Court Cases: Sales And Use Tax, Franchise Tax, Collections, Adopted Rules, Proposed Rules

Court Cases

Sales and Use Tax

Manufacturing Exemption

Hegar v. Tex. Westmoreland Coal Co., Case 21-1007 (Tex. Sept. 30, 2022)—In this case, the Texas Supreme Court denied the Comptroller’s petition for review, leaving the decision of the Third Court of Appeals in favor of the taxpayer in place.  The Court of Appeals had held that equipment used to break apart lignite coal from a coal formation qualified for the manufacturing exemption from sales and use tax.[1] The Court of Appeals disregarded the Comptroller’s argument that the manufacturing exemption didn’t apply because the equipment was used on real property to create tangible personal property, holding that there was no basis in the statute for any requirement that an input to the manufacturing process had to be tangible personal property.

Franchise Tax


Citgo Petroleum Corporation v. Hegar, 21-0997 (Tex. Sept. 30, 2022)—The Texas Supreme Court denied the taxpayer’s petition for review in this case, so the decision of the Third Court of Appeals in favor of the Comptroller remains the law of the land. The Court of Appeals had held that only the net proceeds of sales of commodity futures contracts and options on commodity futures contracts could be included in the calculation of the taxpayer’s apportionment factor for purpose of calculating Texas franchise tax.


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Tax Court In Brief: Short Summaries And Opinions

Ervin v. Commissioner, T.C. Memo. 2021-75 | June 23, 2021 | Lauber, J. | Dkt. No. 485-15

  • Opinion 

Short Summary

For nearly a decade, the taxpayer and his wife failed to file Federal income tax returns and made no payments.  The couple were indicted and convicted for tax evasion for a three-year period of the near-decade non-payment.  The following year, the taxpayer was ordered to pay restitution for the entire period of non-filing and non-payment.

After remanded to custody, the IRS completed a civil examination for the taxpayer’s individual income tax liabilities for a six-year period, which included years subject to the criminal court’s order for restitution. IRS prepared and certified a substitute for return for the relevant years. IRS, then, sent taxpayer two notices of deficiency for two three-year periods, providing for penalties.

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When Is The Accrual Method Available To Taxpayers? The Tax Court In The Morning Star Packing Company Case

A recent Tax Court case addresses the accrual method of accounting in the cost-of-goods-sold (COGS) contexts:

The Morning Star Packing Company, L.P., et al. v. Comm’r, T.C. Memo. 2020-142 | October 14, 2020 | Cohen A. | Dkt. Nos. 5013-15, 5015-15, 16684-16, 16842-16

Short Summary:  Petitioners sought review of the IRS’ determination that they were not entitled to increase their cost of goods sold (“COGS”) for the costs to restore, rebuild, recondition, and retest their manufacturing facilities for years of 2008 – 2011.  The Tax Court found in favor of the IRS.

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IRS Logo-Interest Continues To Acccrue On IRS Court Cases

The United States Tax Court’s website ( announced that the Tax Court shut down operations on Friday, December 28, 2018, at 11:59 p.m. and will remain closed until further notice.  The IRS reminds taxpayers and tax professionals the Tax Court website is the best place to get information about a pending case.

There are some important points for taxpayers and tax professionals to keep in mind. These are some questions and answers to help during the current appropriations lapse.

Q: What should I do if a document I mailed or sent to the Tax Court was returned to me?

A: The Tax Court website indicates that mail sent to the court through the U.S.  Postal Service or through designated private delivery services may have been returned undelivered.  If a document you sent to the Tax Court was returned to you, as the Tax Court website indicates, re-mail or re-send the document to the Court with a copy of the envelope or container (with the postmark or proof of mailing date) in which it was first mailed or sent. In addition, please retain the original.

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John Dundon

This is a continuation from a previous post from last week, “Real Estate Professionals For U.S. Federal Income Tax Purposes.”

What many taxpayers have a difficult time understanding is that qualifying as a real estate professional does not guarantee that your rental activities are non-passive. It simply means that your rental activity is not NECESSARILY passive regardless of your level of participation.

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