Justia International Law Opinion Summaries

Articles Posted in Tax Law
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Petitioner, a Russian scientist, held a J-1 exchange visitor visa as a researcher sponsored by his employer. In 2010 and 2011, Petitioner received W-2 in the amount of $76,729 and $79,061, respectively. Petitioner filed 1040-NR forms, taking the position that all his earnings were exempt from taxation under the United States-Russia Tax Treaty (“Tax Treaty”). In 2014, the IRS sent Petitioner a notice of deficiency and Petitioner sought relief at the Tax Court.The Tax Court found in favor of Petitioner, holding that his W-2 income was properly considered “a grant, allowance, or similar payments” under the Tax Treaty. The court reasoned that “wages may be eligible for exemption so long as they are similar to a grant or allowance.”The Fourth Circuit reversed. The Tax Treaty provides that salaries, wages, and other similar remuneration are taxable; however, a grant, allowance, or similar payments payable to a person who is studying or doing research is exempt. Adopting the reasoning in Bingler v. Johnson, 394 U.S. 741 (1969), the court held the relevant question is “whether there is a “requirement of any substantial quid pro quo” that distinguishes compensation for employment from a “relatively disinterested, ‘no-string’” grant.” The Fourth Circuit remanded the case to the Tax Court for further proceedings. View "Vitaly Baturin v. Commissioner, Internal Revenue" on Justia Law

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The Ninth Circuit affirmed the district court's dismissal of a securities fraud action because it was barred by the act of state doctrine. Plaintiffs alleged that defendants knowingly failed to disclose legal deficiencies under Mexican tax law in the 2012 APA Ruling and sold shares knowing these legal deficiencies existed.The panel held that plaintiffs' claims under the Securities Exchange Act of 1934 would require a United States court to pass judgment on the validity of a 2012 ruling by Mexico's tax authority. In this case, the mandatory elements of applying the act of state doctrine were satisfied and the policies underlying the doctrine weighed in favor of applying it to bar plaintiffs' claims. Agreeing with its sister circuits, the panel held that the district court was not required to consider the Sabbatino factors. The panel declined to reconsider whether a tax ruling by the Mexican government, that remains valid in Mexico, complied with Mexico's tax laws. View "Royal Wulff Ventures LLC v. Primero Mining Corp." on Justia Law

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Taxpayer filed a tax refund action against the United States, seeking a refund collected from him by the IRS pursuant to a treaty between the United States and Canada, for income taxes that he owed to Canada in 2006. After both countries executed the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital, the Senate ratified it. Under Article 26A, which was later added to the treaty and ratified by the Senate, the United States and Canada agreed to assist each other with the collection of unpaid taxes.The court affirmed the district court's judgment and held that Article 26A merely facilitates collection of an already existing debt and thus did not violate the Origination Clause; Article 26A did not infringe on the Taxing Clause where the Taxing Clause is not an exclusive grant of power to Congress; and thus Article 26A did not require House-originating implementation legislation. The court also held that the IRS can use its domestic assessment authority in pursuit of the collection of a liability owed by a taxpayer to Canada. View "Retfalvi v. United States" on Justia Law

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After the IRS refused to grant the foreign shipping corporation Good Fortune an exemption to some of its U.S.-based income from taxation, the tax court ruled in favor of the IRS. The DC Circuit reversed, holding that the IRS's interpretation of Internal Revenue Code 883 in the 2003 Regulation was unreasonable and could not stand. Even if the IRS reasonably concluded that sometimes—maybe oftentimes—bearer shares were incapable of proving the residence of their owners, the court held that the 2003 Regulation's categorical bar on considering bearer shares did not follow from that premise. The court explained that the IRS has not justified treating all bearer shares as incapable of proving ownership; and if some corporations' bearer shares were not kept in record form, and thus were not capable of proving the location of an owner, then the IRS should have identified those corporations' shares and tailored its rule accordingly. View "Good Fortune Shipping SA v. Commissioner" on Justia Law

