Justia Tax Law Opinion Summaries

Petitioner Andrew Campbell was a lifelong Michigan resident. For many years, petitioner claimed and enjoyed a principal residence exemption (PRE) on his Michigan residence. In late 2016, petitioner purchased a second home in Surprise, Arizona. Respondent Michigan Department of Treasury (Treasury), reviewed and denied petitioner’s PRE claim for his Michigan property for the 2017 tax year. In the ensuing dispute, the issue this case presented for the Michigan Supreme Court's review was whether a property owner was entitled to claim a PRE under Michigan tax law when the owner received a similar tax benefit for a home in another state. To this the Supreme Court concluded that petitioner was not entitled to the PRE. Specifically, under MCL 211.7cc(3)(a), a property owner “is not entitled to [the PRE] in any calendar year in which . . . [t]hat person has claimed a substantially similar exemption, deduction, or credit, regardless of amount, on property in another state.” Accordingly, the Court reversed the judgment of the Court of Appeals and reinstated the Department of Treasury’s October 2, 2018 decision and order of determination denying petitioner’s PRE for the 2017 tax year. View "Campbell v. Department Of Treasury" on Justia Law

Regulus, an LLC solely owned by Klug, is the holding company for all the rights, transactions, and income related to Klug’s literary works, which include several internationally-received legal fiction novels. In 2018, Klug filed a Virginia income tax return, attaching thereto a Schedule C to indicate that he derived business income in Charlottesville. The city could not locate a business license issued to Klug or to Regulus and requested information about Klug’s business and his income therefrom for the tax years 2015-2018. Klug responded that Charlottesville’s Ordinance does not apply to him because he “offer[s] no goods or services to the public[,]” has “no physical storefront or shingle[,]” “do[es] not advertise[,]” has no employees, has no inventory, and offers a “product” that is intangible intellectual property.The Virginia Supreme Court held that a freelance writer’s business does not provide a service and is not covered by the ordinance’s catchall provision. The court did not reach the question of whether the ordinance is unconstitutionally vague as applied to the freelance writer. The court affirmed the circuit court’s decision to order the city to refund Klug his tax payments but concluded that the circuit court erred by awarding costs not essential for the prosecution of the suit. View "City of Charlottesville v. Regulus Books, LLC" on Justia Law

Sunoco sued the Internal Revenue Service  (“IRS”) in Texas federal court, seeking a partial refund of its income tax payments for 2010 and 2011. Sunoco’s claims rested on a theory of reduced tax liability that the company had argued unsuccessfully for prior tax years in the Court of Federal Claims. Because the issue was fully and actually litigated in the earlier case, the district court dismissed Sunoco’s new suit based on collateral estoppel, and the Fifth Circuit affirmed.   The court held that the only question is the correctness of the issue preclusion ruling. Sunoco did not dispute that the three traditional elements of preclusion are satisfied. It argued, however, that the court should have considered a fourth factor: whether there are “special circumstances that would render preclusion inappropriate or unfair.”  The court found that because Sunoco and the IRS were both parties to Sunoco I, “an inquiry into special circumstances is unnecessary.” Sunoco is barred from relitigating the Federal Circuit’s conclusion that it cannot use the mixture credits to offset both excise-tax and income-tax liability. View "ETC Sunoco Holdings v. USA" on Justia Law

Taxpayers challenged the constitutionality of Subpart F’s ability to permit taxation of a CFC’s income after 1986 through the Mandatory Repatriation Tax (“MRT”). The district court dismissed the action for failure to state a claim, denied taxpayers’ cross-motion for summary judgment, and taxpayers appealed.   The Ninth Circuit affirmed the district court’s dismissal. The court held that the MRT is consistent with the Apportionment Clause and it does not violate the Fifth Amendment’s Due Process Clause. That clause requires that a direct tax must be apportioned so that each state pays in proportion to its population. The court acknowledged that the Sixteenth Amendment exempts from the apportionment requirement the category of “incomes, from whatever source derived.” The court observed that courts have consistently upheld the constitutionality of taxes similar to the MRT notwithstanding any difficulty in defining income, that the realization of income does not determine the tax’s constitutionality, and that there is no constitutional ban on Congress disregarding the corporate form to facilitate taxation of shareholders’ income.   The court explained that the MRT serves the legitimate purpose of preventing CFC shareholders who have not yet received distributions from obtaining a windfall by never having to pay taxes on their offshore earnings that have not yet been distributed. The MRT accomplished this legitimate purpose by rational means: by accelerating the effective repatriation date of undistributed CFC earnings to a date following passage of the TCJA. View "CHARLES MOORE V. USA" on Justia Law

The Bank Secrecy Act requires U.S. citizens to report interests in foreign accounts with a value exceeding $10,000, 31 U.S.C. 5314. Collins, a dual citizen of the U.S. and Canada, has lived in the U.S. since 1994 and has bank accounts in the U.S., Canada, France, and Switzerland. In 2007, the balance of his Swiss account exceeded $800,000. Collins did not report any of those accounts until he voluntarily amended his tax returns in 2010. The IRS accepted Collins into its Offshore Voluntary Disclosure Program (OVDP). His amended returns for 2002-2009 yielded modest refunds stemming from large capital losses in 2002. Collins then withdrew from the OVDP, prompting an audit. Because Collins invested in foreign mutual funds, his Swiss holdings were subject to an additional tax on passive foreign investment companies, 26 U.S.C. 1291, which he failed to compute in his amended returns. The IRS audit determined that Collins owed an additional $71,324 plus penalties. In 2015 the IRS determined that since he withdrew from the OVDP, Collins was liable for civil penalties for “willful failure” to report foreign accounts. The IRS assessed a civil penalty of $308,064.The district court and Third Circuit affirmed, citing a “decades‐long course of conduct, omission, and scienter” by Collins in failing to disclose his foreign accounts. The disparity between Collins’s putative income tax liability and his penalty is stark but is consistent with the statute. View "United States v. Collins" on Justia Law

