Case Summaries 03/2012

(parties entered into year-to-year written farm lease requiring written notice of termination; landlord provided valid notice of termination; new lease not entered into but tenants remained on land; written notice given within three months pursuant to statute terminating tenancy-at-will; landlord filed declaratory judgment action; court held written lease properly terminated and termination not waived by landlord because based terms of lease rather than a breach of lease; tenancy became tenancy-at-will when tenants remained and proper notice of termination given; court granted landlord’s motion for further relief to evict tenants; all issues affirmed on appeal).


(120-day extension of time granted to estate to make special use valuation election under I.R.C. Sec. 2032A). 


(petitioner, dentist, claimed no income for years at issue; petitioner found to have engaged in tax fraud and subject to I.R.C. Sec. 6663 penalty (75 percent)).


(real estate developer had apartment complex and used component depreciation approach (i.e., claiming MACRS depreciation by class life on every separate depreciable item in 366 apartments in over 40 buildings); petitioner deconstructed the building in attempt to get out of 27.5-year class life; court ruled for government). 


(petitioners, married couple, were both employed full-time but also jointly operated a horse breeding activity and the husband was involved in a drag racing activity; both activities generated substantial losses since inception; under nine-factor analysis, court determined that horse breeding activity engaged in with requisite profit intent with seven of the factors in petitioners’ favor; losses sustained from 1998-2006 in horse breeding activity fully deductible; husband’s drag racing activity not engaged in with requisite profit intent because six of nine factors in government’s favor and continuous losses since 1990 resulted in 20-year timeframe of losses exceeded any reasonable start-up time; drag racing losses deductible only to extent of income). 


(inherited IRA is exempt asset in bankruptcy; court reasons that inherited IRA holds "retirement funds" in accordance with meaning of 11 U.S.C. Sec. 522(d)(12), and that inherited IRA is tax exempt by virtue of I.R.C. Sec. 408(e); funds set aside for retirement and that character of funds determined by purpose for which they were set apart, not by what subsequently happens).


(cash reimbursements (so-called "Section 1603 payment" received in lieu of claiming an energy tax credit not includible in gross income and taxpayer's basis in specified energy property reduced by 50 percent of payment; all project costs properly capitalized for purposes of determining depreciation deduction included in cost basis of specified energy property).


(partnerships can provide Forms K-1 electronically; IRS details how consents can be provided electronically, how partners to be informed about software changes and how partnership to provide instructions about accessing and printing electronic statements and partnership's responsibility if K-1 not electronically deliverable).


(Hispanic plaintiffs brought constitutional claims that ordinance prohibiting keeping animals on residential property is discriminatory and an unconstitutional taking without compensation; plaintiffs moved to unincorporated area in 1980s; previous county ordinance allowed horses and cows on smaller plots of land; county revised ordinance in 2011 to require larger plots to keep horses and cows; landowners able to apply for conditional use permit to keep animals on property; plaintiffs allege homeowners association made frequent complaints to authorities regarding plaintiffs’ property in selective prosecution against plaintiffs; plaintiffs alleged exorbitant fees required for permits for compliance, which takes away use and enjoyment of plaintiffs property; defendants filed motion to dismiss; court found no allegations of a constitutional taking, violation of due process, or violation of equal protection and dismissed claims with prejudice; court found allegations not sufficiently alleged to establish selective prosecution against Hispanic plaintiffs, but dismissed claim without prejudice to enable plaintiffs to amend petition to plead facts sufficient to support claim).


(aquiculture not an agricultural operation for purposes of VA Right-to-Farm Act (“Act”); “animal” as contained in Act not intended to encompass fish or other non-mammals; operations exempt from local zoning actions involve those related “to the bona fide production of…animals, or fowl…”; interpreting “animal” as used in Act with general limitation that such animals also be mammals consistent with secondary dictionary definition of “animal” and consistent with inclusion by legislature of “or fowl” in Act). 


(for purposes of I.R.C. §199, taxpayer cannot aggregate computer software programs offered by third parties to customers by tangible medium or download to determine if the property taxpayer offers satisfies “third-party comparable exception” under Treas. Reg. §1.199-3(i)(6)(iii)(B); taxpayer can apply third-party comparable exception to components of property taxpayer offers in normal course of business).


(debtor transferred real estate to sham trust in attempt to defeat creditors; transfer not deemed void as to judgment creditor under state (CO) law; judgment creditor not yet begun prosecuting case against debtor to judgment as required to establish status as judgment creditor; for judgment creditor to attach lien to real estate transferred to trust, creditor had to file action to establish fraudulent conveyance).


