Justia Tax Law Opinion Summaries

The Supreme Judicial Court held that when an otherwise qualifying entity sells an urban redevelopment project during the forty-year tax window set forth in Mass. Gen. Laws ch. 121A, 18C, the tax concession extends to the capital gain from the sale.The tax exemption at issue provides an incentive for private entities to invest in constructing, operating, and maintaining urban redevelopment projects in deteriorated areas. At issue was whether the sale of an urban redevelopment project during the forty-year tax-exempt window is "on account of" the project, thus extending the tax concession to the capital gain from the sale. In this case, the Commission of Revenue issued notice of assessment to Appellants related to their capital gains from the sales of certain ch. 121A projects. The Supreme Judicial Court reversed, holding that the capital gain from the sale of the ch. 121A project fell within the tax concession. View "Reagan v. Commissioner of Revenue" on Justia Law

The Internal Revenue Service (IRS) generally has three years from the date a taxpayer files a tax return to assess any taxes that are owed for that year. In this case, we must decide whether a partnership “filed” its 2001 tax return by faxing a copy of that return to an IRS revenue agent in 2005 or by mailing a copy to an IRS attorney in 2007. If either of those actions qualified as a “filing” of the partnership’s return, the statute of limitations would bar the IRS’s decision, more than three years later, to disallow a large loss the partnership had claimed.   The Ninth Circuit affirmed the Tax Court’s decision. The court held that neither Seaview Trading LLC’s faxing a copy of their delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability. The court concluded that because Seaview did not meticulously comply with the regulation’s place-for-filing requirement, it was not entitled to claim the benefit of the three-year limitations period. The court wrote that its conclusion was consistent with cases from other circuits and a long line of Tax Court decisions. The court also rejected Seaview’s argument that the regulation’s place-for-filing requirement applies only to returns that are timely filed—not to those that are filed late. View "SEAVIEW TRADING, LLC, AGK INVE V. CIR" on Justia Law

The Supreme Court reversed the order of the circuit court affirming a decision of the Arkansas Department of Finance and Administration (DFA) concerning certain adjustments to Cenark Investment Group, LLC's taxable income and to its shareholders' accounts for tax years 2016-2018, holding that the circuit court misinterpreted Ark. Code Ann. 26-18-406.Specifically at issue was the circuit court's interpretation section 26-18-406, which provides that a lawsuit brought in circuit court to contest a DFA assessment "shall be tried de novo." On appeal, Cenark argued that the circuit court erred in affirming DFA's decision without holding a trial de novo pursuant to section 26-18-406. For the reasons set forth in A-1 Recovery Towing and Recovery, Inc. v. Walther, 2023 Ark.___ (CV-22-281), also decided today, the Supreme Court reversed and remanded this case for further proceedings. View "Cenark Investment Group, LLC v. Walther" on Justia Law

The Supreme Court reversed the order of the circuit court affirming the decision of the Arkansas Department of Finance and Administration (DFA) concerning its adjustments made to A-1 Recovery Towing & Recovery, Inc.'s taxable income and to its shareholders' accounts for tax years 2013-2017, holding that the circuit court failed to follow Ark. Code Ann. 26-18-406 when it affirmed DFA's decision sua sponte.Section 26-18-406 provides that a suit in circuit court to contest a DFA assessment "shall be tried de novo." On appeal, A-1 argued that the circuit court erroneously sua sponte entered its order affirming the DFA's decision because the order deprived A-1 of its right to a trial de novo under section 26-18-406. The Supreme Court agreed and reversed, holding that the circuit court deprived A-1 of its opportunity to meet proof with proof prior to affirming DFA's decision sua sponte. View "A-1 Recovery Towing & Recovery, Inc." on Justia Law

In their divorce settlement, Roman gave Iris $150,000. Iris transferred to Roman her interest in their home. Roman agreed to pay any taxes assessed on Iris for her receipt of the $150,000. The IRS assessed $50,002.04 in taxes and penalties and mailed her a notice of intent to take possession of her property, including the home. Although Iris no longer had any ownership rights in the home and no lien had been placed, an IRS employee stated that the tax liability must be paid to stop a levy against Roman’s home and that Roman could appeal once the tax was paid. Roman apparently believed that he had no alternative to paying "a tax that he did not owe.” An installment agreement listed Iris as the taxpayer, identifying Roman’s checking account. Roman did not sign the agreement but sent the IRS payments until the obligation was satisfied.Roman sought a refund, arguing that under 26 U.S.C. 121(a) his payment to Iris qualified for an exclusion from gross income of gain for certain sales of a principal residence. The Federal Circuit vacated Roman’s award. Roman was not a “taxpayer” under 26 U.S.C. 6511(a), so the Claims Court lacked jurisdiction to hear Roman’s third-party refund claim under section 1346(a)(1). Roman nevertheless pled a claim under 28 U.S.C. 1491(a)(1); a party who pays a tax for which he is not liable may sue to recover that tax if it was paid under duress. View "Roman v. United States" on Justia Law

