Thursday, August 11, 2016
Tanzi v. Commissioner, T.C. Memo. 2016-148 (Aug. 9, 2016):
During the first half of 2011 the Tanzis were employed by Seminole State College. Dr. Tanzi taught math and communications classes as an adjunct professor, and Mrs. Tanzi was employed as a campus librarian.
Dr. Tanzi is highly educated—he holds a doctorate in communication. As he explained at trial, individuals holding such terminal degrees bear a lifelong burden of “developing knowledge, finding knowledge, exploring, [and] essentially selfeducating”. Dr. Tanzi therefore insists that all expenses paid in adding to his “general knowledge” should be deductible as unreimbursed employee business expenses. ...
August 11, 2016 in Legal Education, New Cases, Tax | Permalink
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Monday, August 1, 2016
The IRS has issued AOD 2016-02, 2016-31 IRB 193 (Aug. 1, 2016), acquiescing in the Ninth Circuit's decision in Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), which held that the § 163(h)(3) limitations on the deductibility of mortgage interest ($1 million of acquisition indebtedness plus $100,000 of home equity indebtedness) are applied on a per-taxpayer basis (for a total of $2.2 of mortgage debt for unmarried couples), rather than on a per-residence basis (and thus limited to $1.1 of mortgage debt for married couples), as previously argued by the IRS and decided by the Tax Court (138 T.C. 204 (2012)).
August 1, 2016 in IRS News, New Cases, Tax | Permalink
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Monday, July 11, 2016
Indianapolis Business Journal, Pacers’ Legal Tenacity on Display in IRS Fight:
The legal fallout stemming from Melvin Simon’s decision to unload his half of the Indiana Pacers to his brother Herb just a few months before his September 2009 death is getting crazier by the day.
Mel’s widow, Bren Simon, got the public spectacle rolling in March 2015 when she sued the IRS in an effort to overturn the agency’s determination that the terms of the deal were so tilted in Herb’s favor that Mel essentially gave him an $83 million gift.
That conclusion left Bren with a $21 million gift-tax bill, which she paid under protest but hopes to get refunded by winning the suit.
July 11, 2016 in Celebrity Tax Lore, New Cases, Tax | Permalink
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Tuesday, June 28, 2016
The Surly Subgroup: Tax Lawyers Kill $38 Billion Merger, by David J. Herzig (Valparaiso):
I remember one of my first days at GT [Greenberg Traurig] we were advising on a corporate merger. At the end of the process (of course), the M&A group asked tax to sign off on the deal. Everything was done and this was supposed to be a rubber stamp. Well, as you can guess by now, the tax consequences of the deal as structure were disastrous and the whole deal had to be restructured. I remember vividly the corporate lawyers saying as they walked out the door, this is why we never ask tax anything!
Today, a judge killed the proposed $38 billion merger between Energy Transfer Equity (“ETE”) and the Williams Companies. Chancery Court Vice Chancellor Sam Glasscock ruled that ETE could back out of the deal because of taxes. Latham & Watkins, actually, tax lawyers at three top firms (L&W, Gibson Dunn and Morgan Lewis and one law professor [Ethan Yale (Virginia)]) could not opine that the deal was tax neutral under 721 despite one law professor [Howard Abrams (San Diego)] and Cravath saying the deal worked. This opinion is a rather big deal for M&A lawyers. Usually, conditions precedent like this won’t allow one side to back out of a transaction. ...
I would love to hear others opinions here. But some off the cuff reactions I had were:
June 28, 2016 in New Cases, Tax | Permalink
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Monday, June 13, 2016
Nacchio v. United States, Nos. 2015-5114 & 2015-5115 (Fed. Cir. June 10, 2016):
This is a tax case arising out of a criminal conviction for insider trading. Joseph P. Nacchio and Anne M. Esker (“Nacchio”) filed this action in the Court of Federal Claims seeking an income tax credit of $17,974,832 for taxes paid on trading profits of $44,632,464.38, which Nacchio was later ordered to forfeit to the United States following his conviction for insider trading with respect to those profits. The government opposed Nacchio’s request, contending that his forfeiture payment was a nondeductible penalty or fine and that he was estopped from seeking tax relief because of his criminal conviction. The parties filed cross-motions for summary judgment.
June 13, 2016 in Celebrity Tax Lore, New Cases, Tax | Permalink
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Kim Brooks (Dalhousie), The High Cost of Transferring the Dream:
This paper is part of a larger project where I use the facts in tax decisions to reveal something about who we are. It looks through a small window into the lives of the people who find themselves caught between our collective and their individual expenditure aspirations. More specifically, it explores the circumstances in which individuals find that their outstanding tax debts pose a threat to their ability to maintain ownership of their home.
