Annotations 03/2011

(payments that professional C corporation made to related entities that were designated as "consulting fees" were not compensation for services of the founders of the C corporation; firm not entitled to deduct such payments in attempt to push tax liability to zero; even if such payments were properly construed as compensation, such amounts were unreasonably high). 


(report notes that IRS issued millions of dollars in fraudulent and erroneous homebuyer (first-time and long-term) credits totaling more than $513 million, including some IRS employees). 


(decedent's spouse eligible to roll over or transfer proceeds of decedent's IRA into an IRA in her own name without including proceeds in gross income; decedent's will left property to trust with residue to estate; residue included IRA; community property law applied entitling spouse to one-half of assets in IRA; under terms of will spouse's community property interest in IRA allocated to marital trust and initially funded sub-trusts; ultimately entire IRA became spouse's property; IRA not treated as inherited by virtue of I.R.C. Sec. 408(d)(3); spouse can rollover or have transferred via trustee-to-trustee transfer, IRA proceeds into IRA established in spouse's name; IRA proceeds not included in spouse's gross income). 


(disability plan benefits that are paid via statute that treats them as comparable to workers' compensation are excludible from the recipient's income under I.R.C. Sec. 104(a)(1)). 


(taxpayer did not have income from discharge of indebtedness because IRS could not prove that taxpayer had borrowed funds to buy a vehicle). 


(amounts taken from petitioner's business accounts by petitioner's boyfriend entitle petitioner to theft loss deduction for amount taken; boyfriend was abusive to petitioner; no deduction allowed for amounts as reasonable compensation to boyfriend). 


(defendant's rule (Rule 2196) which requires confined animal feeding operations (CAFOs) in the state to either seek and obtain an NPDES permit (irrespective of whether such CAFO actually discharges pollutants) or demonstrate no potential to discharge is within the scope of state's Natural Resources Environmental Protection Act, is consistent with legislative intent and is not arbitrary or capricious; court determined that 2005 decision in Waterkeeper Alliance, Inc., et al. v. United States Environmental Protection Agency, 399 F.3d 486 (2d Cir. 2005) inapplicable because EPA had granted state authority to administer its own NPDES program, thus the validity of state CAFO regulations was to be addressed solely in accordance with state law and immaterial that portions of federal regulations were invalidated by Waterkeeper decision; state law gave defendant authority to pass regulations designed to protect state water resources from waste disposal; defendant properly and sufficiently supported its claim that expanded rule necessary to protect environment and rule rationally related to defendant's responsibility under state law to protect water resources from pollution). 


(agreement entered into by the parties in settlement of legal dispute with purpose of facilitating continuing business relationship between parties  and pay past debts clear and unambiguous; agreement clearly contemplated a continuing business relationship unless defendant stopped growing infant strawberry plants). 


($11.05 million jury verdict against defendant for damages arising from creation of temporary nuisance caused by odors from 83 million gallons of liquid hog waste in runoff lagoons affirmed; state (MO) law allows a plaintiff to recover compensatory damages for loss of use or enjoyment of property that is business property (as opposed to just being a residence); fact that plaintiffs did not make any claim of loss of value of property as a result of the nuisance immaterial; issue is whether defendant's conduct interfered with plaintiffs' rightful possession of their land and the right to use and enjoy the land; substantial testimony existed that odors, gases and chemicals entered plaintiffs' properties). 


(nuisance case involving odors emanating from cattle feedlot; present issue involves venue; trial court's decision to bar plaintiff's action and grant summary judgment to defendant based on statute of repose containing in state right-to-farm law reversed; case remanded with instructions to transfer matter to different county). 


(partnership investments used to rehabilitate property designated as "historic" in exchange for state "historic rehabilitation tax credits" held to be disguised sales; state law allows credits of up to 25% of cost to rehabilitate historic property and credits can be distributed among partners in a partnership for credits that are allocated to the partnership; IRS claimed that "partners" were not bona fide but, if they were, transactions were properly characterized as sales; transactions determined to be disguised sales under I.R.C. Sec. 707 and regulations; transfer of "property" involved because credits were "valuable" and had "some of the most essential property rights"; partners faced no risk (were promised refunds if credits weren't delivered; court's decision likely to trigger IRS appeal of decision in Historic Boardwalk Hall LLC v. Comr., 136 T.C. No. 1 (2011)). 


(court affirms water court's dismissal of plaintiffs' inverse condemnation claim; well owners' claim is water matter that water court has exclusive jurisdiction over and state engineer's orders curtailing well owners' use of water in their wells was not a taking).  


