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

Bulk, a gasoline distributor with gas stations in Kentucky, Indiana, and Tennessee, leases stations and equipment to tenant-operators. Bulk receives monthly rent plus payment for gasoline. The Kentucky Department of Revenue (KDOR) revoked Bulk’s license as a gasoline and special fuels dealer after it asked Bulk to post additional security and Bulk failed to do so. The change affected only the way in which Kentucky collected its fuel tax. Bulk kept track of the separate line-item for the tax in the invoices it received from its suppliers (Marathon and BP) and sought refunds from KDOR for those payments. A KDOR employee emailed Bulk that “only a licensed dealer is allowed to purchase product without the Kentucky tax for export. If your license is reinstated and all outstanding tax liabilities are satisfied, consideration will be given to your refund request.” Bulk regained its license, then sought Chapter 11 bankruptcy protection. Bulk filed an adversary proceeding, seeking refund of the taxes. Kentucky filed a proof of claim. The bankruptcy court ruled in favor of Bulk, finding that Bulk had paid the taxes, which were not appropriately collected for gasoline that was consigned to destinations outside Kentucky. The district court disagreed, concluding that Bulk just paid a higher price to its suppliers. The Seventh Circuit reinstated the decision in favor of Bulk. View "Bulk Petroleum Corp. v. Ky. Dep't of Revenue" on Justia Law

Billhartz left more than $20 million to his four children when he died. His estate tax return claimed a deduction for more than $14 million because the amounts paid to the children through a trust were paid pursuant to Billhartz’s contractual obligation under a marital settlement agreement with his first wife. The IRS disallowed the deduction in full and issued a notice of deficiency. The Estate filed suit. Before trial the Estate and the IRS settled; the IRS conceded 52.5% of the claimed deduction. Soon after the settlement, Billhartz’s children sued the Estate in state court, claiming that they were entitled to a larger portion of their father’s fortune and that their prior acceptance of a lesser amount had been obtained fraudulently. The Estate asked the Tax Court to vacate the settlement on the basis that, were the children to prevail, the settlement would bar the Estate from claiming an estate tax refund for any additional amount paid to the children. The Tax Court rejected the Estate’s arguments, and entered a decision reflecting the terms of the settlement agreement. The Seventh Circuit affirmed. The Tax Court did not abuse its discretion by refusing to set aside the settlement. View "Billhartz v. Comm'r of Internal Revenue" on Justia Law

Taxpayers petitioned the Tax Court for a redetermination of $18,030 in deficiencies and penalties for tax years 2009 through 2011. On the trial date, the IRs Commissioner submitted a “Stipulation of Settled Issues” signed by the parties. The document states that it “reflects” the parties’ “agreement as to the disposition of adjustments,” but contained no mention of agreement concerning the fact or amount of a deficiency for any of the relevant tax years. At the Commissioner’s request, the Tax Court granted the parties 30 days to file “decision documents” in lieu of trial. The Commissioner calculated a total deficiency of $12,252 and a penalty of $0. When the couple refused to agree to this amount, the Commissioner asked the Tax Court to enter a decision adopting the Commissioner’s figures. The taxpayers sought more time to produce an agreement, but the Tax Court granted the Commissioner’s motion on the ground that “the parties’ computations for decision and proposed decisions consistent with their settlement agreement” were overdue. The Seventh Circuit vacated. In light of the parties’ disagreement over the taxpayers’ liability, the Tax Court erred by entering a judgment without holding a trial. View "Hussain v. Comm'r of Internal Revenue" on Justia Law