June 13, 2016 in New Cases, Scholarship, Tax | Permalink
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Sunday, June 5, 2016
As the West Coast bakes in record heat: Guralnik v. Commissioner, 146 T.C. No. 15 (June 2, 2016):
On February 13, 2015, P sent his petition to this Court via Federal Express First Overnight service, which was not then a “designated delivery service” under I.R.C. sec. 7502(f)(2). P’s petition was required to be filed “within 30 days of a determination under this section.” I.R.C. sec. 6330(d)(1).
On the last date for timely filing of the petition, Tuesday, February 17, 2015, all Federal Government offices in the District of Columbia, including the Tax Court, were officially closed on account of Winter Storm Octavia. For that reason, P’s petition could not be delivered to the Court on that day. P’s petition was delivered to the Court and filed on Wednesday, February 18, 2015, when the Court reopened for business.
Fed. R. Civ. P. 6(a)(3)(A) provides that, “if the clerk’s office is inaccessible * * * on the last day for filing * * *, then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday.” Tax Court Rule 25(a), dealing with computation of time, does not address how time shall be computed when the Clerk’s Office is inaccessible. Tax Court Rule 1(b), however, provides: “Where in any instance there is no applicable rule of procedure, the Court or the Judge before whom the matter is pending may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”
June 5, 2016 in New Cases, Tax | Permalink
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Wednesday, May 18, 2016
Santos v. Commissioner, T.C. Memo. 2016-100 (May 17, 2016):
Santos earned a bachelor’s degree in accounting [from Indiana University (Bloomington)]. In 1990, he began working as a tax-return preparer. In 1995, he became an “enrolled agent”, a person authorized to represent taxpayers before the IRS. In 1996, Santos earned a master’s degree in taxation [from San Francisco State University]. He began offering other services to his clients, including accounting and financial planning.
At some point Santos enrolled in law school [John F. Kennedy University College of Law]. He was attending law school in 2010. During that year, he paid tuition and fees of $20,275. He graduated from law school in 2011. In July 2011, he took the California bar examination. ... In December 2014, he was admitted to the State Bar of California and admitted to practice before the U.S. Tax Court.
In 2015, Santos started a law firm, Santos and Santos Law Offices, with his father. The firm performs multiple services including legal representation, tax planning, accounting, and financial planning. ...
Whether Santos is entitled to a deduction of $20,275 for his law school tuition and fees remains at issue. ...
May 18, 2016 in Legal Education, New Cases, Tax | Permalink
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Sunday, April 10, 2016
Law 360, Atheists Try Again To Strike Clergy Housing Tax Exemption:
An atheist group on Wednesday filed a suit in a Wisconsin federal court alleging that a tax exemption for housing allowances paid to ministers violates the Establishment Clause of the U.S. Constitution after an earlier challenge was dismissed for lack of standing.
A lawsuit filed by the Freedom From Religion Foundation in 2011 was dismissed by the Seventh Circuit in 2014 because the staff members never requested tax refunds. In the new complaint filed Wednesday, the foundation claims that following the appellate court's dismissal, its staff members sought a refund of income taxes paid on housing allowances received from the group but were denied by the Internal Revenue Service.
The suit seeks an end to Tax Code Section 107, which provides that a housing allowance paid to a “minister of the gospel” is not included in taxable income. The provision is discriminatory because it is provided exclusively to religious clergy, the group says.
April 10, 2016 in New Cases, Tax | Permalink
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Monday, March 21, 2016
United States v. Fairchild, No. 14-3517 (8th Cir. Mar. 17, 2016):
In 2009, Internal Revenue Service (IRS) Special Agent Daniel Wright opened an investigation on Fairchild and her husband. Agent Wright discovered that Fairchild and her husband had not filed income tax returns since 2004. Agent Wright obtained records from Fairchild's two primary bank accounts dating back to January 1, 2005. These bank records showed that a number of large cashier's checks had been deposited into her accounts. Specifically, there were 37 deposits of checks from David Karlen totaling $1,103,647.84. Fairchild's accounts reflected another six checks totaling $50,000 from Paul Pietz deposited into two main accounts in 2008. The bank records also showed $210,348.39 in total cash deposits from 2005 to 2008.
March 21, 2016 in New Cases, Tax | Permalink
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Wednesday, December 30, 2015
Wednesday, December 23, 2015
Following up on Friday's post, Tax Extenders Bill Puts Tax Court In Constitutional Limbo: TaxProf Blog op-ed: On the PATH to a More Judicial Tax Court, by Leandra Lederman (Indiana-Bloomington):
The recently enacted Protecting Americans from Tax Hikes (PATH) Act of 2015 includes a subtitle containing several sections addressing the U.S. Tax Court. This post focuses primarily on Congress’s “clarification” of what the Tax Court is not, but it also briefly addresses some changes the new law makes to Tax Court administration.
