Justia U.S. 6th Circuit Court of Appeals Opinion Summaries

Fitzgerald Truck Parts & Sales, LLC built and sold highway tractors by installing old engines and transmissions from salvage yards into new tractor kits. The IRS assessed unpaid excise taxes, penalties, and interest totaling $268 million, arguing that Fitzgerald's sales were subject to a 12% excise tax under 26 U.S.C. §§ 4051(a)(1) and 4052(a)(1). Fitzgerald claimed an exemption under 26 U.S.C. § 4052(f)(1), which provides a safe harbor if the cost of repairs or modifications does not exceed 75% of the retail price of a comparable new tractor. Fitzgerald won before a jury, and the government appealed.The United States District Court for the Middle District of Tennessee ruled in favor of Fitzgerald, rejecting the government's arguments that Fitzgerald's operations did not qualify for the safe harbor and that the tractors were not taxable when new under 26 U.S.C. § 4052(f)(2). The government then appealed to the United States Court of Appeals for the Sixth Circuit.The Sixth Circuit agreed with Fitzgerald that § 4052(f)(1) poses a bright-line, 75% test without any further qualitative inquiry, meaning Fitzgerald's vehicles constructed with used engines and transmissions could qualify for the safe harbor. However, the court found that § 4052(f)(2) forecloses this exemption for tractors that never triggered the excise tax when they were new. The court noted that Fitzgerald had not met its burden of proving that the tractors were taxable when new, as evidence suggested that some vehicles were first sold in tax-exempt transactions to entities abroad or state or local governments.The Sixth Circuit reversed the district court's judgment and remanded the case for further proceedings to determine whether each refurbished tractor, when new, incurred the excise tax under § 4051. View "Fitzgerald Truck Parts & Sales LLC v. United States" on Justia Law

Lonnie Hubbard, a pharmacist, was convicted of operating an illegal "pill mill" and sentenced to 30 years in prison. The government confiscated his assets, including over $400,000 from his individual retirement account (IRA), as part of the criminal forfeiture. The IRS later claimed that this seizure constituted taxable income for Hubbard, resulting in a tax deficiency notice for over $180,000 in taxes and penalties.The United States Tax Court agreed with the IRS, ruling that the transfer of the IRA funds to the IRS was a taxable event for Hubbard. The court held that the funds qualified as Hubbard's income because they discharged an obligation he owed. Consequently, the court ordered Hubbard to pay the taxes and penalties.The United States Court of Appeals for the Sixth Circuit reviewed the case and reversed the Tax Court's decision. The Sixth Circuit held that the forfeiture order granted the IRS ownership of the IRA, meaning the IRS, not Hubbard, was the payee or distributee of the funds. The court concluded that the withdrawal of the IRA funds by the IRS did not constitute taxable income for Hubbard, as he no longer owned or controlled the IRA at the time of the withdrawal. The court emphasized that the tax code requires the payee or distributee of withdrawn IRA funds to pay the taxes, and in this case, the IRS was the payee or distributee. Therefore, Hubbard was not liable for the taxes on the forfeited IRA funds. The court reversed the Tax Court's decision and remanded the case for further proceedings consistent with its opinion. View "Hubbard v. Commissioner of Internal Revenue" on Justia Law

The case involves debtors Jason and Leah Wylie, who faced financial difficulties in 2018 due to Mr. Wylie's health issues. As they prepared to file for bankruptcy, they delayed filing their 2018 and 2019 tax returns. Their accountant prepared the 2018 returns, showing significant overpayments, which the Wylies elected to apply to their 2019 tax liabilities instead of receiving refunds. This decision was repeated for their 2019 returns, which were filed shortly after they submitted their Chapter 7 bankruptcy petition.The United States Bankruptcy Court for the Eastern District of Michigan found that the Wylies transferred their anticipated 2019 tax refunds with the intent to hinder the trustee and denied them a discharge under 11 U.S.C. § 727(a)(2)(B). However, the court dismissed other counts alleging similar intent for their 2018 tax overpayments and false statements in their bankruptcy filings. The Wylies appealed the decision on Count II to the United States District Court for the Eastern District of Michigan, which reversed the bankruptcy court’s decision, holding that the finding of intent was clearly erroneous.The United States Court of Appeals for the Sixth Circuit reviewed the case and agreed with the district court. The appellate court found that the bankruptcy court’s intent findings were inconsistent and unsupported by the evidence. Specifically, the bankruptcy court had found that the Wylies’ intent in both the 2018 and 2019 tax elections was to ensure their taxes were paid, not to hinder the trustee. The appellate court emphasized that § 727(a)(2) requires specific intent to hinder the trustee, which was not demonstrated in this case. Consequently, the Sixth Circuit affirmed the district court’s decision and remanded the case to the bankruptcy court to enter a discharge for the Wylies. View "Miller v. Wylie" on Justia Law

