Justia Tax Law Opinion Summaries

A hotel property owner challenged the Los Angeles County Assessor’s valuation of its property for tax purposes, arguing that two specific revenue streams should have been excluded from the income-based assessment. The first was a 14 percent nightly occupancy tax assigned by the City of Los Angeles to the original developer as an incentive to construct the hotel, and the second was a one-time “key money” payment made by Marriott International to the owner for the right to manage and brand the hotel for 50 years. The owner claimed these revenues derived from nontaxable intangible assets—contractual rights—and thus should not be included in the property’s taxable value.The Los Angeles County Assessment Appeals Board ruled in favor of the County, finding both the occupancy tax and key money payments were properly included as income from the property itself. The Board also found insufficient evidence to isolate the value of certain enterprise assets (customer goodwill, food and beverage operations, and workforce) from the real estate value. The Los Angeles County Superior Court affirmed the Board’s decision on the occupancy tax and key money, but remanded for further proceedings on the valuation of the enterprise assets. The California Court of Appeal reversed the trial court on the first two issues, holding that the occupancy tax and key money should be excluded, but affirmed the remand for valuation of the enterprise assets.The Supreme Court of California reviewed the case and held that the Assessor was permitted to include both the occupancy tax and key money payments in the hotel’s assessed value, as these revenues represent income from the use of the property itself rather than from enterprise activity. The Court affirmed the lower courts’ decision to remand for further proceedings regarding the valuation and deduction of the three identified enterprise assets. The judgment was reversed in part and affirmed in part. View "Olympic and Ga. Partners, LLC v. County of L.A." on Justia Law

Charles Sorensen, a retired airline pilot, engaged in a series of actions from 2016 to 2021 to evade federal income taxes for the years 2015 through 2019. His conduct included failing to file tax returns, submitting false returns, making fraudulent refund claims, concealing income and assets, and refusing to cooperate with the IRS. Sorensen used shell companies, such as LAWTAM and LAMP, to hide assets and income, transferred funds to avoid IRS levies, and ultimately converted assets into cryptocurrency to further shield them from collection. He also filed frivolous documents and lawsuits challenging the IRS’s authority. The total tax loss attributed to his actions was $1,861,722.A jury in the United States District Court for the District of Minnesota convicted Sorensen on seven counts, including filing false tax returns, tax evasion, failing to file tax returns, and making a false claim against the United States. The district court sentenced him to 41 months in prison. Sorensen appealed, arguing that the district court improperly admitted testimony from several witnesses who were not qualified as experts and erred in applying a sentencing enhancement for sophisticated means.The United States Court of Appeals for the Eighth Circuit reviewed the evidentiary rulings for abuse of discretion and the sentencing enhancement de novo. The appellate court held that the challenged witness testimony was properly admitted as lay testimony under Federal Rule of Evidence 701, as it was based on firsthand knowledge and personal experience, not specialized expertise. The court also found that the sophisticated means enhancement was appropriately applied, given Sorensen’s use of shell companies, cryptocurrency, and other complex methods to conceal his tax evasion. The Eighth Circuit affirmed the judgment of the district court. View "United States v. Sorensen" on Justia Law

Starbuzz International, Inc. and Starbuzz Tobacco, Inc. distributed shisha, a product containing less than 50 percent tobacco, in California between October 2012 and September 2015. During this period, they paid over $2.8 million in excise taxes under the state’s Tobacco Products Tax Law, which imposed taxes on “tobacco products” as defined by statute. Starbuzz later filed refund claims, arguing their shisha did not meet the statutory definition and was not taxable. The Office of Tax Appeals (OTA) agreed, finding the definition ambiguous and resolving it in Starbuzz’s favor, granting full refunds. After a rehearing, a second OTA panel reaffirmed this decision.Following these administrative victories, Starbuzz requested payment of the refunds from the California Department of Tax and Fee Administration. The Department, however, declined to issue the refunds immediately, citing a statutory requirement to review whether Starbuzz had collected the excise tax from its customers and, if so, whether those amounts had been returned to them. Starbuzz filed a petition for writ of mandate in the Superior Court of Sacramento County, arguing the Department had a ministerial duty to pay the refunds and was barred by res judicata from conducting further review. The trial court rejected Starbuzz’s arguments and denied the petition, entering judgment for the Department.The California Court of Appeal, Third Appellate District, reviewed the case and affirmed the trial court’s judgment. The court held that the Department’s obligation to review for excess tax reimbursement under section 30361.5 was distinct from the refund claim adjudicated by the OTA. The court found that res judicata did not apply because the primary right at issue in the OTA proceedings (freedom from improper taxation) was different from the right asserted in the current action (immediate refund without review for excess reimbursement). Thus, the Department could require a review before issuing refunds. View "Starbuzz International v. Department of Tax and Fee Administration" on Justia Law