Since 1969, when Congress enacted Internal Revenue Code (Code) section 7441, making the Tax Court an Article I court, the Tax Court has faced issues resulting from its lack of a clear place in the federal government structure. The clarifying amendment in the PATH Act adds a third sentence at the end of section 7441 (highlighted in bold below), which makes the provision read as follows:
December 23, 2015 in Congressional News, New Cases, Scholarship, Tax | Permalink
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Friday, December 18, 2015
University of Chicago Law School Faculty Blog: Tinkering with the Tax Court, by Daniel Hemel:
The House of Representatives voted 318-109 on Thursday to approve a package of tax breaks that will cost an estimated $680 billion over the next decade. ... [O]ne provision in the package that has drawn little attention so far could have significant implications for the United States Tax Court. The provision, buried on page 231 of the 233-page bill, puts the 19-member court in a state of constitutional limbo. The provision is entitled “Clarification Relating to United States Tax Court,” and it amends the Internal Revenue Code to add the following language:
The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.
The provision appears to have been added in response to the D.C. Circuit’s 2014 decision in Kuretski v. Commissioner.
December 18, 2015 in New Cases, Tax | Permalink
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Wednesday, December 16, 2015
Hollywood Reporter, Sumner Redstone Loses to IRS in Tax Case Four Decades in the Making:
As the 92-year-old billionaire Sumner Redstone witnesses a vicious court fight over his mental condition, the U.S. Tax Court has released a decision [Redstone v. Commissioner, T.C. Memo. 2015-237 (Dec. 9, 2015)] that delves into the beginnings of his media empire, his connection to the early-1970s Watergate scandal and four decades of in-fighting in the Redstone family.
The case is extraordinary, to say the least. The core question in Redstone's dispute with the Internal Revenue Service pertains to whether his 1972 transfer of stock to his children was a taxable "gift" or not. Ultimately, the Tax Court affirms a tax deficiency of $737,625, but lets him off the hook for fraud. ...
December 16, 2015 in Celebrity Tax Lore, New Cases, Tax | Permalink
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Monday, December 14, 2015
Tampa Tribune, Gay Parents Sue After IRS Denies Tax Deduction for In-Vitro Fertilization, Surrogate:
Is being gay, in a long-term committed relationship, the same as being biologically infertile? That’s the argument being made by a Stetson law professor in a lawsuit against the federal government.
Joseph F. Morrissey, who teaches constitutional and business law at Stetson, is seeking to overturn a ruling by the IRS that denied him and his partner a tax deduction. The deduction would have been for costs associated with their use of in-vitro fertilization and a surrogate who gave birth to their twin sons.
An IRS revenue agent who denied the claim said Morrissey’s sexual orientation was a “choice,” according to the lawsuit filed in U.S. District Court in Tampa. ...
December 14, 2015 in IRS News, Legal Education, New Cases, Tax | Permalink
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Tuesday, December 8, 2015
Thursday, November 19, 2015
Monday, November 9, 2015
Seattle Times, Microsoft, IRS Spar Over Long-Running Probe of its Taxes:
Microsoft and the Internal Revenue Service sparred in court Friday over the agency’s power to investigate taxpayers.
Microsoft, seeking a court order to overturn a portion of an IRS probe into its books, says the tax agency’s reliance on outside lawyers in the investigation sets a dangerous precedent for taxpayer confidentiality, and could embolden the agency to use powers Congress never intended to it have.
The government’s lawyers counter that a ruling in favor of Microsoft may curtail the IRS’s ability to bring in outside experts to help make sense of complex tax matters, sabotaging the system the government relies on to make sure companies pay the appropriate amount of tax. ...
November 9, 2015 in IRS News, New Cases, Tax | Permalink
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Wednesday, October 21, 2015
TaxProf Blog op-ed: How I Came To Be Suing Citigroup for $2.4 Billion as a Tax Whistleblower, by Eric Rasmusen (Indiana University, Kelley School of Business):
Back in 2011 I wrote an article on General Motors and Tax Code Section 382 with J. Mark Ramseyer, who teaches corporations and Japanese law, for The Cato Papers on Public Policy. The U.S. Treasury had issued a series “EESA Notices” (e.g. IRS Notice 2009-14) saying that it interpreted Section 382 as saying that the U.S. Treasury would not be counted as a “shareholder” in thinking about whether an ownership change had occurred. There was no such exception in the statute, and Treasury offered no reasoning, so we were outraged. It mattered because if Section 382 applies, then after an ownership change a corporation loses its Net Operating Losses (NOL’s), the past losses it can carry forward to set off against future income in profitable years to reduce income tax.
