Justia Tax Law Opinion Summaries

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

The Supreme Court affirmed in part and reversed in part the decision of the Wyoming Board of Equalization (Board) concluding that WPX Energy Rocky Mountain, LLC was entitled to deduct some of its "reservation fees," holding that the Board erred in interpreting the plain language of Wyo. Stat. Ann. 39-14-203(b)(vi)(C) in its decision.At issue on appeal was whether and to what extent WPX was entitled to deduct "reservation fees" under the "netback" severance tax valuation method, section(vi)(C), for natural gas production years 2013-2015. The Board concluded that WPX was entitled to deduct some of its reservation fees. The Supreme Court reversed in part, holding (1) the statute allows WPX to fully deduct its pipeline reservation fees for months when some but not the full reserve capacity of gas was transported on that pipeline; (2) the statute does not allow WPX to deduct its Bison Pipeline reservation fees for months when it shipped no gas on the pipeline; and (3) the Board's conclusion that WPX cannot deduct any portion of its Bison Pipeline reservation fees it used to recoup pipeline construction costs was contrary to the plain language of the statute and the Bison agreement. View "Wyo. Department of Revenue v. WPX Energy Rocky Mountain, LLC" on Justia Law

Petitioner petitioned the United States Tax Court to redetermine her income tax deficiency after the Commissioner of Internal Revenue concluded that she was subject to a 10-percent exaction under 26 U.S.C. Section 72(t) of the Internal Revenue Code for early distributions she made from her pension plan. Petitioner argued that she is not liable for the 10-percent exaction under Section 72(t) because it is a penalty, an additional amount, or an addition to tax within the meaning of Section 6751(c) of the Internal Revenue Code and that the Commissioner failed to obtain written supervisory approval for the initial determination to impose the exaction, as required by Section 6751(b). The United States Tax Court ruled that the 10-percent exaction under Section 72(t) is not subject to the written supervisory requirement because it is a tax, not a penalty, an additional amount, or an addition to tax, and Petitioner is liable for the 10-percent exaction.   The Second Circuit affirmed the Tax Court’s judgment. The court explained that the plain and unambiguous language of Section 72(t) establishes that the Exaction is a tax, not a penalty, an additional amount, or an addition to tax within the meaning of Section 6751(c) that requires written supervisory approval. Thus, Petitioner is liable for the Exaction. View "Grajales v. Commissioner of Internal Revenue" on Justia Law

The appeal involves the tax consequences of Petitioners' participation in a complex tax avoidance scheme. Petitioners expected to realize an $80.9 million capital gain as a result of selling a portion of his company. The scheme, which involved a set of tiered partnerships, allowed Petitioners to claim a $77.6 million artificial loss to offset his legitimate capital gains. A federal district court found the scheme to be an abusive tax shelter and upheld the IRS’s disallowance of the benefits of the shelter in a partnership-level proceeding, and a prior panel of the Eleventh Circuit affirmed. As a result of the partnership-level proceeding, the IRS issued a notice of deficiency to Petitioners disallowing the $77.6 million loss deduction they reported on their joint tax return. Petitioners sought review in the U.S. Tax Court, which rejected their various challenges.   The Eleventh Circuit affirmed. The court explained that the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), the governing scheme in effect during the relevant period, established uniform audit and litigation procedures for the resolution of partnership tax items. The filing of the final partnership administrative adjustment (FPAA), the timeliness of which Petitioners do not contest, suspended the limitations period for assessment of tax attributable to affected items until January 11, 2017. The 2016 notice asserts a deficiency that is attributable to an affected item. Accordingly, the statute of limitations had not expired when the IRS issued the September 9, 2016 notice of deficiency, as the Tax Court correctly found. View "Raghunathan Sarma, et al v. Commissioner of Internal Revenue" on Justia Law