(trial court's decision that debtors did not give reasonably equivalent value for a mortgage and that, thus, mortgage was fraudulent under 11 U.S.C. Sec. 548(a)(1)(B) and underlying lien should be avoided reversed; bankruptcy court focused on wrong factors; court is to consider any value that debtors received in exchange for the mortgage, and they did receive value in collateralization of their antecedent debt which avoided acceleration, value for securing their direct debt, value in the form of bank's forbearance of repayment of debt and value in form of bank's forbearance of debtors' guarantor obligations). 


(proceeds that petitioner received to settle lawsuit against employer are included in income; amounts not paid for petitioner's physical injury or sickness; no accuracy-related penalty imposed).


(court affirms Tax Court decision (T.C. Memo. 2010-31) that taxpayer, a business planning and tax attorney, is liable for fraud penalties for fraudulently understating income by failing to report fees for legal and tax preparation services; taxpayer devised scheme to assign income to entities to conceal true nature of earnings subject to income and self employment tax). 


(taxpayer was engaged in the trade or business of managing venture capital funds; taxpayer's bad debt loss proximately related to taxpayer's trade or business and deductible under I.R.C. Sec. 166(a)). 


(taxpayer not entitled to deduction for charitable contribution of facade easement due to lack of substantiation - no contemporaneous written acknowledgment of the easement as required by I.R.C. Sec. 170(f)(8)(B)(iii)). 


(lump-sum settlement entered into with former employer did not involve claim for personal physical injury or sickness and constituted income under I.R.C. Sec. 104; Tax Court decision (T.C. Memo. 2010-53) affirmed). 


(court affirms water court's dismissal of plaintiffs' inverse condemnation claim; well owners' claim is water matter that water court has exclusive jurisdiction over and state engineer's orders curtailing well owners' use of water in their wells was not a taking).  


(wrongful death and premises liability case involving 83-year old woman who was killed by alligator while walking of an evening near man-made lagoon on plaintiff's property that plaintiff maintained; while no liability under state (GA) statutory law for an owner of property that keeps a vicious or dangerous animal on the premises (plaintiff not "owner" of alligator), owner can still have liability for injuries caused by wild animals on premises if harm caused by wild animal was foreseeable under facts as presented - plaintiff's motion for summary judgment on this issue denied;  here, plaintiff had actual knowledge that alligator present in lagoon system (150 lagoons on 4,500-acre property for drainage purposes); summary judgment granted to plaintiff on nuisance claim - injury occurred on plaintiff's property).


(Kansas Judicial Review Act confers standing on participant in agency review of Chief Engineer's determination with respect to application for water right; plaintiffs have standing to challenge determinations of Chief Engineer of Department of Water Resources, and have established facts about potential injury or impairment by Chief Engineer's granting of permit to city of Wichita to divert groundwater from diversion points close to plaintiffs' prior authorized points of diversion - plaintiffs have no other source of water for multi-million dollar home, the value of which could be impacted by grant of permit to divert water to city). 


(Kansas Judicial Review Act confers standing on participant in agency review of Chief Engineer's determination with respect to application for water right; plaintiffs have standing to challenge determinations of Chief Engineer of Department of Water Resources, and have established facts about potential injury or impairment by Chief Engineer's granting of permit to city of Wichita to divert groundwater from diversion points close to plaintiffs' prior authorized points of diversion - plaintiffs have no other source of water for multi-million dollar home, the value of which could be impacted by grant of permit to divert water to city). 


(case involves defendant's method for computing overtime wages for chicken catchers; defendant's motion to dismiss denied). 


(plaintiff's claim against defendant dismissed for failure to exhaust administrative remedies; plaintiff operated a dairy operation and was an FSA borrower in good standing and participated in USDA farm loan programs; area declared disaster in 1995, and county office advised plaintiff that loan would be ready in spring of 1996 so that plaintiff could plant feed crops; county office later advised plaintiff that disaster loan funds not available and plaintiff ultimately closed on loan with private lender in fall of 1996 which was too late to plant crops; plaintiff's cattle died, dairy production collapsed and plaintiff lost farm to foreclosure; in 2008, plaintiff notified by e-mail that county office had funds available in 1996 and that disaster loans were available; plaintiff sought compensatory damages of $5 million and $10 million of punitive damages for intentional misrepresentation of available funds that caused plaintiff's damages; plaintiff never brought administrative appeal from any final administrative agency decision within two years of accrual of claim). 


(court affirms trial court's award to plaintiff landowner of $1.747 million for inverse condemnation caused by defendant's road project that clogged lake drainage culvert under road and caused wetland to expand and flood plaintiff's property; case remanded on issue of case evaluation sanctions against defendant). 