The case concerns the method by which county tax assessors in Georgia determine the fair market value of properties that qualify for federal low-income housing tax credits under Section 42 of the Internal Revenue Code. The property owner, who operates a Section 42 affordable housing complex, challenged the county’s assessment of the property’s value for tax purposes. The dispute centers on whether tax assessors may use the “income approach”—a method that estimates value based on projected income streams—when valuing such properties, given statutory limitations on how Section 42 tax credits may be considered as income.After the county tax assessors issued a notice valuing the property, the owner appealed to the Superior Court of Lowndes County. The assessors moved for partial summary judgment, arguing that, under existing precedent, the income approach could not be used because Section 42 tax credits do not generate “actual income” for the property owner. The trial court agreed and granted summary judgment on this issue. The Georgia Court of Appeals affirmed, relying on its prior decision in Freedom Heights, LP v. Lowndes County Board of Tax Assessors, which interpreted both the relevant statute and Supreme Court of Georgia precedent as prohibiting use of the income approach under these circumstances.The Supreme Court of Georgia reviewed the case to clarify the proper interpretation of the statute and its own precedent. The court held that tax assessors are permitted to use the income approach to determine the fair market value of Section 42 properties, even though Section 42 tax credits, as currently structured, may not be treated as “income” under that approach. The court overruled the contrary holding in Freedom Heights, reversed the judgment of the Court of Appeals, and remanded the case for further proceedings. View "GATEWAY PINES HAHIRA, LP v. LOWNDES COUNTY BOARD OF TAX ASSESSORS" on Justia Law

The petitioner, a taxpayer, received a notice of deficiency from the Internal Revenue Service (IRS) regarding her 2022 tax return. The IRS determined that she was not entitled to certain tax credits and imposed penalties. The notice, dated May 30, 2023, was sent to her former address, and she did not become aware of it until after the deadline to contest the deficiency had passed. She filed a petition for redetermination with the United States Tax Court on November 1, 2023, well after the ninety-day deadline specified in the Internal Revenue Code. In her petition, she argued that she was entitled to the disputed credits and status, and requested equitable tolling of the filing deadline due to her lack of timely notice.The United States Tax Court dismissed her petition for lack of jurisdiction, holding that the ninety-day deadline in I.R.C. § 6213(a) was a strict jurisdictional requirement that could not be extended or tolled, regardless of the circumstances. The court relied on prior Sixth Circuit precedent that had characterized the deadline as jurisdictional and rejected the petitioner’s arguments for equitable tolling.On appeal, the United States Court of Appeals for the Sixth Circuit reviewed the Tax Court’s dismissal de novo. The Sixth Circuit held that, in light of recent Supreme Court guidance, the ninety-day deadline in § 6213(a) is not a jurisdictional rule but rather a nonjurisdictional claims-processing rule. As such, it is presumptively subject to equitable tolling. The court reversed the Tax Court’s dismissal and remanded the case for the Tax Court to consider, in the first instance, whether the petitioner is entitled to equitable tolling of the filing deadline based on the specific facts of her case. View "Oquendo v. Comm'r of Internal Revenue" on Justia Law

