Justia Tax Law Opinion Summaries
United States v. Swartz
David Swartz was charged with wire fraud and aiding and assisting the filing of a false tax return. He pleaded guilty to both counts. The probation department prepared a presentence investigation report (PSR) that incorrectly calculated Swartz's net worth. Despite Swartz's correction of his assets, the PSR did not update his net worth. At sentencing, the district court imposed a $10,000 fine, relying on the PSR's recommendations.Swartz objected to the PSR's net worth calculation and filed a memorandum noting the correct figure. The district court adopted the PSR's recommendations, including the fine, and ordered restitution and a special assessment. Swartz argued that the district court violated his due process rights by relying on inaccurate financial information and failed to comply with statutory requirements in imposing the fine.The United States Court of Appeals for the Seventh Circuit reviewed the case. The court found that the district court did not rely on the incorrect net worth figure when imposing the fine. The district court considered Swartz's significant assets, limited liabilities, and positive monthly cash flow, which were accurately stated in the PSR. The court also found that the district court properly considered the relevant factors under 18 U.S.C. § 3572(a) and did not err in determining Swartz's ability to pay the fine.The Seventh Circuit held that the district court did not commit procedural error or violate Swartz's due process rights. The court affirmed the district court's judgment, including the imposition of the $10,000 fine. View "United States v. Swartz" on Justia Law
Mayo Clinic v. United States
Mayo Clinic, a Minnesota nonprofit corporation and tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code, sought a refund of unrelated business income tax (UBIT) imposed by the IRS for tax years 2003, 2005-2007, and 2010-2012. The IRS assessed Mayo $11,501,621 in unpaid UBIT, concluding that Mayo was not a qualified educational organization under IRC § 170(b)(1)(A)(ii) because its primary function was not the presentation of formal instruction, and its noneducational activities were not merely incidental to its educational activities. Mayo paid the assessed amount and filed a refund action.The United States District Court for the District of Minnesota granted Mayo summary judgment, holding that Mayo is an educational organization as defined in § 170(b)(1)(A)(ii) and invalidating Treasury Regulation § 1.170A-9(c)(1) for adding requirements not present in the statute. The United States appealed, and the Eighth Circuit reversed the invalidation of the regulation and remanded for further proceedings. On remand, the district court concluded that Mayo had a substantial educational purpose and no substantial noneducational purpose, granting Mayo judgment for the full refund amount plus interest.The United States Court of Appeals for the Eighth Circuit affirmed the district court's decision. The court held that "primary" in this context means "substantial" and that Mayo's substantial patient care activities are not noneducational due to the integration of education and clinical practice. The court concluded that Mayo qualifies as an educational organization under § 170(b)(1)(A)(ii) and that its patient care function does not disqualify it from this status. The judgment of the district court was affirmed. View "Mayo Clinic v. United States" on Justia Law
Tischmak v. Tax Commission
Terry Tischmak was married to a resident student attending Salt Lake Community College in Utah during the 2013 and 2014 tax years. Although he lived and worked in Wyoming, he and his wife filed their federal taxes jointly. Utah's Domicile Statute deems individuals domiciled in Utah for tax purposes if they or their spouse are resident students at a state institution. Consequently, the Utah State Tax Commission determined that Tischmak owed state income taxes for those years.The Utah State Tax Commission audited Tischmak and issued a Notice of Deficiency for the 2013 and 2014 tax years. Tischmak appealed, arguing that he should not be subject to Utah's income tax because he resided in Wyoming. After a formal hearing, the Commission upheld its decision, citing the Domicile Statute, which considers a person domiciled in Utah if their spouse is a resident student. The Commission did not address Tischmak's constitutional arguments, noting it lacked the authority to do so.The Utah Supreme Court reviewed the case and upheld the Tax Commission's decision. The court found that the Domicile Statute did not violate the federal right to travel, the Utah Constitution’s Due Process Clause, or the Uniform Operation of Laws Provision. The court also determined that the statute did not violate the U.S. Constitution’s Due Process Clause or the dormant Commerce Clause. The court concluded that the statute was constitutional and that Tischmak was subject to Utah's income tax for the years in question. View "Tischmak v. Tax Commission" on Justia Law
Delta Air Lines, Inc. v. Dept. of Revenue
