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

Circuit affirmed. When real estate taxes are not paid, a tax lien attaches to the property, annually, including interest, penalties, and fees accrued until paid, O.R.C. 323.11. Summit and other Ohio counties sell tax lien certificates that entitle the certificate holder to the first lien on the property. Property owners may redeem and remove the lien by paying the holder the purchase price plus interest, penalties, and costs, O.R.C. 5721.32. The certificate holder may initiate foreclosure proceedings after one year. Plymouth Park purchased Certificate 1, showing a purchase price of $4,083.73 with a negotiated interest rate of 0.25%, and Certificate 2, showing a purchase price of $2,045.44 with a negotiated interest rate of 18.00%. Summit County filed a foreclosure complaint following a request by Plymouth Park. The complaint stated that “as provided by Section 5721.38(b) of the Ohio Revised Code” the “redemption price” calculated was $10,585.82. A month later, the Debtors filed their Chapter 13 plan and petition; they did not file any notice to “redeem” their property during the bankruptcy action. The Chapter 13 payment plan (11 U.S.C. 1321) proposed to pay the interest rates listed on the certificates. , Plymouth Park filed a proof of claim based on both certificates for $10,521.46, including $2,120.00 in fees and the principal balance of $7,781.19 plus 18% interest. The Bankruptcy Court agreed that Plymouth Park’s claim was a tax claim under 11 U.S.C. 511 and that state law governed the interest rate, but rejected a claim that the 18% statutory rate, rather than the negotiated rate, should apply. The Bankruptcy Appellate Panel and Sixth View "Plymouth Park Tax Servs, LLC v. Bowers" on Justia Law

Two Ohio counties brought a class action on behalf of a class of all Ohio counties against the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing Finance Agency, as bankruptcy conservator for both Fannie Mae and Freddie Mac. The counties sought unpaid real property transfer taxes under Ohio law. The agencies responded that they are exempt, under their federal charters, from such state taxes. The district court dismissed. The Sixth Circuit affirmed, holding that the real property transfer taxes at issue are encompassed in the statutory exemptions from all taxation. Real property transfer taxes are excise taxes rather than taxes on real property which are an exception to those tax exemptions. Congress had the power to enact the exemptions under the Commerce Clause, and the enactment does not violate any constitutional provision. View "Bd. of Comm'rs of Montgomery Cnty. v. Fed Hous. Fin. Agency" on Justia Law

In 2006, the Affiliated Group, including AmTrust, entered into a tax-sharing agreement (TSA) to allocate tax liability. In 2009, AFC, the parent of AmTrust, filed for Chapter 11 bankruptcy. The Office of Thrift Supervision closed AmTrust and placed it into FDIC receivership. AFC filed a consolidated 2008 tax return for the Affiliated Group showing a net operating loss of $805 million, with AmTrust’s losses accounting for $767 million of that total. After AFC claimed that any refund would belong to its bankruptcy estate, the parties agreed to deposit refunds in a segregated account pending adjudication. The IRS issued the Affiliated Group’s $194,831,455 refund to AFC. The FDIC claimed that $170,409,422, plus interest, belonged to AmTrust because that portion resulted from offsetting AmTrust’s 2008 net operating loss against its income in prior years. AFC concedes that AmTrust’s tax situation generated the refund. The FDIC sought a declaratory judgment. The district court granted AFC summary judgment, stating that the TSA’s use of terms such as “reimbursement” and “payment” established a debtor-creditor relationship between AFC and its subsidiaries as to tax refunds. The FDIC offered extrinsic evidence that the parties intended to create an agency or trust relationship under Ohio law with respect to tax refunds, but the district court rejected those arguments without analysis. The Sixth Circuit reversed and remanded for consideration of the FDIC’s evidence. View "Fed. Deposit Ins. Corp. v. AmFin Financial Corp." on Justia Law