Philip Morris USA, Inc., a Virginia-based corporation doing business in North Carolina, was assessed additional franchise taxes by the North Carolina Department of Revenue for tax years 2012–2014. The Department determined that Philip Morris had improperly deducted certain debts from its capital base, as the debtor corporations were not subject to North Carolina’s franchise tax, contrary to the requirements of the relevant statute. After exhausting administrative remedies, Philip Morris petitioned the Office of Administrative Hearings (OAH) for a contested case hearing, arguing that the statute, as applied to it, violated the dormant Commerce Clause of the U.S. Constitution.An administrative law judge (ALJ) at the OAH rejected the Department’s argument that the OAH lacked subject matter jurisdiction over Philip Morris’s constitutional claim and granted summary judgment in favor of Philip Morris, finding the statute unconstitutional as applied. The Department sought judicial review, and the case was assigned to the North Carolina Business Court. The Business Court reversed the ALJ’s decision, holding that the OAH lacked subject matter jurisdiction over as-applied constitutional challenges to tax statutes, reasoning that such challenges must be heard by the judiciary, not administrative agencies, and that the relevant statutes did not confer such jurisdiction on the OAH.The Supreme Court of North Carolina reviewed the Business Court’s decision de novo. The Court held that N.C.G.S. § 105-241.17 does not grant the OAH subject matter jurisdiction over as-applied constitutional challenges to tax statutes. The Court reasoned that the power to rule on the constitutionality of statutes is reserved for the judiciary, and the statute’s language and legislative intent did not clearly confer such authority on the OAH. The Supreme Court of North Carolina affirmed the Business Court’s order reversing the OAH’s decision and remanding the case for dismissal. View "Dep't of Revenue v. Philip Morris USA, Inc." on Justia Law

Liberty Global, a U.S. corporation, sold its controlling interest in a Japanese company for approximately $3.9 billion, realizing a gain of $3.2 billion. On its 2010 tax return, Liberty Global characterized $438 million of the gain as a foreign-source dividend and $2.8 billion as foreign-source capital gain. Of the capital gain, $474 million was re-sourced to the United States to recapture prior overall foreign losses, while the remaining $2.3 billion was treated as foreign-source capital gain, making Liberty Global eligible for a $240 million foreign tax credit.The Commissioner of Internal Revenue issued a notice of deficiency, asserting that the $2.3 billion in excess of the overall foreign loss account was U.S.-sourced, not foreign-sourced, and therefore Liberty Global was not entitled to the claimed tax credit. Liberty Global challenged this determination in the United States Tax Court, which reviewed the case on a stipulated record. The Tax Court agreed with the Commissioner, holding that only the portion of gain equal to the overall foreign loss balance could be treated as foreign-sourced under Internal Revenue Code § 904(f)(3), and the excess gain was U.S.-sourced.On appeal, the United States Court of Appeals for the Tenth Circuit reviewed the Tax Court’s decision de novo. The Tenth Circuit held that under the plain language of the Tax Code, specifically § 904(f)(3)(A)(i), only the lesser of the gain from the sale or the remaining overall foreign loss balance is treated as foreign-sourced income. The excess gain above the overall foreign loss balance is U.S.-sourced under § 865(a). The court rejected Liberty Global’s arguments based on statutory interpretation and Treasury regulations, affirming the Tax Court’s judgment and denying Liberty Global’s claim to the $240 million foreign tax credit. View "Liberty Global v. CIR" on Justia Law

