Justia Tax Law Opinion Summaries

The Paula Trust, established for the sole benefit of Medeiros, a California resident, has two cotrustees—a California resident and a Maryland resident. Paula Trust held a limited partnership interest in Syufy, which in 2007 sold stock. Some of the capital gain income from the stock sale was allocated to Paula Trust. Paula Trust’s 2007 tax return reported $2,831,336 of capital gain including the stock sale. The trust paid California income tax of $223,425 and later filed an amended 2007 California fiduciary income tax return, requesting a refund, arguing that the capital gain was incorrectly reported as California-source income. The trustees declared they were “required to apportion the stock gain as California source and non-California-source income . . . according to the number of trustees resident in California” based on Rev. & Tax. Code 17743, which provides: “Where the taxability of income under this chapter depends on the residence of the fiduciary and there are two or more fiduciaries for the trust, the income taxable . . . shall be apportioned according to the number of fiduciaries resident in this state.”The court of appeal reversed a judgment ordering a refund in the amount of $150,655 of tax, plus interest of $68,955.70. The Revenue and Taxation Code imposes taxes on the entire amount of trust income derived from California sources, regardless of the residency of the trust’s fiduciaries. View "Steuer v. Franchise Tax Board" on Justia Law

A toll increase for seven Bay Area bridges that was submitted to the voters as Regional Measure 3 in 2018, and approved by a 55 percent majority. Revenue from the toll increase is to be applied toward various designated highway and public transit improvement projects and programs. Opponents contend that most of the revenue will not be used for the benefit of those who use the bridges and pay the toll but rather for the benefit of those who use other means of transportation; they argue the toll increase is a tax for which the California Constitution requires a two-thirds majority vote, and therefore is invalid.The court of appeal affirmed judgment on the pleadings, upholding the fee increase. The Legislature, not the Bay Area Toll Authority, imposed the toll increase in Senate Bill 595, which required imposition of a toll increase of up to $3, subject to approval by the voters, and specified in great detail the uses to which the resulting revenue would be put. View "Howard Jarvis Taxpayers Association v. Bay Area Toll Authority" on Justia Law

Technica makes high-end audio equipment and claimed tax credits for increasing research activities under 26 U.S.C. 41 for several tax years. The R&D tax credit is available when taxpayers increase certain research expenses over time, with the increase measured in part against research costs from the five-year period from 1984-1988, taken as a percentage of the company’s gross receipts during those years (the fixed-base percentage). For the 2002–2005 and 2011 tax years, the IRS issued a notice of deficiency. Rather than litigate, Technica and the government reached settlement agreements, which were approved by the Tax Court. The settlements did not address the details but simply listed the dollar amounts of the agreed-upon deficiencies. According to Technica, these amounts were determined by a “specific agreement” as to the fixed-base percentage.With respect to the 2006–2010 tax years, Technica paid the amount requested by the IRS then sued for a refund, arguing that the government was judicially estopped from claiming that the .92% fixed-base percentage did not apply. The district court agreed, finding that because the government had entered into settlements for the other tax years using that same fixed-base percentage, it was judicially estopped from now arguing that the percentage was incorrect.The Sixth Circuit reversed. A court order memorializing a settlement agreement generally does not constitute judicial acceptance of the facts underpinning that agreement, and the orders approved by the Tax Court did not actually include the .92% rate. View "Audio Technica U.S., Inc. v. United States" on Justia Law

Byers received notice from Chase Bank that IRS Agent Conroy had requested information in connection with the IRS’s investigation into her then-husband. The notice stated that “[t]he requested information includes information that relates to you.” Conroy sent Byers a letter, informing her that she was under investigation for violating 26 U.S.C. 6700 and/or 6701, issued a document request, and requested an interview. Byers refused. Byers received copies of IRS summonses that Conroy had issued, directing her banks to provide, for 2007-2018, “any and all documents … related to . . . Andrea Byers and any other corporation or name Andrea Byers used . . . including but not limited to multiple entities. Bank of America responded to the summons but Conroy has not opened the envelope containing the response due to Byers’s pending petition to quash.The government successfully moved for dismissal of Byers’s petitions and for enforcement of the summonses. The Sixth Circuit affirmed, noting the IRS’s broad authority to collect information related to taxpayers’ potential liabilities. The IRS was not required to establish a “reasonable basis” for its investigation before its summonses could be enforced. The IRS made a prima-facie showing in support of enforcing its summonses. She did not establish that the IRS abused the district court’s process in seeking enforcement of the summonses. View "Byers v. Internal Revenue Service" on Justia Law

After the tax court determined that petitioners failed to report approximately $41.2 million of compensation income that they realized when certain restricted stockholdings that they owned became substantially vested in January 2004, the tax court upheld the Commissioner's decision to impose accuracy-related penalties for negligence and substantial understatement of tax liability, and denied petitioners' post-trial attempt to offset their underreported income with various net operating loss carrybacks.The Fourth Circuit affirmed the tax court, holding that the tax court did not err in holding that petitioners each realized and were required to report $45.7 million of taxable income when their UMLIC S-Corp. stock substantially vested in taxable year 2004. In this case, even if the Surrender Transactions could somehow be seen as rescinding petitioners' employment and compensation agreements with UMLIC S-Corp., the court agreed with the tax court's conclusion that those transactions were totally devoid of economic substance and must be disregarded for federal income tax purposes. The court also held that the tax court did not err in upholding the accuracy-related penalties imposed by the Commissioner. Finally, the court rejected petitioner's claim that the tax court erred in refusing to consider their net operating losses (NOL) carryback claim during post-trial computation proceedings conducted pursuant to Tax Court Rule 155. View "Estate of Arthur E. Kechijian v. Commissioner" on Justia Law