Irwin and Fannin owned Portsmouth Ambulance, and Urgent Care Transports. In 2000, 2002, and 2005, they failed to pay federal employment and corporate income taxes for Urgent Care; the IRS recorded tax liens. Irwin and Fannin entered into a stock-purchase- agreement in 2006 and transferred 86% of the Portsmouth stock to new owners. The agreement gave the new owners an option to purchase the stock of Urgent Care. Portsmouth exercised the option and Urgent Care became its wholly-owned subsidiary. Irwin and Fannin notified the IRS of the change. Because of its outstanding tax liability, the IRS ordered a sale of Urgent Care’s assets. The sale did not raise sufficient funds. The new owners failed to pay federal employment taxes for 2008, and notice of tax liens was recorded. The IRS also filed a notice of federal tax lien against Portsmouth Ambulance as the alter ego of Urgent Care. A creditor bank sold the company’s assets and Portsmouth ceased operations. From sales proceeds, $333,769.24 was applied to Urgent Care’s tax liabilities and $302,818.16 was used to reduce Portsmouth’s tax liability. Portsmouth objected, arguing that it was not the alter ego of Urgent Care and filed refund claims, which the IRS either did not address or denied. The district court dismissed a suit, holding that 26 U.S.C. 6325(b)(4) and 7426(a)(4), established an exclusive procedure to seek refunds for satisfaction of a tax lien by a property owner with respect to another party’s tax liability and that a request for damages for allegedly unauthorized collection action was time-barred. The Sixth Circuit affirmed. View "Portsmouth Ambulance, Inc. v. United States" on Justia Law

ABC makes and distributes soft drinks and other non-alcoholic beverages for Dr Pepper Snapple Group and leased a Hazelwood, Missouri facility. After concluding that its rent was too high, it exercised an option to buy the property. Appraisals valued the property without the lease at $2.75 million, and ABC determined that the fair market value with the lease would be at least $9 million. ABC bought the property for more than $9 million. On its tax return, ABC reported $2.75 million as its cost of acquiring the property and deducted $6.25 million as a business expense for terminating the lease. The IRS disallowed the deduction and assessed a tax deficiency; ABC paid the deficiency and sued for a refund. On summary judgment, the district court ruled in favor of ABC. The Sixth Circuit affirmed. Because the lease terminated when ABC acquired the property, the property was not acquired subject to a lease, and I.R.C. section 167(c)(2) does not apply to bar ABC’s deduction. The government conceded that ABC could deduct a lease termination payment if it first paid to terminate the lease and then purchased the property. The court declined “to elevate this transaction’s form over its substance.” View "ABC Beverage Corp. v. United States" on Justia Law

In 1993, Dr. Dargie was a student at the UT College of Medicine. In 1994, Middle Tennessee Medical Center agreed to pay Dargie’s tuition, fees, and other reasonable expenses for attending UT. After graduation and completion of his residency, Dargie was required to repay MTMC’s grant by either working as a doctor in the medically underserved community of Murfreesboro for four years or repaying two times the uncredited amount of all conditional award payments he received. MTMC paid UT $73,000 on Dargie’s behalf. After completing his medical training in 2001, Dargie chose to practice in Germantown, near Memphis. In 2002, Dargie repaid $121,440.02. In 2005, the Dargies filed an amended tax return for 2002, claiming they had “inadvertently omitted an ordinary and necessary business expense” on their Schedule C for the $121,440 repayment. The IRS disallowed the deduction under I.R.C. 162. The Dargies sued. The district court granted summary judgment to the government, finding that the repayment was a personal expense and, regardless, no deduction would be allowed under I.R.C. 265(a)(1) because the amount was allocable to income the Dargies had received tax-free. The Sixth Circuit affirmed, finding the repayment a personal expense.View "Dargie v. United States" on Justia Law

In 2011 Rizzo filed a voluntary petition for personal Chapter 7 bankruptcy and received a general discharge. Despite his discharge, the Michigan Department of Treasury sent collection letters demanding that he pay $72,286.39 in delinquent Single Business Tax that had been assessed against a company, for which Rizzo had been an officer. Rizzo filed an adversary action, contending that his personal liability for the unpaid SBT had been discharged in bankruptcy. Treasury claimed that liability for the SBT deficiency is a nondischargeable “excise tax” debt under 11 U.S.C. 507(a)(8)(E). The bankruptcy court agreed and dismissed. The district court and Sixth Circuit affirmed, rejecting Rizzo’s argument that the debt was derivative, not primary, and therefore not an excise tax. Rizzo conceded that the unpaid SBT was an “excise tax” deficiency as to the company and did not dispute that he was personally liable for the company’s unpaid tax under state law. Michigan law simply confers derivative liability upon Rizzo for precisely the same excise tax deficiency that was assessed against the company. View "Rizzo v. MI Dep't of Treasury" on Justia Law

