U.S. Seventh Circuit - The FindLaw 7th Circuit Court of Appeals Opinion Summaries Blog

Recent Tax Law Decisions

Tribes Sue State Over Property Taxes On Reservation Lands

Native American tribes sued Wisconsin officials for trying to tax their land, renewing a battle they thought had ended more than 150 years ago.

By treaty in 1854, the Chippewa tribes claim their land was forever exempt from property taxes. Until recently, that seemed to be true.

Now the tribes want a court to settle the dispute and an injunction in LAC Court Oreilles Band of Lake Superior Chippewa Indians of Wisconsin v. Walker.

Circuit Hears Debate on Clergy Housing Tax Break

It turns out that taxes are not certain -- particularly when it comes to religion.

Judge Barbara Crabb made that point in Gaylor v. Mnuchin, when she said a tax break for the clergy is unconstitutional. Now the U.S. Seventh Circuit Court of Appeals is deciding whether she was right.

The Seventh Circuit did not agree with her when they vacated her decision the first time. This time, the appellants are proceeding on faith that the panel will give them a break.

Expedia, and other online travel agencies, won a major victory in the fight over local hotel taxation. Thirteen cities in the state of Illinois filed a lawsuit attempting to hold the online booking sites liable for failing to withhold local hotel taxes. After the district court dismissed the cities' claims, an appeal was made to the Seventh Circuit.

Essentially, cities were trying to get the tax revenue on the difference between the actual booking price of a hotel room online and the price the hotels charge to those online travel agencies making the bookings, like Expedia, Orbitz and others. Unfortunately for the cities involved, both the district and appellate courts found that the hotel tax laws do not apply to the online travel/booking services.

Judge Says Tax Break for Clergy Unconstitutional

Judge Barbara Crabb is the kind to say, 'I told you so.'

In 2013, she said a tax break for clergy housing was unconstitutional. Four years and one appeal later, she said it again.

In a 47-page decision designed to withstand another appeal, the federal judge basically said, "Didn't you hear me the first time?"

Indianapolis Horse Racing Track Was a Business, 7th Cir. Rules

It turns out that a horse racing track in Indianapolis was a horse racing business and not just a rich man's hobby. But the Seventh Circuit came to this conclusion for reasons altogether different than those used by the lower tax court.

The lower court got the result right, but used erroneous and "goofy" reasoning, according to Judge Posner.

7th Circuit: Inefficient 401(k) Leads to Violation of ERISA Law

The 7th Circuit Court of Appeals ruled that inaction might trigger liability under ERISA law, reports CFO.com.

ERISA. It's one of those things that in-house lawyers hear about but don't always fully understand. It's something that employment lawyers know can be one of their greatest weapons but they don't want to crack open the Tax Code to decipher it.

The basic rule behind ERISA is simple: Employers who offer an employee benefit plan must comply with certain rules set aside under ERISA law. These rules place upon the plan administrators the fiduciary duty of prudent management of the employee benefit plans and the duty to make adequate and appropriate disclosures.

Heyde v. Pittenger, 09-1388

Action challenging property assessments

Heyde v. Pittenger, 09-1388, concerned a plaintiff's suit against members of a county Board of Review (BOR) and town's assessors, claiming that by setting his property's assessment at levels grossly disproportionate to its fair market value, the BOR and the assessors deprived him of his equal protection rights, and retaliated against him for previously exercising his right to challenge assessments.

US v. Olmeda-Garcia, 09-3042, In a prosecution of defendant for illegal re-entry into the United States, district court's imposition of a 64-month sentence is affirmed as the only potential error defendant identified is the district court's silence with respect to a possible disparity that could arise between defendant's sentence and those available to defendants in other districts, and here, defendant did not adequately develop this argument and the district court was entitled to hand down an otherwise procedurally and substantively sound sentence without discussing the point.

US v. Diaz-Gaudarama, 09-4048, concerned a challenge to the district court's refusal to credit defendant with a two-point reduction for acceptance of responsibility in a prosecution of defendant for conspiring to distribute methamphetamine, cocaine, and marijuana.  In affirming the denial, the court held that defendant is not entitled to a reduction in his advisory guideline range for acceptance of responsibility, given defendant's attempt to avoid criminal responsibility for his actions, the absence of statements by defendant reflecting remorse for his crime, and the last-minute nature of his attempt to plead guilty.

Mosley v. City of Chicago, 09-3598, concerned a challenge to the district court's grant of summary judgment in favor of the defendants in plaintiff's section 1983 suit against the City of Chicago and several of its police officers, arising from his arrest and prosecution for murder, of which he was acquitted at trial after approximately five years in jail.  In affirming the judgment, the court held that there is no evidence in the record that the officers withheld any materially favorable piece of evidence, and even assuming that a Brady violation could occur when a trial ends in acquittal, this claim cannot rise to the level described in Bielanski v. County of Kane, 550 F.3d 632 (7th Cir. 2008).  The court also held that the district court did not err in concluding that the defendants had probable cause to press forward with the prosecution and therefore plaintiff could not maintain a claim for malicious prosecution, nor in granting summary judgment on plaintiff's civil conspiracy claim.