Eagan, Minnesota, assisted in apprehending Procknow, who had absconded while serving supervised release imposed by a Wisconsin state court for forgery. Authorities had received information that Procknow and his girlfriend were staying at an Eagan hotel. The girlfriend was registered at the hotel. Officers spotted Procknow’s car, chased Procknow through the lobby, and arrested him. Through the windows of Procknow’s car, they saw a scanner or copier. Learning of the arrests, the hotel manager stated that the their stay was being terminated and asked the officers to collect a dog, believed to be in their room and ensure that there were no other occupants. Officers knocked, and announced. No one answered, so they used a hotel key and found a dog. Entering to ensure that there were no other occupants, officers saw, in plain view, an electric typewriter, a credit card issued in the name of “Smith,” and financial forms bearing various names and social security numbers. Officer photographed the room, sealed it, and obtained search warrants for the room and car. They seized blank W‐2 forms, partially completed tax forms, lists of business employer identification numbers, and prepaid debit cards (tax refunds) in the names of different people. Further investigation revealed that Procknow had obtained the personal identifying information of at least 40 individuals, which he used to file fraudulent tax returns and claim refunds. Procknow pleaded guilty to theft of government money and aggravated identify theft. The Seventh Circuit affirmed denial of a motion to suppress evidence obtained by the warrantless entry into the hotel room and evidence obtained by grand jury subpoena following the withdrawal of IRS administrative summonses requesting the same information. View "United States v. Procknow" on Justia Law

Curtis, a lawyer, filed 1996-1997 returns reporting tax obligations of $218,983 and $248,236, but made no payments. His partner had taken $600,000 from the practice and declared bankruptcy; Curtis underwent an expensive divorce. Curtis failed to file a return for 1998. Curtis entered into an installment agreement. He filed a return for 2000 but failed to pay $90,000. He entered into a second agreement, but filed returns for 2003 and 2004 reflecting unpaid tax liabilities of $176,802 and $61,000. Curtis did not make estimated payments and stopped making installment payments. He filed returns for 2007, 2008 and 2009, but paid nothing. Curtis was charged with misdemeanor willfully failing to pay taxes owed for 2007, 2008 and 2009, 26 U.S.C. 7203. The court allowed evidence under Rule 404(b), of Curtis’s history of failing to pay his taxes and his withdrawals of money from his law practice for personal expenses. Curtis did not object, but objected to the government’s proposed evidence that he failed to pay payroll taxes for his employees in 2013, arguing that any violations after the charged years did not bear on his state of mind during the time of the charged offenses. Although the court gave Curtis’s proposed instruction on good faith, it declined to modify the pattern instruction to include a requirement for bad motive, with respect to willfulness. The Seventh Circuit affirmed his convictions. View "United States v. Curtis" on Justia Law

The Internal Revenue Service determined that Gyorgy (who did not file tax returns 2001-2007) owed approximately $100,000 in unpaid income taxes, penalties, and interest for tax years 2002 and 2003. The IRS mailed notices of his deficiencies in 2006 and 2007, including demands for payment, to the address on his most recently filed tax return. But Gyorgy no longer lived there and did not receive the notices. More than two years later, his debts were still outstanding, so the IRS filed notice of a federal tax lien on his property. Gyorgy challenged the action in a collection due process (CDP) hearing before the IRS Office of Appeals, which sustained the IRS’s filing of the lien notice, findings that the IRS properly mailed Gyorgy’s deficiency notices under I.R.C. 6212(b)(1) before filing the lien and correctly determined his underlying tax liabilities. The tax court and the Seventh Circuit affirmed, noting that Gyorgy presented no arguments and no evidence before the tax court to challenge the IRS’s calculation of the taxes and penalties he owes. View "Gyorgy v. Comm'r of Internal Revenue" on Justia Law

When the dude ranch owned by a closely held Wisconsin corporation was sold, the shareholders planned to liquidate, but the asset sale had produced a sizable capital ($1.8 million) gain and the corporation faced significant federal and state tax liability. Midcoast proposed an intricate tax-avoidance transaction that involved Midcoast purchasing shares for offset against bad debts and losses purchased from credit card companies, purportedly financing the purchases with a loan. The shareholders implemented the plan. The taxes were never paid. The IRS sought to hold the former shareholders responsible for the tax debt as transferees of the defunct corporation under 28 U.S.C. 6901 and Wisconsin law of fraudulent transfer and corporate dissolution. The tax court ruled in favor of the IRS. The Seventh Circuit affirmed, agreeing with the tax court that the substance of the transaction was a liquidation. Midcoast did not actually pay the shareholders for their stock; instead, each shareholder received a pro rata distribution of cash on hand— the proceeds of the asset sale—making them “transferees” as that term is broadly defined in section 6901(h). View "Dugan v. Comm'r of Internal Revenue" on Justia Law

