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

Articles Posted in Tax Law
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Wisconsin assessed property taxes on lands within four Ojibwe Indian reservations. The tribal landowners have tax immunity under an 1854 Treaty, still in effect, that created the reservations on which they live. Supreme Court cases recognize a categorical presumption against Wisconsin’s ability to levy its taxes absent Congressional approval. The parcels in question are fully alienable; their current owners can sell them at will because the parcels were sold by past tribal owners to non-Indians before coming back into tribal ownership. Wisconsin argued that the act of alienating reservation property to a non-Indian surrendered the parcel’s tax immunity. No circuit court has considered whether the sale of tax-exempt tribal land to a non-Indian ends the land’s tax immunity as against all subsequent tribal owners, nor does Supreme Court precedent supply an answer.The district court ruled in favor of the state. The Seventh Circuit reversed. Once Congress has demonstrated a clear intent to subject land to taxation by making it alienable, Congress must make an unmistakably clear statement to render it nontaxable again but these Ojibwe lands have never become alienable at Congress’s behest. Congress never extinguished their tax immunity. The relevant inquiry is: who bears the legal incidence of the tax today--all the relevant parcels are presently held by Ojibwe tribal members. View "Lac Courte Oreilles Band of Lake Superior Chippewa Indians of Wisconsin v. Evers" on Justia Law

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Witkemper was the president and sole shareholder of Maximum, which had employees, but in 2004-2006 never withheld and remitted federal income and insurance contribution taxes (FICA taxes). Maximum went bankrupt. Unable to fully collect the unpaid taxes during the bankruptcy proceedings, the IRS lodged an assessment totaling $385,705.54 and recorded a notice of a federal tax lien against Witkemper, who sent the IRS a signed Offer in Compromise. The IRS accepted the Offer. Witkemper began making the required monthly minimum payments, $500. Witkemper successfully sought to rescind the settlement after it had been in effect only 205 days. Witkemper then began making property transfers to his wife and children without any consideration.The IRS viewed the transactions as fraudulent conveyances and filed suit. The Witkempers had no response to the merits of the government’s position but argued that the government could not prove that its initial assessment of the FICA tax penalties fell within the statutory deadline, citing “unreliable government records” containing clerical errors. They claimed that because the government filed its complaint more than 10 years after it assessed the FICA recovery penalties the lawsuit was outside the limitations period, which was not tolled by the Offer, which had “forged signatures.” The Seventh Circuit affirmed a $385,705.54 judgment in the government’s favor, finding the case “not close," the Witkempers’ counsel never should have pressed the appeal. View "United States v. Witkemper" on Justia Law

Posted in: Tax Law
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Wegbreit founded Oak Ridge, a financial-services company, and worked with attorney Agresti to reduce his tax liability. At Agresti’s suggestion, Wegbreit transferred his Oak Ridge interest to a trust that would convey that interest to an offshore insurance company as a premium for a life insurance policy benefitting the trust. Agresti, as trustee, acquired a variable life insurance policy from Threshold (later Acadia), which shares a U.S. office with Agresti’s law firm. The Wegbreits leveraged the policies by means of policy loans and purchases by shell companies. Acadia, at Samuel’s direction, sold his Oak Ridge interest for $11.3 million. The proceeds were wired directly to Agresti, who conveyed them to Acadia; the Wegbreits did not report any taxable income from the sale. After an audit, the IRS determined that the trust income and policy gains, including those from the Oak Ridge sale, were taxable to the Wegbreits, who had underreported their 2005-2009 income by $15 million. The Wegbreits disputed that conclusion in the tax court. After discovery revealed suspicious documents related to the trust and policies, the IRS asserted civil fraud penalties.The judge found that the trust was a sham lacking economic substance that should be disregarded for tax purposes, agreed with the IRS assessment of tax liability, and imposed fraud penalties. The Seventh Circuit affirmed, noting that the Wegbreits had previously “stipulated away” their assertions, and ordering the Wegbreits’ attorney to show cause why he should not be sanctioned under Rule 38 for filing a frivolous appeal. View "Wegbreit v. Commissioner of Internal Revenue" on Justia Law

