Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Petitioners, two unmarried co-owners of real property, each claimed a home mortgage interest deduction under Internal Revenue Code section 163(h)(3). Section 163(h)(3) allows taxpayers to deduct interest on up to $1 million of home acquisition debt and $100,000 of home equity debt. The tax court agreed with the IRS that taxpayers were jointly subject to section 163(h)(3)'s $1 million and $100,000 debt limits and were therefore disallowed a substantial portion of their claimed deductions. Although the statute is silent as to unmarried co-owners, the court inferred from the statute’s treatment of married individuals filing separate returns that section 163(h)(3)’s debt limits apply to unmarried co-owners on a per-taxpayer basis. Accordingly, the court reversed the decision of the tax court and remanded for a recalculation of petitioners’ tax liability. View "Voss v. Commissioner" on Justia Law

Petitioners, two unmarried co-owners of real property, each claimed a home mortgage interest deduction under Internal Revenue Code section 163(h)(3). Section 163(h)(3) allows taxpayers to deduct interest on up to $1 million of home acquisition debt and $100,000 of home equity debt. The tax court agreed with the IRS that taxpayers were jointly subject to section 163(h)(3)'s $1 million and $100,000 debt limits and were therefore disallowed a substantial portion of their claimed deductions. Although the statute is silent as to unmarried co-owners, the court inferred from the statute’s treatment of married individuals filing separate returns that section 163(h)(3)’s debt limits apply to unmarried co-owners on a per-taxpayer basis. Accordingly, the court reversed the decision of the tax court and remanded for a recalculation of petitioners’ tax liability. View "Voss v. Commissioner" on Justia Law

The Tax Court issued its final order and decision, granting taxpayer relief from joint and several income tax liabilities and denied taxpayer’s motion for attorney’s fees and litigation costs. At issue was whether a unilateral concession by the IRS is a settlement, for purposes of the Qualified Offer Rule (QOR) of the Internal Revenue Code, codified at 26 U.S.C. 7430(c)(4)(E). In this case, taxpayer made a qualified offer to settle her tax liability. The IRS's concession that taxpayer was entitled to full relief and owed no tax liability is not a settlement within the meaning of section 7430(c)(4)(E)(ii)(I). The court concluded that the IRS was unwilling to settle this case on the terms and at the times offered by taxpayer, and the IRS cannot sidestep the consequences of such refusal by conceding the issues after taxpayer had effectively presented the case for disposition by the court. Accordingly, the court reversed the Tax Court's decision and found that taxpayer is a prevailing party for purposes of section 7430. The court reversed and remanded for the Tax Court to determine costs and attorney's fees. View "Knudsen v. Commissioner" on Justia Law

Petitioner appealed the Tax Court's decision assessing deficiencies and penalties for tax years 2004 and 2005, which arose from petitioner’s operation of a medical marijuana dispensary in San Francisco. The court concluded that the Tax Court properly concluded that I.R.C. 280E precludes petitioner from deducting, pursuant to I.R.C. 162(a), the ordinary and necessary business expenses associated with his operation of the dispensary because it is a trade or business consisting of trafficking in controlled substances prohibited by Federal law. Accordingly, the court affirmed the judgment. View "Olive v. Commissioner" on Justia Law

Slone Broadcasting sold essentially all of its assets to Citadel Broadcasting for $45 million. The shareholders of Slone Broadcasting then sold all their shares to Berlinetta for $33 million. The IRS concluded that the substance of the stock sale is that the shareholders received a liquidating distribution from the corporation and the form of this transaction should be disregarded for federal tax law purposes. The shareholders argued, however, that the transaction was a legitimate stock sale transaction and its form must be respected. The tax court agreed with the shareholders. The court concluded that when the Commissioner claims a taxpayer was “the shareholder of a dissolved corporation” for purposes of 26 C.F.R. 301.6901-1(b), but the taxpayer did not receive a liquidating distribution if the form of the transaction is respected, a court must consider the relevant subjective and objective factors to determine whether the formal transaction “had any practical economic effects other than the creation of income tax losses.” In this case, the court cannot resolve this dispute because the tax court failed to apply the correct legal standard for characterizing the stock sale transaction for the purposes of federal transferee liability. Accordingly, the court vacated and remanded for the tax court to apply the proper legal standard under Comm'r v. Stern. View "Slone v. CIR" on Justia Law

