Justia Tax Law Opinion Summaries

Polselli underpaid his federal taxes. The IRS has made formal assessments against him; the outstanding balance is over $2 million. While investigating assets to satisfy those liabilities, IRS Officer Bryant learned that Remo used entities to shield assets and that Remo “may have access to and use of” bank accounts held in the name of his wife, Hanna. Bryant served a summons on a bank, seeking account and financial records of Hanna “concerning” Remo. Remo was a client of the law firm Abraham & Rose; Bryant served the firm with a summons. The firm asserted attorney-client privilege and represented that it did not retain any of the requested documents. Bryant then issued identical summonses against banks, seeking any financial records of Abraham & Rose and a related law firm, “concerning” Remo. Bryant did not notify Hanna or the law firms of the bank summonses.After receiving notices from their banks, Hanna and the law firms petitioned to quash the summonses, alleging that the IRS failed properly to notify them under 26 U.S.C. 7609(a). The district court and Sixth Circuit agreed with the IRS that 7609(b)(2) and (h) waived sovereign immunity only for parties entitled to notice of the summonses and because the IRS was seeking the bank records “in aid of the collection” of Remo’s assessed liability, there was no entitlement to notice under 7609(c)(2)(D)(i). The district court, therefore, lacked subject-matter jurisdiction. View "Polselli v. United States Department of the Treasury" on Justia Law

Desu co-owned Heights Pharmacy with Desai. Desai collected Heights' cash earnings and deposited a small portion of that cash into the pharmacy’s bank account, leaving the rest undeposited. After paying for certain items from the undeposited cash, such as part of Desai’s salary, Desai split the undeposited cash between herself and Desu. Desai kept the cash earnings off the general ledger. The underreporting on Heights Pharmacy’s tax returns led to underreported net income on Desu’s individual tax returns. Following a government investigation, Desai pleaded guilty and testified against Desu. Desu also co-owned Arthur Avenue Pharmacy, with Pujara. Desu and Pujara also kept the cash earnings off Arthur’s general ledger. Pujara testified against Desu, who was convicted under 18 U.S.C. 371 for conspiracy to impede the lawful government functions of the IRS and willfully assisting in the preparation and presentation of materially false tax returns.The Third Circuit affirmed, rejecting arguments that the jury received a faulty government exhibit for use in its deliberations; two counts in the indictment fail to state an offense; the district court erred in excluding testimony regarding the Desais’ cash transactions on relevancy grounds; the district court erred in denying a “Franks” evidentiary hearing; the government constructively amended the indictment; and the district court erred at sentencing by failing to account for certain deductions and exclusions in Desu’s income when calculating the tax loss. View "United States v. Desu" on Justia Law

The Supreme Court reversed the judgment of the circuit court dismissing a bill of review after determining that the underlying matter was an action at law and that a bill of review was inappropriate, holding that the circuit court erred.The City of Petersburg brought an action against the Emmanuel Worship Center and its trustees (collectively, EWC) for delinquent taxes. The circuit court found that EWC owed the City for delinquent real estate taxes and then issued a decree of sale. EWC paid to redeem its property and then filed a bill of review seeking reversal or modification of the decree of sale and an award of the amounts it had paid to the City, arguing that it was constitutionally exempt from paying real estate taxes because the property was owned and used exclusively for religious purposes. The circuit court denied the bill of review. The Supreme Court reversed and remanded the case for further proceedings, holding that the circuit court (1) erred in determining that the underlying action was an action at law, and (2) erred in holding that because more than three years had passed since the taxes were assessed they were beyond review. View "Emmanuel Worship Center v. City of Petersburg" on Justia Law

In the early 1900s, New York City used a Brooklyn powerhouse to provide electricity for its trolley system. In 1940, the City took ownership of the power plant and removed a smokestack, placed it in the building's basement, on top of a mechanical system that was insulated with friable asbestos-containing material, and buried it under a concrete slab. Enterprises acquired the property in 1986. An asbestos inspection by the city revealed that the property was contaminated with PCBs. The property was placed on New York’s Registry of Inactive Hazardous Waste Disposal Sites, rendering it effectively worthless. The state began remediation in 2015. The discovery of the buried smokestack and friable asbestos-containing material postponed the project indefinitely. New York City continued to tax the property according to its “best intended use” as a warehouse. Rather than paying the taxes or properly challenging their validity, Enterprises ignored them. The taxes became liens.In 2018, Enterprises filed for Chapter 11 bankruptcy and initiated an adversary proceeding against the city, alleging “continuous trespass,” and seeking a declaratory judgment that the city is responsible for the hazardous waste and resulting damage and improperly taxed the property. The bankruptcy court dismissed the adversary proceeding. The Eleventh Circuit affirmed. Even assuming the latest possible date of discovery, Enterprises’ trespass claim is time-barred. The Bankruptcy Abuse Prevention and Consumer Protection Act, 11 U.S.C. 505(a)(2)(C), prohibited the court from redetermining the tax assessments. View "5200 Enterprises Ltd. v. City of New York" on Justia Law