Our article was “real science” in that ultimately we changed our mind, concluding that GM had not yet underpaid its taxes. GM fell into a legitimate exception, because of two special features: (1) It had gone into Chapter 11, and (2) The U.S. Treasury was a major creditor, and and “old and cold” one who had not lent money intending to convert it to shares later. Thus, this ownership change counted as a reorganization. I struggled a bit, because the formal ownership transfer occurred as a 363 sale rather than a real Chapter 11 reorganization, but Mark convinced me that it still counted as a reorganization. Section 382 would still have been triggered if the U.S. government had sold its stock within 3 years but it waited long enough to avoid the trigger (perhaps having read our article?).
Citigroup and AIG were a different matter. They didn’t go into bankruptcy,so they weren’t reorganizations. In the case of Citigroup, the government hadn’t bought over 50% of the shares, but combined with a new issue to the public at the same time, Citigroup did go over the Section 382 threshold.
October 21, 2015 in New Cases, Tax | Permalink
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Saturday, September 5, 2015
Guralnik v. Commissioner, No. 4358-15L (Sept. 3, 2015):
[I]n the case at hand the closing of both District and Federal government offices, specifically including the Tax Court, because of a winter snowstorm, together with the fact that the Tax Court does not maintain an after-hours "drop-box" and does not presently allow petitions to be filed electronically, means that the Tax Court's clerk's office was inaccessible on the day of the winter snowstorm. Under such circumstances we find it inconceivable that Congress would have intended, absent a specific statutory provision requiring otherwise, to bar a taxpayer who fails to anticipate on a Friday that the Government will decide to close a filing office on the first workday of the following week on account of a snowstorm. See In re Swine Flu Immunization Prod. Liab. Litig., 880 F.2d at 1445; United Mine Workers v. Dole, supra. Because there is no such specific statutory provision requiring otherwise, we will deny respondent's motion, as supplemented.
September 5, 2015 in New Cases, Tax | Permalink
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Saturday, August 22, 2015
Following up on last week's post, Ninth Circuit Gives Unmarried Couples Double The Mortgage Interest Deduction Available To Married Couples:
Forbes, Does Ninth Circuit Mortgage Interest Decision Create Special Rights?, by Peter J. Reilly:
is kind of ironic for the Ninth Circuit, which played such a big role in advancing marriage equality, to be issuing a decision that discourages registered domestic partners from marrying. That is an effect of the decision in the case Bruce Voss and Charles Sophy vs. IRS, although I imagine it is an unintended consequence. It almost seems as if the Ninth Circuit has instituted that conservative trope — special rights for homosexuals — with this decision. Closer analysis would show it would be more like special rights for homosexuals and geezers. ...
Thanks to the Ninth Circuit’s recent decision, there is now a new marriage penalty for couples with large mortgages. The amount of the penalty depends on how much the mortgage exceeds $1.1 million, its interest rate and the marginal tax rate of the taxpayers. My back of the envelope computation would put the maximum penalty at not a lot more than $20,000. ...
A committed unmarried couple who did some serious planning could really go to town exploiting the fact that they are considered unrelated for federal income tax purposes.
Wall Street Journal, Another Reason Not to Get Married: Recent Court Ruling in California Gives Unmarried Couples a Big Tax Break:
August 22, 2015 in New Cases, Tax | Permalink
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Wednesday, August 19, 2015
In Florida Bankers Association v. Department of the Treasury, No. 14-5036 (D.C. Cir. Aug. 15, 2015), a sharply divided D.C. Circuit held that the Anti-Injunction Act (26 U.S.C. § 7421(a)) barred a challenge by two bank associations to tax regulations requiring U.S. banks to report to the IRS interest earned by non-resident aliens (even though such interest is not subject to U.S. tax). In a blistering dissent, Judge Henderson argues that the majority's decision is directly contrary to the Supreme COurt's recent decision in Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015), and two prior D.C. Circuit decisions. For a detailed discussion of the opinion see Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 1, Part 2). (Hat Tip: Kristin Hickman.)
August 19, 2015 in New Cases, Tax | Permalink
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Thursday, August 13, 2015
Bloomberg BNA, Boston Bruins Raise Controversy by Arguing That Meals Are Deductible, Team Is "World Class", by Syd Gernstein:
[A] recent case filed in the U.S. Tax Court, Jacobs v. Commissioner, No. 19009-15 (petition filed July 27, 2015), caught my eye.
At issue is whether the Boston Bruins hockey club may deduct 100% of the costs it incurred to provide its players and staff with meals while travelling to away games. The case poses the IRS and Tax Court with some fairly interesting questions concerning the deductibility of employee fringe benefits. ...
And, although it is not clear on the face of the Bruins’ Tax Court petition, I think it is this employer operated eating facility exception that the Bruins are going to rely on to argue that the meals are 100% deductible.
