Justia Tax Law Opinion Summaries

Meyer, Borgman & Johnson, Inc. (MBJ), a structural engineering firm, sought research tax credits for expenses incurred in creating designs for building projects. MBJ claimed approximately $190,000 in tax credits for the years ending September 30, 2010, 2011, and 2013. The Commissioner of Internal Revenue denied these credits.The United States Tax Court affirmed the Commissioner's decision, ruling that MBJ's research was "funded" within the meaning of 26 U.S.C. § 41(d)(4)(H), and therefore, MBJ did not qualify for the credits. The Tax Court's decision was based on a summary judgment.The United States Court of Appeals for the Eighth Circuit reviewed the Tax Court's decision de novo. MBJ argued that the Tax Court erred because its right to payment was contingent on the success of its research, and its contracts had inspection, acceptance, and quality assurance provisions. MBJ claimed that its payments were contingent on the success of its research because it was required to create a design that met all the owner's requirements, complied with all pertinent codes and regulations, and was sufficiently detailed for a contractor to successfully construct it.However, the Court of Appeals disagreed with MBJ's arguments. It found that MBJ's contracts did not expressly or by clear implication make payment contingent on the success of MBJ’s research. The court distinguished between "successful performance"—meeting detailed, barometers of success—and "proper performance"—providing deliverables pursuant to a general professional standard of care and promising work free from negligence, error, or defects. The court found that MBJ's contracts fell into the latter category.The Court of Appeals affirmed the Tax Court's ruling that MBJ’s research did not merit the research tax credit. View "Meyer, Borgman & Johnson, Inc. v. CIR" on Justia Law

The case revolves around Alon Farhy, a U.S. permanent resident who failed to report his ownership of Belizean corporations to the Internal Revenue Service (IRS), violating Section 6038(a) of the Internal Revenue Code. Farhy acknowledged his violation and the resulting penalties of nearly $500,000 under Section 6038(b). However, he disputed the IRS's method of collecting the penalties, arguing that the IRS lacked statutory authority to assess and administratively collect Section 6038(b) penalties. Instead, he contended that the government must sue him in federal district court to collect what he owes under Section 6038(b).The Tax Court agreed with Farhy, concluding that the Code does not empower the IRS to assess and administratively collect Section 6038(b) penalties. The court held that the IRS could only collect Section 6038(b) penalties through a civil suit filed by the U.S. Department of Justice, not through the administrative collection methods that it had used for over forty years.The case was then brought before the United States Court of Appeals for the District of Columbia Circuit. The court disagreed with the Tax Court's interpretation. It held that the text, structure, and function of Section 6038 demonstrate that Congress authorized the assessment of penalties imposed under subsection (b). The court reversed the Tax Court's decision and remanded the case with instructions to enter a decision in favor of the Commissioner of Internal Revenue. View "Farhy v. Cmsnr. IRS" on Justia Law

The case involves Fuller Mill Realty, LLC (Fuller Mill) and the Rhode Island Department of Revenue Division of Taxation (the Division). Fuller Mill was part of the Rhode Island Historic Preservation Tax Credits Program, administered by the Division. Fuller Mill entered into an agreement with the Division in 2016 for a project. In 2018, the Division notified Fuller Mill that it had forfeited its rights to any historic tax credits for its project due to inactivity. After administrative proceedings and providing supplemental documentation, Fuller Mill's tax credits were reinstated. However, due to delays caused by the COVID-19 pandemic, the Division rescinded Fuller Mill's tax credits in 2020 for failing to complete the project by the agreed deadline. Fuller Mill requested an administrative hearing to challenge the rescission.The Division denied the request for a hearing, leading Fuller Mill to file an appeal in the District Court. The Division filed a motion to dismiss the appeal, arguing that Fuller Mill had waived its right to an administrative hearing and appeal in a stipulation of settlement and dismissal. The District Court denied the Division's motion to dismiss, leading the Division to file a petition for writ of certiorari, which was granted by the Supreme Court.The Supreme Court of Rhode Island found that the terms of the April 2021 stipulation were clear and unambiguous, stating that Fuller Mill had knowingly and voluntarily waived its right to an administrative hearing and to a District Court appeal. The court concluded that the hearing judge erred in denying the Division's motion to dismiss. The Supreme Court quashed the order of the District Court and remanded the case to the District Court with directions to dismiss the case. View "Fuller Mill Realty, LLC v. Department of Revenue" on Justia Law