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The Heitings’ Revocable Trust, administered by BMO, filed no tax returns; the Heitings reported its gains and losses on their returns. With respect to two stocks, BMO had no discretionary power to take any action, including any sale or purchase of the stock. Nonetheless, in 2015 BMO sold the restricted stock, incurring a taxable gain of $5,643,067.50. The Heitings included that gain on their 2015 personal tax return. BMO subsequently realized that the sale was prohibited, and in 2016, purchased shares of the restricted stock with the proceeds from the earlier transaction.The Heitlings sought to invoke the claim of right doctrine. 26 U.S.C. 1341 to claim a deduction on their 2016 return: A taxpayer must report income in the year in which it was received, even if the taxpayer could later be required to return the income but would then be entitled to a deduction in the repayment year; alternatively, taxpayers may recompute their taxes for the year of receipt of the income. The Seventh Circuit affirmed the dismissal of the Heitings’ suit. Under section 1341(a)(2), the Heitings had to show that the repayment occurred because “it was established after the close of such prior taxable year" that the taxpayer "did not have an unrestricted right to such item.” It was not established that the Trust did not have an unrestricted right to the income item. The Heitlings never challenged the purchase or sale of the restricted stock. View "Heiting v. United States" on Justia Law

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In 2011-2013, rather than retiring many older semi-tractors and purchasing all new replacements, Schneider bought 61 new tractors, and overhauled 982 existing tractors using new and refurbished parts packaged together in “glider kits.” Schneider’s older tractors were lighter and realized better fuel economy than newer models. Schneider’s tax advisors counseled that Schneider would have to pay the 12% excise tax (26 U.S.C. 4051) if it bought new tractors but a “safe harbor” (4052) permits companies to repair or modify tractors they already own, which have already been taxed. Each glider kit contained a cab, chassis, radiator, front axle, front suspension, front wheels, front tires, front brakes, brake system, and trailer connections; 912 were “powered glider kits” and included a remanufactured engine. The transmission, driveline, rear axle, rear suspension, and rear-wheel hubs—and sometimes the fuel tank, fifth wheel, and rear brakes, were generally reused.The IRS concluded that only six tractors qualified for the safe harbor. Schneider paid $9,387,403.73 plus interest, thensought a refund, which the IRS denied. The Seventh Circuit reversed. That Schneider elected to refurbish its tractors using powered glider kits does not disqualify those tractors from the safe harbor, which does not contemplate any measurement apart from this 75% test. The court remanded for a determination of whether the cost of Schneider’s refurbishments exceeded 75% of the “retail price of a comparable new article.” View "Schneider National Leasing Inc v. United States" on Justia Law

Posted in: Tax Law
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Married since 1967, John and Frances Rogers filed joint federal income tax returns for many years. They underreported their tax obligations many times; the misreporting was the product of a fraudulent tax scheme designed by John, a Harvard‐trained tax attorney. The Seventh Circuit has affirmed the Tax Court’s rulings in favor of the IRS every time.Frances challenged two Tax Court decisions denying her “innocent spouse relief,” 26 U.S.C. 6015. The Seventh Circuit affirmed, having previously affirmed the denial of Frances’s request for innocent spouse relief for the 2004 tax year. The Tax Court took considerable care assessing Frances’s claims, denying them largely on the basis that she was aware of too many facts and too many warning signs during the relevant tax years to escape financial responsibility for the clear fraud perpetrated on the U.S. Treasury. The Tax Court applied the correct standard, with the possible exception of one factual error in its 2018 opinion regarding the couple’s lavish lifestyle but any error was harmless. Frances holds a master’s degree in biochemistry, a law degree, an M.B.A., and a doctorate in education. She assisted in managing her husband’s law firm while he sought treatment for alcoholism; she fired the office manager, maintained accounting records, endorsed and deposited checks, and paid expenses. View "Rogers v. Commissioner of Internal Revenue" on Justia Law