The case involves Delta Air Lines, Inc. and PacifiCorp, both of which are centrally assessed businesses in Oregon. Under Oregon law, centrally assessed businesses are taxed on their intangible property, unlike locally assessed businesses. Delta and PacifiCorp challenged this tax, arguing it violated the state and federal constitutions by not being uniform and by violating equal protection and privileges clauses.The Oregon Tax Court addressed both cases in a single opinion, ruling in favor of Delta by finding the tax on intangible property unconstitutional for air transportation businesses. However, it ruled against PacifiCorp, upholding the tax for utilities. The Tax Court concluded that there were no genuine differences between the intangible property of centrally assessed air transportation businesses and locally assessed businesses, but found differences for utilities.The Oregon Supreme Court reviewed the case, focusing on whether the tax classifications were rationally related to a legitimate governmental purpose. The court reversed the Tax Court's decision regarding Delta, holding that the tax on intangible property for centrally assessed businesses is constitutional. The court found that the legislature's decision to tax intangible property of centrally assessed businesses, but not locally assessed ones, was rationally related to legitimate purposes such as administrative efficiency, expertise in valuation, and balancing revenue against resources. The court also affirmed the Tax Court's decision regarding PacifiCorp in a separate opinion, maintaining the tax's constitutionality for utilities. The case was remanded to the Tax Court for further proceedings. View "Delta Air Lines, Inc. v. Dept. of Revenue" on Justia Law
Scott v. County of Riverside
Owners of timeshare estates in a resort sued the County of Riverside, challenging the legality of the annual fee charged for separate property tax assessments. The owners argued that the fee exceeded the reasonable cost of providing the assessment, constituting a tax requiring voter approval, which had not been obtained.The Superior Court of Riverside County rejected the owners' argument and entered judgment for the County. The court ruled that the fee did not exceed the reasonable cost of the assessment and was not a tax requiring voter approval. The court also considered additional costs not included in the original fee calculation, such as costs related to assessment appeals and a new computer system.The California Court of Appeal, Fourth Appellate District, Division One, reviewed the case. The court found that the County's methodology for setting the fee was flawed. The County had used the assessor's entire budget for a previous fiscal year to calculate the fee, which included costs unrelated to the separate timeshare assessments. The court also noted that the County had not provided evidence of the actual cost of the separate assessments and had improperly included costs for services provided to all property owners.The Court of Appeal concluded that the County did not meet its burden to prove that the fee was not a tax. The court reversed the judgment and remanded the case for further proceedings to determine the appropriate refund amount and to address the owners' requests for declaratory, injunctive, and writ relief. The court emphasized that the fee must be limited to the reasonable cost of the separate assessments and must bear a fair relationship to the benefits received by the timeshare estate owners. View "Scott v. County of Riverside" on Justia Law
Steele v. United States
Adam Steele and Krystal Comer, tax return preparers, challenged the IRS's requirement to obtain or renew a Preparer Tax Identification Number (PTIN) by completing Form W-12, which involves paying a fee and disclosing personal information. They initially joined a class action in 2014 contesting the IRS's authority to impose these fees and the amount of information required by Form W-12. However, class counsel later withdrew these claims. Steele and Comer then attempted to revive these claims in a separate lawsuit.The United States District Court for the District of Columbia dismissed their complaint, citing the rule against claim-splitting, which prevents duplicative litigation between the same parties asserting the same claims, even without a final judgment in the first case. The district court found that Steele and Comer had already raised and then withdrawn these claims in the ongoing class action and were denied leave to amend the complaint to reassert them.On appeal, the United States Court of Appeals for the District of Columbia Circuit affirmed the district court's dismissal. The appellate court held that the Paperwork Reduction Act (PRA) does not bar judicial review of the IRS's authority to demand information through Form W-12, but the rule against claim-splitting still precludes the plaintiffs' suit. The court emphasized that claim-splitting bars duplicative litigation filed before final judgment and that Steele and Comer had a fair opportunity to litigate their claims in the earlier class action. The court concluded that the district court's dismissal was proper to prevent strategic end runs around procedural rulings and to preserve the integrity of the adjudicative process. View "Steele v. United States" on Justia Law
Jackson v. Southfield Neighborhood Revitalization Initiative
Plaintiffs, who owned real property in Southfield, Michigan, became delinquent on their property taxes between 2012 and 2014. Oakland County foreclosed on their properties under the General Property Tax Act (GPTA). The plaintiffs had the opportunity to redeem their properties by paying the delinquent taxes, but they failed to do so. Consequently, the properties were foreclosed, and the city of Southfield exercised its right of first refusal to purchase the properties for the minimum bid, which included the unpaid taxes and associated fees. The properties were then conveyed to the Southfield Neighborhood Revitalization Initiative (SNRI).The plaintiffs filed a class action lawsuit in the Oakland Circuit Court, alleging violations of their constitutional rights, including the Takings Clauses of the Michigan and United States Constitutions. The trial court granted summary disposition in favor of the defendants, citing lack of jurisdiction, lack of standing, and res judicata. The Michigan Court of Appeals affirmed the trial court's decision. However, the Michigan Supreme Court vacated the Court of Appeals' decision and remanded the case for reconsideration in light of its decision in Rafaeli, LLC v Oakland Co, which held that retaining surplus proceeds from tax-foreclosure sales violated the Takings Clause of the Michigan Constitution.On remand, the trial court again granted summary disposition to the defendants, but the Court of Appeals reversed in part, holding that Rafaeli applied retroactively and that the plaintiffs had valid takings claims. The Michigan Supreme Court reviewed the case and held that a taking occurs when a governmental unit retains property without offering it for public sale and the value of the property exceeds the amount owed in taxes and fees. The Court also held that MCL 211.78m, as amended, applies prospectively, while MCL 211.78t applies retroactively but does not govern this case. The case was remanded to the trial court for further proceedings. View "Jackson v. Southfield Neighborhood Revitalization Initiative" on Justia Law