Jay Sewards, a former employee of the Sheriff's Department, was entitled to receive a disability pension equal to one-half his previous salary. Because Sewards completed 34 years of service, he received an additional amount to bring his pension up to what he would have received as a service pension. At issue was whether the additional amount is taxable under the Internal Revenue Code. The Tax Court rejected Sewards' argument that the entire amount of the retirement allowance may be excluded from taxation because it is a worker's compensation program pursuant to 26 U.S.C. 104(a)(1). The court affirmed the Tax Court's conclusion that the portion of Sewards’s retirement allowance exceeding what he would have received solely based on disability is subject to taxation. In this case, Sewards had completed 34 years of service and received additional amounts so that his service-connected disability pension was the same as what he would have received as a service pension. Those additional amounts were paid not based on his injuries, but based on his years of service, and thus were not excludable. View "Sewards v. CIR" on Justia Law

Plaintiff filed suit against the IRS under 26 U.S.C. 7426(a)(1), alleging that the IRS wrongfully seized $13,000 from plaintiff. The IRS thought the money belonged to plaintiff's father and, after seizing it, applied the funds to pay down the father's tax debts. Plaintiff was 10 years old at the time of the seizure and plaintiff alleged that he did not find out about it until after he turned 18 years old. The court reaffirmed its prior holding that the nine-month limitations period set by section 6532(c) is not jurisdictional and may be equitably tolled. In this case, because the district court dismissed plaintiff's suit without determining whether he has established grounds for equitable tolling, the court reversed and remanded, leaving that question for the district court to resolve. View "Volpicelli v. United States" on Justia Law

The City of Spokane filed suit against Fannie, Freddie, and FHFA, arguing that Fannie and Freddie are not statutorily exempt from paying real property transfer taxes. The court concluded that it is clear that the statutory carve-outs allowing for the taxation of real property as "other real property is taxed" encompass only property taxes, not excise taxes. Therefore, Fannie and Freddie are statutorily exempt from paying the transfer taxes in Washington. The court held that the entities' exemption statutes do not exceed Congress's constitutional authority. Because Congress has power under the Commerce Clause to regulate the secondary mortgage market, it has power under the Necessary and Proper Clause not only to create Fannie and Freddie but also to ensure their preservation by exempting them from state and local taxes. Finally, the exemptions neither commandeer state and local officials nor transgress general principles of federalism. Therefore, the court rejected Spokane's Tenth Amendment arguments. Accordingly, the court held that Congress exempted Fannie and Freddie from state and local taxation of real property transfers and that it had constitutional authority to do so. The court affirmed the judgment. View "City of Spokane v. Fed. Nat'l Mortgage Ass'n" on Justia Law

The IRS challenged the Tax Court's decision that the Salus Mundi Foundation was not liable under 26 U.S.C. 6901 for the unpaid tax liability arising from the sale of appreciated assets held by Double-D Ranch, Inc. The court concluded that the two requirements of section 6901 - transferee status under federal law and substantive liability under state law - are separate and independent inquiries. Consequently, the IRS cannot rely on federal law to recharacterize the series of transactions for purposes of the state law inquiry. The court adopted the Second Circuit's reasoning in Diebold Foundation, Inc. v. Comm'r on the state law inquiry and concluded that the Double-D shareholders had constructive knowledge of the fraudulent tax avoidance scheme at issue. Therefore, the court collapsed the series of transactions and concluded that the shareholders made a fraudulent conveyance under the New York Uniform Fraudulent Conveyance Act and that the state law liability prong of section 6901 was satisfied. The court remanded to the district court for further determinations. View "Salus Mundi Foundation v. CIR" on Justia Law

After the IRS made an assessment against defendant for the 1996 tax year, the government filed a complaint seeking to reduce the assessment to judgment and to foreclose tax liens against two parcels of property. The district court determined that the government's collection suit was not barred by the ten-year statute of limitations pursuant to 26 U.S.C. 6502(a)(1). The court held that the tolling period provided for in section 6330(e)(1) includes the time during which a taxpayer could file an appeal to the Tax Court, even if he does not actually file such an appeal. Applying Chevron, the court concluded that the Treasury Department's issuance of 26 C.F.R. 301.6330-1(g)(1) was a permissible construction of section 6330(e)(1). Therefore, the government's collection action against defendant was not barred by the statute of limitations and the court affirmed the judgment. View "United States v. Kollman" on Justia Law