which excepts certain tax information and records from the definition of public records pursuant to the Act. View "Preti Flaherty Beliveau & Pachios LLP v. State Tax Assessor" on Justia Law

This appeal stemmed from the sale of the Chronicle Publishing Company. After the Martin Family Trusts formed a tiered partnership structure, the Martin heirs commenced a series of transactions designed to create losses that would offset the taxable gain realized from the Chronicle Publishing sale. On appeal, taxpayers argued that the 2000-A Final Partnership Administrative Adjustment (FPAA) was time-barred by the restrictive language in the extension agreements. The court agreed with the district court that the extension agreements between the IRS and First Step encompassed adjustments made in the 2000-A FPAA that were directly attributable to partnership flow-through items of First Ship; the FPAA to 2000-A extended the limitations period for assessing tax beyond the extension agreements and through the present litigation; however, the agreements did not extend to adjustments in the 2000-A FPAA that were not directly attributable to First Ship; and because the district court held more broadly that "the extension agreements encompass the adjustments made by the IRS in the FPAA issued to 2000-A," the court remanded to the district court to make a determination of which adjustments in the 2000-A FPAA were directly attributable to partnership flow-through items of First Ship. The court affirmed in part and reversed in part. View "Candyce Martin 1999 Irrevocable Trust v. United States" on Justia Law

Kovacs received a bankruptcy discharge of her debts in 2001. weeks later, the IRS notified her that it had applied part of her 2000 tax refund to her outstanding tax debts from tax years 1990 to 1995. Kovacs’s attorneys and the IRS went back and forth about the status of those debts, with the IRS claiming that Kovacs still owed more than $150,000. In 2003 IRS Officer Mulcahy informed Kovacs that the 2000 refund would be applied against her non-discharged 1999 tax debt. Despite that statement, the IRS sent Kovacs two letters, erroneously stating that Kovacs still owed more than $13,000 for 1990–1995; those debts had been discharged. Her attorneys wrote a note clarifying the status of the discharged debt in correspondence about Kovacs’s non‐discharged 1999 tax debt. In 2005, Kovacs filed an administrative claim against the IRS, under 26 U.S.C. 7430(b)(1) as a predicate to a lawsuit for violation of 11 U.S.C. 524(a). When the IRS did not respond, Kovacs filed a complaint. The IRS admitted its fault but argued that the two-year statute of limitations barred the action. After a third remand, the district court upheld the bankruptcy court’s $3,750 award and declared that the award was premised on litigation costs, not actual damages. The Seventh Circuit affirmed. View "Kovacs v. United States" on Justia Law

If an owner of Illinois real estate does not timely pay county property taxes, the county may “sell” the property to a tax purchaser. The tax purchaser does not receive title to the property, but receives a “Certificate of Purchase” which can be used to obtain title if the delinquent taxpayer does not redeem his property within about two years. In this case, the property owner entered bankruptcy during the redemption period. The bankruptcy court held that, if there is still time to redeem, the tax purchaser’s interest is a secured claim that is treatable in bankruptcy and modifiable in a Chapter 13 plan. The district court and Seventh Circuit affirmed, first noting that the owner’s Chapter 13 plan was a success; because the tax purchaser’s interest was properly treated as a secured claim, the owner has satisfied the obligation, 11 U.S.C. 1327. Because Illinois courts call a Certificate of Purchase a lien or a species of personal property, the court rejected the purchaser’s argument that it was a future interest or an executory interest in real property. In effect, the tax sale procedure sells the county’s equitable remedy to the tax purchaser. View "Alexandrov v. LaMont" on Justia Law

The IRS advised Ford Motor that it had underpaid its taxes from 1983 until 1989. Ford remitted $875 million to stop the accrual of interest that Ford would otherwise owe once audits were completed and the amount of its underpayment was finally determined. Eventually it was determined that Ford had overpaid its taxes in the relevant years, entitling Ford to a return of the overpayment and. Ford argued that “the date of overpayment” for purposes of 26 U.S.C. 6611(a) was the date that it first remitted the deposits to the IRS. The IRS countered that the relevant date was the date that Ford requested that the IRS treat the remittances as payments of tax. The difference between the competing interpretations is worth some $445 million. The district court granted judgment on the pleadings in favor of the government. The Sixth Circuit affirmed, concluding that section 6611 is a waiver of sovereign immunity that must be strictly construed in favor of the government. The Supreme Court vacated and remanded, noting that the government was arguing, for the first time, that the only general waiver of sovereign immunity that encompasses Ford’s claim is the Tucker Act, 28 U. S. C. 1491(a). Although the government acquiesced in jurisdiction in the district court, the Tucker Act applies, jurisdiction over this case was proper only in the Court of Federal Claims. The Sixth Circuit should have the first opportunity to consider the argument. View "Ford Motor Co. v. United States" on Justia Law