May It Please the Court® A Weblog of Legal News & Observations
Quote of the Day - Advice is what we ask for when we already know the answer but wish we didn't. - Erica Jong

If Only Someone Would Advise Me

You're driving across country, filling up at every gas station. You live in New York, and you're on the way to California.

Do you have to pay the taxes on the gas in the states in between? Unfortunately, yes.

What if you were an airline, say Hawaiian Airlines, and you flew over international waters? Assume, for the purposes of this somewhat futile exercise, that you knew of an exemption for foreign trade (this link is not the correct exemption, and such an exemption does not actually exist). But, play along for a bit longer.

You might, if you didn't know any better, claim a $11.3 million tax credit. If you were Hawaiian Airlines, in bankruptcy, and seeking a way out.

Good thing you relied on someone else's advice.

The IRS tried to slap a $40 million penalty on Hawaiian Airlines for that little tax maneuver. Apparently, Hawaiian Airlines was later informed by Ernst & Young that tax advice was wrong, and the company restated its financials.

When the IRS sought its tax penalty, it got stopped by a Federal judge in Hawaii who ruled that because Hawaiian Airlines relied in good faith on tax advice, they didn't have to pay the $40 million penalty.


Now, about that gas tax....


Posted by J. Craig Williams on Monday, February 28, 2005

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