(debtor's motion for judgment on partial findings granted; debtor did not violate Sec. 192(a) of the Packers and Stockyards Act when, after acquiring Gold Kist, it offered contract growers (one year after acquisition) new contracts containing language allowing debtor to terminate a grower's contract for "economic necessity"; contract provision in writing with terms and conditions identical in contracts offered to all growers, and grower had opportunity to review contracts and take them to legal counsel before signing; to establish violation of Sec. 192(a), growers must establish that debtor engaged in misrepresentation or other unfair practice with the result of producing an anticompetitive effect; if those two elements established, debtor excused from violating Sec. 192(a) by showing evidence of independent, legitimate business reason beneficial to competition; growers not able to show any unfair or deceptive act; "economic necessity" language in contract is valid and enforceable and gave debtor greater flexibility to respond to changes in highly competitive market; in any event, debtor had independent legitimate business reason for having growers enter into new contracts - to improve efficiency and provide growers with a pay raise).


(taxpayer not a real estate professional as defined by I.R.C. Sec. 469(c)(7)(B); taxpayer's real estate activities were passive; accuracy-related penalties applied). 


(court upholds accuracy-related penalty against married couple for under-reporting capital gain from sale of commercial property; income tax basis of the property that was acquired via gift and later via divorce proceedings improperly computed; taxpayers were real estate professionals). 


(payments made by cooperative to buy grain from members and other patrons are PURPIM; cooperative computes DPAD without regard to any deduction for grain payments to members and other participating patrons). 


(trial court's determination that landowner had unilateral right to pipe portion of ditch onto neighbor's property affirmed; neighbor did not own portion of ditch on neighbor's land, but was only owner of servient estate and had no independent ditch rights under state (Idaho) law; state law allows the owner of the ditch (landowner) to unilaterally pipe the ditch; neighbor's full water right adequately protected).  


(stream determined to run adjacent to river and qualified as a natural, perennial-flowing stream, and that stream subject to stream access and public recreation under state (MT) law; appeal involves award of attorney fees).  


(taxpayer owned share of farmland and claimed capital gain deduction when land sold; land held in CRP for 10 years before sale; 701 IA Admin. Code 40.38 specifies that active management of CRP land by seeding, mowing or overseeing such activities constitutes material participation for purposes of IA capital gain deduction; taxpayer entitled to deduction). 


(trial court's determination that landowner had unilateral right to pipe portion of ditch onto neighbor's property affirmed; neighbor did not own portion of ditch on neighbor's land, but was only owner of servient estate and had no independent ditch rights under state (Idaho) law; state law allows the owner of the ditch (landowner) to unilaterally pipe the ditch; neighbor's full water right adequately protected).  


(stream determined to run adjacent to river and qualified as a natural, perennial-flowing stream, and that stream subject to stream access and public recreation under state (MT) law; appeal involves award of attorney fees).  


(petition for writ of certiorari denied on plaintiff's claim that defendant violated the Fourth Amendment by conducting a warrantless search of plaintiff's backyard on suspicion of wetland violation as reported by neighbor; Court noted, in denying cert., that it has not suggested that a state, by regulating privately owned residential property, can avoid the constitutional requirement to get a warrant before conducting search; however, state supreme court had not ruled on the issue and case not ready for U.S. Supreme Court to hear; citation to state court opinion is New Jersey Department of Environmental Protection v. Huber, No. A-5874-07T3, 2010 N.J. Super. Unpub. LEXIS 121 (Jan. 20, 2010)). 


(breach of contract case; defendant, buyer under two real estate purchase contracts, admits to having breached two contracts to purchase farmland but argues that specific performance is not appropriate remedy; court upholds trial court's determination that specific performance appropriate remedy - buyer's financial inability to pay not complete bar to specific performance; defendant had significantly altered the property by causing them to be annexed in anticipation of developing them and subjecting them to local ordinances, and defendant was experienced real estate developer). 


(court enjoined implementation of California's cap-and-trade program and ordered defendant to examine possibility of implementing carbon tax in accordance with 2006 CA law; plaintiffs ordered to specify scope of their demands). 


(defendant, owner of Motel 6 chain, not vicariously liable for damages to guest caused by drunken general manager of local motel on motel premises; mere fact that general manager required to live on premises as condition of employment insufficient to impose liability and analysis of employer's liability under workers' compensation law inapplicable to theory of vicarious liability; fact that general manager "on call" at time insufficient, by itself, to impose liability on employer; general manager not acting within scope of employment at time plaintiff sustained injuries; defendant also not liable under theories of negligent hiring, retention and supervision; no evidence that employer knew or had reason to know of general manager's propensity to drink and drive in unsafe manner and evidence that general manager drank with other Motel 6 managers after monthly meetings insufficient; evidence insufficient to establish that employer had reason to believe that employment of general manager would result in undue risk of harm to others). 


(reimbursements and expense allowances received by employee under "tool plan" irrespective of whether employee actually incurred any expense or reasonably expected to incur expenses are included in employee's gross income; business connection requirement of accountable plan not satisfied). 


