Annotations 09/2011

(plaintiff seeks declaratory judgment to quiet title to oil and gas rights and claims that defendant retained mineral rights beyond five years in violation of 12 U.S.C. Sec. 781 Fourth (b) of Federal Farm Loan Act of 1916; plaintiffs claim ownership to subject land as successor in interest derived from transfer from Federal Land Bank to plaintiff’s predecessor in title; FLB transferred title in 1938 but reserved a one-half interest in oil, gas, coal and other minerals in and on the property; court ruled that plaintiff’s action fails; defendant’s retention of mineral rights not subject to 1916 Act because provision of Act at issue inapplicable to mineral estates in accordance with 6 C.F.R. 10.64). 


(plaintiff brings constitutional challenge against the minimum coverage provision of the Patient Protection and Affordable Health Care Act of 2010 (Act); court grant's defendant's motion to dismiss due to plaintiff's lack of standing; potential future injury caused by the mandate to buy insurance or be penalized beginning in 2014 is a speculative future injury that is not ripe for adjudication at the present time; while court notes that health insurance premiums have increased as a result of passage of the Act, that increase, without plaintiff showing any present financial impact on himself, is not sufficient to confer standing; plaintiff's complaint focuses on individual mandate provision, and increase in premiums are caused by Act's other provisions which plaintiff is not challenging; plaintiff failed to satisfy the particularized injury requirement of Article III of the Constitution). 


(defendant's zoning officer issued certificate of compliance for occupancy of mobile home by tenants; zoning board upheld determination based on zoning ordinance that permitted mobile homes that were "used as a dwelling by employees of an active farm operation"; plaintiffs, neighbors, appealed, and court determined that board's finding that property in question was an active farming operation and tenants were employees of farming operation was not unreasonable nor irrational; defendant followed correct constitutional procedures for public hearing and due process). 


(defendant's environmental plan to protect plants and animals in two national monument areas in Arizona upheld; plaintiffs, consortium of environmental activist groups, claimed that off-road vehicle use and grazing in subject areas would destroy historic artifacts and critical habitat for endangered species; court determined that defendant satisfied its obligation under federal land policies and President's Clinton's proclamation that created the areas in 2000; court also rejected claim that use of lead ammunition by hunters in subject areas is poisoning endangered species). 


(Principal Life Insurance Co. cannot claim more than $20 million in foreign tax credits that company claimed were based on $300 million payment to two French banks; no credible business purpose to transaction).


(sham partnership case; taxpayer was L.L.C. formed in connection with Chinese government-owned financial institution and a third party (as minimal investor) to acquire non-performing loans held by Chinese financial institution; U.S. investor contributes $180 million of securities to LLC and buys 90 percent of Chinese institution for $19.4 million; loans carried on LLC books at tax-loss to benefit of U.S. investor who supposedly has sufficient basis to deduct losses; Chinese institution fails to service the loans properly and IRS challenges losses claimed by U.S. investor; acquisition of loans lacked economic substance and LLC determined to be a sham; parties did not act in good faith or act with business purpose to share profits and losses; failure to force Chinese institution to service loans and Chinese institution characterized transaction as "package sale of bad debts"; U.S. investor deemed to have purchased loans directly from Chinese institution; penalties not imposed). 


(division of family trusts that were then combined into trusts for children did not shift beneficial interests in trusts to beneficiary that skips a generation from prior beneficial owners, so no GSTT triggered; division also did not extend time for vesting of any beneficial interest beyond term specified in trust).

 


(announcement by Bank of America (BoA) that it will begin charging customers $5/month for use of BoA debit cards in anticipation of $2 billion annual loss as a result of "Durbin Amendment" contained in Bill which limits amount of money banks can charge merchants when customers use debits cards; Wells Fargo anticipates losing $1 billion and will adopt $3/monthly fee in some areas; JP Chase and Citibank also considering new fees as are smaller banks; after passage of Bill, proportion of free checking accounts has fallen from 65 percent to 45 percent (which will impact lower-income families disproportionately; Bill supported by no House Republicans, 4 Republican Senators (including Sen. Grassley from Iowa)).