Louis & Karen Metro Family, LLC v. Lawrence Conservancy Dist., 09-2418, concerned a plaintiff's breach of contract suit against a city and a conservancy district, claiming that the defendants breached their option contract to acquire land.  In affirming in part, the court held that the district court correctly concluded that a breach occurred as the defendants' failure to allow the plaintiffs to exercise the option within 18 months of the decision to cancel the flood control project was a breach of the contract.  Court also held that the district court did not abuse its discretion in deciding to invoke the equitable remedy of reformation.  However, the district court's order of reformation of an option contract to extend the date by which the option could be exercised in denying plaintiffs' request for money damages is vacated and remanded as the closest that one can come to making plaintiff whole for the shortfall in compensation is to determine how much it lost at the moment that the option became impossible to exercise.

Kovacs v. US, 09-3328, concerned a challenge to the district court's order affirming the bankruptcy court's dismissal of plaintiff's claim for lack of jurisdiction in a taxpayer's suit against the United States seeking to recover damages resulting from the Internal Revenue Service (IRS), claiming violation of the discharge injunction provided by section 524 of the Bankruptcy Code, arising from an Offer and Compromise (OIC) that she entered into with the IRS to resolve her tax liabilities for tax years 1990 through 1995.  In affirming in part, the court held that, due to the unequivocal exclusivity provision of 26 U.S.C. section 7433, the district court did not err in determining that plaintiff must comply with the jurisdictional provisions of section 7433 prior to recovery for a willful violation of the discharge injunction.  The court also held that the district court did not err in holding that plaintiff's cause of action with respect to IRS's July 8, 2002 collection effort is time-barred. However, the court reversed in part and remanded as, the district court erred in holding that plaintiff's claim with respect to IRS's September 8, 2003 and September 18, 2003 violations was time-barred.

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In Lantz v. Comm'r of Internal Revenue, No. 09-3345, the Seventh Circuit faced a challenge to the Tax Court's judgment invalidating the two-year deadline that the Treasury has imposed on claims under section 6015(f), and thus reversing the IRS's denial of a taxpayer's application for innocent-spouse relief.

As the court wrote: "The Tax Court's basic thought seems to have been that since some statutes...prescribe deadlines, whenever a statute (or provision) fails to prescribe a deadline, there is none.  That is not how statutes that omit a statute of limitations are usually interpreted.  Courts 'borrow' a statute of limitations from some other statute..."

Thus, in reversing the Tax Court's judgment, the court held that the fact that Congress designated a deadline in two provisions of the same statute and not in a third is not a compelling argument that Congress meant to preclude the Treasury Department from imposing a deadline applicable to cases governed by that third provision.     

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Decisions in Criminal, Tax, and Civil Rights Matters

Today, the Seventh Circuit decided a criminal matter, a former inmate's civil rights action and a tax matter involving a taxpayer's challenge to the IRS's increase the amount of income tax withholdings. 

In US v. Krumwiede, No. 08-4081, the court faced a challenge to the district court's imposition of a 140-month sentence for stealing thirty-four firearms from a federally licensed firearms dealer and other crimes.  In rejecting the defendant's contention that the district court erred in applying s four-level enhancement, the court held that there was no error as under Application Note 14(B) , section 2K2.1(b)(6) applies when a defendant during the course of a burglary, finds and takes a firearm even if the defendant did not engage in any other conduct with that firearm. 

Wrightsell v. Cook County, No. 09-2634, involved a former inmate's 42 U.S.C. section 1983 suit claiming that the county's failure to make more than a single dentist available to the jail's 10,000 inmates was cruel and unusual punishment.  In affirming district court's denial of class certification and dismissal of another former inmate's petition to intervene, the court held that the first inmate had no personal stake in having the class certified as he already settled  his claim and received all the relief he sought.  As for the second inmate, the court held that the dismissal was correct as he failed to ask the district court for permission to intervene within the statutory deadline for filing notice of appeal.

In Cleveland v. Comm'r of Internal Revenue, No. 09-2952, the court faced a challenge to the Tax Court's denial of a taxpayer's petition to keep the IRS from increasing the amount of his withholdings of his wages.  In affirming the dismissal, the court held that even if the taxpayer's theory that the underlying dispute concerned a collection action within the ambit of section 6330 was accepted, the Tax Court would lack subject matter jurisdiction because there was no issuance of a notice of determination. 

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