“Taxes are what we pay for a civilized society.” That quote from Supreme Court Justice Oliver Wendell Holmes, Jr., can be found over the main entrance of the Internal Revenue Service office in Washington, D.C., noted Judge Robin Rosenbaum, writing for the Eleventh Circuit Court of Appeals. But, she added, “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.” The Eleventh Circuit did not side with the government, instead ruling for the taxpayer, Nora Mihelick, in a battle over income that Mihelick didn’t get to keep.
Mihelick was previously married to Michael Bluso. Bluso’s family owned a business, Gotham Staple Company. While they were married, Mihelick and Bluso both worked for the company and filed joint tax returns.
In 2004, Mihelick filed for divorce. By that time, Bluso had become a majority shareholder of Gotham. As sometimes happens with family businesses, a dispute arose regarding the management of the company. Bluso’s sister sued him, the company and others, alleging, among other things, that Bluso took too much money out of the company.
Bluso’s sister did not sue Mihelick—but Bluso felt that any money he took from the company would have also belonged to Mihelick (a theme that he stuck with pretty consistently). Eventually, to avoid fighting the matter in court, Mihelick agreed, as part of her separation agreement, to be partly responsible for any resulting liability.
Bluso and Mihelick officially divorced in 2005, but the fight over the company’s finances would go on through 2007. Eventually, Bluso settled with his sister and, admitting no wrongdoing, agreed to pay back $600,000.
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