The plaintiffs, who regularly engage in cryptocurrency transactions, challenged amendments to 26 U.S.C. § 6050I, which now require reporting certain cryptocurrency transactions to the federal government. They argued that the law violates their constitutional rights under the Fourth, First, and Fifth Amendments, and exceeds Congress's enumerated powers. The plaintiffs claimed that the law's requirements would force them to disclose private information, incur compliance costs, and potentially expose them to criminal penalties.The United States District Court for the Eastern District of Kentucky dismissed the case, finding that it lacked jurisdiction to consider the merits of the plaintiffs' claims. The court ruled that the claims were either not ripe for adjudication or that the plaintiffs lacked standing. Specifically, the court found that the Fourth Amendment claim was not ripe because the law was not yet effective and the Department of Treasury was still developing rules. The First Amendment claim was dismissed for lack of standing, as the court deemed the plaintiffs' injuries too speculative. The court also found the Fifth Amendment vagueness claim unripe due to pending regulatory action, and the enumerated-powers claim unripe for similar reasons. The Fifth Amendment self-incrimination claim was dismissed as not ripe because the plaintiffs had not yet asserted the privilege.The United States Court of Appeals for the Sixth Circuit reviewed the case and found that the district court erred in dismissing the enumerated-powers, Fourth Amendment, and First Amendment claims. The appellate court held that these claims were ripe for review and that the plaintiffs had standing. The court noted that the plaintiffs, as direct objects of the law, would indeed be subject to the reporting requirements and incur compliance costs, thus suffering an injury in fact. The court affirmed the district court's dismissal of the Fifth Amendment vagueness and self-incrimination claims as not ripe. The case was remanded for further proceedings consistent with the appellate court's opinion. View "Carman v. Yellen" on Justia Law

The United States Court of Appeals for the Sixth Circuit ruled in favor of the United States in a case involving civil penalties for failure to file a Report of Foreign Bank and Financial Accounts (FBAR). The defendant, James J. Kelly Jr., was a U.S. citizen who had a bank account in Switzerland with a balance exceeding $10,000, which required him to file an FBAR with the U.S. Department of the Treasury. Failure to do so risks civil penalties. The government sued Kelly for willfully failing to timely file FBARs for 2013, 2014, and 2015. The district court granted summary judgment to the government.The Court of Appeals affirmed the lower court's decision, finding that Kelly's failure to comply with his FBAR obligations was reckless, if not knowing. The court argued that Kelly had taken steps to intentionally evade his legal duties and acted with objective recklessness. Despite being aware of his FBAR obligations and participating in the IRS Offshore Voluntary Disclosure Program (OVDP), Kelly failed to ensure that the FBARs were submitted. His failure to consult with any professionals about his tax obligations and his considerable efforts to keep his account secret were further evidence of his willful violation of the Bank Secrecy Act. Thus, the court concluded that Kelly's failure to satisfy his FBAR requirements for the years 2013, 2014, and 2015 was a willful violation of the Bank Secrecy Act. View "United States v. Kelly" on Justia Law

The IRS may penalize taxpayers who fail to report a “listed transaction” that the agency determines is similar to one already identified as a tax-avoidance scheme, 26 U.S.C. 6707A(a), (c)(2). IRS Notice 2007-83 listed employee-benefit plans with cash-value life insurance policies. In 2013, Mann created trusts for its co-owners that paid the premiums on their cash-value life insurance policies. Mann deducted the expenses on its tax forms, and the owners counted the death benefits as income. None of them reported the trusts as a listed transaction.In 2019, the IRS determined that the trusts failed to comply with Notice 2007-83 and imposed penalties, which were paid. After the IRS refused requests for refunds, the taxpayers filed suit. The district court granted the IRS summary judgment on a claim that the Notice violated the Administrative Procedures Act’s notice-and-comment requirements. The Sixth Circuit reversed, concluding that Notice 2007- 83 was a legislative rule that lacked exemption from the requirements; “we must set [Notice 2007-83] aside” and “need not address the taxpayers’ remaining claims.”Before the district court ruled on remand, the IRS refunded the past penalties with interest and agreed not to apply the Notice to anyone within the Sixth Circuit. The district court concluded that it retained jurisdiction to set aside and vacate the Notice nationwide. The Sixth Circuit vacated. The taxpayers sought a refund of past tax penalties and prospective relief against Notice 2007-83; the IRS’s actions mooted their claim and left nothing more for the court to do. View "Mann Construction, Inc. v. United States" on Justia Law