Scott and Gayla Moore, a married couple, claimed a tax credit under Section 41 of the Internal Revenue Code for research expenses for the 2014 and 2015 tax years. The Moores treated the salary and bonus of Gary Robert, the President and COO of Nevco, Inc., as Section 41 expenses. Nevco, a Subchapter S corporation, was solely owned by Gayla Moore, and thus all of its tax attributes flowed to her. The Moores argued that Robert spent a significant amount of time conducting or supervising research.The United States Tax Court held a trial and found that the record did not support the Moores' claim that Robert spent any given fraction of his time conducting or directly supervising "qualified" research. The court noted that Robert lacked written records of how he spent his time, which is a requirement under 26 C.F.R. §1.41–4(d). Furthermore, Robert could not estimate how much of his time was devoted to "qualified" research, as defined by Section 41(d)(1). The court also found that Robert did not engage in either "direct supervision" or "direct support" of Nevco’s director of engineering, whose salary the Commissioner of Internal Revenue was willing to treat as a "qualified research" expense.The United States Court of Appeals for the Seventh Circuit affirmed the Tax Court's decision. The Court of Appeals found that the Tax Court's inability to answer the questions of whether Robert's research was "qualified" and how much time he devoted to it was not a legal error, but a factual finding. The Court of Appeals reviewed this finding for clear error and found none. The Court of Appeals also noted that the Moores bore the burdens of production and persuasion, and thus the Tax Court's conclusion was dispositive against them. View "Moore v. Commissioner of Internal Revenue" on Justia Law

The case involves Donald Herrington, who was charged with multiple counts of perjury, obtaining money by false pretenses, filing false or fraudulent income tax returns, failure to file an income tax return, and drug possession. Herrington chose to represent himself in court, waiving his right to counsel. He was eventually convicted on several charges and sentenced to twelve years' imprisonment. Herrington appealed his conviction, arguing that his Sixth Amendment right to counsel was violated and that his appellate counsel was ineffective for failing to bring two meritorious arguments on direct appeal.The case was initially heard in the United States District Court for the Eastern District of Virginia, which rejected Herrington's arguments and denied his petition. Herrington then appealed to the United States Court of Appeals for the Fourth Circuit.The Fourth Circuit affirmed the district court's decision in part, reversed in part, and remanded with instructions. The court found that Herrington knowingly, unequivocally, and voluntarily waived his right to counsel, thus affirming that aspect of the district court's decision. However, the court agreed with Herrington that his appellate counsel was ineffective for failing to argue that the jury was erroneously instructed on the requirements for a conviction for failure to file a tax return. The court reversed this part of the district court's decision and remanded the case with instructions to issue a writ of habeas corpus unless Herrington is afforded a new state court appeal in which he may raise this claim. View "Herrington v. Dotson" on Justia Law

This case involves two appeals by West Maui Resort Partners LP and Ocean Resort Villas Vacation Owners Association against the County of Maui. The appellants, who manage nearly 700 time share units, challenged their Maui County tax assessments, arguing that the County's tax assessments were unconstitutional and violated the County's own code. They contended that the County's creation of a Time Share real property tax classification acted as an illegal tax on time share visitors. They also argued that time share units and hotel units have an identical "use" for real property purposes, and therefore, should be taxed in the same real property tax classification.The Tax Appeal Court granted summary judgment for the County in both cases. The court concluded that the County acted within its constitutional authority to tax real property in creating the Time Share classification and taxing properties assigned to it. The court also found that the County had several legitimate policy purposes rationally related to the creation of the Time Share classification, including raising revenue for infrastructure maintenance and addressing time share properties' unique impacts on the community.The appellants appealed to the Intermediate Court of Appeals, which transferred the cases to the Supreme Court of the State of Hawai‘i. The Supreme Court affirmed the Tax Appeal Court's summary judgment for the County in both cases, concluding that the County did not exceed its constitutional authority when creating the Time Share classification, nor did it violate its own code in doing so. The court also held that the Time Share classification's creation and rates were constitutional under the equal protection clauses of the Hawai‘i and U.S. Constitutions. View "In Re: West Maui Resort Partners LP v. County of Maui" on Justia Law

The case involves the Walt Disney Company and International Business Machines Corporation (IBM), both multinational corporations, and their dispute with the Tax Appeals Tribunal of the State of New York. The corporations challenged the state's taxation scheme that was in effect from 2003 to 2013. The scheme allowed corporations that paid franchise taxes in New York to deduct income received as royalty payments from members of the same corporate group in calculating their taxable income. The deduction was only allowed if the royalty payment came from a related entity that had already paid a New York tax on the same income. The state Department of Taxation and Finance determined that both corporations improperly deducted royalty payments they received from affiliates in foreign countries that were not subject to New York franchise taxes. The corporations argued that the denial of the deduction was contrary to the statute and violated the Commerce Clause's prohibition on discrimination against foreign commerce.The corporations challenged the denial of their royalty tax deductions and the notices of deficiency with the New York State Division of Tax Appeals. The Administrative Law Judges (ALJs) determined that the deduction authorized under the law only applied where the royalty came from a subsidiary that had been subjected to the add back requirement contained in the law. The ALJs denied the petitions and sustained the notices of deficiency. The Tax Appeals Tribunal subsequently affirmed both decisions. The corporations then commenced proceedings in the Appellate Division, which affirmed the determinations and dismissed the petitions. The corporations appealed to the Court of Appeals.The Court of Appeals affirmed the decisions of the lower courts. The court held that the Appellate Division correctly interpreted the statutes as permitting a tax deduction only where a related subsidiary was subject to the add back requirement. The court also found that any burden on interstate or foreign commerce created by this tax scheme was incidental and did not violate the dormant Commerce Clause. The court rejected the corporations' argument that the tax scheme was facially discriminatory against out-of-state commerce and failed the internal consistency test. The court concluded that the tax scheme treated groups with related members who did not pay taxes in New York the same as those with related members who did, and that the scheme did not result in duplicative taxation in all situations. View "In re Walt Disney Company and Consolidated Subsidiaries v Tax Appeals Tribunal" on Justia Law