August 13, 2015 in New Cases, Tax | Permalink
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Monday, August 10, 2015
A split Ninth Circuit panel on Friday reversed the Tax Court and held, contrary to the IRS's position, that the § 163(h)(3) limitations on the deductibility of mortgage interest ($1 million of acquisition indebtedness plus $100,000 of home equity indebtedness) are applied on a per-taxpayer basis (for a total of $2.2 of mortgage debt), as contended by celebrity psychiatrist Charles Sophy and his domestic partner, Bruce Voss, who owned homes in Beverly Hills and Rancho Mirage, California, as joint tenants. Voss v. Commissioner, Nos. 12-73257 & 12-73261 (Aug. 7, 2015). (The Tax Court had upheld the IRS's position that §163(h)(3) applies on a per-residence basis (and thus limited to $1.1 of mortgage debt. Sophy v. Commissioner, 138 T.C. 204 (2012).)
Judge Ikuta dissented:
August 10, 2015 in New Cases, Tax | Permalink
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Tuesday, July 28, 2015
TaxProf Blog op-ed: Altera Corp. & Subs. v. Commissioner: The Tax Court Delivers An APA-Based Smackdown, by Kristin Hickman (Minnesota):
Since the Supreme Court decided the Mayo Foundation case in 2011, the government has done everything it can to limit the scope of the Supreme Court’s 2011 Mayo Foundation decision. Even though the Mayo Foundation Court declined “to carve out an approach to administrative review good for tax law only” and otherwise signaled fealty to general administrative law norms in the tax context, the IRS and the Department of Justice have repeatedly pursued a narrow construction of Mayo Foundation, and the Tax Court has often been happy to play along. Not today.
In Altera Corp. & Subs. v. Comm’r,, 145 T.C. No. 3 (July 27, 2015) the Tax Court unanimously invalidated regulations under Section 482 requiring participants in qualified cost-sharing arrangements to include stock-based compensation costs in the cost pool in order to comply with the arm’s length standard, on grounds that the regulations were not the product of reasoned decisionmaking as required by Administrative Procedure Act (APA) § 706(2)(A) and Motor Vehicle Manufacturers Association of the United States v. State Farm Mutual Automobile Insurance Co.,, 463 U.S. 29 (1983), known in administrative law circles as State Farm. From top to bottom, the Altera opinion reads like a treatise on general administrative law requirements and norms. Without delving into the policy details of the regulation at issue, the following paragraphs summarize the Tax Court’s opinion and its potential implications.
July 28, 2015 in New Cases, Scholarship, Tax | Permalink
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Wednesday, July 22, 2015
Following up on my previous post, 9th Circuit: Marijuana Dispensaries Cannot Deduct Business Expenses, Must Pay Taxes On 100% Of Their Gross Income: Newsweek, Who’s Right on Marijuana? Justice Or the IRS?:
In downtown Washington, D.C., the Department of Justice asserts that marijuana enterprises are free to exist, while immediately across 10th Street, the IRS tells those businesses they are illegal drug-trafficking operations ineligible for the benefits other corporate entities enjoy.
Which is it? Right now, it is both. This dual status presents commercial challenges for marijuana businesses, carrying serious consequences for individuals, patients, investors, law enforcement, courts, accountants and others.
Last week, one challenge—the issue of tax deductions for marijuana enterprises—had its day in court. In Olive v. Commissioner of Internal Revenue [CIR], the U.S. Court of Appeals for the Ninth Circuit reviewed whether a medical marijuana enterprise in California—Vapor Room Herbal Center in San Francisco—could deduct business expenses under U.S. tax law (the Internal Revenue Code).
The case made its way to the Ninth Circuit on appeal from a decision from the United States Tax Court. The Tax Court previously ruled in favor of the commissioner of the IRS because Vapor Room Herbal Center was a business that “consist[ed] of trafficking in controlled substances” (26 U.S.C. § 280E). Section 280E of the tax code limits businesses from deducting business expenses under such circumstances.
The Ninth Circuit upheld the Tax Court decision. The appeals court outlined two clear reasons (among others) why Vapor Room Herbal Center could not deduct business expenses.
July 22, 2015 in IRS News, New Cases, Tax | Permalink
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Marvel Entertainment Group v. Commissioner, 145 T.C. No. 2 (July 21, 2015):
MEG was an affiliated group that filed consolidated returns. On Dec. 27, 1996, certain MEG member entities filed for bankruptcy under 11 U.S.C. ch. 11 and subsequently excluded cancellation of indebtedness (COD) income from their respective gross incomes under I.R.C. sec. 108(a)(1)(A) for MEG’s short taxable year ending Oct. 1, 1998. Pursuant to I.R.C. sec. 108(b)(2)(A), MEG reduced each member entity’s allocable share of consolidated net operating loss (CNOL) by each member entity’s previously excluded COD income. MEG carried forward into its successor affiliated group a $47,424,026 CNOL and used this amount to offset income of the successor group for its taxable years ending Dec. 31, 2003 and 2004.
