Justia Tax Law Opinion Summaries

Berkovich filed California state tax returns as required for 2003-2005. In 2008, the IRS assessed about $145,000 of additional federal income taxes against Berkovich for those years. He did not notify the California Franchise Tax Board (FTB) of the increased federal assessments as required. (Cal. Rev. & Tax Code 18622(a)). The FTB learned of the federal assessments from the IRS. It assessed Berkovich additional state income taxes, approximately $45,000 plus penalties and interest. Berkovich did not challenge the assessments nor pay the additional state taxes. In 2012, Berkovich filed a chapter 13 bankruptcy petition. After the bankruptcy discharge, the FTB filed a complaint, alleging that the state tax debts were nondischargeable under 11 U.S.C. 523(a)(1)(B)(i) because Berkovich failed to report the increased federal tax assessments to the FTB and failed to challenge the FTB’s notices of proposed tax assessment. The Bankruptcy Appellate Panel held that Berkovich’s tax debt was not discharged.The Ninth Circuit affirmed. Berkovich’s tax debt was not discharged in bankruptcy because the debt derived from a “report or notice” “equivalent” to a tax return. Section 523(a)(1)(B) provides that, if a taxpayer fails to file a required “return, or equivalent report or notice,” the relevant tax debt is not discharged. California law requires a taxpayer to “report” to the FTB if the IRS changes the taxpayer’s federal income tax liability. View "Berkovich v. California Franchise Tax Board" on Justia Law

The Plaintiff States filed suit alleging that the $10,000 cap on the federal income tax deduction for money paid in state and local taxes (SALT), enacted as part of the 2017 Tax Cuts and Jobs Act, violates the United States Constitution.The Second Circuit affirmed the district court's grant of defendants' motion to dismiss for failure to state a claim and denial of the States' cross-motion for summary judgment. The court concluded that the States had standing and that their claims were not barred by the Anti-Injunction Act (AIA). However, the court rejected the States' contention that the SALT deduction is constitutionally required by the text of Article I, Section 8 and the Sixteenth Amendment of the Constitution, and thus the SALT deduction cap effectively eliminates a constitutionally mandated deduction for taxpayers. Rather, the court concluded that the Constitution itself does not limit Congress's authority to impose a cap. In this case, the States' arguments mimic those that the Supreme Court rejected in South Carolina v. Baker, 485 U.S. 505, 515–27 9 (1988). In Baker, the Court held that Congress had the power to tax interest earned on state-issued bonds even though it had not previously done so. The court also concluded that the SALT deduction cap is not coercive in violation of the Tenth Amendment or the principle of equal sovereignty. View "New York v. Yellen" on Justia Law

The Fifth Circuit affirmed in part and reversed in part the district court's grant of summary judgment in favor of the government in this tax refund action arising under the Internal Revenue Code. Taxpayers overpaid their reported 2010 tax liabilities by an amount sufficient to cover any later-determined deficiency for the 2010 tax year, and then elected on their 2010 tax return to credit the overpayment forward to their estimated 2011 tax liabilities. The IRS subsequently completed an audit of taxpayers' 2010 tax return and determined that their interest award in a prior lawsuit should have been reported as ordinary income taxable at the ordinary income rate.The court concluded that the interest award is properly classified and taxable as ordinary income. The court explained that the award portion of the judgment one of the taxpayers received was "in lieu of" what she might have earned on the fair value of her shares for the 13-year period between the merger and final judgment in the prior litigation. Therefore, the court concluded that it qualifies as ordinary income under the origin-of-the-claim doctrine. However, in the absence of clear statutory authority, the court applied the established use-of-money principle and concluded that the IRS improperly assessed underpayment interest against taxpayers from April 16, 2012 to April 15, 2017. The court remanded for the district court to enter a judgment for taxpayers as to their claim for refund of the $603,335.27 underpayment interest amount. View "Goldring v. United States" on Justia Law

Rami Khalaf (“taxpayer”) was in the business of buying products for customers in the United Arab Emirates, primarily all-terrain vehicles (ATVs). He sought to claim certain business deductions on his 2013 income tax return. As relevant here, those included travel expenses that taxpayer had incurred on trips to the Emirates, and the cost of a dune buggy that taxpayer had purchased for use as a demonstration model. The Department of Revenue rejected those deductions. The Tax Court agreed with the department on those points, holding that the travel expenses were not deductible, because they were not sufficiently documented, and that the dune buggy was not deductible because it counted as inventory. Taxpayer appealed, but finding no reversible error, the Oregon Supreme Court affirmed the Tax Court's judgment. View "Khalaf v. Dept. of Rev." on Justia Law

This case involves the constitutionality of a business and occupation (B&O) tax. In 2019, the Washington state legislature imposed an additional 1.2 percent B&O tax on financial institutions with a consolidated net income of at least $1 billion. The tax applied to any financial institution meeting this threshold regardless of whether it was physically located in Washington, and it was apportioned to income from Washington business activity. The Washington Supreme Court found that because the tax applied equally to in- and out-of-state institutions and was limited to Washington-related income, it did not discriminate against interstate commerce. The Court therefore reversed the trial court and upheld the constitutionality of the tax. View "Washington Bankers Ass'n v. Dep't of Revenue" on Justia Law