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Validus, a foreign corporation, filed suit seeking a refund of excise taxes imposed under 26 U.S.C. 4371, which taxes certain types of "reinsurance." The government contends that “the best reading of the statute” establishes its applicability to reinsurance purchased by a reinsurer because such policies (known as “retrocessions”) are “a type of reinsurance,” and also that interpretation carries out Congress’s intent “to level the playing field” between domestic (U.S.) insurance companies subject to U.S. income taxes and foreign insurance companies that are not so burdened. Validus responds, however, that the plain text, considered in the context of reinsurance, and the statutory structure make clear that the excise tax does not apply to retrocessions, and further, the presumption against extraterritoriality resolves any doubt that the tax is inapplicable to Validus’s purchases of reinsurance from a foreign reinsurer. The court concluded that the text of the statute is ambiguous with respect to its application to wholly foreign retrocessions, and the ambiguity is resolved upon applying the presumption against extraterritoriality because there is no clear indication by Congress that it intended the excise tax to apply to premiums on wholly foreign retrocessions. Therefore, the court affirmed the district court's grant of summary judgment on Validus's refund claims. View "Validus Reinsurance v. United States" on Justia Law

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Taxpayers, United States citizens claiming to be bona fide residents of the Virgin Islands, petitioned the Tax Court, challenging the IRS's deficiency notices. In consolidated appeals, the court reviewed the Tax Court's denial of the Virgin Islands' motion to intervene in Taxpayers' proceedings in the Tax Court. The court concluded that the Virgin Islands qualified for intervention of right under Federal Rule of Civil Procedure 24(a)(2) and held that Rule 24(a)(2) applied in this instance. Because the court concluded that the Tax Court should have allowed the Virgin Islands to intervene as a matter of right under Rule 24(a)(2), the court did not reach the question of whether the Tax Court abused its discretion in denying permissive intervention under Rule 24(b)(2). Accordingly, the court remanded with instruction to grant the Virgin Islands intervention. View "Huff v. Commissioner of IRS, et al." on Justia Law

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In 1997, the United Kingdom imposed a one-time “windfall tax” on 32 U. K. companies privatized between 1984 and 1996 by the Conservative government. The companies had been sold to private parties through an initial sale of shares, known as “flotation.” Many of the companies became more efficient and earned substantial profits in the process. PPL, part owner of a privatized company, claimed a credit for its share of the bill in its 1997 federal income-tax return, relying on IRC section 901(b)(1), which states that any “income, war profits, and excess profits taxes” paid overseas are creditable against U. S. income taxes. Treasury Regulation 1.901–2(a)(1) states that a foreign tax is creditable if its “predominant character” “is that of an income tax in the U. S. sense.” The IRS rejected PPL’s claim, but the Tax Court held that the U. K. windfall tax was creditable. The Third Circuit reversed. A unanimous Supreme Court reversed, holding that the U. K. tax is creditable under section 901. Creditability depends on whether the tax, if enacted in the U. S., would be an income, war profits, or excess profits tax. A tax’s predominant character is that of an income tax “[i]f ... the foreign tax is likely to reach net gain in the normal circumstances in which it applies.” The windfall tax’s predominant character is that of an excess profits tax, a category of income tax in the U. S. sense. The Labour government’s conception of “profit-making value” as a backward¬-looking analysis of historic profits is not a typical valuation method; it is a tax on realized net income disguised as a tax on the difference between two values, one of which is a fictitious value calculated using an imputed price-to-earnings ratio. The windfall tax is economically equivalent to the difference between the profits each company actually earned and the amount the Labour government believed it should have earned given its flotation value. For most companies, the substantive effect was a 51.71 percent tax on all profits above a threshold, “a classic excess profits tax.” View "PPL Corp. v. Comm'r of Internal Revenue" on Justia Law