July 22, 2015 in New Cases, Tax | Permalink
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Wednesday, July 8, 2015
Following up on my previous post, IRS Hits Estate of Former Detroit Pistons Owner With $2 Billion Tax Bill: the IRS settled for $320 million of the $2.8 billion in gift, estate, and Generation-skipping taxes it sought from the estate of William Davidson, the former owner of the Detroit Pistons. Estate of Davidson v. Commissioner, No. 13748-13 (July 6, 2015).
Born in Detroit, Davidson built Auburn Hills-based Guardian Industries into one of the world’s leading makers of glass, automotive and building products. He went on to own the Detroit Pistons, the WNBA’s Detroit Shock and NHL’s Tampa Bay Lightning. He died March 13, 2009, at age 86, with a net worth estimated at more than $3 billion.
July 8, 2015 in New Cases, Tax | Permalink
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Monday, June 29, 2015
TaxProf Blog op-ed: The Tax Implications of Obergefell v. Hodges, by Theodore P. Seto (Loyola-L.A.):
In Obergefell v. Hodges, 576 U. S. ____ (June 26, 2015), the Supreme Court held that (1) state laws banning same-sex marriage are “invalid to the extent they exclude same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples” and (2) “there is no lawful basis for a State to refuse to recognize a lawful same-sex marriage performed in another State on the ground of its same-sex character.” The decision’s most profound impact will undoubtedly be on individuals’ lives and relationships, not on their tax returns. Nevertheless, it has significant implications for the substance and administration of both state and federal tax law.
June 29, 2015 in New Cases, Tax | Permalink
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Friday, June 26, 2015
TaxProf Blog op-ed: The Tax Implications Of Today's Supreme Court Same-Sex Marriage Decision, by David Herzig (Valparaiso):
Last June, in Windsor, the Supreme Court decided that section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional. I wrote about that decision in an op-ed for TaxProf Blog. The Supreme Court did not decide under section 2 whether states had to provide full-faith and credit to out-of-state marriages. That secondary question was resolved today when the Supreme Court in a 5-4 decision held in Obergefell v. Hodges that the 14th Amendment of the Constitution guarantees a right to same-sex marriage.
I wrote an article for Slate in January predicting that the Supreme Court would rule in favor of same-sex marriage. I based my theory on the tax consequences of ruling against same-sex marriage would have collateral damage. “Couples that relied on their regional Circuit Court decisions for marriage recognition would no longer be married, and their marriages would not be recognized for federal income tax purposes. Under the current IRS ruling, they would not be treated as married in their state of domicile. Currently, without taking into account the pending 5th Circuit decision, this would mean residents of some 16 states would be affected.”
June 26, 2015 in New Cases, Tax | Permalink
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TaxProf Blog op-ed: Reflections on the King v. Burwell Decision, by David Gamage (UC-Berkeley):
And, so, another judicial threat to Obamacare bites the dust. Yesterday, the Supreme Court issued its decision in King v. Burwell, affirming that Obamacare’s premium tax credits are to be available in all States. The 6-3 majority opinion written by Chief Justice Roberts concludes that the key statutory text is ambiguous. To resolve this ambiguity, the majority looks to the Act’s context and structure, and decides for the government.
Crucial to the majority’s reasoning is that the term “Exchange” is defined by the statute as a term of art, and—as so defined—all Exchanges are explicitly deemed as being established by a State. Although the statutory language is beyond inelegant and creates substantial ambiguity, it would be improper to ignore that “Exchange” is a defined term. When a statute explicitly defines terms, this has always been understood to trump what might otherwise be the ordinary meaning of those terms. I thus find the majority’s reasoning persuasive. Indeed, I have been arguing along similar lines since this controversy first arose, and Darien Shanske and I previously co-authored an essay that made this argument in greater depth: Why the Affordable Care Act Authorizes Tax Credits on the Federal Exchanges, 71 State Tax Notes 229 (2014).
June 26, 2015 in New Cases, Scholarship, Tax | Permalink
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Thursday, June 25, 2015
Tax Prof Blog Op-Ed: The IRS Isn’t an Expert?, by Andy Grewal (Iowa):
Today, the Supreme Court issued its much-anticipated decision in King v. Burwell, holding that the Section 36B premium tax credit extends to taxpayers who acquire healthcare policies on federally established exchanges. The decision probably will not bear much on core tax provisions, but the Court’s reasoning could have major implications for the IRS’s administration of the various social programs littered throughout the tax code.
To uphold the government’s position, the Court might have been expected to employ the familiar Chevron framework, under which it generally defers to agency interpretations of ambiguous statutory provisions. However, in King, the Court refused to offer the IRS any deference on the question presented, even though it acknowledged the ambiguity in the contested statutory provision. The meaning of the contested phrase, referring to credits for policies purchased on an Exchange established by the State, implicated major questions of health care policy, and “[t]his is not a case for the IRS.” The IRS “has no expertise in crafting health insurance policy,” so the Court believed that it should resolve the ambiguity in the statutory scheme. It ultimately did so through an examination of Section 36B and various related Affordable Care Act provisions.
