Justia Tax Law Opinion Summaries

The Supreme Court vacated the decision of the Administrative Hearing Commission (AHC) that the purchases by Carfax, Inc. of certain equipment used to create vehicle history reports (VHRs) were exempt from sales and use taxes under Mo. Rev. Stat. 144.030.2(5) and 144.054.2 because Carfax used such equipment to "manufacture" VHRs, holding that Carfax did not use the equipment in the "manufacturing" of its VHRs.After an audit, the Director of Revenue determined that Carfax did not use the disputed equipment to manufacture VHRs, and therefore, its purchase of that equipment was not exempt from sales and use taxes. On appeal, the AHC found that Carfax's purchases of the equipment were exempt from sales and use taxes under both sections 144.303.2(5) and 144.054(2) because Carfax used that equipment directly in manufacturing VHRs. The Supreme Court vacated the decision below, holding that, for purposes of these statutes, Carfax did not use the disputed equipment to manufacture VHRs. View "Carfax, Inc. v. Director of Revenue" on Justia Law

Petitioner failed to report millions of dollars in income. After an audit, an IRS examiner sent him a letter that said Petitioner owed penalties on top of his back taxes. Petitioner tried to negotiate without success; the examiner’s direct supervisor signed a second letter, which proposed the same penalties, as well as a form approving those penalties. The Tax Court disallowed the penalties, holding that the supervisor’s approval came too late because she had not approved the penalties at the time of the first letter. The IRS appealed, arguing that the Tax Court misinterpreted Section 6751(b)’s requirements.   The Eleventh Circuit reversed the Tax Court. The court explained that the statute prohibits assessing a penalty unless a condition has been met—supervisory approval of the initial determination of an assessment. But the statute regulates assessments; it does not regulate communications to the taxpayer. Because the IRS did not assess Petitioner’s penalties without a supervisor approving an “initial determination of such assessment,” the court held that the IRS has not violated Section 6751(b). View "Burt Kroner v. Commissioner of Internal Revenue" on Justia Law

In 2002, Douglas Coe, Jacqueline Coe, and GFLIRB, LLC (collectively the “Coes”) were involved in the sale of a company in which they held a substantial interest. Their accountants, BDO Seidman, LLP (“BDO”), advised them of a proposed tax strategy in which the Coes could invest in distressed debt from a foreign company in order to offset their tax obligations. In connection with the proposed tax strategy, BDO advised the Coes to obtain a legal opinion from an independent law firm, Proskauer Rose LLP (“Proskauer”). The Coes followed BDO’s advice, obtained a legal opinion from Proskauer, and claimed losses on their tax returns as a result. But in 2005, the Internal Revenue Service (“IRS”) initiated an audit, which ultimately led to a settlement in 2012. After settling with the IRS, the Coes filed suit against Proskauer in December 2015, asserting legal malpractice, breach of fiduciary duty, fraud, negligent misrepresentation, and other claims. After limited discovery on whether the statute of limitation barred the Coes’ claims, the trial court concluded that it did and granted summary judgment in favor of Proskauer, and the Court of Appeals affirmed. The Georgia Supreme Court concluded the Court of Appeals erred in determining that the Coes failed, as a matter of law, to exercise reasonable diligence to discover Proskauer’s allegedly fraudulent acts. Judgment was reversed and the matter remanded to the trial court for further proceedings. View "Coe, et al. v. Proskauer Rose, LLP" on Justia Law

David Sholy appealed a district court order dismissing his appeal from the Cass County Commission’s (“Commission”) decision to deny his applications for abatement or refund of taxes. Sholy argued the court misapplied the law in ordering him to file a certificate of record. The Commission argued Sholy failed to timely file his notice of appeal with the court. The North Dakota Supreme Court concluded the district court’s reasoning for dismissing Sholy’s appeal was incorrect but that dismissal was nonetheless appropriate because the court lacked jurisdiction over Sholy’s untimely appeal. The Court therefore affirmed the order dismissing Sholy’s appeal. View "Sholy v. Cass Cty. Comm'm" on Justia Law

The United States appeals the district court’s summary judgment rulings rendered in this federal income tax refund action filed by Plaintiffs. The Fifth Circuit reversed the district court’s ruling and found that the district court erred in its jurisdictional determination. The court remanded with instructions to dismiss for lack of jurisdiction.     The court explained that determining whether a tax assessment complies with Section 6501’s three-year limitation period necessitates a determination of whether Section 6229 has extended that period, as is true here, our decisions have repeatedly concluded that a “partnership item” is presented for determination. And Section 7422(h) prohibits refund action courts from deciding partnership items in the first instance or re-evaluating a tax court’s determination of those items. Thus, in this instance, the district court lacked subject matter jurisdiction over Plaintiffs’ Section 6501 refund claims and reversibly erred in concluding the contrary. Further, the court wrote that Plaintiffs’ argument that notice was required—because their deficiency was attributable to a violation of their Section 6501 assessment deadline—misunderstands the meaning of “deficiency” as that term is defined by Section 6211(a). View "Baxter v. USA" on Justia Law