(KFF, a non-partisan foundation focused on health care, reports that health insurance premiums, since the passage of the Patient Protection and Affordable Care Act (Act), for a family rose nine percent in 2011; increase is the largest annual increase since 2005 and is more than double rate of inflation and quadruple the rate of wage growth; Act accountable for over 20 percent of increase, particularly provision in Act allowing "children" up to age 26 to remain on parents' employer-sponsored plans; Act also mandates some plans provide preventative services with no patient cost-sharing; study points out insurance rate increases due to future uncertainty and the difficulty of implementing increases beginning in 2014; study concludes Act is a contributor to companies not hiring).


(case involves oil and gas lease parties entered into; plaintiff claimed that defendant breached lease and sought ejectment of defendant and lease termination; summary judgment for defendant on ejectment claim proper because damages remedy allowed by lease and plaintiff failed to prove money damages would be inadequate remedy; no specific evidence provided for jury concerning environmental impact of defendant's conduct). 


(Medicaid applicant’s transfer of money to child coupled with child using funds to private pay for applicant’s care during applicable Medicaid look-back period resulted in trust-like device causing funds to be deemed available to applicant for eligibility purposes; transfer not deemed to be a gift so no penalty period triggered; court denies preliminary injunction (which would have allowed Medicaid benefits to be paid pending resolution of case) because plaintiff could not show likelihood of success on merits). 


(mother and her child were homeless and petitioner took them into his home in January of 2007; they resided in spare room until October of 2007; mother was 21 and child was 2; no evidence that mother was full-time student for at least five months during year, so age requirement of I.R.C. Sec. 152 not satisfied and petitioner not entitled to claim mother as dependent; petitioner could claim mother's child as dependent). 


(case involves C corporation management-fee arrangement designed to allocate income between controlled entities to optimize corporate and individual brackets; petitioner operated hauling business in C corporation and owned 30 trucks in a wholly-owned LLC which was reported on his individual Schedule C; the LLC paid management fees to C corp with fees deducted on petitioner's Form 1040 and added to C corporate income; IRS disallowed over 60 percent of fees over two-year period; court agreed with IRS and added on 20 percent accuracy-related penalty; no management contract, no detail of services provided, LLC had no customers other than petitioner's C corporation and LLC employed no drivers - thus, LLC would have consulted with no one other than petitioner; fees must be charged for services actually provided under written (preferably) contract).


(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). 


(Fair Labor Standards Act (FLSA) action filed by class of aluminum factory workers contending defendant failed to compensate them for time spent arriving early for shift relief, donning and doffing, walking from locker room to work site and showering at shift end; defendant filed motion for summary judgment and federal district court granted relief; any walking time that occurs after beginning of employee’s first principal activity is compensable under FLSA, but time spent donning and doffing was not a principal activity because it was not integral to employees’ work). 


(case involves 15-year challenge to defendant's zoning rules which limited the number of homes that can be constructed in township's ag preservation district (a majority of the township); court holds that plaintiff (developer) not entitled to build approximately 350 homes on 400 acres of land in township; after constitutional challenge, defendant changed minimum lot size from one-acre to approximately .75 acres and the construction of one home for each two acres of land; state law and Municipalities Planning Code do not require specific plans submitted under a curative amendment challenge to be approved in their entirety if there is a finding of a defect in zoning rules). 


(verbal farm pasture lease agreement; plaintiffs permitted to graze cattle, harvest hay, hunt and ride ATV’s under lease; parties got into dispute and agreed to terminate lease; settlement agreement allowed plaintiffs to access property to remove cattle, but defendants refused to allow removal of all cattle; plaintiffs filed suit for conversion and breach of settlement agreement; defendants appealed trial court judgment in favor of plaintiffs for $28,000 damages and allege insufficient evidence to support damage award, and no evidence to support defendant’s wife liability under any claims; appellate court found substantial evidence to prove wife’s liability and to support trial court damages award because facts presented basis for rational estimate of damages without resorting to speculation).