Freed fell behind approximately $1,100 on his property taxes. Thomas, Gratiot County’s treasurer, foreclosed on Freed’s property and sold it at a public auction for $42,000. The County retained the entire proceeds. Freed sued the County and Thomas under 42 U.S.C. 1983, alleging an unconstitutional taking under the Fifth and Fourteenth Amendments and an unconstitutional excessive fine under the Eighth Amendment.Following a remand, the district court granted Freed summary judgment on his Fifth Amendment claim, rejecting Freed’s argument that he was entitled to the fair market value of his property, minus his debt, and holding that Freed was owed just compensation in the amount of the difference between the foreclosure sale and his debt, plus interest from the date of the foreclosure sale. Freed was owed about $40,900 plus interest, $56,800 less than he was seeking. The court also held that Freed’s claims against Thomas were barred by qualified immunity and denied Freed’s subsequent motion for attorney’s fees. The Sixth Circuit affirmed. Following a public sale, a debtor is entitled to any surplus proceeds from the sale, which represent the value of the equitable title extinguished. Thomas did not violate a right that was clearly established at the time of her alleged misconduct. View "Freed v. Thomas" on Justia Law

Jarrett produces Tezos tokens cryptocurrency by “staking.” Jarrett claims staking uses existing Tezos tokens and computing power to produce new tokens, so he owes tax on the tokens only when he sells or transfers them and “realizes” income, 26 U.S.C. 61(a). The IRS's position was that Jarrett realized income when he received each token. Jarrett’s 2019 staking yielded 8,876 Tezos tokens; he “did not sell, exchange, or otherwise dispose of these tokens during 2019.” He reported those tokens as income and paid tax, then asked the IRS for a refund ($3,793). After six months, Jarrett filed a refund lawsuit, 28 U.S.C. 1346(a)(1), seeking a judgment that Jarrett was entitled to a refund; costs and attorney’s fees; and an injunction preventing the IRS “from treating tokens created by the Jarretts as income.”The Attorney General approved Jarrett’s refund request. The IRS issued a $4,001.83 refund check and a “Notice of Adjustment.” Preferring to litigate the case to judgment, Jarrett has “not cashed, and [does] not intend to cash, this check.” The district court dismissed the case as moot. The Sixth Circuit affirmed. Refund lawsuits exist for a single purpose: “the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” The IRS satisfies its repayment obligation when it issues and mails a refund check for the full amount of the overpayment. View "Jarrett v. United States" on Justia Law

In 1997-2009, Chappelle managed Terra and withheld federal income, Social Security, and Medicare taxes (trust fund taxes) from Terra’s employees’ wages, 26 U.S.C. 3102, 3402, 7501, but failed to remit them to the IRS in 2007-2009. The IRS imposed “trust fund recovery penalties” on Chappelle. To avoid paying, Chappelle misstated his income and assets. He used business funds to pay personal expenses. He purchased real estate in others’ names rather than his own. Chappelle repeated this cycle in 2009-2016 after he closed Terra and sequentially opened three more companies. Chappelle repeatedly moved assets.In a 2016 IRS interview, Chappelle made false statements about his real estate purchases. Chappelle subsequently falsely claimed that the latest company did not have any employees and was entitled to a tax refund. Chappelle pleaded guilty to willfully attempting to evade the payment of the Trust Fund Recovery Penalties in 2008-2009. Chappelle’s PSR calculated a total tax loss of $1,636,228.28 and recommended increasing Chappelle’s offense level by two levels for his use of sophisticated means, U.S.S.G. 2T1.1(b). The district court overruled Chappelle’s objections, calculated his guideline range as 37-46 months, considered the 18 U.S.C. 3553(a) factors, and sentenced Chappelle to 38 months’ imprisonment. The Sixth Circuit affirmed, rejecting arguments that the court miscalculated the tax loss and erroneously found that his offense involved sophisticated means. View "United States v. Chappelle" on Justia Law

From 2014-2018, the Affordable Care Act’s individual mandate instructed most Americans to purchase health insurance, 26 U.S.C. 5000A(a) Juntoff opted not to buy the minimum health insurance and failed to make his Shared Responsibility Payment of 2.5% of the taxpayer’s income, subject to a floor and a ceiling. After he declared bankruptcy, the IRS tried to collect the Payment from him and filed a proof of claim in bankruptcy court. The agency asked for priority above other debtors under a provision that covers bankruptcy “claims” by “governmental units” for any “tax on or measured by income,” 11 U.S.C. 507(a)(8)(A). The bankruptcy court denied the request, reasoning that the Shared Responsibility Payment was not a “tax on or measured by income” but was a penalty. The Bankruptcy Appellate Panel reversed.The Sixth Circuit ruled in favor of the government. The Shared Responsibility Payment is a “tax” under section 507(a)(8) and is “measured by income.” View "In re: Juntoff" on Justia Law