Justia Tax Law Opinion Summaries

Victor Kearney was indicted for filing a false tax return for 2011 and for conspiring to defraud the United States by impeding the Internal Revenue Service (IRS). The government alleged that Kearney, with the assistance of his tax attorney, Robert Fiser, failed to report taxable trust income on his tax returns from 2007 to 2011. Fiser, who was both an attorney and a certified public accountant, prepared Kearney’s returns during those years, reporting negative income despite Kearney’s receipt of trust income. At trial, Kearney argued that he relied in good faith on Fiser’s advice and was unaware of his personal tax obligations. The defense also challenged Fiser’s credibility, highlighting his ethical violations and criminal history.The United States District Court for the District of New Mexico conducted the trial. The jury convicted Kearney on both counts: filing a false tax return and conspiracy to defraud the United States. The district court sentenced him to 27 months in prison for each count, to run concurrently, and denied his motion for a new trial. Kearney appealed, challenging only his conspiracy conviction. He argued that the district court erred by misinstructing the jury on the elements of conspiracy to defraud and by failing to include the conspiracy charge in the advice-of-counsel instruction.The United States Court of Appeals for the Tenth Circuit reviewed the case and found two plain errors. First, the jury instruction for conspiracy did not require the government to prove that Kearney used deceitful or dishonest means, an essential element of conspiracy to defraud under 18 U.S.C. § 371. Second, the advice-of-counsel instruction was limited to the false return charge and did not inform the jury that this defense applied to the conspiracy charge as well. The court held that these errors prejudiced Kearney’s defense, vacated his conspiracy conviction, and remanded for further proceedings. View "United States v. Kearney" on Justia Law

A multinational science and technology company operated in approximately 90 countries, with a significant portion of its sales outside the United States. For the tax years 2013, 2014, and 2015, the company conducted some business in Minnesota, requiring its income to be apportioned for state tax purposes. The company used forward exchange contracts (FECs) as a hedging tool to manage foreign currency risk, generating substantial gross receipts from these transactions, though the net income from FECs was relatively small compared to overall gross receipts.After the company filed its Minnesota corporate franchise tax returns using the general apportionment method, which included gross receipts from FECs, the Minnesota Department of Revenue audited the returns. The Department determined that including gross receipts from FECs in the apportionment formula distorted the company’s Minnesota tax liability. The Commissioner of Revenue applied an alternative apportionment method under Minnesota Statutes section 290.20, which excluded gross receipts but included net income from FECs. The company appealed, and the Minnesota Tax Court upheld the Commissioner’s approach, finding that FEC transactions were qualitatively different from the company’s main business activities and that including their gross receipts caused a substantial quantitative distortion in the apportionment formula.The Supreme Court of Minnesota reviewed the case, applying a deferential standard to the tax court’s factual findings and de novo review to legal conclusions. The court held that the tax court did not err in finding that the Commissioner met his burden under section 290.20 to show that the general apportionment method did not fairly reflect the company’s Minnesota activities, and that the alternative formula—excluding gross receipts but including net income from FECs—fairly represented those activities. The Supreme Court affirmed the tax court’s decision. View "E. I. duPont de Nemours and Company & Subsidiaries v. Commissioner of Revenue" on Justia Law

Rowena Joyce Scott served as both the president of the board and general manager of Park Southern Neighborhood Corporation (PSNC), a nonprofit that owned a large apartment building in Washington, D.C. During her tenure, Scott exercised near-total control over PSNC’s finances and operations. She used corporate funds for personal expenses, including luxury items and services, and made significant cash withdrawals from PSNC’s accounts. After PSNC defaulted on a loan, the District of Columbia’s Department of Housing and Community Development intervened, replacing Scott and the board with a new property manager, Vesta Management Corporation, which took possession of PSNC’s records and computers. Subsequent investigation by the IRS led to Scott’s indictment for wire fraud, credit card fraud, and tax offenses.The United States District Court for the District of Columbia presided over Scott’s criminal trial. Scott filed pre-trial motions to suppress statements made to law enforcement and evidence obtained from PSNC’s computers, arguing violations of her Fifth and Fourth Amendment rights. The district court denied both motions. After trial, a jury convicted Scott on all counts, and the district court sentenced her to eighteen months’ imprisonment, supervised release, restitution, and a special assessment. Scott appealed her convictions, challenging the sufficiency of the evidence and the denial of her suppression motions.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. The court held that Scott forfeited her statute of limitations defense by not raising it in the district court. It found the evidence sufficient to support all convictions, including wire fraud and tax offenses, and determined that Scott was not in Miranda custody during her interview with IRS agents. The court also concluded that the search warrant for PSNC’s computers was supported by probable cause, and that Vesta’s consent validated the search. The court affirmed the district court’s judgment in all respects. View "United States v. Scott" on Justia Law

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