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Mihelick v. United States

United States Court of Appeals, Eleventh Circuit

June 18, 2019

NORA L. MIHELICK, Plaintiff-Appellant,

          Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 2:16-cv-00741-SPC-MRM

          Before CARNES, Chief Judge, and ROSENBAUM and DUBINA, Circuit Judges.


         Inscribed above the main entrance of the Internal Revenue Service office in Washington, D.C., is a quotation from Supreme Court Justice Oliver Wendell Holmes Jr.: "Taxes are what we pay for a civilized society." Civil servants at the IRS pursue an honorable mission, Washington Post, https://www.washingtonpost. com/opinions/civil-servants-at-the-irs-pursue-an-honorable-mission/2018/07/24/ 75268f5e-8ea8-11e8-ae59-01880eac5f1d_story.html?utm_term=.61e3f74f5f8c, (last visited June 18, 2019). An admirable outlook, yet even Justice Holmes would likely agree that it is uncivilized to impose taxes on citizens for income they did not ultimately receive. But that is precisely the result the government asks us to uphold today.

         When they were married, Nora Mihelick and her ex-husband Michael Bluso earned and paid taxes on income from Gotham Staple Company ("Gotham"). After the couple divorced, they learned they had to return $600, 000 of the income they had received from Gotham. This meant that the couple had paid income taxes on $600, 000 they turned out not to have.

         Since the two had equally benefitted from and contributed to the income at issue, they agreed to split the liability evenly, consistent with Ohio law: Bluso would return $300, 000 and Mihelick the other $300, 000. So Bluso returned the full $600, 000, and Mihelick reimbursed him for half that amount.

         Then, under 26 U.S.C. § 1341-which allows a taxpayer who paid taxes on what he erroneously believed to be his income to recoup those unnecessary tax payments-Bluso recovered the taxes he had previously paid on the $300, 000. But when Mihelick tried to do the same thing for the taxes she had paid on the other since-returned $300, 000, the government denied her request, simply because she had paid the money to Bluso instead of returning the money directly herself.

         Under § 1341, though, Mihelick had just as much of a right to recover the taxes she previously paid on the $300, 000 she received and then gave back as did Bluso to recover the taxes he paid on his $300, 000 that he returned. So we reverse the district court's entry of summary judgment for the government and remand for further proceedings consistent with this opinion.

         I. BACKGROUND

         Petitioner Nora Mihelick and her ex-husband Michael Bluso married in Ohio in 1978. From 1999 to 2004, the couple lived in Ohio and worked at Gotham Staple Company, a closely held Ohio corporation owned by Bluso's family. Mihelick worked for the company, planning events, caring for and maintaining the homes of Bluso's parents, and handling administrative tasks. Bluso was the chief executive officer of Gotham at the time, and he eventually became majority shareholder as well. Both Mihelick and Bluso earned income for their roles at Gotham, and the couple filed joint tax returns that included Bluso's income during those years. The couple likewise paid taxes on the taxable income they earned from Gotham during that time.

         In September 2004, Mihelick filed for divorce. While the divorce was pending, Pamela Barnes-one of Bluso's sisters, who was a minority shareholder at Gotham-sued Bluso, Gotham, and others. Among other things, Barnes claimed that Bluso had breached his fiduciary duties by excessively compensating himself at Gotham's expense.

         Mihelick was not a party to the litigation, but Bluso wanted Mihelick to share any resulting liability from Barnes's lawsuit. To Bluso, Mihelick had also reaped the benefits of his compensation, so she should share the burdens of his compensation as well.

         At first, Mihelick opposed the idea of sharing liability for the Barnes litigation-she wanted the separation agreement to provide that she was "not liable for anything that Pam Barnes comes up with." But when Bluso threatened to have a judge decide Mihelick's responsibility, Mihelick relented and agreed to share liability for the Barnes lawsuit.

         After some back and forth between the parties about how to divide the liability, they agreed to Article 5 of their separation agreement, which provided that any liability from the Barnes litigation would be considered a marital liability for which Bluso and Mihelick would be jointly and severally liable. Specifically, the section clarified that the liability "arose all or in part from the acquisition of marital assets," and that since the marital assets had been equally divided, the liability "shall be deemed to be a marital liability," too.

         Mihelick and Bluso finalized their divorce on August 31, 2005, but the Barnes litigation continued. Eventually, in 2007, Bluso settled with Barnes. Under the terms of the settlement, Bluso disclaimed any wrongdoing but paid Barnes $600, 000 to settle her excess-compensation claims.

         After paying Barnes $600, 000, Bluso took a tax deduction for $300, 000. When asked whether he considered deducting the entirety of his $600, 000 payment to Barnes, Bluso explained that he did not feel that it was right to do so, since Mihelick had to shoulder the burden of the other half of the $600, 000 payment and since the couple had shared benefits and liabilities evenly during the marriage:

[T]he divorce decree said she would have to pay back half of it since she, you know, benefited in half, and all these 1040s you gave me both my name and her name is on it. We both paid income tax on that. We paid income tax on her salary. She paid income tax on my salary. When I paid back the money to my sister, that was for excess compensation. I only felt that I was due $300, 000 of it . . . .

         Bluso accordingly looked to Mihelick to cover her half of the $600, 000 liability, but Mihelick again resisted paying. So Bluso withheld alimony for a month and threatened to deprive her of more support. After contentious negotiations between Mihelick's lawyer and Bluso, and after Mihelick's lawyer advised her that she had an "obligation" to pay, Mihelick finally acquiesced and paid Bluso $300, 000 in 2009.[1]

         In the meantime, Bluso successfully obtained tax relief for his $300, 000 payment. Viewing herself in the same position as Bluso, Mihelick then sought tax relief for her $300, 000 payment. On her 2009 tax return, she pursued a tax refund under 26 U.S.C. §§ 1341 and 165. But unlike what it had done with Bluso, the IRS denied Mihelick's claim for a refund. Mihelick sought relief in court. The district court agreed with the government and granted summary judgment against Mihelick. Mihelick now appeals.


         "We review de novo the grant of summary judgment and construe the evidence and draw all reasonable inferences in the light most favorable to the nonmoving party." Ziegler v. Martin Cty. Sch. Dist., 831 F.3d 1309, 1318 (11th Cir. 2016).

         III. ...

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