June 25, 2015 in New Cases, Tax | Permalink
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Monday, June 22, 2015
TaxProf Blog op-ed: Z Street v. Koskinen: The D.C. Circuit Continues To Chip Away At The Anti-Injunction Act, by Kristin E. Hickman (Minnesota):
In Z Street v Koskinen, the D.C. Circuit considered the justiciability of a claim raised by Z Street, a nonprofit organization, that the IRS delayed considering Z Street’s application for tax exempt status under IRC § 501(c)(3) based solely upon the fact that Z Street’s activities contradicted government policy vis a vis Israel, and that the IRS thus violated Z Street’s First Amendment rights. IRC § 7428 allows an organization to seek declaratory judgment if the IRS fails to act upon its exemption application within 270 days. Z Street brought its challenge 32 days short of that date, prompting the IRS to claim that the Anti-Injunction Act, § 7421 precluded Z Street’s suit until the 270-day period for relief under IRC § 7428 had elapsed.
June 22, 2015 in IRS News, IRS Scandal, New Cases, Tax | Permalink
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Monday, June 15, 2015
TaxProf Blog op-ed: Preliminary Thoughts About The Enigma of Wynne, by Edward Zelinsky (Cardozo):
Maryland’s county income tax does not grant a credit to Maryland residents for the out-of-state income taxes such residents pay on the income they earn outside of Maryland. In Comptroller of the Treasury of Maryland v. Wynne, the U.S. Supreme Court held that this failure causes the Maryland county income tax to violate the dormant Commerce Clause of the U.S. Constitution.
Wynne perpetuates an inherent problem of the Court’s dormant Commerce Clause doctrine: The Court declares some, ill-defined taxes such as the Maryland county income tax unconstitutionally discriminatory while other, economically equivalent taxes and government programs are apparently acceptable under the dormant Commerce Clause. A decision as enigmatic as it is important, Wynne raises as many questions as it answers. Among these are the continuing viability (or not) of external consistency and apportionment, concepts which have been central to the Court’s formulation of the dormant Commerce Clause. Wynne also undermines the Supreme Court’s traditional tolerance of the double state income taxation of dual residents.
June 15, 2015 in New Cases, Scholarship, Tax | Permalink
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Wednesday, May 27, 2015
Brief of Interested Law Professors in Direct Marketing Association v. Brohl (10th Circuit) (Joseph Bankman (Stanford), Jordan Barry (San Diego), Barbara Fried (Stanford), Alan Morrison (George Washington), Darien Shanske (UC-Davis), Kirk Stark (UCLA), John Swain (Arizona) & Dennis Ventry (UC-Davis)):
This case, Direct Marketing Association v. Brohl, was recently remanded by the U.S. Supreme Court to the Tenth Circuit Court of Appeals. The Tenth Circuit then requested a full supplemental briefing; amici law professors submitted this brief.
Like all states with a sales tax, Colorado faced – and faces – a voluntary compliance problem with the collection of its use tax. The use tax is a complement to the sales tax; in-state vendors collect and remit the sales tax, while in-state consumers are responsible for remitting the use tax on purchases made from out-of-state vendors that do not collect the sales tax. To this compliance challenge, Colorado turned to a third-party reporting solution. In broad strokes, the Colorado Statute imposes a modest requirement on one party to a taxable transaction – specifically on relatively large retailers who do not collect the use tax - to report information on their Colorado sales both to the consumer/taxpayer and to the taxing authorities.
Amici make three specific arguments.
May 27, 2015 in New Cases, Tax | Permalink
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Monday, May 18, 2015
A 5-4 Supreme Court ruled today that Maryland unconstitutionally failed to provide a full credit for taxes paid to other states. Comptroller v. Wynne, No. 13-485 (May 18, 2015). Justice Aliton wrote the majority opinion, joined by Chief Justice Roberts and Justices Breyer, Kennedy, and Sotomayor. There were three separate dissenting opinions: Justice Ginsburg (joined by Justices Kagan and Scalia); Justice Scalia (joined in part by Justice Thomas); and Justice Thomas (joined in part by Justice Scalia).
The majority opinion cites the amicus brief filed by Tax Profs Michael Knoll (Pennsylvania) and Ruth Mason (Virginia), as well as Ruth Mason's article, Made in American for European Tax: The Internal Consistency Test, 49 B.C. L. Rev. 1277 (2008).
