Justia U.S. 8th Circuit Court of Appeals Opinion Summaries

Wells Fargo, a U.S. corporation, entered into a structured trust advantaged repackaged securities transaction (STARS) with Barclays, a United Kingdom corporation. Wells Fargo asserts its purpose was to borrow money at a favorable interest rate, to diversify its funding sources, to reduce its liquidity risk, and to provide a stable source of funding for five years. The government claimed that STARS was an unlawful tax avoidance scheme, designed to exploit the differences between the tax laws of the two countries and generate U.S. tax credits for a foreign tax that Wells Fargo did not, in substance, pay. Wells Fargo claimed foreign-tax credits on its 2003 federal tax return arising from STARS. The IRS disallowed those credits and notified Wells Fargo that it owed additional taxes. Wells Fargo paid the resulting deficiency and sued to obtain a refund. The government sought to impose a “negligence penalty” as an offset defense because Wells Fargo underpaid its 2003 taxes after claiming this credit.The Eighth Circuit affirmed that Wells Fargo was not entitled to a tax credit and was liable for a “negligence penalty.” The "sham-transaction" or "economic-substance" doctrine allows the IRS and courts “to distinguish between structuring a real transaction in a particular way to obtain a tax benefit, which is legitimate, and creating a transaction to generate a tax benefit, which is illegitimate.” STARS’s trust component had no real potential for profit outside of its tax implications and Wells Fargo had no valid purpose other than tax considerations. View "Wells Fargo & Company v. United States" on Justia Law

The Eighth Circuit held that the Indian Gaming Regulatory Act does not preempt the imposition of statewide tax on the gross receipts of a nonmember contractor for services performed in renovating and expanding the Tribe's gaming casino located on the Reservation. The court reversed the district court's grant of summary judgment for the Tribe and held that the Tribe has failed to show that the tax has more than a de minimis financial impact on federal and tribal interests. Furthermore, the State's legitimate interests in raising revenues for essential government programs that benefit the nonmember contractor-taxpayer in this case, as well as its interest in being able to apply its generally applicable contractor excise tax throughout the State, were sufficient to justify imposing the excise tax on the construction services performed on the Casino's realty. Finally, the court granted the State's motion to dismiss the State Treasurer and remanded for further proceedings. View "Flandreau Santee Sioux Tribe v. Haeder" on Justia Law

The Eighth Circuit affirmed the grant of an attorney's fee award after taxpayer prevailed in a deficiency proceeding before the United States Tax Court. The tax court granted the award, but denied taxpayer's request for an enhancement to the hourly fee rate. The court held that the tax court did not abuse its discretion by declining to find the presence of a special factor warranting an enhanced fee rate and by reducing the number of hours worked during the post-trial process. Furthermore, the tax court did not abuse its discretion by determining that the requested fee award was unreasonable. View "Tolin v. Commissioner" on Justia Law

The Eighth Circuit affirmed the district court's grant of the government's motion for summary judgment and denied taxpayer's cross motion. The court held that the government established the existence and proper mailing of the notice of deficiency for tax year 2002 by producing a copy of the notice and Form 4340. Although the government did not produce a copy of the notice for the 2009 tax year, it submitted a Case History Report that described steps taken by the IRS officer assigned to taxpayer's case. Therefore, the Case History Report and the Form 4340 produced by the government established both the existence and mailing of the notice for tax year 2009. View "United States v. Meyer" on Justia Law

Under United States v. Boyle, 469 U.S. 241 (1985), an agent's failure to fulfill his duty to his principal to file tax returns and make payments on behalf of the principal does not constitute reasonable cause for the principal's failure to comply with its tax obligations unless that failure actually rendered the principal disabled with regard to its tax obligations. Disability is a high bar that is not satisfied if the errant agent is subject to the control of his principal, whether that principal sufficiently exercised that control or not.The Eighth Circuit affirmed the district court's dismissal with prejudice of Deaton's suit seeking refund, abatement, and recovery of delinquent tax penalties assessed against it. The court held that the facts set forth in the complaint did not support a finding of reasonable cause. In this case, the facts, whether considered singularly or together, did not excuse Deaton's tax law compliance failures. View "Deaton Oil Co., LLC v. United States" on Justia Law