The School Board sought equitable relief from Crest Hill ordinances creating a real property tax increment financing (TIF) district and attendant redevelopment plan and project, pursuant to the Tax Increment Allocation Redevelopment Act (65 ILCS 5/11-74.4-1). The Board complained that Crest Hill violated the TIF Act by including parcels of realty in the redevelopment project area that were not contiguous. An excluded parcel is owned by the utility company, is located outside the incorporated boundaries of the municipality and the boundaries of the redevelopment project area, and physically separates the parcels the municipality found to be contiguous for purposes of including them in the redevelopment project area.The circuit court granted Crest Hill summary judgment. The Appellate Court reversed. The Illinois Supreme Court affirmed the reversal. A public-utility-right-of-way exception to the contiguity requirement for annexation, found in the Municipal Code (65 ILCS 5/7-1-1), does not apply as an exception to contiguity required by the TIF Act. This case does not involve contiguous properties running parallel and adjacent to each other in a reasonably substantial physical sense, wherein a public utility owns a right-of-way, or easement, to pass through one or both of the physically adjacent properties. View "Board of Education of Richland School District No. 88A v. City of Crest Hill" on Justia Law

The Supreme Court held that when a property's assessment increases by more than five percent over the previous year and the Indiana Board of Tax Review finds incorrect both parties' assessment, a statutory clause requires that the assessment reverts to the assessment for the prior tax year.In 2014, the Ross Township assessor in Lake County increased the tax assessment for Southlake Mall, Owned by Southlake Indiana, LLC. The new assessed values were more than double the assessments for the three prior tax years. The tax court affirmed in all respects except for a pair of reimbursements not at issue on appeal. Southlake appealed, arguing that the tax court erred by not applying the reversionary clause in Ind. Code 6-1.1-15-17.2(b). The Supreme Court reversed, holding that because neither party met its burden of proof, section 17.2's reversionary clause controlled, requiring that the assessments revert to the assessment for each prior tax year. View "Southlake Indiana LLC v. Lake County Assessor" on Justia Law

The Supreme Court held that a tax imposed solely upon a small number of billboard operators is a discriminatory tax that violates the rights to freedom of speech and a free press protected by the First Amendment to the United States Constitution.The City of Cincinnati imposed a tax on outdoor advertising signs, but through definitions and exemptions within the city's municipal code, the tax burdens feel predominantly on two billboard operators only. The two billboard operators (Appellants) sought a declaration that the tax violated their constitutional rights to free speech and a free press and requesting an injunction against the tax's enforcement. The trial court permanently enjoined the City from enforcing the tax. The court of appeals reversed in part. The Supreme Court reversed and reinstated the injunction, holding that the billboard tax did not survive strict scrutiny and therefore impermissibly infringed on Appellants' rights to free speech and a free press. View "Lamar Advantage GP Co. v. City of Cincinnati" on Justia Law

Petitioners, the Towns of Chester and Hudson (collectively, Towns), appealed a Board of Tax and Land Appeals (BTLA) order granting respondent Public Service Company of New Hampshire d/b/a Eversource Energy (PSNH) abatements of taxes assessed against its property located in Chester for tax years 2014 and 2016 and in Hudson for tax years 2014, 2015, and 2016. PSNH submitted an appraisal report prepared by its expert, Concentric Energy Advisors, Inc., setting forth the expert’s opinion of the aggregate fair market value of PSNH’s taxable property located in each municipality for each tax year. Two appraisers employed by the Towns’ expert, George E. Sansoucy, P.E., LLC (GES), used a substantially similar methodology in appraising the fair market value of the land interests. The BTLA compared the equalized market value to the aggregate assessed value for each municipality for each tax year. The BTLA concluded that an assessment was unreasonable and granted an abatement when it determined that the difference between the equalized market value and the aggregate assessed value was greater than five percent. The Towns argued that because both GES and Concentric relied upon the assessed value of PSNH’s land interests in reaching their opinions of fair market value, the values that the BTLA incorporated into its analysis “were already proportionate” and “should not have had the equalization ratio[s] applied to them.” The BTLA denied the Towns’ motion for reconsideration, noting that it based its calculations upon values that “were supplied by the [Towns] themselves in the stipulations agreed to by them” and adopting the arguments PSNH raised in its objection. Finding no reversible error in the BTLA's order, the New Hampshire Supreme Court affirmed. View "Appeal of Town of Chester et al." on Justia Law

Petitioner filed a petition with the U.S. Tax Court challenging the IRS's deficiency determination and the imposition of an accuracy-related penalty. The Tax Court issued a decision upholding in part the IRS's deficiency determination and imposition of the accuracy-related penalty.After the Fifth Circuit found that collateral estoppel does not bar the Commissioner from litigating this issue, the court concluded that the Tax Court did not clearly err in finding that petitioner is not entitled to deduct his 2014 legal expenses under 26 U.S.C. 162(a). In this case, petitioner has not carried his burden of proof to show that the origin of the claims underlying his litigation to recoup his trading agreement losses—the trading agreement venture—was related to his engagement in a trade or business within the meaning of section 162(a). The court also concluded that the Tax Court did not err in finding that petitioner cannot deduct his legal expenses incurred litigating to recover on his ex-wife's indebtedness as expenses for the production of income under 26 U.S.C. 212(1). However, the court concluded that petitioner is entitled to a reasonable cause and good faith defense for his understatement attributable to deducting his trading agreement legal fees under section 162(a) rather than section 212. View "Ray v. Commissioner of Internal Revenue" on Justia Law