The Supreme Court affirmed the judgment of the district court affirming the determination of the Iowa Department of Revenue that capital gains Taxpayer earned from the sale of farmland she inherited from her father and leased on a cash-rent basis did not qualify for the exclusion from Iowa income tax allowed under Iowa Code 422.7(21)(a), holding that the assessment of additional taxes and related penalties and interest was not irrational, illogical, or wholly unjustifiable.At issue was whether the Department's interpretation of section 422.7(21)(a), as delineated in Iowa Administrative Code rule 701-40.38(1)(c), or the director's application of that rule to the facts was irrational, illogical, or wholly unjustified. The Supreme Court affirmed, holding (1) the Department acted within its discretion when it promulgated distinct rules for farm leases and other types of real property leases in rule 701-40.38(1)(c); and (2) Taxpayers' attempt to avoid the farm-specific rules is rejected. View "Christensen v. Iowa Department of Revenue" on Justia Law

In 2009, 731 Market leased the ground floor of its commercial building to CVS for a term of 45 years. Once the lease was recorded with the City and County of San Francisco, a “Real Property Transfer Tax” was paid under the San Francisco Business and Tax Regulations Code, based on the value of the stream of rental payments due over the lease’s life. In 2015, 731 Market sold the building, which included the CVS lease. All terms of the original lease remained unchanged with a remaining term of more than 35 years. 731 Market paid a documentary transfer tax, then unsuccessfully sought a refund of the amount of tax it paid based on the value of the remaining stream of payments due over CVS’s lease.The trial court and court of appeal agreed with 731 Market that the 2015 transaction did not trigger the tax as to the leasehold interest because the transaction did not result in any “realty sold” under the ordinance. San Francisco impermissibly collected a “double tax” on the property. View "731 Market Street Owner, LLC v. City and County of San Francisco" on Justia Law

The Ninth Circuit affirmed the tax court's dismissal, based on lack of jurisdiction, of untimely petitions for redetermination of federal income tax deficiencies. In this case, taxpayers' attorneys selected an overnight delivery service that was not then on the published list and the error would not have mattered if the petitions had nonetheless arrived the next day. However, they were not received by the tax court until two days after being dropped off at a FedEx office in California.The panel held that the tax court did not err by concluding that the petitions had not been timely received and that the mailbox rule did not apply. Furthermore, because I.R.C. 6213(a)'s time limits are jurisdictional, the panel held that equitable exceptions such as equitable tolling and waiver do not apply. Finally, the panel held that there was no basis for declaring the notice of deficiency invalid because of an improperly addressed notice. View "Organic Cannabis Foundation v. Commissioner" on Justia Law

The city of Federal Way (City) is a noncharter code city incorporated under Title 35A RCW. To address a budget deficit, the City identified and implemented cost-saving measures, but the spending cuts did not close the deficit. The City thus considered several potential sources of new revenue, including levying an excise tax on water and sewer utilities. The council found it necessary to expand the kinds of excises levied in order to pay for basic municipal services and to meet the budget deficit. In passing the ordinance, the council relied on RCW 35A.82.020, which it concluded gave the City broad authority to impose excises for regulation or revenue regarding all places and kinds of businesses. The issue this case presented for the Washington Supreme Court's review reduced to a decision on a municipal corporation's authority to impose an excise tax on another municipal corporation doing business within its borders. Several water-sewer districts petitioned for declaratory judgment, arguing the City lacked express legislative authority to impose the tax on them. The districts also raised a governmental immunity defense, and further challenged the ordinance on constitutional grounds, arguing it violated both due process vagueness principles and privileges and immunities antifavoritism principles. The parties cross moved for summary judgment, and the superior court granted summary judgment in the City’s favor. The Washington Supreme Court affirmed, finding the legislature granted code cities broad authority to levy excises on all places and kinds of business. "That policy prescription contemplates code cities may choose to exercise their local taxing power by imposing excises for regulation or revenue on the business of providing water-sewer services to ratepayers. We hold the governmental immunity doctrine does not bar the city from taxing the districts because they perform a proprietary function when they engage in this business. As for the districts’ constitutional claims, they lack standing to bring such claims." View "Lakehaven Water & Sewer Dist. v. City of Federal Way" on Justia Law

Plaintiff TOMRA of North America, Inc., brought two separate actions in the Court of Claims against the Michigan Department of Treasury, seeking a refund for use tax and sales tax that plaintiff had paid on the basis that plaintiff’s sales of container-recycling machines and repair parts were exempt from taxation under the General Sales Tax Act, and the Use Tax Act. Plaintiff moved for summary judgment, seeking a ruling on the question whether plaintiff’s container-recycling machines and repair parts performed, or were used in, an industrial-processing activity. The Court of Claims denied plaintiff’s motion and instead granted summary disposition in favor of defendant, holding that plaintiff’s container-recycling machines and repair parts were not used in an industrial-processing activity and that plaintiff therefore was not entitled to exemption from sales and use tax for the sale and lease of the machines and their repair parts. The Court of Claims found that the tasks that plaintiff’s machines performed occurred before the industrial process began, reasoning that the activities listed in MCL 205.54t(3) and MCL 205.94o(3) were only industrial-processing activities when they occurred between the start and end of the industrial process as defined by MCL 205.54t(7)(a) and MCL 205.94o(7)(a), respectively. Plaintiff appealed, and the Court of Appeals reversed, declining to interpret MCL 205.54t(7)(a) and MCL 205.94o(7)(a) as placing a temporal limitation on the activities listed in MCL 205.54t(3) and MCL 205.94o(3), respectively. To this, the Michigan Supreme Court concurred and affirmed the Court of Appeals. The matter was remanded to the Court of Claims for further proceedings. View "TOMRA of North America, Inc. v. Dept. of Treasury" on Justia Law