The Browns, U.S. citizens, lived in Australia while Mr. Brown worked for Raytheon. The IRS received the Browns' amended returns for 2015 and 2017, claiming the Foreign Earned Income Exclusion, signed by attorney Castro, but not accompanied by powers of attorney. The Browns' second amended return for 2015, again signed by Castro, also did not append any powers of attorney. The IRS disallowed the refund claims, indicating that "as an employee of Raytheon . . . [Brown] may have entered into a closing agreement . . . irrevocably waiving” Browns’ rights to claim the Exclusion under section 911(a).The Browns filed a refund suit under 26 U.S.C. 6532 and 7422(a). The government argued that the Browns had not “duly filed” their administrative refund claims in accordance with section 7422(a) because they had not personally signed and verified their amended returns or properly authorized an agent to execute them. The Browns responded that the IRS had waived those requirements by processing their claims despite the defects and that the requirements were waivable regulatory conditions. The Claims Court dismissed the suit for lack of subject matter jurisdiction. The Federal Circuit affirmed. The Claims Court had jurisdiction; the “duly filed” requirement is more akin to a claims-processing rule than a jurisdictional requirement. However, the Browns did not meet that requirement, which derives from statute and cannot be waived by the IRS, nor did the IRS waive the requirement. View "Brown v. United Statesx" on Justia Law

The Eleventh Circuit reversed the tax court's order disallowing taxpayers' carryover deduction for the donation of a conservation easement. The court concluded that the Commissioner's interpretation of I.R.C. 1.170A14(g)(6)(ii) is arbitrary and capricious and violates the Administrative Procedure Act's (APA) procedural requirements. The court explained that Treasury, in promulgating the extinguishment proceeds regulation, failed to respond to NYLC's significant comment concerning the post-donation improvements issue as to proceeds. Because the court found the Commissioner's interpretation of section 1.170A-14(g)(6)(ii) invalid under the APA, it concluded that the easement deed's subtraction of the value of post-donation improvements from the extinguishment proceeds allocated to the donee does not violate section 170(h)(5)'s protected-in-perpetuity requirement. The court remanded for further proceedings. View "Hewitt v. Commissioner" on Justia Law

Wegbreit founded Oak Ridge, a financial-services company, and worked with attorney Agresti to reduce his tax liability. At Agresti’s suggestion, Wegbreit transferred his Oak Ridge interest to a trust that would convey that interest to an offshore insurance company as a premium for a life insurance policy benefitting the trust. Agresti, as trustee, acquired a variable life insurance policy from Threshold (later Acadia), which shares a U.S. office with Agresti’s law firm. The Wegbreits leveraged the policies by means of policy loans and purchases by shell companies. Acadia, at Samuel’s direction, sold his Oak Ridge interest for $11.3 million. The proceeds were wired directly to Agresti, who conveyed them to Acadia; the Wegbreits did not report any taxable income from the sale. After an audit, the IRS determined that the trust income and policy gains, including those from the Oak Ridge sale, were taxable to the Wegbreits, who had underreported their 2005-2009 income by $15 million. The Wegbreits disputed that conclusion in the tax court. After discovery revealed suspicious documents related to the trust and policies, the IRS asserted civil fraud penalties.The judge found that the trust was a sham lacking economic substance that should be disregarded for tax purposes, agreed with the IRS assessment of tax liability, and imposed fraud penalties. The Seventh Circuit affirmed, noting that the Wegbreits had previously “stipulated away” their assertions, and ordering the Wegbreits’ attorney to show cause why he should not be sanctioned under Rule 38 for filing a frivolous appeal. View "Wegbreit v. Commissioner of Internal Revenue" on Justia Law

Relator Edward J. O’Donnell filed a federal qui tam suit against his employer, alleging the employer violated the federal False Claims Act. As a financial incentive to take on this role, the FCA provided relators with a portion of any award that the federal government obtains in the qui tam action. The United States government ultimately settled with O’Donnell’s employer. O’Donnell received a 16% share of the settlement, or $34,560,000. The question before the Pennsylvania Supreme Court in this case was whether this qui tam award was taxable in Pennsylvania as compensation under Section 303 of the Pennsylvania Tax Reform Code, 72 P.S. section 7303. The Supreme Court held that it was, thus reversing the order of the Commonwealth Court. View "O'Donnell v. Allegheny Co. Tax" on Justia Law

The Supreme Court affirmed the judgment of the trial court determining that property used for a residential mental health treatment program was tax exempt under Conn. Gen. Stat. 12-81(7), holding that the court did not err.The trial court granted the exemption on the residential mental health treatment program on the grounds that it did not provide housing subsidized by the government and that any housing provided was temporary. The Supreme Court affirmed, holding (1) Defendant failed to establish that the trial court lacked subject matter jurisdiction; (2) the trial court properly found that the program's housing was temporary and therefore qualified for the exemption on that basis; and (3) therefore, the trial court correctly rendered summary judgment in favor of Plaintiffs. View "Rainbow Housing Corp. v. Cromwell" on Justia Law

The issue on appeal in this case was whether taxpayer, Ooma, Inc., a California company, had sufficient contacts or nexus with Oregon to make it subject to local tax. The Oregon Tax Court concluded that Ooma’s contacts and nexus with Oregon were sufficient to satisfy the Due Process and Commerce Clauses, and granted summary judgment to the Department of Revenue. Finding no reversible error in that judgment, the Oregon Supreme Court affirmed the Tax Court. View "Ooma, Inc. v. Dept. of Rev." on Justia Law