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

In 2009, a political blog and a Chicago television station began reporting that Illinois State Rep. Froehlich offered his constituents reductions in county property taxes in exchange for political favors. The reports highlighted Satkar Hospitality, reporting that it and its owners donated hotel rooms worth thousands of dollars to Froehlich’s campaign. Satkar Hospitality and Capra appealed their tax assessments for 2007 and 2008 and won reductions, but after the publicity about Rep. Froehlich, both were called back before the Board of Review for new hearings. They claim that in these second hearings, the Board inquired not into the value of their properties but into their relationships with Rep. Froehlich. The Board rescinded the reductions. Satkar and Capra sued the Board and individual members under 42 U.S.C. 1983. The district courts concluded that the individual defendants were entitled to absolute quasi‐judicial immunity and the Board itself is not. The Seventh Circuit affirmed, but also held that the damages claims against the Board cannot proceed. They are not cognizable in federal courts, which must abstain in suits for damages under 42 U.S.C. § 1983 challenging state and local tax collection, at least if an adequate state remedy is available. View "Satkar Hospitality, Inc. v. Rogers" on Justia Law

Simon is a CPA, a professor of accounting, and an entrepreneur “whose business dealings require a flowchart to unravel” and included managing three foreign companies. For tax years 2003 through 2006, the Simon family received approximately $1.8 million from those companies and spent approximately $1.7 million. Simon paid just $328 in income taxes for 2005, and claimed refunds for the other years, while pleading poverty to financial aid programs in order to gain need‐based scholarships for his children at private schools. Charged with filing false tax returns, 26 U.S.C. 7206(1) and 18 U.S.C. 2; failing to file reports related to foreign bank accounts, 31 U.S.C. 5314, 5322 and 18 U.S.C. 2; mail fraud, 18 U.S.C. 1341; and financial aid fraud, 20 U.S.C. 1097 and 18 U.S.C. 2, Simon sought to demonstrate that money received from the entities was loaned to him and was not taxable or constituted partnership distributions, not taxable because they did not exceed his basis in the partnership. The Seventh Circuit affirmed Simon’s convictions, rejecting challenges to evidentiary rulings and jury instructions. View "United States v. Simon" on Justia Law

In 2008, the taxpayers filed petitions for redetermination based on IRS notices of deficiency. The cases were consolidated for trial. With respect to Seven W, a calendar-year taxpayer, the Tax Court rejected a deficiency for calendar year 2000, but affirmed deficiencies for the years 2001 through 2003. With respect to Highland, a fiscal-year taxpayer, the court affirmed deficiencies for the fiscal years ending on April 30, 2003, and April 30, 2004. Although the opinions correctly identified the taxpayer with its respective tax liability, the decisions, entered in 2011, incorrectly stated that Seven W was responsible for deficiencies in fiscal years ending in April 2003, and April 2004, and that Highland was responsible for deficiencies for calendar years 2001 through 2003. The Commissioner discovered the error and sought to vacate the decisions. The Taxpayers did not object to correcting the errors, but did object to vacatur of the original decisions. The Tax Court vacated its decisions and entered new decisions correctly setting forth the respective deficiencies of Seven W and Highland. The Seventh Circuit vacated, with instructions to reinstate and correct the original decisions. Absent fraud that infected the Tax Court’s decision, the Tax Court cannot vacate a decision that has become final. View "Seven W. Enters., Inc. v. Comm'r of Internal Revenue" on Justia Law

Gray filed returns for tax years 2001 through 2004 after the IRS notified her in 2006 that it planned to assess her tax liability on its own. The IRS accepted Gray’s calculations, but imposed penalties for late filing and payment, 26 U.S.C. 6651. When Gray did not pay, the IRS filed liens. Gray timely requested a Collections Due Process hearing, 26 U.S.C. 6330, at which she unsuccessfully argued that penalties, liens, and levies should be eliminated. The IRS then mailed Gray “notices of determination” approving liens and levies. Gray sought review in Tax Court, waiting more than 30 days to file. The court concluded that it lacked jurisdiction because Gray’s petitions were untimely. The Seventh Circuit affirmed. The statute creates a 30-day time limit for appealing CDP determinations, 26 U.S.C. 6330(d)(1); no longer period applied to Gray’s cases. Gray then claimed that IRS employees engaged in wide-ranging wrongdoing in dealing with her and sought damages for unauthorized tax collection, 26 U.S.C. 7433. More than six months later, after the IRS moved to dismiss for failure to exhaust administrative remedies, Gray filed an administrative claim. The district court dismissed. The Seventh Circuit affirmed, stating that the exhaustion requirement is not actually jurisdictional, but is still mandatory. View "Gray v. United States" on Justia Law

Gray filed returns for tax years 2001 through 2004 after the IRS notified her in 2006 that it planned to assess her tax liability on its own. The IRS accepted Gray’s calculations, but imposed statutory penalties for late filing and late payment, 26 U.S.C. 6651. When Gray did not pay the taxes or penalties, the IRS filed liens. Gray timely requested a Collections Due Process hearing, 26 U.S.C. 6330, at which she unsuccessfully argued that her statutory penalties should be eliminated and the liens and levies withdrawn. After the hearing, the IRS mailed Gray “notices of determination” approving liens and levies to collect the delinquent taxes. Gray sought review in Tax Court, but waited more than 30 days to file her petitions. The court concluded that it lacked jurisdiction because Gray’s petitions were untimely. The Seventh Circuit affirmed, stating that the statute explicitly creates a 30-day time limit for appealing CDP determinations, 26 U.S.C. 6330(d)(1); no longer time limit applied to Gray’s cases. View "Gray v. Comm'r Internal Revenue" on Justia Law