Swift v. CIR
Dr. Bernard T. Swift and his wife, Kathy L. Swift, took tax deductions for insurance premium payments made by Swift’s medical practice to captive insurance companies. The IRS issued notices of deficiency, disallowing the deductions and imposing penalties. The tax court upheld the IRS’s determination, finding that the payments were not genuinely for insurance.The Swifts challenged the IRS’s determination in the tax court, which sustained both the deficiencies and penalties. The tax court found that the arrangement with the captive insurance companies did not constitute insurance because it did not achieve risk distribution and did not resemble commonly accepted notions of insurance. The Swifts then appealed the tax court’s decision.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court affirmed the tax court’s decision, agreeing that the arrangement did not achieve risk distribution, which is essential for insurance. The court found that the number of risks insured by the captives was insufficient and that the reinsurance pools did not constitute bona fide insurance arrangements. The court also upheld the penalties, rejecting the Swifts’ arguments that the IRS failed to obtain timely supervisory approval and that they had reasonable cause or substantial authority for their tax treatment. The court concluded that the Swifts could not reasonably rely on advice from a promoter of the transaction and that the IRS letter rulings cited by the Swifts were materially distinguishable. View "Swift v. CIR" on Justia Law
Posted in:
Tax Law, U.S. Court of Appeals for the Fifth Circuit
McGowan v. United States
Peter McGowan, a dentist, and his solely owned dental practice, Peter E. McGowan DDS, Inc., engaged in a complex life insurance arrangement involving two subtrusts. The dental practice contributed $50,000 annually to these subtrusts, one of which owned a life insurance policy covering McGowan. The policy's death benefit would go to McGowan's wife, while the cash value could potentially be donated to a charity, the Toledo Zoo, if premiums were not paid. McGowan reported only a portion of these contributions as taxable income, and the dental practice deducted the full amount of the premiums.The IRS audited McGowan and the dental practice, concluding that McGowan should have included the full value of the policy's economic benefits in his gross income and that the dental practice could not deduct the premiums. The IRS assessed over $100,000 in unpaid taxes, penalties, and interest for the tax years 2014 and 2015. McGowan and the dental practice paid these amounts and then sued for a refund in the United States District Court for the Northern District of Ohio. The district court granted summary judgment to the government, upholding the IRS's assessments.The United States Court of Appeals for the Sixth Circuit reviewed the case and affirmed the district court's decision. The court held that the split-dollar regulation applied to McGowan's arrangement, requiring him to include the full value of the policy's economic benefits in his gross income and prohibiting the dental practice from deducting the premiums. The court also found that the regulation was consistent with the Internal Revenue Code. Additionally, the court noted that McGowan's income from the arrangement should be treated as a shareholder distribution rather than services-based compensation, entitling him to a refund due to the lower tax rate on dividends. View "McGowan v. United States" on Justia Law
Posted in:
Tax Law, U.S. Court of Appeals for the Sixth Circuit
East Side Hwy Dist v. Kootenai County
Several local taxing districts within Kootenai County, Idaho, including East Side Highway District, Post Falls Highway District, Worley Highway District, the City of Coeur d’Alene, and the City of Post Falls, filed claims against Kootenai County and its Treasurer, Steven Matheson. The dispute arose when Matheson decided that the County would retain all late charges and interest from delinquent property taxes to cover collection costs, rather than distributing a proportionate share to the taxing districts. The taxing districts argued that they were entitled to their share of these funds.The District Court of the First Judicial District of Idaho ruled in favor of the taxing districts, granting their motions for summary judgment and judgment on the pleadings. The court determined that Idaho Code sections 63-1015 and 63-1007(1) required the County to distribute the late charges and interest proportionately to the taxing districts. The court also awarded attorney fees to the taxing districts under Idaho Code section 12-117(4).The Supreme Court of the State of Idaho reviewed the case and affirmed the district court's judgment. The Supreme Court held that the statutory language was unambiguous and required the County to apportion late charges and interest among the taxing districts in the same manner as property taxes. The Court also upheld the award of attorney fees to the taxing districts, noting that Idaho Code section 12-117(4) mandates such an award in cases involving adverse governmental entities. The Supreme Court awarded attorney fees and costs on appeal to the taxing districts. View "East Side Hwy Dist v. Kootenai County" on Justia Law