Jesse Linde
army helo.jpg

He’s not famous, and he’s not wealthy. But Jesse Linde is a retired Army helicopter pilot who, after struggling to find work in the US where competition among younger pilots is fierce, landed a job with a government contractor in Iraq.

While in country, Linde lived among the general population: eating at local restaurants, befriending native interpreters, and spending his free time outside secure areas. And since he made Iraq his home, he used the foreign earned income exclusion under Section 911, excluding his income from federal taxation.

But since Linde had an unusual work schedule—he worked 60 days straight followed by 30 days off—Linde also made it back to the US on a frequent basis. As a result, the IRS issued an assessment for each year he used the foreign income exclusion, rejecting his qualifications for the credit.

Taxpayers typically use the physical presence test because it provides a bright line safe harbor for those who work abroad for most of the year. But there is an alternative qualification if you can establish that you are a bona fide resident of a foreign country, and that’s exactly what Linde did.

Ultimately, the Tax Court decided that even though Linde returned to the US frequently and did not meet the physical presence test, he made Iraq his tax home. As a result, he owed no income taxes for the years in question. 

Josh Norris
Boston Bruins

For the taxable years 2009 and 2010, the IRS sent Boston Bruins owner Jeremy Jacobs tax deficiency notices of $45,205 and $39,823, respectively. Now, that’s a pretty big bill for an everyday taxpayer, but for a man with an estimated net worth of over $4 billion, it’s not a huge deal. Although, that doesn’t mean he won’t fight it.

So what triggered the deficiency notices? The IRS claimed that the Bruins were only eligible to deduct 50% of meals provided players during out-of-town games. Back in the good ole days of the 1980s, business owners frequently ran up large tabs for boozy business lunches at expensive restaurants because it was 100% deductible.

Then, along the way Congress enacted Section 274(n) of the code, which generally limits meal deductions to 50%. However, there is a de minimis exception in Section 119(a). Of course, like all exceptions, there are certain requirements, one of which is that the meals must be provided on the “business premises,” which is the crux of this case.

The IRS argued that during these out of town games, meals were not served on Bruins property and the exception shouldn’t count. However, the Bruins claimed that these meals served in rooms leased by the business were a vital part of the franchise’s success and should qualify for the exception.

On June 26, 2017, the Tax Court ruled in favor of the Bruins owner and opened up the potential for greater latitude with the business meals deductions in the future.

Josh Norris
Wesley Snipes

In 2008, Wesley Snipes was criminally convicted and sentenced to three years in jail for not filing tax returns. The years in dispute were 1999-2001, just after the release of Blade, and the total tax bill was around $7 million. He was making a very public political point, so the IRS and Department of Justice had no problem returning the favor and making a very public example of him.

Basically, Snipes and his advisors, Eddie Ray Kahn and Douglas P. Rosile, claimed that the US government could not legally tax him. Kahn (pronounced con…) was a very public anti-tax advocate, who fled to Panama after his indictment and is still in jail for conspiracy to defraud the government. Among their other non-sensical arguments, they claimed that the IRS was not a legitimate government agency and that based on Internal Revenue Code Section 861, Snipes owed no taxes.

Section 861 applies to income of nonresident aliens and foreign corporations, but tax protesters like Kahn take the code section and its regulations out of context and apply them to US residents, which would greatly narrow the standard definition of taxable income. Unfortunately for Kahn (and Snipes), this interpretation completely ignores Section 61, which defines gross income as “all income from whatever source derived.”

Josh Norris
Joseph Nacchio

In 2007, Joseph Nacchio, former CEO of Qwest Communications, was convicted on 19 counts of insider trading and, in addition to receiving a 70-month prison sentence, was forced to forfeit over $44 million of ill-gotten gains. Of course, Nacchio had already paid income taxes on that $44 million back in 2001, so in 2007, he filed for an $18 million tax refund.

Did he get it? In short – no. But several interesting issues did come up as the case made its way through the system. His lawyers tried to argue that his payment was considered restitution and not a forfeiture, which is barred as deductible under §162(f). And although he was convicted of insider trading, he never admitted guilt or took the stand at trial, so they tried to claim he was unaware of his ill-gotten gains, which would allow a deduction under §1341.

In the end, the Court of Appeals essentially admitted that enforcing forfeiture with after-tax money is a double slap in the face, but as a matter of public policy, they were ok with it.

Josh Norris