(son rented 159-acre farm from mother for nearly 20 years at $39.75/acre and, in 2008, purchased farm from her via contract for deed; purchase price was set at 1984 appraised value of $117,000 (price was 1984 option price, which option son did not exercise) with payments of $6,902.98 over 30 years; fair market value of farm was $697,000; purchase contract executed at office of son’s lawyer who never represented that he was only the son’s lawyer and did not suggest that mother obtain her own counsel; mother was 84 at time contract executed, hard of hearing and had only an eight-grade education; mother later became suspicious and sought rescission of contract on basis of undue influence, and damages for breach of pre-contract oral lease; jury decided for son on lease claim and court granted mother’s rescission claim based on presence of confidential relationship and that four elements of undue influence established; court ordered contract rescinded and ordered son to pay rent for 2009 and 2010; decision affirmed on appeal). 


(case involves question of whether plaintiff substantially performed with real estate sale contract to be entitled to 5 percent commission upon sale of 6,385-acre ranch; sale agreement entered into in 2006 involved a one-year contract to list ranch at price of $3.658 million and provided for 5 percent commission if sale occurred within the year or within 180 days after one-year period ended if sale was to someone that had been shown ranch during the one-year period; selling price reduced to $3.1 million and ranch later taken off market; neighbor, who was tenant on part of ranch, ultimately bought ranch five months later for slightly less than $3.1 million and plaintiff sued for commission; plaintiff never physically showed ranch to buyer; issues of material fact remain for jury consideration on question of whether plaintiff rendered sufficient performance to earn commission).


(plaintiff resides in nursing home and sought preliminary injunction that would require state Medicaid agency to provide plaintiff with Medicaid benefits without taking into consideration community spouse’s resources because the right to those resources had already been assigned to the state; court granted motion; even though community spouse could be located, state anti-assignment statute pre-empted by 42 U.S.C. Sec. 1396(k) which requires states to provide for such assignments so that nursing home resident cannot be denied eligibility due to resources of community spouse). 


(transfers to irrevocable trust under terms of which trustee had full discretion to administer trust for beneficiaries of charity constituted completed gifts of beneficial term interests because donors’ retained testamentary limited powers of appointment relate only to trust remainder; gift tax incurred on transfer and transfer not incomplete gift covered by Treas. Reg. Sec. 25.2522-2(b); IRS analyzed income and remainder interests separately and concluded that POA impacted only remainder interest and did not impact what beneficiaries would receive during term interest - donors had no retained interest in term interest; gifts not of minority interests equal in value to donors’ respective withdrawal rights (Crummey Powers) which would reduce the taxable gifts to zero because withdrawal rights not legally enforceable; beneficiary could not enforce withdrawal right in state court; no annual exclusion allowable for any of the withdrawal rights).  


(son rented 159-acre farm from mother for nearly 20 years at $39.75/acre and, in 2008, purchased farm from her via contract for deed; purchase price was set at 1984 appraised value of $117,000 (price was 1984 option price, which option son did not exercise) with payments of $6,902.98 over 30 years; fair market value of farm was $697,000; purchase contract executed at office of son’s lawyer who never represented that he was only the son’s lawyer and did not suggest that mother obtain her own counsel; mother was 84 at time contract executed, hard of hearing and had only an eight-grade education; mother later became suspicious and sought rescission of contract on basis of undue influence, and damages for breach of pre-contract oral lease; jury decided for son on lease claim and court granted mother’s rescission claim based on presence of confidential relationship and that four elements of undue influence established; court ordered contract rescinded and ordered son to pay rent for 2009 and 2010; decision affirmed on appeal).


(verbal farm pasture lease agreement; plaintiffs permitted to graze cattle, harvest hay, hunt and ride ATV’s under lease; parties got into dispute and agreed to terminate lease; settlement agreement allowed plaintiffs to access property to remove cattle, but defendants refused to allow removal of all cattle; plaintiffs filed suit for conversion and breach of settlement agreement; defendants appealed trial court judgment in favor of plaintiffs for $28,000 damages and allege insufficient evidence to support damage award, and no evidence to support defendant’s wife liability under any claims; appellate court found substantial evidence to prove wife’s liability and to support trial court damages award because facts presented basis for rational estimate of damages without resorting to speculation).