Johannes and Linda Lamprecht, Swiss citizens who lived in the United States in 2006 and 2007, underreported their taxable income by falsely claiming they had no foreign bank accounts. In reality, they had millions in a Swiss bank, UBS. The couple amended their tax returns for 2006 and 2007 in 2010, after the United States served a John Doe Summons on UBS in 2008, seeking information about unknown taxpayers who might have failed to report taxable income in UBS accounts. The amended returns reported taxable income in the previously undisclosed UBS accounts, increasing their tax liability by approximately $2.5 million. The couple paid these back taxes, but in 2014, the IRS informed them they would be penalized for their original inaccuracies, and in 2015, issued a formal “notice of deficiency” assessing about $500,000 in penalties.The Lamprechts challenged these penalties in the United States Tax Court, arguing that the IRS didn’t follow the tax code’s procedures when it first decided to penalize them, that they deserved protections for voluntarily fixing their own mistake before the IRS acted, and that the statute of limitations for assessing accuracy penalties had run on the two tax years. The tax court granted summary judgment to the IRS.The United States Court of Appeals for the District of Columbia Circuit affirmed the tax court's decision. The court found that the IRS had complied with the statutory requirement for a supervisor's written approval for the penalty assessment. The court also ruled that the Lamprechts' corrected returns did not protect them from penalties because they were filed after a John Doe Summons was issued. Lastly, the court held that the statute of limitations did not bar the assessment of penalties because the John Doe Summons extended the statute-of-limitations period. View "Lamprecht v. Cmsnr. IRS" on Justia Law

The case revolves around Outfront Media LLC (Outfront), a company that entered into a contract with the Massachusetts Bay Transportation Authority (MBTA) to advertise on outdoor signs owned by the MBTA. The city of Boston assessed real estate tax for fiscal year 2021 on Outfront for the signs. Outfront sought an abatement of the tax, arguing that the signs were exempt from taxation under § 24. The city denied Outfront's claim for abatement, and Outfront appealed to the Appellate Tax Board (board), which upheld the tax assessment.The Appellate Tax Board upheld the city of Boston's tax assessment on Outfront Media LLC for the use of outdoor advertising signs owned by the Massachusetts Bay Transportation Authority (MBTA). Outfront had argued that the signs were exempt from taxation under § 24, but the board disagreed, leading to Outfront's appeal.The Supreme Judicial Court of Massachusetts affirmed the decision of the Appellate Tax Board. The court held that Outfront's use of the MBTA's outdoor advertising signs to post advertisements and generate advertising revenue constituted a "use" of the MBTA's property "in connection with a business conducted for profit" under § 24. The court distinguished such businesses from those merely providing a service for the MBTA such as a janitorial service. Therefore, Outfront used the signs within the meaning of § 24 and the decision of the board was upheld. View "Outfront Media LLC v. Board of Assessors of Boston" on Justia Law

The case revolves around a dispute between the City of Valdez and the Prince William Sound Oil Spill Response Corporation, the State of Alaska, Department of Revenue, and the State Assessment Review Board. The City of Valdez appealed the State's determination that certain property was not taxable. After nearly two decades of administrative and court proceedings, Valdez won. However, due to the length of the litigation, Valdez has not been able to collect taxes on the property that should have been taxed.The Superior Court of the State of Alaska, Third Judicial District, Anchorage, ruled that even though the State wrongly determined certain property was not taxable, the State cannot now assess taxes on this property if more than three years have passed since the taxpayer filed its tax return. According to this ruling, taxes may be assessed on this property only for the most recent tax years. Valdez appealed this decision.The Supreme Court of the State of Alaska affirmed the superior court’s decision. The court held that the statutory text is clear and does not suggest that the legislature intended something other than the plain meaning of the text. The court also disagreed with Valdez's argument that it is impossible for a municipality to challenge a taxability determination in less than three years. The court concluded that AS 43.05.260’s three-year limitations period applies to tax assessments under AS 43.56, even if Revenue’s initial decision not to tax certain property was wrong. View "City of Valdez v. Prince William Sound Oil Spill Response Corporation" on Justia Law