Ryan failed to pay federal income taxes 2006-2010 and owed $136,898.93. In 2011, the IRS recorded a tax lien, 26 U.S.C. 6326. Ryan filed a voluntary Chapter 13 bankruptcy petition, 11 U.S.C. 1301. He had personal possessions worth $1,625. He admitted to the tax liabilities, and alleged that his residence had been sold for delinquent real estate taxes and that he did not own a bank account, vehicle, or retirement account. In an adversary proceeding, he alleged that the secured claim for 2009 taxes was limited $1,625 and that the remaining claim was unsecured, 11 U.S.C. 506(a), and void, 11 U.S.C. 506(d). The bankruptcy court held that section 506(d), as interpreted by the Supreme Court, did not allow Ryan to void, or “strip down” the lien. The Seventh Circuit affirmed. Section 506(d) provides: To the extent that a lien secures a claim that is not an allowed secured claim, such lien is void, unless such claim was disallowed only under section 502(b)(5) or 502(e) or such claim is not an allowed secured claim due only to failure to file a proof of such claim. “Allowed secured claim” in 506(d) is not defined by 506(a), but means a claim that is allowed under 502 and secured by a lien enforceable under state law. View "Ryan v. United States" on Justia Law

The 1987 Public Utilities Act, 220 ILCS 5/8-403.1, was intended to encourage development of power plants that convert solid waste to electricity. Local electric utilities were required to enter into 10-year agreements to purchase power from such plants designated as “qualified” by the Illinois Commerce Commission, at a rate exceeding that established by federal law. The state compensated electric utilities with a tax credit. A qualified facility was obliged to reimburse the state for tax credits its customers had claimed after it had repaid all of its capital costs for development and implementation. Many qualified facilities failed before they repaid their capital costs, so that Illinois never got its tax credit money back. The Act was amended in 2006, to establish a moratorium on new Qualified Facilities, provide additional grounds for disqualifying facilities from the subsidy, and expand the conditions that trigger a facility’s liability to repay electric utilities’ tax credits. The district court held that the amendment cannot be applied retroactively. The Seventh Circuit affirmed. The amendment does not clearly indicate that the new repayment conditions apply to monies received prior to the amendment and must be construed prospectively. View "Illinois v. Chiplease, Inc." on Justia Law

Retirement accounts are exempt from creditors’ claims in bankruptcy, 11 U.S.C. 22(b)(3)(C) and (d)(12). The debtor inherited, from her mother, a non-spousal individual retirement account worth about $300,000. The bankruptcy court held that the inherited IRA was not exempt from claims by the debtor’s creditors. The district court reversed. Noting a conflict with other circuits, the Seventh Circuit reversed, reinstating the bankruptcy court holding. The court noted that while it remains sheltered from taxation until the money is withdrawn, many of the account’s other attributes changed. No new contributions can be made, and the balance cannot be rolled over or merged with any other account. 26 U.S.C. 408(d)(3)(C); instead of being dedicated to the debtor/heir’s retirement years, the inherited IRA must begin distributing its assets within a year of the original owner’s death. 26 U.S.C. 402(c)(11)(A). View "Rameker v. Clark" on Justia Law

After years of paying taxes on wages he received for his work as a carpenter, Scheuneman stopped paying federal income tax in 1998. In 1999, in an effort to prevent the IRS from discovering his income, Scheuneman purchased a sham tax avoidance system from an Arizona company, Innovative Financial , and formed a limited liability corporation, Larch, and two illegitimate trusts, Soned and Jokur. Scheuneman retained complete control of all three. Scheuneman was eventually convicted of three counts of tax evasion, 26 U.S.C. 7201 and one count of interference with the Internal Revenue laws, 26 U.S.C. 7212(a). The Seventh Circuit affirmed, first rejecting arguments that that a clerical error in the indictment’s description of the relevant date rendered two counts legally insufficient and that the government constructively amended the indictment by introducing proof regarding dates other than those described in the indictment. Schueneman also claimed that the district court improperly ordered restitution for losses that are unrelated to his tax evasion offenses. The court rejected the argument; although those losses were not caused by the conduct underlying his tax evasion offenses, they are properly included as restitution because they were attributable to his interference with the Internal Revenue laws. View "United States v. Scheuneman" on Justia Law

Plaintiffs, American citizens, had bank accounts in UBS, Switzerland’s largest bank, in 2008 when the UBS tax-evasion scandal broke. The accounts were large and the plaintiffs had not disclosed the existence of the accounts or the interest earned on the accounts on their federal income tax returns, as required. Pursuant to an IRS amnesty program, they disclosed the interest and paid a penalty. They brought a class action to recover from UBS the penalties, interest, and other costs, plus profits they claim UBS made from the class as a result of the fraud and other wrongful acts. The Seventh Circuit affirmed dismissal, noting that the “plaintiffs are tax cheats,” and rejecting an argument that UBS was obligated to give them accurate tax advice and failed to do so. Plaintiffs did not argue that they asked UBS to advise them on U.S. tax law or that the bank volunteered advice. The court stated that: “This is like suing one’s parents to recover tax penalties one has paid, on the ground that the parents had failed to bring one up to be an honest person who would not evade taxes.” The court noted, but did not decide, choice of law issues. View "Thomas v. UBS AG" on Justia Law