(plaintiff is sole member of an LLC and defendant sued to hold plaintiff personally liable for amounts due defendant (a builder) under contract with LLC; defendant completed building two homes and plaintiff sold the homes but did not place sale proceeds into plaintiff's LLC account; plaintiff's LLC filed bankruptcy and trial court entered judgment against plaintiff personally for $141,000; plaintiff appealed on basis that fraud did not exist and without fraud corporate veil of LLC could not be pierced; on appeal, court determined that no fraud existed and that defendant had contracted with LLC and that parties had entered into separate contract agreeing to not hold each other personally liable). 


(landowner leased part of land to T-Mobile for erection of cell tower; County issued permit to T-Mobile to build tower, but in previous year, defendant had passed three ordinances annexing subject land and defendant notified T-Mobile that it needed defendant’s permission before constructing tower; T-Mobile challenged validity of ordinances and also claimed vested right to build tower; trial court stayed vested right issue and dealt only with first issue; under state Municipal Code, municipality cannot annex property under 60 acres unless bounded by legal boundary such as a creek; defendant claimed water on land constituted creek and constituted legal boundary; trial court determined, based on expert witness testimony, that water was result of manmade feature and did not constitute a creek; on appeal, court noted that state law did not define “creek” and that dictionary definition referred to “natural” flow of water and cannot be manmade; sufficient evidence existed to support trial court’s determination that water was not natural; ordinance determined to be void). 


(competing claims for triangular piece of property and fee interests in adjoining road; court held road was “town way” for use by public that had not been abandoned; adverse possession claim proved by plaintiff because parcel used for more than 40 years; defendants’ claim for easement over road moot due to its public nature; all issues affirmed on appeal).


(case involves estates claim for additional I.R.C. §2053 deduction for fees paid to executor as trustee of marital trust; while fees necessary, amount was excessive and part had already been deducted; additional deduction for attorney fees allowed in part). 


(plaintiff brought malpractice and common law claims for death of horse after veterinarians advised plaintiff that euthanasia was only course available for cholera; veterinarians filed summary judgment based on plaintiff’s lack of expert testimony establishing requisite breach in professional standard of care; plaintiff moved for continuance to conduct depositions of veterinarians; district court denied motion for continuance and granted summary judgment motion for all claims and dismissed case; plaintiff appealed; appellate court held no abuse of discretion in denying continuance because plaintiff failed to follow procedure or establish evidence expected from delay; dismissal of claims upheld because no showing of any breach of professional care that contributed to loss).


(overall facts and circumstances indicated that auto body shop workers, secretaries and shop trainee were employees and not independent contractors; petitioner retained right to control work and discharge at will and workers did not have home offices; petitioner should have withheld tax, and issued Forms W-2 and 1099-Misc; I.R.C. §520 safe harbor relief not available due to petitioner’s lack of filing any Forms 1099-Misc; additional workers properly classified as independent contractors). 


(remainder beneficiaries of a trust sought interpretation of trust terms to determine whether trustee breached his duties; trust established by mother to provide for her son who was not good with money so he would not burden his brother; trust included home residence, farm, and one-half of residuary of mother’s estate, remainder of trust went to four grandchildren; son given right to live in residence and income from trust during his life; upon mother’s death, son returned from Community of Damien of Molokoi religious monastery where he had been residing and moved into the residence; trustee discovered the residence needed upkeep and maintenance trust could not continue to provide as it was using principal to pay for costs, so home and farm sold and condo purchased for son; granddaughters objected to using trust principal for upkeep of home and to property sales; court determined trust language ambiguous regarding maintenance of residence; extrinsic evidence showed intent was to provide upkeep and maintenance on home for son; sales of home and farm were for market value and all proceeds went into trust so no breach of fiduciary duty by trustee; lack of evidence that payments made to son “as needed” rather than quarterly exceeded income from trust; attorney fees charged to trust in defending suit appropriate; affirmed on appeal).


(coal that is utilized at a facility that uses a qualified process constitutes "refined coal" in accordance with I.R.C. Sec. 45(c)(7) if the coal is produced from feedstock coal that is the same source or rank as "tested coal" and satisfies the emission reduction test of I.R.C. Sec. 45 (c)(7)(B)). 


(coal produced from facility using set process is "refined coal" in accordance with I.R.C. Sec. 45(c)(7) if coal is from feedstock coal that is same source or "rank" as "tested coal" and satisfies emission reduction test of I.R.C. Sec. 45 (c)(7)(B).


(adverse possession case; adjacent property owners failed to establish adverse possession or boundary by acquiescence in disputed fence line; on appeal, evidentiary issue deemed waived because plaintiffs invited error by agreeing to strike testimony from videotaped deposition; court determined that land not held continuously for ten years because no proof predecessor used property for statutorily required period of time; also no proof predecessor believed fence was property line so claim for acquiescence failed; trial court affirmed).