A Virginia-based company provided tax debt relief services to clients in Idaho, assisting them in negotiating settlements or payment plans for tax debts owed to the IRS and the State of Idaho. The company did not offer services for other types of debt and employed IRS-enrolled agents to represent clients in administrative tax proceedings. Despite conducting substantial business in Idaho, the company did not register as a corporation in the state or obtain a license under the Idaho Collection Agency Act (ICAA). After receiving multiple complaints from Idaho residents about the company’s practices, the Idaho Department of Finance investigated and determined that the company was operating as a “debt counselor” under the ICAA and required a license.The Department initiated an administrative enforcement action, resulting in a hearing officer’s order imposing civil penalties and restitution. The company appealed to the Director of the Department of Finance, who largely upheld the hearing officer’s findings but reduced the restitution amount. The company then sought judicial review in the District Court of the Fourth Judicial District, which affirmed the Director’s final order. The company appealed to the Idaho Supreme Court.The Supreme Court of the State of Idaho held that the company’s activities—negotiating and managing tax debts—fell within the ICAA’s definition of a “debt counselor,” and that unpaid taxes constitute “debt” or “indebtedness” under the Act’s plain language. The Court also found that the ICAA was not preempted by federal law, that the Director did not abuse her discretion in evidentiary or sanction decisions, and that the civil penalties and restitution were supported by substantial evidence. The Court affirmed the district court’s decision and awarded costs, but not attorney fees, to the Department on appeal. View "Wall & Associates, Inc. v. Idaho Department of Finance" on Justia Law

A religious corporation in Boise owned property that it used for its church activities. The church entered into a Shared Use Agreement with the local YMCA, allowing the YMCA to operate a daycare program on a portion of the property during weekdays. The YMCA paid the church a monthly amount that was below market rent, intended to help cover maintenance expenses. The daycare provided services to working parents in downtown Boise, including those who could not afford to pay full price, and the church considered this partnership part of its mission outreach to the community.The Ada County Board of Commissioners granted the church only an 82% property tax exemption, determining that the portion used by the YMCA was not exempt because it was leased for business or commercial purposes. The Ada County Board of Equalization affirmed this decision after a hearing, and the District Court of the Fourth Judicial District also affirmed, reasoning that the daycare use was not a religious purpose of the church and that the Shared Use Agreement constituted a lease for business or commercial purposes. The district court declined to consider the church’s alternative argument for a charitable exemption because it was not raised in the original application.On appeal, the Supreme Court of the State of Idaho reviewed the statutory requirements for property tax exemptions for religious entities under Idaho Code section 63-602B. The court held that the church’s partnership with the YMCA to provide daycare services was in connection with its religious purposes, as supported by the church’s mission statement and evidence of its outreach activities. The court further held that, although the Shared Use Agreement was a lease, the use of the property for daycare constituted use of recreational facilities and meeting rooms in connection with the church’s purposes, and thus was not a business or commercial purpose under the statute. The Supreme Court of Idaho reversed the district court’s decision and held that the church was entitled to a 100% property tax exemption. View "First Presbyterian Church of Boise, Idaho, Inc. v. Ada County" on Justia Law

Robert and Mary Morris, a married couple, owned homes in both Connecticut and New Hampshire. In 2017, they took several steps indicating a possible move to New Hampshire, including obtaining New Hampshire driver’s licenses, registering to vote there, and using their New Hampshire address on tax documents. They also made significant estimated tax payments to New Hampshire. However, they maintained strong ties to Connecticut, such as keeping important possessions there, using Connecticut professionals, and spending substantial time at their Connecticut home. Ultimately, they did not relocate to New Hampshire and filed Connecticut resident tax returns for 2017.After an audit, the New Hampshire Department of Revenue Administration (DRA) determined that the Morrises were New Hampshire residents from June 16 to December 31, 2017, and assessed interest and dividends taxes, penalties, and interest for that period. The Morrises challenged the assessment, first through a petition for redetermination with the DRA, which was denied, and then by appealing to the Superior Court of New Hampshire. The superior court denied their motion for summary judgment and, after a bench trial, upheld the DRA’s determination, finding that the Morrises’ actions demonstrated an intent to establish New Hampshire residency.The Supreme Court of New Hampshire reviewed the case and affirmed the superior court’s decision. The court held that the relevant statute and administrative rule were properly applied, and that the Morrises’ conduct evidenced an intent to make New Hampshire their principal place of physical presence for the indefinite future. The court also held that New Hampshire’s tax scheme did not violate the state or federal constitutions, that the Morrises were not entitled to credits for taxes paid to Connecticut, and that the trial court did not err in declining to abate penalties, interest, or award attorney’s fees. The judgment of the superior court was affirmed. View "Morris v. Comm'r, N.H. Dep't of Revenue Admin." on Justia Law