Reflections on the Movement in California to Repeal the State’s Ban on Affirmative Action

VIKRAM DAVID AMAR

Illinois law dean and professor Vikram David Amar offers three observations on a measure recently approved by the California legislature that would, if approved by the voters, repeal Proposition 209, the voter initiative that has prohibited affirmative action by the state and its subdivisions since its passage in 1996. Amar praises the California legislature for seeking to repeal Prop 209 and for seeking to do so using the proper procedures, and he suggests that if Prop 209 is repealed, legal rationales for the use of race should be based not only on the value of diversity (as they have been for some time now), but also on the need to remedy past wrongs against Black Americans.

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Audio Technica U.S., Inc. v. United States

Court: US Court of Appeals for the Sixth Circuit

Docket: 19-3469

Opinion Date: June 26, 2020

Judge: Eric L. Clay

Areas of Law: Civil Procedure, Tax Law

Technica makes high-end audio equipment and claimed tax credits for increasing research activities under 26 U.S.C. 41 for several tax years. The R&D tax credit is available when taxpayers increase certain research expenses over time, with the increase measured in part against research costs from the five-year period from 1984-1988, taken as a percentage of the company’s gross receipts during those years (the fixed-base percentage). For the 2002–2005 and 2011 tax years, the IRS issued a notice of deficiency. Rather than litigate, Technica and the government reached settlement agreements, which were approved by the Tax Court. The settlements did not address the details but simply listed the dollar amounts of the agreed-upon deficiencies. According to Technica, these amounts were determined by a “specific agreement” as to the fixed-base percentage. With respect to the 2006–2010 tax years, Technica paid the amount requested by the IRS then sued for a refund, arguing that the government was judicially estopped from claiming that the .92% fixed-base percentage did not apply. The district court agreed, finding that because the government had entered into settlements for the other tax years using that same fixed-base percentage, it was judicially estopped from now arguing that the percentage was incorrect. The Sixth Circuit reversed. A court order memorializing a settlement agreement generally does not constitute judicial acceptance of the facts underpinning that agreement, and the orders approved by the Tax Court did not actually include the .92% rate.

Byers v. Internal Revenue Service

Court: US Court of Appeals for the Sixth Circuit

Docket: 19-1893

Opinion Date: June 26, 2020

Judge: Karen Nelson Moore

Areas of Law: Tax Law

Byers received notice from Chase Bank that IRS Agent Conroy had requested information in connection with the IRS’s investigation into her then-husband. The notice stated that “[t]he requested information includes information that relates to you.” Conroy sent Byers a letter, informing her that she was under investigation for violating 26 U.S.C. 6700 and/or 6701, issued a document request, and requested an interview. Byers refused. Byers received copies of IRS summonses that Conroy had issued, directing her banks to provide, for 2007-2018, “any and all documents … related to . . . Andrea Byers and any other corporation or name Andrea Byers used . . . including but not limited to multiple entities. Bank of America responded to the summons but Conroy has not opened the envelope containing the response due to Byers’s pending petition to quash. The government successfully moved for dismissal of Byers’s petitions and for enforcement of the summonses. The Sixth Circuit affirmed, noting the IRS’s broad authority to collect information related to taxpayers’ potential liabilities. The IRS was not required to establish a “reasonable basis” for its investigation before its summonses could be enforced. The IRS made a prima-facie showing in support of enforcing its summonses. She did not establish that the IRS abused the district court’s process in seeking enforcement of the summonses.

United States v. Igboba

Court: US Court of Appeals for the Sixth Circuit

Docket: 19-1116

Opinion Date: July 2, 2020

Judge: Eric L. Clay

Areas of Law: Criminal Law, Tax Law, White Collar Crime

Igboba was convicted on 18 counts under 18 U.S.C. 286, 18 U.S.C. 1343, 18 U.S.C. 287, and 18 U.S.C. 1028A(a)(1), (b), and (c)(5), based on his participation in a conspiracy to defraud the government by preparing and filing false federal income tax returns using others’ identities. He was sentenced to 162 months’ imprisonment, followed by three years of supervised release, and required to pay restitution, special assessment, and forfeiture sums. The Sixth Circuit affirmed, rejecting arguments that when the district court increased his base offense level based on the total amount of loss his offense caused, U.S.S.G. 2B1.1(b)(1), it failed to distinguish between the loss caused by his individual conduct and that caused by the entire conspiracy and that the district court erred in applying a two-level sophisticated-means enhancement, section 2B1.1(b)(10). the district court could rightly attribute $4.1 million in losses to “acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by” Igboba. The court noted his “sophisticated” use of technology and multiple aliases.