The Eighth Circuit affirmed the district court's dismissal of Thompson's complaint claiming a refund of excise taxes for its diesel particulate filters under Internal Revenue Code 4051(a)(1). The court held that the phrase "part or accessory" in section 4051(a)(1) was not ambiguous and the filters were properly taxed as either parts or accessories, both of which fell within the scope of the statute. View "Thompson Truck & Trailer v. United States" on Justia Law

Offer of compromise is not a reasonable alternative to seizure under 26 C.F.R. sec. 301.6334-1(d)(1), which requires an alternative for collection, not an alternative to collection. The Eighth Circuit affirmed the district court's grant of the government's petition for permission to levy taxpayer's home and to apply the proceeds toward her debt. The court rejected taxpayer's claim that the government must respond to her offer to compromise the debt before the court may levy on her principal residence. View "United States v. Brabant-Scribner" on Justia Law

The Eighth Circuit vacated the tax court's valuation of Medtronic's true income for the 2005 and 2006 tax years. The Commissioner claimed that Medtronic shifted income from its highly profitable U.S. operations and intangibles to an offshore subsidiary operating in a tax haven in Puerto Rico by charging an artificially low rate for the intangibles.The court held that the tax court's factual findings were insufficient to enable the court to conduct an evaluation of the tax court's determination that the Pacesetter agreement was an appropriate comparable uncontrolled transaction (CUT) because it involved similar intangible property and had similar circumstances regarding licensing. In this case, the tax court did not address in sufficient detail whether the circumstances of the settlement between Pacesetter and Medtronic US were comparable to the licensing agreement between Medtronic and Medtronic Puerto Rico; did not analyze the degree of comparability of the Pacesetter agreement's contractual terms and those of the Medtronic Puerto Rico licensing agreement; did not evaluate how the different treatment of intangibles affected the comparability of the Pacesetter agreement and the Medtronic Puerto Rico licensing agreement; and did not decide the amount of risk and product liability expense that should be allocated between Medtronic US and Medtronic Puerto Rico. View "Medtronic, Inc. & Consolidated Subsidiaries v. Comissioner" on Justia Law

The Eighth Circuit affirmed the tax court's dismissal of a petition for relief from a determination that petitioner owed additional employment tax. The court held that there was no actual controversy involving a determination that petitioner was an employee for Federal Insurance Contributions Act (FICA) purposes. Even assuming there was an actual controversy, it did not involve a determination that petitioner was an employee for FICA purposes. In this case, the only issue the Commissioner examined was the amount of remuneration for petitioner's services and this determination did not give the tax court jurisdiction. View "Martin S. Azarian, P.A. v. Commissioner" on Justia Law

In 2007-2010, the Hargises bought and operated nursing homes. Bobby was the sole owner of corporations that operated the homes (Operating Corporations), which were S corporations. Brenda owned interests in companies that bought and leased the homes to the Operating Corporations (Nursing Home LLCs). The Nursing Home LLCs were partnerships under 26 C.F.R. 301.7701-3(a). All the entities had net operating losses, which the Hargises deducted on their joint tax returns for 2009 and 2010. The Commissioner issued the Hargises a notice of deficiency, disallowing their deduction of most of the nursing home losses, due to the Hargises’ insufficient basis in their companies. The Hargises owed $281,766. The Tax Court ruled for the Commissioner. The Eighth Circuit affirmed. The Tax Court correctly denied Bobby any basis in the indebtedness of the Operating Corporations, finding “no convincing evidence that any of the lenders looked to [Bobby] as the primary obligor on the loans.” The Commissioner properly calculated Brenda’s basis from the Nursing Home LLCs’ tax returns (Schedule K-1). Her deduction of their losses is limited to “the adjusted basis of [her] interest in the partnership.” View "Hargis v. Koskinen" on Justia Law