6th Circuit Tax Law News - U.S. Sixth Circuit
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After the company Instant Tax Service was discovered engaging in a litany of deceptive and unlawful practices, the IRS had them shut down. ITS appealed, claiming it was a franchisor and not directly involved in the preparation of returns like its franchisees, and therefore couldn't be shut down.

In this unpublished, but nevertheless interesting, opinion from the Sixth Circuit, the court said that shutting ITS down was definitely within the district court's power.

Anyone here familiar with 1950s game shows? Yep. Thought so.

An otherwise ordinary tax dispute was made slightly less ordinary by the inclusion of a pop culture reference to the "$64,000 Question" a 1950s game show.

(A quick note to clerks and judges everywhere: if your pop culture reference requires a footnote, it's probably too obscure. Stick to Bieber Fever.)

Sixth Circuit: Severance Pay Not Subject to FICA Taxes

You may have noticed that the unemployment rate is still pretty high. Though it's down from the October 2009 peak, companies continue to lay off workers.

The Sixth Circuit Court of Appeals issued an opinion last week that could ease the financial burden on flailing businesses facing layoffs: Friday, the court ruled that severance pay is not subject to FICA taxes, Thomson Reuters News & Insight reports.

Obamacare Lawsuits On Their Way to 6th Circuit Court of Appeals

On June 1, 2011, the 6th Circuit Court of Appeals joined the ranks of the 4th Circuit in taking on the Obamacare lawsuits, asking whether Obamacare is unconstitutional.

The oral argument was scheduled to take place at 1:30 before a 3-judge panel of the 6th Circuit. The three judges on the panel consist of two Republican appointed judges and one Democratic appointee: Judge Boyce F. Martin, Jr., a Carter appointee, Judge Jeffrey S. Sutton, a George W. Bush appointee, and Judge James L. Graham, a Reagan appointee who is a senior federal district court judge sitting on the panel by designation.

US v. Gross, 08-2362

Tax evasion conviction affirmed

US v. Gross, 08-2362, concerned a challenge to the district court's conviction of defendant for attempting to evade or defeat tax and related crimes and imposition of a 21-month sentence.  In affirming, the court held that the defendant committed an affirmative act of tax evasion when he submitted false W-4 forms to his employer and neither the IRS's receipt of his employer's W-2 forms nor the Paperwork Reduction Act excused defendant's failure to file a tax return.  Further, defendant's argument concerning his supposed good-faith defense is meritless.  Lastly, the court held that the district court did not err in looking to defendant's employer's W-2 forms in determining defendant's base offense level, and his sentence did not violate Apprendi.

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Decisions in Criminal, Civil Rights, and Tax Law Matters

Worldwide Equip., Inc. v. US, No. 08-5950, concerned a plaintiff's suit for a refund of $119,302 in heavy-truck excise taxes it paid the IRS for the first quarter of 2004, related to the sale of certain models of coal-hauler dump trucks.  In vacating and remanding the district court's grant of defendant-government's motion for summary judgment on plaintiff's claim and on its counterclaim of $1,149,140 in excise taxes claimed to be due for the period from 1999 to early 2003, the court held that the government was not entitled to summary judgment on the basis of its argument that the truck model's primary function was dual use, as evidence submitted by plaintiff supports that, by design, the model's primary function is to haul coal off-highway.     

In Johnson v. Bell, No. 05-6925, Seventh Circuit faced a challenge to a denial of defendant's motions for equitable relief, following his conviction of murdering his wife and sentence to death.  The court affirmed the district court's denial of defendant's Rule 60(b) motion as defendant has not come forward with clear and convincing evidence that the prosecution presented intentionally false material to the the district court.  With respect to defendant's second Rule 60(b) motion, the court dismissed the motion as he failed to first obtain leave from the court to file a successive application.    

Fox v. Traverse City Area Pub. Sch. Bd. of Educ., No. 09-1688, concerned a former special-education teacher's First Amendment retaliation suit under 42 U.S.C. section 1983.  District court's grant of summary judgment in favor of the defendants is affirmed as the district court correctly determined that, under Garcetti, when the plaintiff complained to her supervisor about the number of students assigned to her supervision, she spoke as a public employee rather than a private citizen, and as such, her statements were not entitled to protection under the First Amendment.  