(suit between contracted poultry growers and defendant, multinational food manufacturer, claiming violations of state (OK) Consumer Protection Act (Act); trial court jury rendered $10 million verdict for growers; trial court denied defendant's motion for new trial; on appeal, court agreed false and misleading statements existed on jury questionnaires about which attorneys were barred from asking questions during voir dire resulting in unfair trial; court also held contract poultry growers were not “aggrieved consumers” in accordance with Act; Act requires party to be both buyer and consumer; defendant retained title to chickens, feed, and medicines; poultry growers neither purchased nor sold anything; court determined mere service contract did not, by definition, fall within protections of Act and poultry growers have no claim; new trial granted to defendant).


(consolidated opinion regarding four identical objections by trustee to debtors claimed exemptions for firearms; debtors listed one or more firearms as exempted “household goods” under California’s statutory exemptions; evidence presented that firearms used for personal protection and hunting and recreation; trustee requested court to find firearms per se are not exempt household goods; in its holding, court distinguished earlier cases, In re Thornton and In re Eveland, and held firearms can be exempt under broad California statute when evidence shows personal use and purpose of firearms, potential recreational value, reasonable necessity, and community standards establishing firearms “ordinarily found in household”; trustee in these cases failed to rebut debtors’ presumptions regarding firearms, so all debtors entitled to exemption).


(petitioner received lottery ticket as tip while working as waitress in Alabama (state which did not have lottery at the time); petitioner formed S corporation with family members to receive lottery proceeds; proceeds received, but no Form 709 filed to report gift to other family members; IRS asserted gift tax deficiency of $771,570 plus interest; court upholds IRS deficiency determination - petitioner could not prove existence of contract to share lottery proceeds, and such contract would have been illegal under state law).


(mortgage loan officer held to be independent contractor and not employee and, thus, could deduct business expenses; petitioner had been issued Form W-2 and was president and co-owner of company; common law factors (based on agency principles) showed that petitioner was independent contractor).


(University of Colorado ban on students carrying concealed handguns in vehicles on campus violates state Concealed Carry Act and state Constitution; Board of Regents has no authority to regulate concealed handgun possession on campus; defendant’s stated claim for relief and case remanded). 


(husband was pilot who flew from various airports near his home and was reimbursed by employer for travel between airports, but not from home to airport flying out of; claimed deductions for travel expense from home to departure airport disallowed as personal expense; wife was schoolteacher who bought various items supposedly for her job and expensed the items; wife could have been reimbursed for the items but chose not to; fact that wife could have been reimbursed eliminated deductibility because items then deemed to be not "necessary"). 


(petitioner failed to conduct international consulting activity with requisite profit intent under nine-factor analysis).


(foreclosure on mortgage secured by 17,000 acres of farmland; 44 parties named in complaint as lienholders; one lienholder redeemed from assignee of purchaser of sheriff’s certificate; lienholder filed Rule 60(b) motion after redemption to vacate portions of judgment; court granted motion finding parties waived redemption rights and revised order stating $1 million conviction lien against mortgagees be satisfied after deed received by purchasing lienholder and all appeals determined; mortgagees filed appeal of trial court decision, but failed to serve notice of appeal on United States or purchasing lienholder, who were both named parties in foreclosure action; court held notice of appeal to named party is jurisdictional requirement that cannot be waived and requires dismissal; appeal dismissed).


(petitioner, homeowner’s association, had earned income from beach club and parking lot rentals; such income subject to unrelated business taxable income; beach club and parking lot not open to public and, as such, were not related to promotion of community welfare (petitioner’s tax-exempt purpose)). 


(petitioner operates cement manufacturing facility on its own private property that includes a limestone quarry from which it extracts raw material to use in initial step of cement manufacturing process; petitioner paid sales tax on purchase of repair parts for its loaders and haulers, but state Department of Revenue denied refund request; on review, Kansas Court of Tax Appeals (COTA) determined that equipment and repair parts exempt from sales tax as being integral or essential part of integrated production operation of cement manufacturing facility as required by Kan. Stat. Ann. §79-3606(kk)(2)(D); COTA decision affirmed on further review – defined boundaries of manufacturing or processing plant or facility extend beyond the area immediately surrounding the production line if there are contiguous areas at the single, fixed location where integrated production operations are conducted).


(Chapter 12 case where creditor seeks relief from automatic stay and abandonment; relief granted because court determined that debtor did not file bankruptcy in good faith and legitimate questions existed as to whether reorganization plan feasible).


(appellate court affirms granting prescriptive easement for ingress and egress; plaintiffs used field drive across defendant’s land for personal use, agricultural tenant used to access fields, as well as Department of Natural Resources for stocking stream and other habitat improvement; court found use was open and notorious, claim of right adverse to defendants, and was continuous from at least 1985 through 2008, which satisfied the 10 year requirement).


(implied easement by necessity granted to landlocked property owner; properties were originally owned by common owner; parcels severed on same day in 1918; original grantor operated a business from landlocked parcel, so no intention to leave parcel landlocked; fair and equitable resolution is for both parcels severed on same day to share burden equally; easement by necessity established in equal width and length over both properties; district court affirmed).