The Supreme Court held that the exemption from the referendum power for law "for the support and maintenance of the departments of the state government and state institutions," see Ariz. Const. art. 4, pt. 1, 1(3), apples to tax measures and that a revenue measure is exempt from referendum provided that it is for the support and maintenance of existing departments of the state government and state institutions.SB 1828 was signed by the Governor as a tax bill for the 2022 fiscal year and imposes a "flat" tax of 2.5 percent on taxable revenues but becomes effective only if the state General Fund revenues reach specific targets. Invest in Arizona (IIA) sought to prevent implementation of the flat tax by referring SB 1828 to the ballot in the November 2022 general election. Appellants filed a motion for preliminary injunction seeking to enjoin the Secretary of State from accepting or certifying any petition filed in support of a referendum of SB 1828, including IIA's petition. The trial court ruled that SB 1828 is referable and denied the preliminary injunction request. The Supreme Court reversed, holding that the exemption from the referendum power for laws "for the support and maintenance of the departments of the state government and state institutions" applies to tax measures. View "Arizona Free Enterprise Club v. Hobbs" on Justia Law

Wisconsin assessed property taxes on lands within four Ojibwe Indian reservations. The tribal landowners have tax immunity under an 1854 Treaty, still in effect, that created the reservations on which they live. Supreme Court cases recognize a categorical presumption against Wisconsin’s ability to levy its taxes absent Congressional approval. The parcels in question are fully alienable; their current owners can sell them at will because the parcels were sold by past tribal owners to non-Indians before coming back into tribal ownership. Wisconsin argued that the act of alienating reservation property to a non-Indian surrendered the parcel’s tax immunity. No circuit court has considered whether the sale of tax-exempt tribal land to a non-Indian ends the land’s tax immunity as against all subsequent tribal owners, nor does Supreme Court precedent supply an answer.The district court ruled in favor of the state. The Seventh Circuit reversed. Once Congress has demonstrated a clear intent to subject land to taxation by making it alienable, Congress must make an unmistakably clear statement to render it nontaxable again but these Ojibwe lands have never become alienable at Congress’s behest. Congress never extinguished their tax immunity. The relevant inquiry is: who bears the legal incidence of the tax today--all the relevant parcels are presently held by Ojibwe tribal members. View "Lac Courte Oreilles Band of Lake Superior Chippewa Indians of Wisconsin v. Evers" on Justia Law

The Fairbanks North Star Borough partially revoked a local ministry’s charitable property tax exemption after learning that the ministry was renting lodging to the general public. The ministry appealed the Borough’s decision to the superior court. The court remanded the issue to the Borough’s assessor for more detailed findings, instructed the ministry that any appeal following remand should be made to the Board of Equalization rather than superior court, and closed the case. The assessor issued new findings justifying the partial revocation of the tax exemption, and the ministry appealed to both the Board and the superior court (in a different case). The ministry also filed a motion in the first appeal asking the superior court to enforce its order instructing that appeals be made to the Board. The superior court issued a sua sponte order granting the ministry’s first appeal on the merits, finding “that the assessor [did not] rely on sufficient evidence to revoke [the ministry’s] tax exempt status.” The Borough appealed. The Alaska Supreme Court concluded that following remand, supplemental Board findings, and a new appeal from those findings, the superior court lacked the subject matter jurisdiction to decide the ministry’s first appeal on the merits. The Supreme Court therefore vacate its decision granting Victory’s appeal. View "Fairbanks North Star Borough v. Victory Ministries of Alaska, Inc., et al." on Justia Law

Plaintiff formed the Enelre Foundation as a Stiftung under the laws of Liechtenstein. Stiftung is a German word meaning, roughly, “foundation” or “endowment.” Enelre’s purpose is to provide education and general support for Plaintiff and his children. Plaintiff transferred $3 million to Enelre’s bank accounts. He later learned the IRS would consider Enelre a “foreign trust,” triggering certain reporting requirements. Plaintiff belatedly filed the reports, and the IRS assessed penalties. Plaintiff paid the penalties and then filed this refund action. The district court granted summary judgment for the government.The Fifth Circuit affirmed. The court explained that the district court correctly found that Enelre qualifies as a foreign trust. Its organizing documents explain that Enelre’s purpose is to support its beneficiaries and limit its transactions to pursuing and realising its purpose. This is characteristic of an ordinary trust. The documents also prohibit Enelre from conducting commercial trade. Liechtensteinian Public Registry filings confirm this prohibition. Enelre’s familial purpose, lack of business objective, and bar on commercial activity render it a trust. Enelre’s form of organization confirms it is a trust. Enelre is subject to Liechtenstein’s “Act on Trust Enterprises.” View "Rost v. USA" on Justia Law