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

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

In 2017, the County initiated an administrative tax foreclosure against BSI. The County Board of Revision (BOR) issued its final adjudication of foreclosure in June 2019. Because the County had opted for the alternative right of redemption, BSI had 28 days to pay the taxes before the County took title to the property. Days later, BSI filed a Chapter 11 bankruptcy petition, which automatically stayed the BOR’s final judgment and 28-day redemption period. The bankruptcy court granted the County relief from the stay on January 17, 2020. The BOR determined that the statutory redemption period expired on January 21, 2020. On January 30, rather than sell the property, the County transferred it to its land bank (Ohio Rev. Code 323.78.1). When a county sells foreclosed property at auction, it may not keep proceeds beyond the taxes the former owner owed; if the county transfers the property to the land bank, “the land becomes ‘free and clear of all impositions and any other liens.’”BSI filed suit, 42 U.S.C. 1983, alleging that a significant difference between the appraised value of the property and the amount that the County alleged BSI owed meant that the County’s action violated the Takings Clause. The district court dismissed the case under the two-year statute of limitations. The Sixth Circuit reversed. The limitations period began to run when the redemption period ended on January 21, 2020. If BSI paid its delinquent taxes during that period, the County would have been prohibited from taking the property. View "Beaver Street Investments, LLC v. Summit County, Ohio" on Justia Law

The Fox and Puchlak filed purported class actions, alleging that Michigan counties seized property to satisfy property-tax delinquencies, sold the properties, and kept the difference between the sales proceeds and the tax debts.. The suits assert that the counties committed takings without just compensation or imposed excessive fines in violation of the Michigan and federal constitutions. Genesee County’s insurance, through Safety, precludes coverage for claims “[a]rising out of . . . [t]ax collection, or the improper administration of taxes or loss that reflects any tax obligation” and claims “[a]rising out of eminent domain, condemnation, inverse condemnation, temporary or permanent taking, adverse possession, or dedication by adverse use.”Safety sought a ruling that it owed no duty to defend or to indemnify. The district court entered summary judgment, finding no Article III case or controversy between Safety and Fox and Puchlak. The court also held that Safety owes Genesee County no duty to defend. The Sixth Circuit affirmed. Safety lacks standing to sue Fox and Puchlak over its duty to defend and its claim for the duty to indemnify lacks ripeness. Safety owes no duty to defend; the alleged tax-collection process directly caused the injuries underlying each of Fox’s and Puchlak’s claims. View "Safety Specialty Insurance Co. v. Genesee County Board of Commissioners" on Justia Law

The 2021 American Rescue Plan Act (ARPA), 42 U.S.C. 802, appropriated $195.3 billion in aid to the states and the District of Columbia. To get the money, states had to certify that they would comply with several conditions, including ARPA’s “Offset Provision,” which forbids a state from using the funds “to either directly or indirectly offset a reduction in the net tax revenue” that “result[s] from” a tax cut. Claiming that this condition amounted to a prohibition on tax cuts during ARPA’s “covered period,” and that such a condition would violate the Constitution in multiple respects, Ohio filed suit. The district court permanently enjoined enforcement of the Offset Provision on the ground that its terms are “unconstitutionally ambiguous” under the Spending Clause.The Sixth Circuit vacated the injunction, finding the case moot. The district court should not have reached the merits of the case, as Ohio failed to establish a justiciable controversy. Treasury later promulgated a regulation disavowing Ohio’s interpretation of the Offset Provision and explaining that it would not enforce the Provision as if it barred tax cuts per se. There is no reason to believe that Treasury will not abide by its disavowal of Ohio’s interpretation of the Offset Provision as it administers the statute. View "Ohio v. Yellen" on Justia Law

The 2021 American Rescue Plan Act (ARPA) set aside $195.3 billion in stimulus funds, to be distributed to states and the District of Columbia. Kentucky and Tennessee challenged ARPA’s requirement that states certify that they would comply with an “Offset Provision” that bars the states from enacting tax cuts and then using ARPA funds to “directly or indirectly offset a reduction" in net tax revenue resulting from such tax cuts. 42 U.S.C. 802(c)(2)(A). Because money is fungible, enacting any tax cut and then spending ARPA funds could be construed, the states argued, as impermissibly using those funds to “indirectly offset” a revenue reduction from the tax cut. A subsequent Treasury regulation (the Rule) offered a narrowing construction; the states asserted that this construction in no way follows clearly from the Offset Provision itself. The states argued they were coerced into relinquishing control over their sovereign taxing authority.The district court entered a permanent injunction. The Sixth Circuit vacated in part. Kentucky’s challenge is non-justiciable. After the promulgation of the Rule, the states offered no evidence of a concrete plan to violate the Rule. Kentucky offered no other theory of injury. Tennessee offered another theory of injury: that Treasury’s Rule burdened the state with compliance costs that it would not incur were enforcement of the Offset Provision enjoined. On the merits of Tennessee’s claim, the court affirmed the injunction; the Offset Provision is impermissibly vague under the Spending Clause. Treasury cannot use its Rule to impose compliance requirements that are not authorized by the Offset Provision itself. View "Kentucky v. Yellen" on Justia Law