In 2009, Debtor had received an IRS Notice of Deficiency for tax year 2004, claiming additional taxes of $143,445.00, plus penalties of $28,689.00. Debtor filed a voluntary Chapter 7 petition in 2011. In 2011, Debtor received a Notice of Deficiency for tax years 2007 and 2008 claiming that $138,907.00 in additional taxes for 2007, plus penalties of $27,781.40, and an additional $109,648.00 in taxes for 2008, plus penalties of $21,929.60. Debtor challenged the notices. The Tax Court dismissed with respect to the notices for 2007-2008 because of the automatic stay. Post-petition, the Debtor received a $86,512.32 tax refund, based on his 2005 tax return. The Trustee claimed the refund, but Debtor returned the check to the IRS. The Trustee sought turnover of the refund; Debtor objected. The IRS tendered a check for $32,555.15 to Debtor, relating to 2005 taxes, which was received by the Trustee. Debtor sought a determination of tax liability pursuant to 11 U.S.C. 505(a)(1) and turnover of funds if the IRS’s claim was disallowed. The bankruptcy court held that the IRS’s claim of $226,142.85, pertaining to 2004 taxes, was nondischargeable and that the tax refund check for $86,512.32, which erroneously issued to the Debtor, was not property of the estate. The Sixth Circuit Bankruptcy Appellate Panel reversed as to priority and nondischargeability, because the lower court did not address the limitations period. View "In re: Winter" on Justia Law

Broz started a cellular telephone business by organizing a wholly owned S corporation, RFB, in 1991 and purchasing an FCC license to operate a cellular network in Northern Michigan. Broz expanded by organizing additional entities. Alpine and limited liability companies that are taxed as partnerships, were formed to hold and lease FCC licenses. Alpine never operated on-air networks. For the years at issue, Broz deducted: flow-through losses of Alpine on his personal income taxes, on the grounds that he had debt basis in, and was “at risk” with respect to, Alpine; interest, depreciation, startup costs, and other business expenses of the Alpine entities; and the amortization cost of the FCC licenses held by the Alpine entities. The IRS Commissioner determined a deficiency of $18 million in Broz’s income tax filings for the tax years at issue, finding that Broz had insufficient debt basis in Alpine o claim flow-through losses, that Broz was not at risk with respect to investments in the Alpine entities, that the Alpine entities were not entitled to interest, depreciation, startup expense, and other business-related deductions because they were not engaged in an active trade or business. The Tax Court and the Sixth Circuit affirmed. View "Broz v. Comm'r of Internal Revenue" on Justia Law

In 1990 Plummer, a recognized expert in horse-breeding and the tax consequences of related investments, created the Mare Lease Program to enable investors to participate in his horse-breeding business and take advantage of tax code provision classification of horse-breeding investments as farming expenses, with a five-year net operating loss carryback period instead of the typical two years, 26 U.S.C. 172(b)(1)(G). Plummer’s investors would lease a mare, which would be paired with a stallion, and investors could sell resulting foals, deducting the amount of the initial investment while realizing the gain from owning a thoroughbred foal. If they kept foals for at least two years, the sale qualified for the long-term capital gains tax rate, 26 U.S.C. 1231(b)(3)(A). Between 2001 and 2005, the Program generated more than $600 million. Law and accounting firms hired by defendants purportedly vetted the Program. Plummer and other defendants began funneling Program funds into an oil-and-gas lease scheme. It was later discovered that the Program’s assets were substantially overvalued or nonexistent. Investors sued under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(c), also alleging fraud and breach of contract. The district court granted summary judgment and awarded $49.4 million with prejudgment interest of $15.6 million. The Sixth Circuit affirmed, stating that there was no genuine dispute over any material facts. View "West Hills Farms, LLC v. ClassicStar Farms, Inc." on Justia Law