(married couple filed personal injury suit against North Carolina corporation for husband’s injuries sustained when he was injured while inspecting produce by a forklift operated by defendant's employee; trial court granted motion to dismiss based on lack of personal jurisdiction; appellate court reversed finding trial court erred in ruling no general jurisdiction over corporation under Florida long-arm statute; appellate court noted that corporation had maintained exclusive business relationships with Florida companies to sell produce and nearly 100% of corporation's revenue came from Florida companies’ produce sales).


(petitioner leased farmland from U.S. Navy for $191,520 annual rent, but later failed to make rent payments and notified Navy via letter that petitioner could no longer continue farming; Navy agreed to terminate lease and determined amount of past-due rent of over $200,000; debt later determined to be uncollectible and debt written off and 1099-C issued to petitioner showing CODI of $263,587 that petitioner did not report on tax return for year at issue; IRS failed to prove that petitioner's had CODI with respect to lease for year at issue (2006) because no evidence of substantive collection activities that occurred; from 1999 to 2006, petitioner never received any correspondence with respect to any debt pursuant to the lease; petitioner not liable for accuracy-related penalty). 


(petitioner's unsubstantiated business expenses not deductible; IRS's use of amount of petitioner's unreported income via use of bank deposit method held to be reasonable).


(petitioner, a tax-exempt labor organization, publishes two magazines for its membership and derives unrelated business income of approximately $8 million from sale of ads; petitioner deducted circulation costs of approximately $7 million, but IRS disallowed the deduction because the magazines were available to all members which required petitioner to allocated portion of dues income to magazine income resulting in tax liability of $1.1 million; court agreed with IRS - NEA members had right to receive the magazine because their dues paid for it.). 


(case involved whether petitioner liable for 10 percent additional tax on early distributions from qualified retirement plan under I.R.C. Sec. 72(t)(1); petitioner participated in employer's qualified retirement plan and retired at age 53; after attaining age 55 (but before attaining age 59.5), petition received over $30,000 in two distributions from retirement plan and reported the amount in income for the year, but did not pay additional 10 percent penalty due to exception contained in I.R.C. Sec. 72(t)(2)(A)(v) which specifies that the additional penalty does not apply to "distributions which are...made to an employee after separation from service after attainment of age 55"; court upheld IRS interpretation of statutory provision that employee must retire on or after age 55 to be eligible for the exception; court expressed empathy for petitioner's situation and specifically noted that the IRS deficiency notice language that "Payment made from the Plan after you separate from service if you will be at least 55 during the year of the payment" is confusing; but, based on prior caselaw, court upholds IRS position and notes that only the Congress can change the statute).


(DOE announces that SolarReserve, LLC (Crescent Dunes) based in Santa Monica, CA, has been awarded a $737 million loan guarantee to support a concentrated solar power tower generating facility; 45 jobs will be created; second largest investor is Ron Pelosi, Nancy Pelosi's brother-in-law; company has ties to persons with ties to Solyndra which is presently under investigation by the FBI; SolarReserve stock price peaked at $170/share in February, but is presently less that $66/share). 


(defendant passed ordinance limiting operation of rock quarries within city limits and within one mile thereof; trial court enjoined enforcement of ordinance because, under AR law, ordinance only valid if quarry judicially found to be nuisance; defendant cannot regulate quarries in an attempt to abate a nuisance; trial court correctly determined that quarry at issue had shown that enjoining its activities via ordinance would constitute irreparable harm). 


(farmers challenge county’s denial of conditional-use permit (CUP) to expand feedlot, arguing that record did not support findings that expansion would create unreasonable adverse effects due to odor and that use was not compatible with surrounding properties; farmers also argued that county’s decision was unreasonable and record supported grant of limited expansion; appellate court found that record did not support county’s findings and conclusions, and reversed denial of conditional use permit; court remanded with instructions to grant CUP with reasonable conditions that may include specific requirements to be met by farmers before implementation of any incremental increase in animal units).