In opening and closing arguments during his trial on three counts of tax evasion for failing to pay almost $239,400 in income tax between 2005 and 2007, 26 U.S.C. 7201, Stuart’s attorney argued that he believed he owed no taxes. Stuart thought that the United States had no authority to tax income. Stuart had adopted these views after reading a book called “Cracking the Code,” which urges people to resist paying income taxes, but his counsel told the jury that Stuart learned his ideas from his fellow church patrons. Counsel described Stuart as a curious, determined, and “kooky, not criminal” person. Only after he received no response to his inquiries from the IRS, the Secretary of the Treasury, or his accountants about his tax ideas, counsel stated, did Stuart begin to refrain from paying income tax. His attorney did not call any witnesses; Stuart did not testify and the jury found him guilty. The Seventh Circuit affirmed, rejecting an argument of ineffective assistance of counsel. View "United States v. Stuart" on Justia Law

FFRF, a Wisconsin-based organization of atheists and agnostics, gives its co-presidents housing allowances. They paid income tax on that portion of their salaries. Neither sought to exclude this income on their tax returns and neither has claimed a refund. FFRF and the co-presidents challenged the parsonage exemption, 26 U.S.C. 107, which allows a minister to receive tax-free housing from his church, whether by giving the minister access to a church-owned residence or by giving the minister an allowance to obtain housing. Plaintiffs conceded that they lacked standing to challenge section 107(1), covering in-kind housing, but argued that they had standing to challenge section 107(2), which applies to rental allowances. The district court agreed and held that the subsection is an unconstitutional establishment of religion under the First Amendment. The Seventh Circuit vacated with instructions to dismiss. A person suffers no judicially cognizable injury merely because others receive a tax benefit that is conditioned on allegedly unconstitutional criteria, even if that person is otherwise “similarly situated” to those who receive the benefit. Only a person that has been denied such a benefit can be deemed to have suffered a cognizable injury. The plaintiffs were not denied the parsonage exemption. View "Freedom From Religion Found., Inc. v. Lew" on Justia Law

The Patient Protection and Affordable Care Act requires almost everyone to have health insurance and is enforced by a tax that most businesses must pay if they fail to provide insurance as a benefit, or that anyone not covered by an employer’s plan must pay in lieu of purchasing insurance, 26 U.S.C.4980H, 5000A. The Internal Revenue Service has stated that it will collect the tax in 2014 from uninsured persons, but not from certain businesses. Plaintiffs, a physician and an association of physicians, claimed violation of the separation of powers and the Tenth Amendment. Because they did not complain about their own taxes, the district court dismissed for lack of standing. The Seventh Circuit affirmed. Rejecting an argument that the challenged policies change demand for plaintiffs’ services, the court noted that plaintiffs “appear to believe” that insurance is free to workers--that wages do not adjust to reflect pensions, insurance, and other benefits. By the same logic, they could litigate any tax policy. In a market economy everything is connected to everything else through the price system. To allow a long, intermediated chain of effects to establish standing is to abolish the standing requirement. The Constitution’s structural features are not open to litigation by persons who do not suffer particularized injuries. Plaintiffs, who do not accept insured patients, want to reduce, not increase the number of persons who carry health insurance. Someone else would be more appropriate to argue that the IRS has not done what it should to accomplish the statute’s goal of universal coverage.View "Ass'n of Am. Physicians & Surgeons, Inc. v. Koskinen" on Justia Law