Bank of America Corp. v. United States

Court: US Court of Appeals for the Federal Circuit

Docket: 19-2357

Opinion Date: July 2, 2020

Judge: Wallach

Areas of Law: Civil Procedure, Tax Law

In 2009, Bank of America acquired Merrill Lynch. In 2013, Merrill Lynch “merged with and into” Bank of America. In 2017, Bank of America filed a complaint, seeking to recover overpaid interest on federal tax underpayments and additional interest on federal tax overpayments arising under 26 U.S.C. 6601 and 6611. The claimed overpayment interest arose from overpayments made by Merrill Lynch. The government moved to sever the Merrill Lynch overpayment interest claims exceeding $10,000 and requested that the district court transfer them to the Court of Federal Claims or, alternatively, dismiss them for lack of subject matter jurisdiction. The Magistrate Judge concluded and the district court affirmed that district courts have “subject matter jurisdiction over overpayment interest claims pursuant to 28 U.S.C. 1346(a)(1). The Federal Circuit vacated. The plain language of section 1346(a)(1) dictates that the term “any sum” refers to amounts that have been previously paid to, or collected by, the IRS, which, overpayment interest “[b]y its nature, . . . is not.” The conclusion that section 1346(a)(1) does not cover overpayment interest claims is consistent with the tax code’s broader statutory scheme; the legislative history does not contradict that conclusion.

City and County of San Francisco v. All Persons Interested in Proposition C

Court: California Courts of Appeal

Docket: A158645(First Appellate District)

Opinion Date: June 30, 2020

Judge: Tucher

Areas of Law: Constitutional Law, Election Law, Government & Administrative Law, Tax Law

In the November 2018 general election, 61percent of San Francisco voters voted for Proposition C, entitled “Additional Business Taxes to Fund Homeless Services.” San Francisco filed suit to establish that Proposition C has been validly enacted through the voters’ initiative power. The City’s complaint against “All Persons Interested in the Matter of Proposition C” was answered by three defendants: the California Business Properties Association, the Howard Jarvis Taxpayers Association, and the California Business Roundtable (the Associations). The Associations allege that Proposition C is invalid because it imposes a special tax approved by less than two-thirds of the voting electorate as required by Propositions 13 and 218. (California Constitution Art. XIII A, section 4 & Art. XIII C, section 2(d).) The trial court granted the City judgment on the pleadings. The court of appeal affirmed, citing two California Supreme Court cases interpreting other language from Proposition 13 and Proposition 218. The supermajority vote requirements that those propositions added to the state constitution coexist with and do not displace the people’s power to enact initiatives by majority vote. Because a majority of San Francisco voters who cast ballots in November 2018 favored Proposition C, the initiative measure was validly enacted.

Howard Jarvis Taxpayers Association v. Bay Area Toll Authority

Court: California Courts of Appeal

Docket: A157598(First Appellate District)

Opinion Date: June 29, 2020

Judge: J. Anthony Kline

Areas of Law: Government & Administrative Law, Tax Law

A toll increase for seven Bay Area bridges that was submitted to the voters as Regional Measure 3 in 2018, and approved by a 55 percent majority. Revenue from the toll increase is to be applied toward various designated highway and public transit improvement projects and programs. Opponents contend that most of the revenue will not be used for the benefit of those who use the bridges and pay the toll but rather for the benefit of those who use other means of transportation; they argue the toll increase is a tax for which the California Constitution requires a two-thirds majority vote, and therefore is invalid.The court of appeal affirmed judgment on the pleadings, upholding the fee increase. The Legislature, not the Bay Area Toll Authority, imposed the toll increase in Senate Bill 595, which required imposition of a toll increase of up to $3, subject to approval by the voters, and specified in great detail the uses to which the resulting revenue would be put.

Steuer v. Franchise Tax Board

Court: California Courts of Appeal

Docket: A154691(First Appellate District)

Opinion Date: June 29, 2020

Judge: Frank Y. Jackson

Areas of Law: Tax Law, Trusts & Estates

The Paula Trust, established for the sole benefit of Medeiros, a California resident, has two cotrustees—a California resident and a Maryland resident. Paula Trust held a limited partnership interest in Syufy, which in 2007 sold stock. Some of the capital gain income from the stock sale was allocated to Paula Trust. Paula Trust’s 2007 tax return reported $2,831,336 of capital gain including the stock sale. The trust paid California income tax of $223,425 and later filed an amended 2007 California fiduciary income tax return, requesting a refund, arguing that the capital gain was incorrectly reported as California-source income. The trustees declared they were “required to apportion the stock gain as California source and non-California-source income . . . according to the number of trustees resident in California” based on Rev. & Tax. Code 17743, which provides: “Where the taxability of income under this chapter depends on the residence of the fiduciary and there are two or more fiduciaries for the trust, the income taxable . . . shall be apportioned according to the number of fiduciaries resident in this state.” The court of appeal reversed a judgment ordering a refund in the amount of $150,655 of tax, plus interest of $68,955.70. The Revenue and Taxation Code imposes taxes on the entire amount of trust income derived from California sources, regardless of the residency of the trust’s fiduciaries.