For the Vanderbilt Law Review roundtable on the case, see here. For press and blogosphere on today's decision, see:
May 18, 2015 in New Cases, Tax | Permalink
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Friday, January 23, 2015
Following up on my previous posts (links below): Perez v. Commissioner, 144 T.C. No. 4 (Jan. 22, 2014):
We acknowledge that this case has received some publicity in tax and nontax publications, which is why it is important to state clearly what it does not concern. It does not require us to decide whether human eggs are capital assets. It does not require us to figure out how to allocate basis in the human body, or the holding period for human-body parts, or the character of the gain from the sale of those parts. Fn.4
January 23, 2015 in New Cases, Tax | Permalink
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Wednesday, January 14, 2015
Thursday, January 1, 2015
Forbes: The Top Ten Tax Cases (And Rulings) Of 2014, by Anthony J. Nitti (WithumSmith & Brown, Aspen, CO):
- Obamacare Endures Additional Attacks (Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014)/King v. Burwell, 759 F.3d 358 (4th Cir. 2014))
- Loving And Ridgely Take On The IRS (Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014)/Ridgely v. Lew, 2014 U.S. Dist. LEXIS 96447 (D. D.C. 2014))
- Aragona Trust Changes The Way We Look At Real Estate Professionals (Aragona Trust v. Commissioner, 142 T.C. 9 (2014))
- IRS Rules on Self-Employment Income Of LLC Members (CCA 201436049)
- Is The Sale Of A Right To Buy Land Ordinary Income Or Capital Gain? (Long v. Commissioner (11th Cir. 2014), rev'g T.C. Memo. 2013-233)
- The IRS (Finally) Figures Out The Real Estate Professional Rules (CCA 201427016)
- Buy A Building, Get An Immediate Deduction? (ABC Beverage Corp. v. United States, 113 AFTR 2d 2014-2536 (6th Cir. 2014))
- A Big Break For Home Builders (Shea v. Commissioner, 142 T.C. 3 (2014))
- Tax Court Further Muddies The 'Dealer Versus Investor' Issue (Allen v. US, 113 AFTR 2d 2014-2262 (DC CA 2014))
- IRA and Qualified Plan Rollovers Are More Treacherous Than You Realize (Bobrow v. Commissioner, T.C. Memo. 2014-21)
January 1, 2015 in New Cases, Tax | Permalink
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Saturday, November 8, 2014
The Volokh Conspiracy: Supreme Court to Hear King v. Burwell Challenge to IRS Tax Credit Rule, by Jonathan H. Adler (Case Western):
Friday the Supreme Court granted certiorari in King v. Burwell, one of four pending challenges to the IRS rule authorizing tax credits and cost-sharing subsidies for the purchase of health insurance in federally established exchanges. ...
With this grant, the Court has the opportunity to reaffirm the principle that the law is what Congress enacts, not what the administration or others wish Congress had enacted with the benefit of hindsight. Granting tax credits to those who need help purchasing health insurance may be a good idea, and may have bipartisan support, but the IRS lacks the authority to authorize such tax credits where Congress failed to do so. The PPACA only authorizes tax credits for the purchase of insurance on exchanges “established by the State.”
- Bloomberg: Obamacare Challenge Gets High Court Review, With Crucial Tax Credits at Stake, by Greg Stohr
- Cleveland Plain Dealer: Obamacare Case to go to U.S. Supreme Court, With a Case Western Law Professor's Analysis Playing a Big Role, by Stephen Koff
- Los Angeles Times: The Supreme Court Puts the Screws to 36 State Governments, by Michael Hiltzik
- New York Times: Justices to Hear New Challenge to Health Law, by Adam Liptak
- New York Times: Q and A: For Supreme Court, a Case of Economics and Politics, by Robert Pear
- New York Times: What's at Stake in Supreme Court’s Latest Health Care Case, by Margot Sanger-Katz
- SCOTUSblog: Court to Rule on Health Care Subsidies, by Lyle Denniston
- SCOTUSblog: The Court Will Hear King. That’s Bad News for the ACA, by Nicholas Bagley (Michigan)
- SCOTUSblog: The Fate of the Obamacare Subsidies in the Supreme Court, by Tom Goldstein
- SCOTUSblog: The Grant in King – Obamacare Subsidies as Textualism’s Big Test, by Abbe R. Gluck (Yale)
- The Volokh Conspiracy: Why Did the Court Grant Cert in King v. Burwell?, by Jonathan H. Adler (Case Western)
- Vox: King v. Burwell: The New Supreme Court Case That Could Gut Obamacare, Explained, by Adrianna McIntyre
- Wall Street Journal: Supreme Court to Hear Case on Health-Care Law Subsidies; Challengers Argue Affordable Care Act Only Permits Tax Credits on State-Run Exchanges, by Jess Bravin & Louise Radnovsky
- Wall Street Journal editorial, ObamaCare Goes to Rewrite; The Supreme Court Agrees to Hear the Federal Subsidy Case
Prior TaxProf Blog coverage:
(Hat Tip: Greg McNeal.)
November 8, 2014 in New Cases, Tax | Permalink
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