Taxpayer Seeks Rehearing En Banc in Historic Boardwalk

The taxpayer has filed a petition for rehearing and rehearing en banc in Historic Boardwalk, asking the Third Circuit to reconsider its decision denying the taxpayer’s claim for historic rehabilitation credits.  Among other points, the petition criticizes the panel’s decision for analogizing this case to the Second Circuit’s Castle Harbour decision, TIFD III-E, Inc. v. United States, 459 F.3d 220 (2d Cir. 2006), which found that the partner there had no downside risk that it would not recover its capital contribution.  The taxpayer argues that there was a risk here that the partner would not recover its capital … Read More

Supreme Court Expected to Act on Windfall Tax Petitions in Late October

In our previous post discussing the pending requests for Supreme Court review of the question of the creditability of the U.K. Windfall Tax, we noted that the Court had scheduled consideration of the PPL cert petition for its October 5 conference.  The Court has now postponed that consideration until its October 26 conference.  The reason for the change is to allow the Court to consider the PPL petition in tandem with the government’s petition in Entergy.

This postponement allows the Court to consider the issue with the benefit of an adversarial presentation.  As you will recall, the government “acquiesced” … Read More

Sixth Circuit Creates Circuit Conflict on FICA Exclusion for Severance Payments

More than two years after the appellate briefing was completed, the Sixth Circuit has finally issued its decision in Quality Stores.  (See our previous coverage here.)  The court ruled that severance payments paid to employees pursuant to an involuntary reduction in force are not “wages” for FICA tax purposes.  In so holding, the Sixth Circuit expressly declined to follow the Federal Circuit’s contrary decision in CSX Corp. v. United States, 518 F.3d 1328 (2008).

The court agreed with the taxpayer’s argument that the severance payments are not literally “wages” under the Code.  Although Code section 3402(o) … Read More

Second Circuit Upholds Denial of R&E Credit Claims in Union Carbide

The Second Circuit today affirmed the Tax Court’s decision in Union Carbide denying the research and experimentation credit for the costs of certain supplies used in production process experiments that sought to improve a process that was already in use for producing products. The court concluded that the credit is available only for the costs of supplies that would not have been incurred but for the experiment; hence, it disallowed the credit claim for the costs of other supplies that concededly were necessary for the experiment because they are otherwise necessary for the production process, but would have been incurred … Read More

Government Urges Supreme Court to Consider Foreign Tax Credit Issue

As previously reported here a few weeks ago, PPL filed a petition for certiorari asking the Supreme Court to review the Third Circuit’s decision denying a foreign tax credit for U.K. Windfall Tax payments.  Given that the Fifth Circuit had decided the same issue in the opposite way in the Entergy case, there was a significant possibility that the government would not oppose certiorari, but instead would urge the Court to resolve the circuit conflict.

The government has now decided that its interests in resolving the conflict and potentially securing a reversal in Entergy outweigh its interest in preserving … Read More

Tax Court Reversed on Historic Rehabilitation Credits in Historic Boardwalk

[Note:  Miller & Chevalier filed a brief in this case on behalf of National Trust for Historic Preservation]

In a detailed 85-page opinion, the Third Circuit has reversed the Tax Court’s opinion that upheld a claim for historic rehabilitation tax credits by the private partner in a public/private partnership that rehabilitated a historic property on the Atlantic City boardwalk.  See our earlier report here.  The government had argued both that the transaction lacked economic substance and that the private partner, Pitney Bowes, was not a bona fide partner in the enterprise.  The Third Circuit agreed with the government’s second … Read More

Fifth Circuit to Consider Whether Section 951 Inclusions Are Qualified Dividends

The taxpayers have appealed to the Fifth Circuit from the Tax Court’s decision in Rodriguez v. Commissioner, No. 13909-08 (Dec. 7, 2011), which rejected qualified dividend treatment for certain amounts included in their income pursuant to Code Section 951.  In 2003, Congress established a preferential tax rate for “qualified dividend income,” which includes dividends received from a qualified foreign corporation.  Separately, section 951 contains provisions designed to limit tax deferrals by a “controlled foreign corporation” (CFC).  Section 951 requires a taxpayer to include in income earnings of a CFC that are derived from investments in U.S real estate.  The … Read More

Supreme Court Asked to Resolve Circuit Split on Foreign Tax Creditability of U.K. Windfall Tax

[Note:  Miller & Chevalier filed an amicus brief on behalf of American Electric Power in the PPL case.]

We have fallen behind in updating the progress of the litigation concerning the creditability of the U.K. Windfall Tax that was imposed on British utilities in the 1990s.  As we previously reported, the Tax Court held in two companion cases that this tax was equivalent to an income tax in the U.S. sense of the term and hence creditable.  The government took two appeals — to the Third Circuit in PPL and to the Fifth Circuit in Entergy.  Those courts … Read More

Opening Brief Filed in Cadrecha

The taxpayers have filed their opening brief (literally! only 18 pages!) in Cadrecha.  They focus on two points.  First, they argue that the Court of Federal Claims mistakenly relied on an IRS official’s affidavit for conclusions about what transpired in telephone conversations, when the taxpayers were not given an adequate opportunity to dispute those facts.  Therefore, the court erred in ruling at the motion to dismiss stage.  Second, they argue that their claim should be viewed as timely in any event.  The taxpayers reason that, since the IRS’s notice of disallowance referred to a May 2007 claim, the timely March … Read More

Goosen Appeal Dismissed; Garcia Decision Looms

While this post is significantly belated, it’s still worth noting that the IRS (the original appellant) and Goosen (who had cross appealed) stipulated to dismiss the appeal to the D.C. Circuit back in February.

This doesn’t mark the end of the IRS’s fight with pro golfers over the character and source of income (especially royalty income).  Sergio Garcia disputed deficiencies on similar issues; his case was tried in the Tax Court back in March.  (Case No. 013649-10).  We’ll update you when the decision is issued in that case.… Read More

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