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

Ronald Davis, the owner of a corporation, was liable for over $1 million in unpaid federal employment taxes and penalties. After demands for payment went unanswered, the government filed suit against Ronald to reduce its tax assessments to judgment and sought to enforce its tax liens through the sale of the primary residence of Ronald and his wife, Diane. The government named Diane, who did not owe any unpaid taxes, as a defendant in the action because she had an interest in the properties. The district court issued an order of sale authorizing the sale of the primary residence. Diane appealed, arguing (1) the district court should have allowed the government to sell only Ronald’s interest in the property; and (2) the order of sale violated 26 U.S.C. 7403 and the Fifth Amendment’s Just Compensation Clause. The Sixth Circuit affirmed the district court’s order of sale, holding (1) the district court did not err when it declined to limit the government to the sale of Ronald’s interest in the property; and (2) the order of sale did not violate section 7403 or the Just Compensation Clause. View "United States v. Davis" on Justia Law

Internal Revenue Code section 1256 provides that an investor who holds certain derivatives at the close of the taxable year must “mark to market” by treating those derivatives as having been sold for fair market value on the last business day of the taxable year. A “foreign currency contract” is a “section 1256 contract” that an investor must mark to market. Contending that a foreign currency option is within the definition of “foreign currency contract," the Wrights claimed a large tax loss by marking to market a euro put option upon their assignment of the option to a charity. The Wrights’ assignment of the option was part of a series of transfers of mutually offsetting foreign currency options that they executed over three days. These transactions apparently allowed the Wrights to generate a large tax loss at minimal economic risk or out-of-pocket expense. The Tax Court held that the Wrights could not recognize a loss upon assignment of the euro put option because the option was not a “foreign currency contract” under section 1256. The Sixth Circuit reversed. While disallowance of the claimed tax loss makes sense as tax policy, the statute's plain language clearly provides that a foreign currency option can be a “foreign currency contract.” View "Wright v. Comm'r of Internal Revenue" on Justia Law

In 1998, Eggersten's law office, an S corporation, established an employee stock ownership plan (ESOP), a retirement plan that primarily owns securities of the sponsoring employer. Eggertsen transferred his ownership to the ESOP. S corporations pass their income through to shareholders who pay any tax due on that income. 26 U.S.C. 1366, and, in the mid-1990s, it was possible for ESOPs, then exempt from taxes at the plan level, to own shares in S corporations, 26 U.S.C. 501(a), 512(e)(3), 1361(b)(1)(B), 1361(c)(6)(B). ESOP participants, such as Eggertsen, were not taxed on income attributable to stock held in the ESOP until that stock was distributed, typically at retirement. The law office, therefore, did not pay tax on its income; the ESOP would not owe tax at the plan level. Eggertsen, who ultimately owned the shares, would not owe tax on the income until retirement. In 2001, Congress amended the provisions, giving affected taxpayers a grace period to come into compliance. The law firm did not comply within the grace period. The IRS waited until 2011 to try to collect the excise tax (over $200,000) that resulted from delayed compliance. The Sixth Circuit upheld the imposition of the tax and held that the limitations period remained open. View "Law Office of John H Eggertsen, P.C. v. Comm'r of Internal Revenue" on Justia Law

The 1976 Railroad Revitalization and Regulatory Reform Act prohibits states from imposing taxes that “discriminat[e] against a rail carrier,” 49 U.S.C. 11501(b)(4)A, including: Assessing rail transportation property at a value with a higher ratio to the true market value of the property than the ratio applied to other commercial and industrial property; levying or collecting an ad valorem property tax on rail transportation property at a tax rate that exceeds the rate applicable to commercial and industrial property in the same jurisdiction; or imposing “another tax that discriminates against a rail carrier providing transportation.” Railroads sued, claiming that Tennessee sales and use tax assessments were discriminatory. The district court agreed, holding that imposition of those taxes on railroad purchases and use of diesel fuel was discriminatory. In response, in 2014, Tennessee enacted a Transportation Fuel Equity Act that repeals the sales and use tax on railroad diesel fuel, but subjects railroads to the same per-gallon tax imposed on motor carriers under the Highway User Fuel Tax. Previously railroads, like other carriers using diesel fuel for off-highway purposes, were exempt from a “diesel tax.” The Railroads contend the Act is discriminatory because it now subjects only railroads to taxation of diesel fuel used off-highway. The Sixth Circuit affirmed denial of the Railroads’ motion for a preliminary injunction on its targeted or singling-out approach and the functional approach, but remanded for consideration of the Railroads’ argument under the competitive approach. View "CSX Transp., Inc. v. Tenn. Dep't of Revenue" on Justia Law