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In 1997, the United Kingdom imposed a one-time “windfall tax” on 32 U. K. companies privatized between 1984 and 1996 by the Conservative government. The companies had been sold to private parties through an initial sale of shares, known as “flotation.” Many of the companies became more efficient and earned substantial profits in the process. PPL, part owner of a privatized company, claimed a credit for its share of the bill in its 1997 federal income-tax return, relying on IRC section 901(b)(1), which states that any “income, war profits, and excess profits taxes” paid overseas are creditable against U. S. income taxes. Treasury Regulation 1.901–2(a)(1) states that a foreign tax is creditable if its “predominant character” “is that of an income tax in the U. S. sense.” The IRS rejected PPL’s claim, but the Tax Court held that the U. K. windfall tax was creditable. The Third Circuit reversed. A unanimous Supreme Court reversed, holding that the U. K. tax is creditable under section 901. Creditability depends on whether the tax, if enacted in the U. S., would be an income, war profits, or excess profits tax. A tax’s predominant character is that of an income tax “[i]f ... the foreign tax is likely to reach net gain in the normal circumstances in which it applies.” The windfall tax’s predominant character is that of an excess profits tax, a category of income tax in the U. S. sense. The Labour government’s conception of “profit-making value” as a backward¬-looking analysis of historic profits is not a typical valuation method; it is a tax on realized net income disguised as a tax on the difference between two values, one of which is a fictitious value calculated using an imputed price-to-earnings ratio. The windfall tax is economically equivalent to the difference between the profits each company actually earned and the amount the Labour government believed it should have earned given its flotation value. For most companies, the substantive effect was a 51.71 percent tax on all profits above a threshold, “a classic excess profits tax.” View "PPL Corp. v. Comm'r of Internal Revenue" on Justia Law

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Plaintiffs, American citizens, had bank accounts in UBS, Switzerland’s largest bank, in 2008 when the UBS tax-evasion scandal broke. The accounts were large and the plaintiffs had not disclosed the existence of the accounts or the interest earned on the accounts on their federal income tax returns, as required. Pursuant to an IRS amnesty program, they disclosed the interest and paid a penalty. They brought a class action to recover from UBS the penalties, interest, and other costs, plus profits they claim UBS made from the class as a result of the fraud and other wrongful acts. The Seventh Circuit affirmed dismissal, noting that the “plaintiffs are tax cheats,” and rejecting an argument that UBS was obligated to give them accurate tax advice and failed to do so. Plaintiffs did not argue that they asked UBS to advise them on U.S. tax law or that the bank volunteered advice. The court stated that: “This is like suing one’s parents to recover tax penalties one has paid, on the ground that the parents had failed to bring one up to be an honest person who would not evade taxes.” The court noted, but did not decide, choice of law issues. View "Thomas v. UBS AG" on Justia Law

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In its tax return for the year 1997, ConEd claimed multiple deductions pertaining to a lease-in/lease-out (LILO) tax shelter transaction under which a Dutch utility, EZH, a tax-indifferent entity because it is not subject to U.S. taxation, conveyed to ConEd a gas-fired cogeneration plant that delivers power to customers in the Netherlands, then leased it back, followed by a reconveyance to EZH and a sublease. The stated purpose of the arrangement was tax avoidance. LILO transactions accelerate losses to the taxpayer and defer gains. The transaction provided several upfront deductions that allowed ConEd to pay lower taxes in 1997 (and in later years) than it otherwise would have. The IRS disallowed these claimed deductions and assessed a deficiency of $328,066. ConEd paid the deficiency and filed a refund claim; when this claim was denied, ConEd filed suit. The Claims Court awarded ConEd a full refund. The Federal Circuit reversed, applying the substance-over-form doctrine to conclude that ConEd’s claimed deductions must be disallowed. There was a reasonable likelihood that EZH would exercise its purchase option at the conclusion of the ConEd sublease, thus rendering the master lease illusory. View "Consol. Edison Co. of NY v. United States" on Justia Law