Oakland County took title to the plaintiffs’ homes under the Michigan General Property Tax Act, which (after a redemption period) required the state court to enter a foreclosure judgment that vested “absolute title” to the property in the governmental entity upon payment of the amount of the tax delinquency or “its fair market value.” The entity could then sell it at a public auction. No matter what the sale price, the property’s former owner had no right to any of the proceeds.In February 2018, under the Act, Oakland County foreclosed on Hall’s home to collect a tax delinquency of $22,642; the County then conveyed the property to the City of Southfield for that price. Southfield conveyed the property for $1 to a for-profit entity, the Southfield Neighborhood Revitalization Initiative, which later sold it for $308,000. Other plaintiffs had similar experiences.The plaintiffs brought suit under 42 U.S.C. 1983, citing the Takings Clause of the Fifth Amendment. The Sixth Circuit reversed the dismissal of the suit. The “Michigan statute is not only self-dealing: it is also an aberration from some 300 years of decisions.” The government may not decline to recognize long-established interests in property as a device to take them. The County took the property without just compensation. View "Hall v. Meisner" on Justia Law

Corporations with foreign subsidiaries frequently disagree with the IRS about calculating prices in transactions between the U.S. corporation and such subsidiaries. Eaton and the IRS entered advance pricing agreements (APAs) to govern Eaton’s tax calculations concerning its foreign subsidiaries from 2001-2010. The APAs described a transfer-pricing methodology (TPM) that requires Eaton to calculate the transfer price using two steps: The APAs required Eaton to file annual reports. After a few years, Eaton reviewed its records and caught some inadvertent calculation errors. After informing the IRS, Eaton corrected the mistakes. The IRS thought that Eaton’s mistakes warranted its unilateral cancellation of the APAs for tax years 2005 and 2006. The IRS issued a notice claiming a deficiency of tens of millions of dollars.The Tax Court found that the IRS had wrongfully canceled the APAs and rejected the IRS’s claim for 40 percent penalties under 26 U.S.C. 6662(h) for Eaton’s self-reported corrections. The Sixth Circuit affirmed in part, in favor of Eaton. The grounds for cancellation do not extend beyond the four corners of the APAs and do not include errors in “the supporting data and computations” used in applying the TPM. View "Eaton Corp. and Subsidiaries v. Commissioner of Internal Revenue" on Justia Law

To dispute a property tax assessment under Detroit ordinances and Michigan state law, taxpayers “make complaint on or before February 15th" before the Board of Assessors. Any person who has complained to the Board of Assessors may appeal to the Board of Review. For the Michigan Tax Tribunal to have jurisdiction over an assessment dispute, “the assessment must be protested before the board of review.” On February 14, 2017, Detroit mailed tax assessment notices to Detroit homeowners, including an “EXTENDED ASSESSORS REVIEW SCHEDULE” that would conclude on February 18, just four days later. At a City Council meeting on February 14, the city announced: “The Assessors Review process will end this year February the 28th.” News outlets reported the extension and that Detroit had waived the requirement of appearance before the Board of Assessors so residents could appeal directly to the Board of Review. Detroit did not distribute individualized mailings to so inform homeowners.Plaintiffs filed a class action, alleging violations of their due process rights; asserting that Michigan’s State Tax Commission assumed control of Detroit’s flawed property tax assessment process from 2014-2017 so that its officials were equally responsible for the violations; and claiming that Wayne County is “complicit” and has been unjustly enriched. The district court dismissed for lack of subject matter jurisdiction, citing the Tax Injunction Act and the principle of comity. The Sixth Circuit reversed, finding that a state remedy is uncertain. View "Howard v. City of Detroit" on Justia Law

VanDemark owns the Used Car Supermarket, which sells cars from two lots in Amelia, Ohio. In 2013-2014, VanDemark funneled away his customers’ down payments and left them off his tax returns. He used this stashed-away cash to finance the mortgage on his mansion.The Sixth Circuit affirmed VanDemark’s convictions for helping prepare false tax returns, 26 U.S.C. 7206(2), structuring payments, 31 U.S.C. 5324(a)(3), and making false statements to federal agents, 18 U.S.C. 1001. The down payments were taxable upon receipt, not, as VanDemark argued, when customers purchased the cars after leasing them. With respect to his missing 2013 personal return, the court stated that a defendant is guilty even if he helps prepare, without presenting, the fraudulent return. View "United States v. VanDemark" on Justia Law