During the tax years at issue, 2010–2013, the Taxpayers owned a New Jersey horse farm. Their Company employed several employees, none of whom had a budget. The Company paid the Taxpayers' personal expenses and lost more than $3.5 million during the years at issue and more than $11.4 million between 1998-2013. The Taxpayers contributed capital and made loans to the Company. In 2016, the Company sold a horse for nearly $1.2 million, enabling it to report a modest overall profit.In 2016, the IRS sent notices of income tax deficiencies. The Tax Court sustained the deficiency determinations, holding that the Taxpayers could not deduct Company losses because their horse breeding activity was not engaged in for profit under Internal Revenue Code section 183 and that the Taxpayers failed to substantiate net operating loss carryforwards that allegedly arose from Company activity. The Third Circuit affirmed. The Tax Court did not clearly err when it found that adverse market conditions did not explain the Company’s sustained unprofitability and correctly considered the Taxpayers’ substantial income from other sources. The profit generated from the 2016 horse sale was tempered by the fact that it occurred after the tax years at issue and after the notices of deficiency. The expertise of the Taxpayers and their advisors was the only factor that favored the Taxpayers. View "Skolnick v. Commissioner of Internal Revenue" on Justia Law

To claim the research tax credit under Section 41 of the Internal Revenue Code, a taxpayer must demonstrate that at least 80 percent of its research activities for a business component constituted elements of a process of experimentation. The Taxpayer, the parent of a shipbuilding company, claimed expenses for building 11 new vessels under the tax credit. The IRS disallowed the credit and assessed a tax deficiency.The Tax Court and the Seventh Circuit upheld the IRS determination. Although the Taxpayer never built a drydock before and the vessels were first-in-class, the Taxpayer claimed more tax credit than it could prove; it did not offer a principled way to determine what portion of the employee activities for each vessel constituted elements of a process of experimentation or research activities. The Taxpayer relied on arbitrary estimates and the newness of the vessels. To claim the credit, a taxpayer must adequately document that substantially all of such activities were research activities that constitute elements of a process of experimentation. Generalized descriptions of uncertainty, assertions of novelty, and arbitrary estimates of time spent performing experimentation are not enough. View "Little Sandy Coal Co., Inc v. Commissioner of Internal Revenue" on Justia Law

The Supreme Court affirmed the opinion of the court of appeals reversing the decision of the circuit court reversing the judgment of the tax appeals commission concluding that the sales tax exemption in Wisconsin Act 185, which expanded an existing sales tax exemption to include the sale of aircraft parts or maintenance, did not apply to Lessees' payments for aircraft repairs and engine maintenance, holding that the court of appeals did not err.Citation Partners, LLC owned an aircraft that it leased to Lessees. Citation Partners charged per-flight-hour rates for aircraft repairs and maintenance as part of the total amount Lessees paid to lease the aircraft, which rates corresponded to the amount Citation Partners spent on repairs and maintenance. Citation Partners argued that this portion of the lease payment was tax exempt because it was a sale of aircraft parts or maintenance. The Supreme Court disagreed, holding that the court of appeals correctly found that the payments were not exempt from sales tax under the plain language of the statutes. View "Citation Partners, LLC v. Wis. Dep't of Revenue" on Justia Law

The Bank Secrecy Act requires U.S. persons with financial interests in foreign accounts to file an “FBAR” annual Report of Foreign Bank and Financial Accounts; 31 U.S.C. 5314 delineates legal duties while section 5321 outlines the penalties, with a maximum $10,000 penalty for non-willful violations. Bittner—a dual citizen of Romania and the U.S.—learned of his reporting obligations in 2011 and subsequently submitted reports covering 2007-2011. The government deemed Bittner’s late reports deficient because they did not address all accounts as to which Bittner had either signatory authority or a qualifying interest. Bittner filed corrected FBARs providing information for 61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. The government asserted that non-willful penalties apply to each account not accurately or timely reported. Bittner’s reports collectively involved 272 accounts; the government calculated a $2.72 million penalty. The Fifth Circuit affirmed.The Supreme Court reversed. The $10,000 maximum penalty for non-willful failure to file a compliant report accrues on a per-report, not a per-account, basis. Section 5314 does not address accounts or their number. An individual files a compliant report or does not. For cases involving willful violations, the statute tailors penalties to accounts. When one section of a statute includes language omitted from a neighboring section, the difference normally conveys a different meaning. The Act's implementing regulations require individuals with fewer than 25 accounts to provide details about each account while individuals with 25 or more accounts do not need to list each account or provide account-specific details unless requested by the Secretary. View "Bittner v. United States" on Justia Law

The Supreme Court held that the Arizona Department of Revenue (ADOR) is not required to assess the money collected from a taxpayer-business's customers to cover transaction privilege taxes against the responsible person pursuant to Ariz. Rev. Stat. 42-1104(A) before filing a collection lawsuit.ADOR brought suit against Peter Tunkey and his wife (together, Tunkey) to recover unpaid transaction privilege taxes (TPTs) pursuant to Ariz. Rev. Stat. 42-5028, which imposes liability on a "person" for failing to remit to ADOR any "additional charge" made to cover the tax. The tax court granted Summary judgment for ADOR and entered judgment against Tunkey for $26,000 in unpaid TPTs. Tunkey appealed, arguing that the tax court erred in ruling that ADOR was not required to timely assess the $26,000 amount against him personally before filing suit. The Supreme Court affirmed, holding that section 42-1104(A) did not require ADOR to notify Tunkey of "additional taxes due" because the unpaid TPT charges did not constitute an "additional tax due" triggering section 42-1104(A)'s notice requirement. View "State v. Tunkey" on Justia Law