In 2015, the Ninth Circuit affirmed summary judgment in favor of Guam taxpayers in their class action lawsuit against the territorial government. Guam had excessively withheld income taxes to support government spending. Some taxpayers got their refunds through an “expedited refund” process that devolved into arbitrariness and favoritism. The district court had certified a class of taxpayers who were entitled to but did not receive timely tax refunds.Duncan then filed a purported class action challenging the Virgin Islands' income tax collection practices. Duncan alleged that the Territory owed taxpayers at least $97,849,992.74 in refunds for the years 2007-2017, and that, for the years 2011-2017, the Territory failed to comply with the requirement in Virgin Islands Code title 33, section 1102(b), that the Territory set aside 10 percent of collected income taxes for paying refunds, leaving the required reserve underfunded by $150 million. The district court denied class certification, citing Duncan’s receipt of a refund check from the Territory during the pendency of her lawsuit; the check, while not the amount Duncan claims, called into question Duncan’s standing and made all of her claims atypical for the putative class. The Third Circuit vacated, rejecting the conclusion that the mid-litigation refund check deprived Duncan of standing and rendered all of her claims atypical. In evaluating whether Duncan was an adequate representative, the district court applied an incorrect legal standard. View "Duncan v. Governor of the Virgin Islands" on Justia Law

The Supreme Court reversed the judgment of the tax court denying summary judgment to Rainbow Early Education Center, an early childhood center, on its claim for a tax exclusion as a seminary of learning under Minn. Const. art. X, 1 and Minn. Stat. 272.02, subd. 5, holding that the tax court did not correctly apply the standard set forth in State v. Northwestern Preparatory School, 83 N.W.2d 242 (Minn. 1957).Rainbow petitioned for a property tax exemption, claiming status as a seminary of learning. Because prior decisions concerning the meaning of the phrase "seminaries of learning" centered on secondary or postsecondary institutions Rainbow cited licensure, facilities, programming, and rating by a government-administered best practices program in support of its claim that it was entitled to a property tax exemption . The tax court granted summary judgment to the County. The Supreme Court reversed, holding (1) an institution is an exempt seminary of learning when it has an educational purpose, provides a broad general education, and does so in a thorough and comprehensive manner; and (2) Rainbow presented uncontroverted evidence of each element. View "Under the Rainbow Early Education Center v. County of Goodhue" on Justia Law

Corporations with foreign subsidiaries frequently disagree with the IRS about calculating prices in transactions between the U.S. corporation and such subsidiaries. Eaton and the IRS entered advance pricing agreements (APAs) to govern Eaton’s tax calculations concerning its foreign subsidiaries from 2001-2010. The APAs described a transfer-pricing methodology (TPM) that requires Eaton to calculate the transfer price using two steps: The APAs required Eaton to file annual reports. After a few years, Eaton reviewed its records and caught some inadvertent calculation errors. After informing the IRS, Eaton corrected the mistakes. The IRS thought that Eaton’s mistakes warranted its unilateral cancellation of the APAs for tax years 2005 and 2006. The IRS issued a notice claiming a deficiency of tens of millions of dollars.The Tax Court found that the IRS had wrongfully canceled the APAs and rejected the IRS’s claim for 40 percent penalties under 26 U.S.C. 6662(h) for Eaton’s self-reported corrections. The Sixth Circuit affirmed in part, in favor of Eaton. The grounds for cancellation do not extend beyond the four corners of the APAs and do not include errors in “the supporting data and computations” used in applying the TPM. View "Eaton Corp. and Subsidiaries v. Commissioner of Internal Revenue" on Justia Law

Hardel Mutual Plywood Corporation owns property in Lewis County. Hardel challenged the value assessed by the Lewis County assessor, paid its taxes under protest, and brought this refund action in Thurston County Superior Court. Lewis County timely moved for a change of venue under RCW 84.68.050. The issue this case presented concerned two venue statutes that were in tension with each other. Under the more specific statute, property tax refund cases “shall be brought in the superior court of the county wherein the tax was collected.” RCW 84.68.050. Under the more general statute, “[a]ll actions against any county may be commenced in the superior court of such county, or in the superior court of either of the two nearest judicial districts.” RCW 36.01.050(1). The Washington Supreme Court concluded the legislature intended the specific statute to govern. Accordingly, it affirmed the trial court’s order transferring venue to the superior court of the county where the tax was collected. View "Hardel Mut. Plywood Corp. v. Lewis County" on Justia Law

Defendants were convicted by a jury of conspiracy to defraud the Internal Revenue Service (“IRS”) by interfering with its lawful functions and evasion of payment of taxes. On appeal, Defendants both challenge the sufficiency of the evidence supporting their convictions and raise challenges to a number of jury instructions.   The Fifth Circuit affirmed. The court held that the district court’s denial of Defendant’s last-minute continuance request was not an abuse of discretion, and Defendant was not denied the counsel of his choice. Further, because Defendant failed to meaningfully address all four prongs of plain error review either in his opening brief or in reply, his constructive amendment challenge fails.   Further, the court wrote, that viewed in the light most favorable to the verdict, the evidence showed that Defendant failed to report a substantial amount of income; influenced MyMail to amend its tax return to underreport how much income it distributed to Defendant; converted at least $1 million of income into gold coins; purchased a house with gold coins and transferred it to a trust controlled by a relative; and hid his income in Co-Defendant’s trust accounts and used the concealed funds to pay his living expenses for at least a decade, including during the years that the IRS Agent was contacting Defendants, as Defendant’s IRS power-of-attorney, in an attempt to collect Defendant’s unpaid tax liabilities. Based on the foregoing evidence, a reasonable jury could find beyond a reasonable doubt both willfulness and an affirmative act of evasion. View "USA v. Selgas" on Justia Law