In June 2019, Plaintiffs submitted a FOIA request to the IRS seeking disclosure of the terms of a third-party authentication process set forth within IRM Sec. 21.1.3.3, pertaining to the tax professional authentication process. in August 2019, the IRS denied Plaintiffs' request citing the material was properly withheld pursuant to 5 U.S.C. Sec. 552(b)(7)(E), and then plaintiffs filed an action in federal court.The district court granted the IRS’s motion for summary judgment, rejecting Plaintiffs' request for an in-camera review of the documents.The Eighth Circuit reversed, remanding for the district court to conduct an in-camera inspection of the documents. To meet its burden under 5 U.S.C. Sec. 552(b)(7)(E), the IRS must prove the withheld material was “compiled for law enforcement purposes." Here, to effectively determine whether the IRS meets the requirements of 5 U.S.C. Sec. 552(b)(7)(E), an in-camera review is necessary. Thus, the district court erred in failing to hold an in-camera review. View "T. Keith Fogg v. Internal Revenue Service" on Justia Law

The Supreme Court reversed the judgment of the court of appeals dismissing this case asserting that the city of Houston's house mayor and city council members acted ultra vires in spending tax revenue in Fiscal Year 2020 on anything other than the drainage fund, holding that the taxpayers had standing to assert their claims and sufficiently pleaded ultra vires acts.Plaintiffs, two Houston taxpayers, brought this case alleging that City officials misallocated tax revenue because the City Charter requires a certain amount of tax revenue to be allocated to a fund exclusively for drainage and street maintenance and that the officials acted ultra vires in spending the revenue on anything else. The officials filed a plea to the jurisdiction asserting governmental immunity. The trial court denied the plea. The court of appeals reversed, concluding that the taxpayers lacked standing. The Supreme Court reversed, holding (1) Plaintiffs alleged an illegal expenditure sufficient to support taxpayer standing; and (2) the City officials were not entitled to dismissal of Plaintiffs' ultra vires claim on governmental immunity grounds at this time. View "Jones v. Turner" on Justia Law

Plaintiffs-appellants The 2009 Metropoulos Family Trust, The Evan D. Metropoulos 2009 Trust, and the trusts’ trustee, the J.P. Morgan Trust Company of Delaware (the trustee), appealed the grant of summary judgment entered in favor of the California Franchise Tax Board (FTB) on plaintiffs’ complaint seeking a refund of 2014 income taxes. Plaintiffs argued their pro-rata share of income received from an S corporation’s November 2014 sale of a wholly-owned subsidiary was not subject to California income tax. The plaintiff trusts, who were shareholders in the S corporation Pabst Corporate Holdings, Inc. (Pabst), argued the income was derived from the sale of intangible property, namely goodwill associated with the subsidiary’s business, whose taxation was governed by Revenue & Taxation Code section 17952 and its corresponding regulation. The trial court denied plaintiffs’ motion and granted the FTB’s, ruling: (1) because the S corporation had characterized the income as business income on its return, the trusts were bound to treat their respective shares of that income the same way on their federal and California tax returns; and (2) even if section 17952 applied, the trusts’ income would still be taxable since the S corporation’s corporate headquarters were in California, the underlying businesses based marketing and sales departments in California, and the S corporation localized the goodwill in connection with its California business, giving the goodwill a “business situs” in California. Finding no reversible error in the trial court's judgment, the Court of Appeal affirmed. View "2009 Metropoulos Family Trust v. California Franchise Tax Board" on Justia Law

The Supreme Court affirmed the judgment of the court of appeals reversing the judgment of the district court reversing the order of the Board of Tax Appeals (BOTA) affirming the determination of the Kansas Department of Revenue (KDOR) that Gene Bicknell was a Kansas resident in 2005 and 2006, holding that the findings supported the district court's legal conclusion that Gene was domiciled in Florida in 2005 and 2006.After launching a review of Gene's 2005 and 2006 tax returns the KDOR determined that Gene was a Kansas resident during the relevant years. The BOTA affirmed. The district court reversed, concluding that Gene was a Florida resident during the assessment period. The court of appeals reversed, concluding that the district court had improperly shifted the burden of proof from Gene to KDOR. The Supreme Court affirmed, holding (1) venue for these proceedings was proper in Crawford County; and (2) the district court recognized and held Gene to his burden to prove he was a Florida resident during the assessment period. View "Bicknell v. Kansas Department of Revenue" on Justia Law

Plaintiffs filed a putative class action against San Jose and the County of Santa Clara, seeking to recover millions of dollars in garbage collection charges paid by plaintiffs and a class of similarly situated property owners. The complaint alleged that the plaintiffs own residential property in San Jose and receive garbage collection services from the city. Plaintiffs were billed for those services but failed to pay some of the bills. To recover the unpaid amounts, the city recorded liens on the property owned by the plaintiffs. The delinquent charges were referred to the County as special assessments to be included on the property tax bill. Plaintiffs paid the special assessments that appeared on their tax bill and the city released the liens against their property. Plaintiffs allege that including delinquent garbage collection charges as a special assessment on the property tax bill, although authorized by the San Jose Municipal Code, violates California laws regarding the recording and priority of real property liens.Citing Health and Safety Code section 5472, the trial court dismissed. The court of appeal affirmed, finding that complying with the payment under protest procedure is a mandatory pre-filing requirement and that the plaintiffs had not complied and could not amend the complaint to cure the deficiency. View "Padilla v. City of San Jose" on Justia Law