(adverse possession case; public alley ran along boundary between plaintiffs’ and defendants’ properties; in 2008, defendants petitioned city to vacate western portion of alley and merge it into their plat; city required defendants pay for survey, appraisal, and lot line adjustment; city also required indemnity agreement releasing city from any future encroachment or adverse possession claims; defendants complied with all conditions and in February 2009, city passed ordinance vacated alley to defendants; lot line adjustment recorded March 2009; June 2009, plaintiffs filed action for adverse possession of entire alley; after trial, court ruled plaintiffs proved adverse possession; appellate court held land granted for use as public thoroughfare creates easement rather than fee simple, but easement is still public property; statute prohibits claims by adverse possession against public property; until city vacated alley in 2009, alley was public property, so plaintiffs could not prove adverse possession for actions prior to this time; district court decision reversed.


(appeal from a chancery court decision regarding the distribution of the proceeds of timber; in a will and codicil, the decedent established a marital trust for support of his widow; upon her death, property known as the “home place” to be distributed to two children with balance of the corpus, including additional land, distributed to charity; all property had significant timber resources; litigation began when daughter, acting as conservator of her mother’s trust and person sought to remove trustee for refusing to provide an accounting and failing to pay wife funds required by trusts; chancery court appointed a guardian ad litem for mother and ordered an appraisal of the timber land; court also found will allowed trustee to serve without bond, inventory, or accounting; appraisal showed timber in both trusts subject to insect infestation and should be sold to the highest bidder, which was more than $3 million; mother died during this time; daughter filed a motion requesting proceeds from timber on the home place be distributed to her and her brother as remainder beneficiaries; trustee argued proceeds should be distributed to charity upon mother’s death as corpus was to pass to the charities; chancery court found proceeds should be distributed to charities and set a figure for reimbursement for the mother’s estate when neither side could agree; daughter appealed; on appeal, the Supreme Court, in reading will and codicil as a whole, held it was decedent’s intent for children to receive home place timber proceeds because they were to given home place after their mother’s death and retained all mineral rights in land, indicating an intention to give more than just house and land; court also held that remainder interests in timber pass to beneficiaries and life tenant has limited circumstances in which she can harvest timber, not applicable here, so proceeds from sale of timber on home place land belong to children; court also held an accounting should have been provided when allegations made of possible irregularities; and remanded to chancery court for a formal accounting to be made of mother’s expenses not paid by the conservator; concurrence found waste was not an issue because life tenant did not make decision to harvest, but intent was for children to receive proceeds; dissent disagreed the court had enough information to determine intent of decedent and plain language of codicil should have controlled giving proceeds to charities).


(before entering nursing home, petitioner added friend to bank account as joint owner and changed title to home from herself to herself and her friend as joint tenants; upon entering nursing home after falling at home, petitioner subjected to 19-month penalty for uncompensated transfers to friend within 60-month “look-back” period; petitioner claimed transfers were made in the context of estate planning rather than to qualify petitioner for Medicaid; trial court upheld penalty; on appeal, court affirmed based on petitioner’s failure to rebut presumption that transfers made to qualify for Medicaid and petitioner’s failure to substantiate claim that petitioner had not intended to enter nursing home – petitioner was elderly and suffering from dementia).


(after diagnosis of inoperable brain tumor, decedent executed self-proved will naming his daughter as sole beneficiary and executrix; will made no provision for estranged wife or decedent’s other children; witnesses testified decedent was mentally competent, knew he was executing his will, and that daughter was only person decedent could rely on to maintain ranch after his death; jury found in favor of daughter that will was valid and decedent had testamentary capacity to execute it; wife appealed; appeal challenged validity of will because witnesses did not read will; court held Texas law does not require publication of will to witnesses to be valid; wife also challenged testamentary capacity of decedent as deficient because decedent did not discuss his children or nature of his property with witnesses at time of execution of will; court held direct evidence of specific details of children, wealth, and disposition of property not required at time decedent  signed will; court upheld jury verdict due to evidence of decedent’s mental condition before, during, and after executing his will; court affirmed finding will properly admitted to probate).


(petitioner established partnership with another person to operate a restaurant, but got frozen out of the business by the partner; partner issued K-1 to, but distributed no cash; petitioner didn't report income; court pointed out that petitioner subject to tax on distributive share whether or not received; no penalty imposed). 


(income derived by publicly traded partnership from oil and gas "fracking" process is "qualifying income" under I.R.C. Sec. 7704(d)(1)(E) and, as a result, recipient of income not treated as corporation under I.R.C. Sec. 7704(a); publicly traded partnership not treated as corporation if at least 90% of gross income for tax year is certain types of passive income and income generated from fracking process is qualifying passive income). 


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