Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Articles Posted in Tax Law

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Bey, a self-described “Aboriginal Indigenous Moorish-American,” sought to enjoin state and county officials from taxing his Marion County real estate, a refund of taxes he has paid, and $11.5 billion in compensation. The Seventh Circuit affirmed dismissal, rejecting Bey’s claim to be a “sovereign citizen” who cannot lawfully be taxed by Indiana or its subdivisions in the absence of a contract between them and him. The court explored the history of the “sovereign citizen” movement and its connection to some members the Moorish Science Temple of America (MSTA). Proponents argue, “without any basis in fact,” that as a result of eighteenth-century treaties the United States has no jurisdiction over its Moorish inhabitants, who are therefore under no obligation to pay taxes. Bey “is a U.S. citizen and therefore unlike foreign diplomats has no immunity from U.S. law … his suit is frivolous and … he was lucky to be spared sanctions.” View "Bey v. Indiana" on Justia Law
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Tilden received an IRS notice of deficiency covering his tax years 2005, 2010, 2011, and 2012. The last day to seek review (26 U.S.C. 6213(a)) was April 21, 2015. The Tax Court received Tilden’s petition on April 29, 2015, and dismissed it as untimely. Although section 6213(a) requires petitions to be filed within 90 days, 26 U.S.C. 7502(a) makes the date of the postmark dispositive. Tilden’s lawyer’s staff did not put a stamp on the envelope, and the Postal Service did not apply a postmark. Staff purchased postage from Stamps.com, which supplies print‑at-home postage. The purchase was dated April 21, 2015, and a staff member states that she delivered the envelope to the Postal Service on that date. The Seventh Circuit reversed, finding that the IRS properly conceded error. The parties cannot stipulate to jurisdiction, but can stipulate to facts underlying jurisdiction. The court expressed "astonishment" at the law firm's risk-taking. View "Tilden v. Commissioner of Internal Revenue" on Justia Law

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Micrins Surgical went out of business in 2009, without paying all of its taxes. Eriem Surgical was incorporated the same day, purchased Micrins’ inventory, took over its office space, hired its employees, used its website and phone number, and pursued the same line of business, selling surgical instruments. Teitz, the president and 40% owner of Micrins, continued to play a leading role in Eriem, though its sole stockholder is Teitz’s wife. Eriem uses “Micrins” as a trademark. The IRS treated Eriem as a continuation of Micrins and collected almost $400,000 of Micrins’ taxes from Eriem’s bank accounts and receivables. Eriem filed wrongful levy suit, 26 U.S.C. 7426(a)(1). The Seventh Circuit affirmed judgment in favor of the IRS, concluding that Eriem is a continuation of Micrins. The Supreme Court has never decided whether state or federal law governs corporate successorship when the dispute concerns debts to the national government; the Internal Revenue Code says nothing about corporate successorship. Illinois law uses a multi‐factor balancing standard to determine successorship. Rejecting an argument that the change in ownership should be dispositive, the court upheld the district court’s conclusion that Mrs. Teitz serves is proxy for her husband, so that there has not been a complete change of ownership. View "Eriem Surgical, Inc. v. United States" on Justia Law

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In 2014, the IRS attempted to collect $244,464 in unpaid taxes and penalties from Adolphson for tax years 2002 and 2006-2010. Adolphson claims he was unaware of the IRS’s collection efforts until the agency levied on his funds held by third parties (26 U.S.C. 6330). Rather than challenge the levies with the IRS, Adolphson filed a pro se petition, asking the tax court to enjoin the collection efforts and refund amounts already collected. Adolphson argued that the IRS had not mailed him the required Final Notice of Intent to Levy, so that he was deprived of a “collection due process hearing” (CDP) before the IRS Office of Appeals. Adolphson cited tax court decisions in which the tax court asserted that it lacked jurisdiction without an IRS notice of determination, yet nevertheless invalidated levies after finding that the taxpayer was prevented from requesting a CDP by failure to mail a Final Notice to the proper address. The IRS was unable to say “with certainty” whether the Final Notices were sent to proper addresses. Exhibits corroborated the dates on which the Final Notices were issued but did not show where the notices were mailed. The tax court dismissed, reasoning that it lacked authority to grant relief without a notice of determination. The Seventh Circuit affirmed. While Adolphson’s case is indistinguishable from the tax court precedent he cited, those decisions were unsound and reflect an improper extension of the tax court’s jurisdiction. View "Adolphson v. Commissioner of Internal Revenue" on Justia Law

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In 2012, the City of Country Club Hills City Council adopted an ordinance that provided to homeowners a 25 percent rebate of 2010 city property taxes paid in 2011, subject to the completion of an application by the homeowner and approval by the City Clerk. This was the city’s twelfth consecutive year of offering a rebate program. The application stated that the “FILING OF THIS APPLICATION DOES NOT GUARANTEE APPROVAL BY THE CITY OF COUNTRY CLUB HILLS.” The city prepared the rebate checks but never distributed them. In 2012, the Cook County treasurer overpaid the city by more than $6 million. The county successfully sued to collect the overpayment. Bell filed a purported class action under 42 U.S.C. 1983, arguing that refusal to issue the rebates amounted to an unconstitutional taking and asserting state law claims for conversion and unjust enrichment. The City Council then repealed the 2012 ordinance. The Seventh Circuit affirmed dismissal, agreeing that Bell had no constitutionally protected property interest in the expectation of a rebate, and that she had adequate state court remedies for her claims under state law. View "Bell v. City of Country Club Hills" on Justia Law

