Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

In 2002, the Mingos, married taxpayers, reported the sale of a partnership interest, including the portion of the proceeds attributable to the partnership’s unrealized receivables, through the installment method of accounting. In an action brought to determine their federal income tax liability, the tax court held that the Mingos were not entitled to utilize the installment method to report the unrealized receivables and that the IRS appropriately applied section 481(a) of the Internal Revenue Code in 2007 to adjust the Mingos’s 2003 joint income tax return to account for the unrealized receivables income that should have been reported in 2002. The Fifth Circuit affirmed, rejecting a claim that the determination that the installment sale reporting of the unrealized receivables in 2002 did not clearly reflect Mrs. Mingo’s income and a challenge to the Commissioner’s authority to change her method of accounting in 2003, given that the allegedly erroneous reporting under the installment method occurred in 2002, the year of the sale. View "Mingo v. Comm'r of Internal Revenue" on Justia Law

This case stemmed from an indirect gift made by J. Howard Marshall to various family members. After J. Howard's Estate failed to pay gift taxes pursuant to I.R.C. 6324(b), the IRS tried to collect the unpaid gift tax from the donees. The Government subsequently filed suit against the donees, seeking to recover the unpaid gift taxes and to collect interest from the beneficiaries. The Government also sought to recover from two individuals (E. Pierce Jr. and Hilliard), who, as representatives of various estates and trusts, allegedly paid other debts before paying those owed to the Government. The court rejected appellants' argument that the district court erred in finding that the donees incurred an independent interest liability as a result of the donor's unpaid gift tax and held that interest accrues on donee's liability for the unpaid gift taxes and that interest is not limited to the extent of the value of the gift. The court concluded that res judicata barred Eleanor Pierce (Marshall) Stevens from arguing that J. Howard did not make a gift to her because the court determined that Stevens was a donee. Finally, the court held that Hilliard and E. Pierce Jr. knew of the potential liability to the Government and the Federal Priority Statute applies; Hilliard and E. Pierce Jr. are liable under the Federal Priority Statue for the amount of the charitable set-aside; E. Pierce Jr. is individually liable for the value of the personal property he distributed from Stevens's Estate; Hilliard is personally liable for the amount he caused the Living Trust to pay for accounting and legal services on behalf of other charitable organizations; and E. Pierce Jr. did not breach his state law fiduciary duties because E. Pierce Jr. did not owe Stevens's Estate's creditors a fiduciary duty under Texas law. Accordingly, the court affirmed in part and reversed in part. View "United States v. Marshall, et al." on Justia Law

Appellant is the non-debtor spouse of debtor. Appellant claimed a homestead exemption in property held jointly with debtor that is subject to a forced sale in debtor's bankruptcy proceedings, contending that the sale is a Fifth Amendment taking and that she is entitled to just compensation. The court held, however, that the forced sale of the property by operation of section 363 of the Bankruptcy Code, 11 U.S.C. 363, is not a taking of appellant's homestead where any potential property interest was acquired after the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. 109-8, 119 Stat. 23-217. Accordingly, the court affirmed the judgment of the district court concluding that there was no unconstitutional taking. View "Thaw v. Moser" on Justia Law

From 1993 through 2006, Dow engaged in transactions with foreign banks to operate two partnerships that generated over one billion dollars in tax deductions for Dow. The court affirmed the district court's holding that the partnerships were shams where the district court did not clearly err in holding that Dow lacked the intent to share the profits and losses with the foreign banks. The court vacated, however, the district court's penalty award where, in light of United States v. Woods, the district court erred in foreclosing the applicability of both the substantial-valuation and gross-valuation misstatement penalties. The court remanded for the district court to determine whether to impose either or both of these penalties.View "Chemtech Royalty Assoc. LP, et al. v. United States" on Justia Law

The Commissioner issued a Notice of Final Partnership Administrative Adjustment to TKOP for the 2006 tax year. TKOP deposited the amount required by 26 U.S.C. 6226(e) with the IRS and then commenced this action seeking readjustment of partnership items, which was consolidated with seven lawsuits. On appeal, TKOP challenged the district court's determination that the transfer of certain overriding royalty interests through a complicated transaction was an invalid attempt to assign income. The court affirmed the judgment, concluding that the record amply supported this finding and supported the district court's conclusion that the income was taxable to TKOP for the 2006 tax year. View "Salty Brine 1, Ltd, et al. v. United States" on Justia Law

