The U.S. Court of Appeals for the Federal Circuit today affirmed the summary judgment motion granted to the government in the taxpayers’ refund suit for a portion of federal income tax that they paid on an excess amount of a state tax credit received by them.
The case is: Ginsburg v. United States, 2018-1788 (Fed. Cir. April 25 2019). Read the Federal Circuit’s decision [PDF 129 KB]
The taxpayers (married individuals) through a limited liability corporation in which they indirectly held a majority of the partnership interests, had received a New York State tax credit for the re-development of a brownfield site. The amount of the brownfield re-development credit was approximately $6.6 million for 2011, and the taxpayers’ share of that credit was just under $5 million.
In 2013, New York State paid the taxpayers a refund of $1.9 million attributable to the brownfield re-development tax credit. The taxpayers did not report this amount as income on their 2013 federal income tax return, claiming that this payment was a nontaxable refund.
The IRS, however, examined the return and proposed adjustments to include about $1.8 million of the $1.9 million as taxable income. The amount of federal tax owed was approximately $609,000 which the taxpayers paid. The taxpayers in May 2016 filed a refund claim with the IRS for $602,000 (representing a part of the deficiency attributable to the brownfield re-development tax credit). Eventually, the refund claim ended up in the U.S. Court of Federal Claims which denied the taxpayers’ contention that the brownfield re-development tax credit qualified for certain exceptions or exclusions from federal income tax. The taxpayers had asserted that the tax credit was a reimbursement of capital costs.
The Federal Circuit today affirmed.
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