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Gasoline is subject to an excise tax. The combined fuel excise taxes account for more than 80% of the annual revenue collected for the Highway Trust Fund. The 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act. introduced new credits that fuel producers could use to offset their fuel excise taxes, including one for using “alternative fuels” to create “alternative fuel mixtures” (AFM credit), 26 U.S.C. 6426(e).U.S. Venture buys fuel from various suppliers and combines it with different additives before selling the finished product to retailers. Since 2012 U.S. Venture has commonly added butane to the gasoline it produces and sells. Butane is a type of gas, made from both natural gas and petroleum. It has long been considered a fuel additive, with suppliers adding it to gasoline since at least the 1960s.In 2017. U.S. Venture first sought an AFM tax credit for producing and selling fuel that contained a mixture of gasoline and butane. The IRS rejected its position. The district court and Seventh Circuit affirmed. There is nothing alternative about gasoline containing a butane additive, as indicated by a combination of statutory provisions defining the scope of the alternative fuel mixture tax credit. View "U.S. Venture, Inc. v. United States" on Justia Law

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Jeffers underreported his 2008 income and was audited. The IRS assessed additional taxes and penalties. Jeffers filed his 2009 tax return late, reporting that he owed more than $12,000 in taxes without including any payment. The IRS assessed the unpaid amount plus interest and penalties. An installment agreement was terminated when he failed to make payments. In 2012, the IRS mailed Jeffers proper notice of the tax lien on his property with respect to unpaid debt from the 2008 and 2009 tax periods, 26 U.S.C. 6320(a), 6321, explaining the right to a Collection Due Process (CDP) hearing. Jeffers did not request one. He filed amended returns claiming he was owed refunds. In 2017, the IRS notified Jeffers of its intent to levy on his property. This time, Jeffers timely requested a CDP hearing.The officer found the liability issue precluded because Jeffers had a prior opportunity to raise the issue in 2012. The Office of Appeals issued a notice of determination sustaining the proposed levy action. The Tax Court granted the IRS summary judgment. The Seventh Circuit affirmed. Jeffers could not challenge his underlying tax liability because he received notice of the federal tax lien and had the opportunity to dispute his tax liability then. The settlement officer was not obligated to consider the amended tax returns because there is no right to have one’s amended return considered. View "Jeffers v. Commissioner of Internal Revenue" on Justia Law

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For more than a decade, Van Den Heuvel received cash payments from VHC, a company founded by his father and owned by his family. These payments primarily supported Ron’s business ventures but also helped him pay personal taxes and cover other personal expenses. Ron did not pay VHC back. The company wrote down these payments as “bad debts” for which it received tax deductions. After a years-long audit, the IRS concluded that VHC never intended to be paid back and that these payments were not bona fide debts qualifying for the deduction under either 26 U.S.C 166 or 162.The Tax Court upheld this determination and rejected VHC’s alternative theories as to why the payments qualified for a deduction. The Seventh Circuit affirmed.VHC bears the burden of demonstrating that its payments to Ron were bona fide debts that arose from a debtor-creditor relationship in which it expected Ron to pay VHC back in full. VHC has not shown that it presented such evidence to the Tax Court or that the Tax Court made grave errors in its evaluation of the evidence. View "VHC, Inc. v. Commissioner of Internal Revenue" on Justia Law

Posted in: Tax Law
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Blake, who has an MBA, engaged in a fraudulent tax scheme but claims unnamed users in internet chat rooms persuaded him to pursue his hidden federal “legacy trusts.” Blake filed eight different individual tax returns using fraudulent information, at one point faking his own death. He was convicted of presenting a false or fictitious claim to a U.S. agency, 18 U.S.C. 287, and theft of government money, 18 U.S.C. 641. Blake’s base offense level was six; 16 levels were added for an intended loss in excess of $1.5 million (U.S.S.G. 2B1.1(b)(1)(I)). Two more levels were added for obstruction of justice (3C1.1). Blake’s guidelines range was 51–63 months' imprisonment. Blake objected to including in the loss calculation $900,000 in claimed refunds in the 2008–2010 filings, arguing he was not responsible for those filings. He also claimed $300,000 should be the intended loss amount because he intended to obtain only his “legacy trust” funds which he believed were about that amount. Under Blake’s calculations, his guidelines range was 33–41 months.The district court rejected his arguments. The Seventh Circuit affirmed his sentence of 36 months in prison plus restitution. The district court did not commit reversible error. Blake's ineffective assistance of counsel claim was dismissed without prejudice as “better raised on collateral review.” View "United States v. Blake" on Justia Law