US v. Aguire, No. 08-5477, concerned a challenge to a conviction of defendant for possession with intent to distribute cocaine, and for possession of firearms in furtherance of a drug trafficking offense.  First, the court held that if a defendant has disclosed truthful information to demonstrate financial inability and obtain counsel under the Sixth Amendment, that information may not thereafter be admitted against him at trial on the issue of guilt, and here, the information disclosed by defendant in his financial affidavit was disclosed in order to obtain counsel, and the admission of the affidavit was error.  However, in ultimately affirming the conviction in this case, the court held that the error was not plain and reversal was not required.     

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Knowledge-of-the-Transaction Test Applies to Erroneous-Deductions Cases

In Greer v. Comm'r of Internal Revenue, No. 09-1420, the U.S. Court of Appeals for the Sixth Circuit rejected petitioner's challenge to the district court's denial of her request for relief under the innocent-spouse and equitable-relief provisions of the tax code. 

The Court took the opportunity to decide that the appropriate test to be used in determining whether a taxpayer had a reason to know of an understatement, or to suspect a possible understatement resulting from disallowed deductions or credits is the "knowledge-of-the-transaction" test, as derived from Price v. Commissioner. 

On review of the record, the Court held that it cannot be said that the Tax Court clearly erred in finding that petitioner should have inquired into the favorable tax benefits thrown off by the couple's investment in denying innocent-spouse relief, nor did the court abuse its discretion in denying equitable relief.

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Louisville/Jefferson County Metro Gov't v. Hotels.com, LP, No. 08-6302

In an action against Hotels.com and various other online travel companies claiming that they are violating local tax ordinances by failing to pay a transient room tax, grant of defendants' motion to dismiss is affirmed where: 1) the district court properly applied the principle of ejusdem generis to the ordinances in question in determining that the online travel companies were not "like or similar accommodations businesses" as those listed in the ordinance as they have neither ownership, nor physical control, of the rooms they offer for rent; 2) district court properly concluded that it had committed a clear error of law when it failed to exempt the online travel companies from the transient room tax the first time around; and 3) plaintiffs' argument that the district court erred by making a factual finding that the online travel companies do not exercise physical control over the rooms they rent is rejected as there is no factual dispute to be resolved in the counties' favor.     

Read Louisville/Jefferson County Metro Gov't v. Hotels.com, LP, No. 08-6302

Appellate Information

Argued: October 14, 2009

Decided and Filed: December 22, 2009


Opinion by Circuit Judge Gilman


For Appellant:  Anthony G. Raluy, Foley Bryant Holloway & Raluy

For Appellee:    Darrel J. Hieber, Skadden Arps Slate Meagher & Flom LLP

Desmet v. Comm'r of Internal Revenue, No. 08-1598

In a consolidated appeal of orders of the United States Tax Court assessing income deficiencies against former business partners engaged in an abusive tax shelter known as "Son-of-Boss", the tax court had jurisdiction over the deficiency proceedings but the case is remanded for consideration of whether certain components of the deficiencies were time-barred.     

Read Desmet v. Comm'r of Internal Revenue, No. 08-1598

Appellate Information

Argued: March 10, 2009

Decided and Filed: September 17, 2009


Opinion by Judge Gibbons


For Appellant:  David D. Aughtry, Chamberlain, Hrdlicka, White, Williams & Martin, Atlanta, Georgia. 

For Appellee:  Michael J. Haungs, United States Department of Justice, Washington, D.C.

Keweenaw Bay Indian Comm. v. Rising, No. 08-1585

In an Indian tribe's action seeking injunctive relief from Michigan's policy of taxing transactions involving the tribe and from Michigan's reliance on an informal refund process to sort those immunities out on a case-by-case basis, judgment for Defendant is reversed, where the questions presented covered a myriad of hypothetical transactions and were too abstract and unsupported by specific facts.

Read Keweenaw Bay Indian Comm. v. Rising, No. 08-1585

Appellate Information

Argued April 30, 2009

Decided and Filed June 26, 2009


Opinion by Judge Merritt


For Appellant:

Vernle Charles Durocher, Jr., Dorsey & Whitney LLP, Minneapolis, MN

For Appellees:

Kevin Joseph Moody, Miller, Canfield, Paddock & Stone, P.L.C., Lansing, MI