(travel expenses of married couple not deductible due to failure to meet heightened substantiation requirements of I.R.C. Sec. 274(d) and amounts claimed were lavish and violated I.R.C. Sec. 162(a)(2); timeshare activity not engaged in with profit intent - deductions limited to gross income from activity). 


(petitioner granted innocent spouse relief from joint tax liability with ex-spouse; petitioner did not "meaningfully participate" in deficiency proceeding; petitioner relied on ex-spouse to contest deficiencies because it was her gambling income that was at issue and an attorney represented them, but didn't tell petitioner that he could seek innocent spouse relief). 


(petitioner purchased brush hog to maintain weed control so that weeds would not spread to tillable land and claimed that purchase was exempt from sales tax; exemption denied because bush hog not used directly in crop production activity; fact that weed control improved crop yield only an indirect effect). 


(defendants appeal trial court judgments against them in favor of plaintiff sister for $264,951 and plaintiff brothers for combined total of $895,786 after bench trial of siblings’ claims that defendants engaged in breach of fiduciary duty and self-dealing in capacity as officers and directors of family farm corporation; defendants argued on appeal that action against them barred in part by statute of repose and completely by statute of limitations; inequitable conduct of plaintiffs barred their recovery, and trial court erroneously placed burden of proof on defendants; appellate court concluded plaintiffs lacked standing as individual shareholders to bring derivative claims against corporation; appellate court vacated judgments and remanded with directions to dismiss). 


(multi-district antitrust class action alleged global conspiracy to raise price of potash; class alleged Canadian, Russian, and Belarusian producers operated cartel to fix potash prices in Brazil, China, and India, and inflated prices, influencing price of potash sold in U.S.; district court denied defendant’s motion to dismiss; on appeal, defendants argued that district court lacked subject-matter jurisdiction under Foreign Trade Antitrust Improvements Act (FTAIA) and complaint did not satisfy pleading requirements; appellate court reversed, holding that FTAIA limits extraterritorial reach of Sherman Antitrust Act to foreign anticompetitive conduct that either involves U.S. import commerce or has effect on U.S. import or domestic commerce and FTAIA’s limitations are jurisdictional).


(private foundation entitled to maintain exempt status upon construction and maintenance of recreational path limited to residents of municipality on island that had only one paved road; path provided safe access for pedestrians and bicyclists to portions of island that were private and benefited general public).


(petitioner, self-employed office manager for mortgage company, filed Schedule C with gross receipts that almost matched reported expenses - almost half of which were commission expenses; petitioner entitled to deduct small portion of commission expenses; self-employment income underreported; petitioner liable for accuracy-related penalty). 


(petitioner owned undivided 20% interest in 100-acre parcel of land; respondents owned other 80%; respondents filed motion to compel partition of land at trial court; trial court appointed three commissioners, who reported petitioner should receive 16.5 acres; trial court refused to set aside commissioner’s report; on appeal, petitioner argued report should have been set aside because it would materially damage him, did not reveal property’s value or methodology used to value property, division not proportionate to ownership interests and no reason given, report not signed and sworn in open court; appellate court concluded petitioner did not show he was prejudiced and affirmed).


(plaintiffs filed complaint for administrative review of final decision by zoning board; board upheld order directing plaintiffs to stop using property for commercial boarding of horses because it was not permitted agricultural use; appellate court affirmed finding use was not agricultural as defined by zoning ordinance).


(patent infringement case brought by plaintiff against farmer for planting progeny of genetically altered seeds covered by U.S. patents; federal district court granted summary judgment in favor of plaintiff and circuit court affirmed; defendant was one of plaintiff’s licensed seed producers and defendant executed technology agreement restricting use of seed; plaintiff discovered defendant’s second crop seeds (progeny of commodity seeds) contained patented Roundup Ready technology; technology agreement specified genetics could only be obtained from Monsanto or licensed dealer; plaintiff argued patent exhaustion, but court found no exemptions for research or saving seed under utility patent).