In 2005, Henderson, Kentucky required, “every person or business entity engaged in any business, trade, occupation, or profession” within city limits to pay 1% of its previous year’s net profits for the privilege of doing business there. The net-profits calculation depends on information reported on IRS forms. Because the 2005 law and federal tax law recognize fiscal year filers, while a previous municipal tax was based on the calendar year, the city decided to transition by taxing fiscal-year taxpayers by reference to their 2006 returns alone, essentially forgiving some tax liability. Phillips, a certified public accountant, assailed the tax before the city council and while advising his clients. Phillips did not pay his $500 bill and was convicted of a misdemeanor for failure to file. A state appellate court threw out the conviction. Phillips sued in federal court for violations of his rights to procedural due process and equal protection. The district court rejected both claims. The Sixth Circuit affirmed, noting that Phillips suffered no loss of property; Phillips never paid the tax. The city has not tried to collect by civil action, nor has it revoked Phillips’ license. The Constitution does not prohibit all differential enforcement of municipal laws. Administrative convenience alone can justify a tax-related distinction. View "Phillips v. McCollom" on Justia Law

Berera worked at Mesa, a health care organization, as a nurse practitioner, 2011-2013. After Berera’s employment ended, she allegedly discovered that the wages on her W-2 did not reflect the wages that Mesa owed her. Berera sued in state court, asserting a class of current and former employees whom Mesa “forced to pay [Mesa’s] share of payroll taxes and other taxes and withholdings,” that this “forced payment resulted in the employees receiving less money than they earned,” and that Mesa paid employees “less than the wages and overtime compensation to which the employees were entitled.” The complaint contained no additional substantive allegations, but recited an unpaid wages claim under section 337.385 of the Kentucky Revised Statutes and claims of conversion and negligence under Kentucky law. The district court dismissed, reasoning that the Federal Insurance Contribution Act (FICA), 26 U.S.C. 3101–3128, which imposes a 7.65% tax on wages to fund Social Security and Medicare, requires parties seeking a refund to file a claim with the IRS before bringing a federal tax refund suit. The Sixth Circuit affirmed, agreeing that the purported state-law claims are truly FICA claims. View "Berera v. Mesa Med. Grp., PLLC" on Justia Law

Miner marketed two schemes that promised to avoid taxes. Miner’s first scheme, IRx Solutions, offered to assist clients in requesting alterations to their Individual Master Files (IMFs), which are internal IRS records pertaining to each taxpayer. Miner claimed that the IRS was engaged in widespread fraud by improperly coding individuals as businesses on their IMFs so that tax could be assessed against them. The second scheme, Blue Ridge Group, helped clients create common-law business trusts, into which he claimed that they could place any or all of their assets in order to avoid paying income tax. Affirming his conviction under 26 U.S.C. 7212(a) for corruptly endeavoring to obstruct the “due administration” of federal income tax laws, the Sixth Circuit rejected arguments that the district court reversibly erred in failing to instruct the jury that section 7212(a) required proof that he was aware of a pending IRS proceeding; that his conduct was constitutionally and statutorily protected; and that certain witness testimony was improperly introduced at trial because the witness opined about his state of mind. View "United States v. Miner" on Justia Law

