Case Summaries 06/2010

(transaction that is in form a liquidation coupled with a reincorporation of a portion of the distributed assets is not a liquidation for tax purposes; instead, failed liquidation can be treated as reorganization if requirements satisfied; if requirements not satisfied, IRS can recast transaction under alter-ego theory). 

(defendant obtained easement over portion of cul-de-sac lying within adjoining lot because common grantors amended the boundary between the lots and granted an easement to benefit defendant's lot; defendant properly relied on recorded documents when he purchased lot). 

(taxpayer did not engage in bass fishing activity with requisite profit intent in accordance with I.R.C. Sec. 183; deductions limited to income from the activity).

(certification of class action against defendant upheld concerning lawsuit brought by oil and gas lessors of mineral interests in Hugoton field alleging breach of express and implied covenants in the alleged improper deduction of expenses from payment of royalties to lessors). 

(taxpayer not entitled to deduct early withdrawal penalty imposed via I.R.C. Sec. 72(t) for early withdrawal from IRA because the penalty is not the type of deductible penalty that Form 1040, line 30 contemplates).

 (IA couple's income taxable in Iowa even though husband worked as heavy equipment operator in Illinois due to reciprocity agreement with Illinois that income would be taxed in Iowa; fact that husband couldn't get refund for Illinois taxes irrelevant). 

(plaintiffs sustained hail damage to crop covered by insurance policy issued by defendant; policy required, as condition precedent to payment under policy, that insured provide notice of loss within 10 days of event and submit proof of loss within 60 days of loss, but defendant denied claim within 30 days of loss and did not provide plaintiff with loss forms that could be filed; under AR law, an insurer's denial of liability or refusal to pay under policy constitutes waiver of policy requirements as to notice and proofs of loss when the denial is not predicated on insured's failure to give notice or file proofs of loss; accordingly, summary judgment for defendant denied). 

(court upholds IRS' determination that taxpayer did not operate a consulting business during the year at issue and, thus, was not entitled to Schedule C deductions associated with such business; contracts with clients did not specify how taxpayer's compensation would be determined on the basis of quality or quantity of services performed; agreements were unsigned; no Schedule C income reported; no billing for services occurred). 

(Treas. Reg. Sec. 1.6015-5(b)(1), which requires taxpayers seeking innocent spouse relief under I.R.C. Sec. 6015(b) or (c) to request such relief within two years of the IRS bringing collection action also applies to requests for equitable relief under I.R.C. Sec. 6015(f); Treasury has deference under the Swallows rationale to promulgate regulations on matters where Congress is silent; opinion reverses 132 T.C. No. 8 (2009) [note - there are also cases on this issue pending in the Third Circuit and the Second Circuit]). 

(on cross motions for summary judgment, defendant determined to be an "arranger" under 42 U.S.C. Sec. 9607(a)(3); defendant designed state highways with storm water collection and drainage structures allowing hazardous substances (such as phosphorous) to be deposited into a listed Superfund site, and design, construction and operation of drainage systems had sole function of collecting highway runoff and disposing of it into nearby water-bodies; while defendant did not have control over how collected runoff was disposed of, defendant did design the drainage system; question of fact remained whether defendant complied with NPDES permit and whether release occurred outside of permit's scope). 

(father purchased condominium (in which he and his son lived and was, therefore, homestead property) in 2002 for $100,000 and transferred it to son in 2003 for $10 at time when father was insolvent, had many unpaid debts and owed IRS over $100,000 in unpaid federal taxes -  and son was aware of these facts; IRS claimed that transfer was fraudulent conveyance under FL law (which is the same as the Uniform Fraudulent Transfer Act on this issue), but son argued that same FL law also exempted asset transfers that involve assets that are "generally exempt under nonbankruptcy law"; court reasoned that because IRS could have forced sale of condominium, real question was whether asset was exempt with respect to particular creditor prior to the transfer - here, the IRS; court said condo not exempt as homestead and IRS could pursue asset even though IRS (IRS not bound by state homestead laws) had previously determined that condo's net realizable equity was zero; while court noted that 11th Circuit might allow equitable estoppel claim against IRS, son had not established the presence of the any of the factors for asserting such a claim; court also rejected son's claim that transfer of condo to him was compensation for care that he had provided to his father who was in failing health - son testified that he provided the care out of love and FL law presumes that no debt is created in such situations absent express written agreement or implied promise, which were not present). 

(court upholds defendant’s 2004 rule designating 8.65 million acres of critical habitat for the Mexican spotted owl; plaintiff had claimed that USFWS unlawfully designated areas containing no owls as “occupied” critical habitat and that USFWS calculated economic impacts of designation by applying impermissible “baseline” approach; subject acreage protected from livestock grazing, logging and recreational development). 

(debtor's placement of crop sale proceeds in personal bank account and used to pay living expenses and farm labor costs constituted willful and/or malicious injury to creditor who had prior perfected security interest in crop and crop proceeds; result was that debt non-dischargeable under 11 U.S.C. Sec. 523(a)(6); debtor knew that he owed money to creditor and knew that crops served as security for the debt and that he was to use crop sale proceeds to repay loan from creditor). 

(defendant, operator of horse breeding farm, denied summary judgment; genuine issue of material fact remained concerning whether defendant acted negligently in conducting semen collection activity using plaintiff's horse when horse kicked and severely injured plaintiff). 

(two deeds containing incorrect legal descriptions purporting to gift property were void because they violated the statute of frauds; not possible to reform deeds because they constituted a unilateral gift). 

(boundary by acquiescence not established by the evidence; silence and inaction since 1971 concerning misplaced fence did not show that such silence manifested a belief that fence was boundary to the property; there was never a mistake concerning the true boundary line).