(petitioner, contract maintenance laborer who also works maintenance jobs at nuclear power plants and other utility sites, worked only temporary jobs for tax year in issue did not have a principal place of work, but did have his residence as a tax home; petitioner was union member and was contacted for work through the union and at his home; no jobs that petitioner worked lasted more than one year; sometimes, petitioner stayed overnight at job site because of distance from home; substantiated unreimbursed employee business expenses deductible - business miles driven, auto expenses and miscellaneous expenses; accuracy-related penalty imposed for deductions claimed for unsubstantiated expenses).


(warrants issued to shareholder of closely-held, family S corporation created second class of stock which resulted in termination of S corporation status; case involves tax shelter strategy developed by KPMG known as "SC2"). 


(taxpayer earned pension income in Nebraska and included it in computing the out-of-state tax credit on Iowa return for taxes paid to Nebraska; only wages earned in Nebraska are to be used in computing out-of-state tax credit).


(agricultural cooperative's payments to members are PURPIMs under definition of I.R.C. Sec. 1382(b)(3); for cooperative's purpose of computing I.R.C. Sec. 199 deduction, cooperative's QPAI and taxable income computed without regard to any deduction for payments to members).


(motion to dismiss plaintiffs’ Racketeer Influenced and Corrupt Organizations Act (RICO) and fraud claims under Fed. Rules of Civ. Pro. 12(b)(6) and 9(b) by defendant; court denied motion; plaintiffs were dairy farmers who purchased pelletized feed for dairy cows or heifers from Cargill from Jan. 1, 2001, through present; plaintiffs alleged that, after initial sale, defendant changed composition of feed to maximize corporate profits without regard to nutritional needs of cows and without notice to farmers; plaintiffs alleged damaged to cows, loss of milk production, impaired reproduction, increased mortality, etc.; plaintiff's also alleged that the defendant engaged in a pattern of racketeering activity including regular and repeated use of mail system to collect payments from dairy farmers who were victim of scheme; defendant's motion to dismiss RICO and fraud claim denied; plaintiffs adequately plead identity of an enterprise distinct from defendant, qualifying association-in-fact, proximate causation and witness intimidation). 


(petitioner engaged in high-performance glider activities (providing rides and flight instruction) in a manner that established that the activity was engaged in with an intent to make a profit, but did not substantiate deductions for unreimbursed employee expenses; petitioner did not maintain thorough books and records beyond flight logs, did not prepare budgets or other financial statements, but did review expenses and employed cost-cutting measures; petitioner held himself out as a glider instructor; petitioner not a wealthy individual and incurred substantial expense in acquiring glider and other associated expenses; petitioner worked in aviation field; accuracy-related penalties imposed for the unsubstantiated deductions associated with unreimbursed employee expenses).


(capital gain deduction denied on 2006 state return because such gain was ordinary income and not capital in nature; amount shown was from line 13 of Form 4797 and line 7 of IA 1040; property held for more than 10 years, 100 percent of business sold and material participation test satisfied; line 13 of Form 4797 refers to "ordinary income" and only gains reported as capital gains qualify for capital gains deduction; no relief for costs and fees).


(tax protest; issue involved whether capital gains deductions should be allowed for 2006-2008 attributable to investments reported on Forms 1099-B and 1099-Div; protest denied, but IDOR acknowledges that instructions not clear and have been clarified, but that instructions on forms not controlling; capital gains deduction not applicable to investment income, but rather sale of business assets and sale of real estate).


(city filed complaint under Declaratory Judgment Act (28 U.S.C. §2201) and Quiet Title Act (28 U.S.C. §2409a) against U.S. Forest Service, USDA, U.S Dept. of Interior, and Bureau of Land Management seeking access to certain claimed water pipeline easements; federal district court granted defendant's motion for partial summary judgment on applicability of reasonable regulation to city’s easements; rights-of-way granted; United State's motion for partial summary judgment on issue of access roads denied; question of fact remained as to scope of city’s easements and access rights to city’s valid easements). 


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