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Michael and Christine Wu each have an individual retirement account (IRA); each contributed $200,000 after selling their home in 2007. For that tax year their maximum allowable deduction for IRA contributions was $4,000, and “excess contributions” incur a tax of up to 6% annually until withdrawn. 26 U.S.C. 219(b)(1), (b)(5)(A), 4973(a), (b). The Wus realized their mistake in 2010, informed the IRS, and corrected the problem by withdrawing the excesses from their accounts. The Wus paid the taxes for 2007-2009, and although they conceded liability for the first two years, they each sought a refund for tax year 2009, arguing that they had avoided incurring taxes for that year by adjusting the IRA account balances before the April 2010 filing deadline for their 2009 tax return. The IRS rejected this contention. The Wus filed suit under 28 U.S.C. 1346(a)(1). The district court and Seventh Circuit agreed with the government. Under section 4973(b), the consequence of taking a qualifying distribution under section 408(d)(4) is that the amount of the withdrawal “shall be treated as an amount not contributed,” but the Wus were not asking that their 2007 contributions be treated as if they were never contributed; they asked that those contributions be eliminated from the calculation for 2009 alone. View "Wu v. United States" on Justia Law
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Pike County's Sny Island Levee Drainage District was organized in 1880 to protect from Mississippi River flooding and runoff. The Kansas City Southern and the Norfolk Southern operate main line railways over the District's flood plain. Illinois law permits the District to assess properties within its territory in order to maintain the levees. A new method, ​adopted in 2009, purported to calculate assessments based on the benefits the District conferred on each property, rather than based on acreage. After the Seventh Circuit enjoined use of the methodology, the District discontinued collecting annual assessments and implemented a one-time additional assessment, 70 ILCS 605/5. The District filed an assessment roll based on new benefit calculations, identifying the tax on KC as $91,084.59 and on Norfolk as $102,976.18, if paid in one installment..The Railroads again filed suit, alleging that the District used a formula that discriminated against them in violation of the Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. 11501. The Seventh Circuit affirmed judgment in favor of the District. The court rejected an argument that the comparison class against which their assessment should be measured is all other District properties, instead of the narrower class of commercial and industrial properties used by the district court. There was no clear error in the court’s assessment of a “battle of the experts.” View "Kansas City S. Ry. v. Sny Island Levee Drainage Dist" on Justia Law

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King, now deceased, was a lawyer. For several years he failed to pay his quarterly payroll taxes. The IRS stated that it would grant his request for an installment payment plan, but requested additional financial information to determine his eligibility. Eventually, the IRS decided that King had enough income and assets to pay the taxes when they were due, plus penalties and interest that had accrued. He paid the taxes in October 2011 but requested abatement of interest accrued after the date on which the IRS told him it would honor his request for an installment plan. He argued that had the IRS informed him from the outset that he would not be allowed an installment plan, he would have paid the taxes sooner and would have owed less interest. The IRS denied the request. Although 26 U.S.C. 6404(a) allows abatement under certain circumstances, the IRS determined that the interest was “not excessive” and “was not erroneously or illegally assessed.” The Tax Court abated interest for two months, holding that the “failure to communicate … the deficiencies … was unfair.” The Seventh Circuit reversed, finding the Tax Court’s approach inconsistent with a Treasury Department regulation, 26 C.F.R. 301.6404–1(a), which eliminates the vagueness of “excessive” and leaves no room for consideration of “unfairness.” View "King v. Comm'r of Internal Revenue" on Justia Law
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The Bickarts prepared and filed an income tax return containing false income and withholding amounts, supported by fabricated 1099‐OID forms, appearing to come from major financial institutions. The IRS paid a claimed refund of $115,412. Their legitimate refund would have been $263. The IRS discovered the fraud and sent a bill for $217,923. For years, the Bickarts engaged in obstructive conduct, sending a 1040‐V payment coupon and continuing to insist that the bill had been paid. They made baseless accusations against IRS agents. They were convicted of conspiring to file and filing a false claim to defraud the government, 18 U.S.C. 286 and 287. The Bickarts represented themselves at trial, asserting “sovereign citizen” claims and making nonsensical accusations. The PSR applied a two‐level enhancement for sophisticated means based on the fictitious Forms 1099‐OID and a two‐level enhancement for obstruction of justice, resulting in a guidelines imprisonment range of 33-41 months. Neither objected to the calculations. The court sentenced each defendant to 24 months in prison. Defendants objected to supervised release conditions requiring them to notify third parties of risks related to their criminal history when directed by the probation office. The court modified it to require the probation office to seek court approval. They also objected to the condition permitting a probation officer to visit them at home or at work at any reasonable time. The court overruled the objection. The Seventh Circuit vacated the third‐party notification condition, but otherwise affirmed the remaining conditions of supervised release and sentence. View "United States v. Bickart" on Justia Law

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The Adents filed joint federal income tax returns for 1998 and 2001, but did not pay. The IRS sent a demand. As of October 2012, they owed $90,681.26. Leonard also owed federal employment and unemployment taxes, totalling $65,637.17. The Adents jointly own their residence, Parcel A. Leonard and their son, Derek, jointly own mixed‐use condominium and commercial Parcel B. Joyce has office space for her business at Parcel B. Liens attached to Parcels A and B, 26 U.S.C. 6321. The government filed suit to foreclose the liens and obtain a sale of both Parcels. The Adents filed answers, but did not raise the statute of limitations. Leonard and Joyce stipulated that they owe the unpaid personal income taxes; Leonard stipulated that he owes the unpaid employment and unemployment taxes. The court entered judgment in favor of the government and found that, because there were no innocent party interests in Parcel A, it was required to order a sale. With regard to Parcel B, the court weighed the prejudice to the government of a partial sale and the prejudice to Derek of a total sale and found in favor of the government. The Seventh Circuit affirmed. The Adents waived their statute of limitations defense and presented no exceptional circumstances that overcome the severe prejudice to the government’s “paramount” interest. View "United States v. Adent" on Justia Law
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