When a taxpayer is a large corporation such as Ford, it often takes years for the IRS to conduct an audit of the corporation’s tax liability. When the IRS determines that the taxpayer underpaid its taxes, the taxpayer is liable for underpayment interest that accrued while the IRS analyzed its tax liability, 26 U.S.C. 6601(a). If the IRS determines that the taxpayer overpaid its taxes for the year under scrutiny, the government owes overpayment interest, which accrues from “the date of the overpayment.” Ford remitted approximately $875 million to the IRS in the 1990s after the IRS initiated an audit and preliminarily determined that Ford had underpaid its taxes by nearly $2 billion during the preceding decade. Ford sent the money pursuant to Revenue Procedure 84-58, which allows taxpayers to remit funds to stop the accrual of underpayment interest and identifies: “deposits in the nature of a cash bond” and “advance tax payments.” Ford designated each of its payments as a deposit in the nature of a cash bond, which the IRS says is “made merely to stop the running of [underpayment] interest,” “is not a payment of tax,” and “if returned to the taxpayer, does not bear interest.” Later Ford asked the IRS to treat its remittances as advance tax payments, which do bear interest in the event of an overpayment. The IRS complied, but subsequently reversed its position and concluded that the monies Ford remitted to the IRS to cover the alleged deficiencies were actually an overpayment of taxes. The government refunded Ford’s tax remittances plus overpayment interest, calculated from the dates on which Ford requested that its deposits be converted into advance tax payments rather than from the earlier dates on which Ford remitted the deposits. View "Ford Motor Co. v. United States" on Justia Law

Elsass and his companies, FRG, and STS, were charged with violations of the Tax Code, including claiming theft-loss deductions for losses that did not involve criminal conduct, claiming those deductions before it was clear that there was no reasonable prospect of recovery, falsely characterizing theft losses as losses incurred in a trade or business to artificially inflate refunds, claiming theft-loss deductions to which taxpayers were not entitled because the losses were incurred by deceased relatives, negotiating customers’ tax-refund checks and depositing them into defendants’ bank accounts, falsely indicating that Elsass was an attorney in good standing, making deceptive statements to customers that substantially interfered with the administration of the tax laws, promoting an abusive tax shelter through false or fraudulent statements about the tax benefits of participation, and aiding and abetting the understatement of tax liability. The district court held that there was no genuine issue as to whether Elsass and FRG had engaged in each of these prohibited practices and enjoined them from serving as tax-return preparers. While it granted summary judgment to STS with respect to all claims except on, because STS is wholly owned by Elsass, it enjoined STS to the same extent as Elsass and FRG. The Sixth Circuit affirmed. View "United State v. Elsass" on Justia Law

In 2001, Mirando pleaded guilty to mail fraud, money laundering, and tax evasion relating to the 1995 and 1996 tax years. Following his 2003 release from prison, the IRS assessed additional tax, interest, and penalties for the 1995 and 1996 tax years and for unpaid tax liabilities for 2000 and 2004. In 2007, Mirando was indicted for conspiracy to defraud the United States and four counts of tax evasion, one for each of the 1995, 1996, 2000, and 2004 tax years. He again pleaded guilty. The parties stipulated that as of June 2007, the total tax liability, including interest and penalties, amounted was $448,776.13. Mirando made payments to the IRS before entering his plea, totaling $467,686.04, inexplicably paying $18,909.91 more than the agreed amount. He was sentenced to 50 months’ imprisonment. In 2008, Mirando and his ex-wife filed amended returns, claiming refunds for the taxable years 1995, 1996, and 2000 in the amounts of $38,871, $54,112, and $32,332, respectively. The IRS denied the claims. Mirando filed a tax refund suit. The IRS argued that judicial estoppel barred Mirando from challenging the amount; Mirando argued that the government waived its estoppel argument because it failed to assert it as an affirmative defense. The Sixth Circuit affirmed the district court’s entry of summary judgment in favor of the IRS.View "Mirando v. U.S. Dep't of Treasury" on Justia Law