(plaintiffs' claim that APHIS issued faulty environmental findings related to USDA's decision to deregulate Roundup Ready sugar beets transferred to Washington, D.C., to be decided along with an industry case). 


(plaintiffs offer to purchase agricultural land from defendant (trustee) constituted bona fide offer). 


(court affirms trial court's affirmance of curtailment orders issued against junior groundwater users; groundwater withdrawals by junior users caused material injury to surface water rights of senior appropriators).


(taxpayer not entitled to deduction for IRA contribution; for year at issue taxpayer listed "investor/trader" as occupation and had income from  corporate bond interest, dividends and Social Security benefits; contribution deduction limited to lesser of deductible amount or taxpayer's compensation (earned income) includable in gross income; Social Security is not compensation, and dividends and interest only constitutes compensation if taxpayer dealer in stocks or securities and dividends/interest received in course of trade or business as dealer; taxpayer held bonds that were not for sale to customers and engaged in only three stock transactions, had no customers and no place of business - taxpayer not a dealer). 


(taxpayer received Form 1099-C showing cancellation of credit card debt of $20,291.22, but filed return without reporting such amount as income; IRS issued deficiency notice and taxpayer did not file petition for redetermination and IRS assessed deficiency along with interest; taxpayer did not pay outstanding liability and IRS sent taxpayer "Final Notice of Intent to Levy and Notice of Your Right To A Hearing"; taxpayer filed request for "Collection Due Process or Equivalent Hearing" which was rejected; taxpayer then petitioned Tax Court, but Tax Court noted that, by statute, Court cannot review matter because taxpayer had prior opportunity to dispute underlying liability and failed to do so). 


(court affirms trial court's affirmance of curtailment orders issued against junior groundwater users; groundwater withdrawals by junior users caused material injury to surface water rights of senior appropriators).


(plaintiff operates dairy in Yuma, AZ, as an integrated producer-handler of milk that processes and sells over three million pounds of its own farm-produced milk; plaintiff facially challenges constitutionality of two provisions of Milk Regulatory Equity Act of 2005 (MREA) (that forces plaintiff to join regional milk system and simultaneously ending federal milk pricing in Nevada) as applying only to plaintiff and, as such, Act constitutes bill of attainder, violates equal protection and due process; entities (such as plaintiff) that both produce and distribute their own milk products had been exempt from pricing and pooling requirements established by federal milk marketing orders, but USDA adopted final rule in early 2006 that eliminated exemption for plaintiff; defendant's motion to dismiss granted; plaintiff failed to establish that MREA specifically targets them - while MREA presently only applies to plaintiff, classes of producer-handlers not delineated not delineated in "exceedingly narrow" fashion such that MREA refers to an "easily ascertainable" group; MREA constitutes economic regulation subject to rational basis review, and though MREA may be "unfair" it is not irrational or arbitrary; no due process violation).


(case brought by retired federal employees seeking to opt out of Medicare Part A so that they could utilize the health insurance plan available to federal employees; federal law and defendant's corresponding regulations require Social Security recipients age 65 and older to enroll in Medicare; while court noted that Medicare costs are skyrocketing and "may bankrupt us all," court's hands were tied in that participation was statutorily mandated; court noted that even if opt out was allowed, plaintiffs would not receive greater benefits than that offered by Medicare; court reasoned that the Congress intended for Medicare to be a mandatory benefit by linking coverage with retirement benefits;  court opined that plaintiffs' arguments had merit, but that court could not find any statutory way out of Mandatory participation in Medicare or requirement that government provide a means for opting out; court did note that plaintiffs could escape the Medicaid program by forfeiting all Social Security benefits past, present and future).


(bill prohibits the manufacture of corn-based ethanol for use in gasoline in New Hampshire; prohibits the sale of gasoline containing corn-based ethanol as an additive). 


(for the month of February 2011, homes sales in the U.S. dropped 9.6 percent from the previous month, a record low for the past nine years, with the percentage decline being the largest since July of 2010; median home price fell 5.2 percent from February of 2010; compared with February 2010, home sales down 2.8 percent; housing starts for February 2011 at lowest point in last 27 years; foreclosures and short sales accounted for 39 percent of February transactions (up 37 percent from January 2011); new home sales accounted for less than 10 percent of overall sales; all-cash purchases constituted 33 percent of all transactions in February (a record); note:  these numbers resulted even though for fiscal year 2010 (Sept. 27, 2009 - Oct. 2, 2010), IRS data indicate that more than 2.1 million tax returns legitimately claimed the first-time homebuyer tax credit at a taxpayer cost of $15,642,149,000; IRS data re-establishes notion that "targeted" tax cuts generally are not effective). 


(bill prohibits the manufacture of corn-based ethanol for use in gasoline in New Hampshire; prohibits the sale of gasoline containing corn-based ethanol as an additive). 


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