UT filed suit against the United States, seeking refund of the Social Security component of FICA taxes it paid with respect to the service of medical residents in 2005. The court affirmed the district court's denial of UT's motion for summary judgment and grant of the United States' motion for summary judgment, concluding that UT's residents are not "students" within the meaning of the student exclusion in Texas's 42 U.S.C. 418 agreement. Section 418 allows states to voluntarily opt-in to the Social Security system by entering into an agreement with the Commissioner of Social Security.View "University of Texas System, et al. v. United States" on Justia Law

Petitioners sought review and eventually eliminate the federal estate tax deficiency assessed against the Estate by the Commissioner. The deficiency resulted solely from the Commissioner's disallowance of the "fractional-ownership discount" applied by the Estate in determining the taxable values of decedent's pro rata shares of the jointly stipulated fair market values of 64 original works of art in which decedent owned only fractional interests at his death. The court affirmed and agreed in large part with the Tax Court's underlying analysis and discrete factual determinations, including its rejection of the Commissioner's zero-discount position. The court reversed, however, the Tax Court's analysis that led it not only to reject the quantums of the Estate's proffered fractional ownership discounts but also to adopt and apply one of its own without any supporting evidence. The court held that the taxable values of decedent's fractional interests in the works of art are the net amounts reflected for each on Exhibit B of the Tax Court's opinion. The court affirmed in part, reversed in part, and rendered judgment in favor of petitioners for a refund of taxes overpaid in the amount of $14,359,508.21, plus statutory interest. View "Estate of James A. Elkins, Jr., et al. v. CIR" on Justia Law

Trinity, a designer and builder of vessels, appealed the district court's holding that the tax due Trinity was $135,787.60 for 1994 and $0 for 1995. The court vacated the district court's holding as to the consistency rule and remanded for findings as to whether, in light of the district court's Phase I order, the four base period vessels at issue were sufficiently experimental to constitute qualified research. The court concluded that the district court correctly held that the report's conclusion, though admissible evidence, was neither binding nor entitled to a presumption of correctness. Therefore, while the I.R.S.'s ultimate determination of Trinity's tax liability was presumptively correct, the revenue agent report's subsidiary conclusion that the Penn Tugs met the process-of-experimentation test was neither binding on the Government nor presumptively correct. Further, the district court did not err in its analysis of the Penn Tugs. Accordingly, the court affirmed in part, reversed in part, and remanded. View "Trinity Industries, Inc. v. United States" on Justia Law

Whitehouse appealed a second time from a ruling of the Tax Court disallowing a significant portion of a tax deduction claimed for a historic conservation easement. The easement burdened the Maison Blanche building in New Orleans with a number of restrictions and affirmative obligations, all revolving around maintaining the appearance of the ornate facade. Whitehouse claimed a charitable contribution deduction for the easement. The Commissioner allowed a deduction for less than the amount Whitehouse claimed and further assessed a gross undervaluation penalty. The court affirmed the tax court's second valuation; vacated the tax court's enforcement of the gross undervaluation of the penalty because the tax court clearly erred in applying it; and remanded for entry of judgment. View "Whitehouse Hotel Ltd. Prtnshp., et al. v. CIR" on Justia Law

The government appealed the district court's Final Judgment which rejected the government's efforts to tax Burnett Ranches as a "farming syndicate" tax shelter per I.R.C. 464. The court agreed with the district court that an otherwise qualified individual who has participated in management of the farming operation for not less than five years comes within the Active Participation Exception in section 464(c)(2)(A), irrespective of the fact that the legal title of such individual's attributable interest happens to be held in the name of her wholly owned S corp. rather than in her own name. Accordingly, the court affirmed the district court's lift of the stay of its earlier ruling and made final judgment in favor of Burnett Ranches. View "Burnett Ranches, Ltd. v. United States" on Justia Law