Case Summaries 02/2013

(plaintiff manufactured A-frame chicken cages, which defendant installed for customers; a dispute arose regarding the structural integrity of the A-frame cages that defendant had installed for a customer; defendant argued problems caused by plaintiff and plaintiff believed defendant's negligent installation allowed for rusting; a settlement agreement was reached between plaintiff and defendant concerning some claims made by defendant's customers in which plaintiff agreed to provide parts and defendant agreed to indemnify plaintiff; additional parts had rust issues and the customers received parts directly from plaintiff; plaintiff notified defendant regarding the claims, but defendant did not respond and plaintiff settled the claim; defendant brought summary judgment motion to plaintiff's claim for contractual indemnity; court held indemnification agreement was solely for claims arising from rusting brackets and later claims were for legs and cross arms, which were not covered by the agreement; court also held that plaintiff's decision to settle the claim was unreasonable as a matter if law because there was an statute of limitations issue, which would have been an absolute defense to the claims; plaintiff had no legal exposure on the claim; plaintiff's suit dismissed with prejudice).


(petitioner, lawyer, determined to have unreported income from law practice; some business deductions allowed because they were substantiated, but others not allowed due to lack of substantiation; deduction for meal expense disallowed due to lack of substantiation; travel expense deduction between home office and courthouse disallowed because office in home not principal place of business under I.R.C. Sec. 280A; distant worksite exception unavailable because worksite not away from home and petitioner could not use "regular work" exception because travel not to temporary worksites; travel to and from federal courthouse substantiated and deductions allowed). 


(petitioner operated construction company as sole proprietor; company engaged in business of home improvements and hired workers  when petitioner unable to perform work; petitioner supervised the workers, set deadlines and assigned tasks; all workers hired on a project-by-project basis and were paid flat fee for particular job; court determined, based on seven factor test, that workers were employees for year at issue; I.R.C. Sec. 530 relief unavailable due to lack of filing Forms 1099-Misc.). 


(plaintiff filed class action lawsuit against defendant claimed that defendant violated state (CA) law by marketing it's honey as "honey" without disclosing that it did not contain pollen; defendant moved for motion to dismiss for lack of class standing and on basis that plaintiff's claims preempted by federal food and drug laws; defendant's motion granted). 


(plaintiff operated river project owned by defendant's Bureau of Reclamation; project provides water to residential, industrial and agricultural users north of Los Angeles; defendant imposed operating criteria for water project designed to protect endangered species (steelhead trout), and plaintiff claimed that such restrictions were unconstitutional taking of its private property without just compensation in violation of 5th Amendment; U.S. Court of Federal Claims dismissed complaint on basis that taking claim not ripe; on appeal, court held that required construction of fish ladder at cost of $9.5 million was regulatory taking; loss of water not loss of any property rights in water because property right limited by state law and plaintiff did not show any loss of beneficial use of water; Court of Federal Claims decision affirmed). 


(taxable cooperative filed Form 1120C that claimed DPAD for patronage income and no DPAD for nonpatronage income; taxpayer simply computed DPAD by aggregating patronage and nonpatronage sourced activities; nonpatronage activities had negative QPAI that would not have produced a DPAD, but by virtue of aggregating patronage and nonpatronage activities, taxpayer converted portion of wages attributable to nonpatronage activity into wages associated with qualified activities; since cooperatives compute gross patronage sourced income for DPAD purposes without deducting PURPIMS, patronage sourced income is higher than it otherwise would be which gives cooperatives advantage over corporations; while statute does not require separate computations, DPAD is deduction only against patronage sourced income; taxpayer cannot compute DPAD by aggregating patronage and nonpatronage sourced income).


(partnership sought specific performance of agreement to exchange parcels pursuant to survey to ensure adequate room for center-pivot irrigation; deeds not transferred and property sold to third party; third party brought suit to quiet title in disputed parcel; trial court held statute of limitations had run against partnership's claim and ruled in favor of third party; appellate court held that because partnership was in possession of property, five-year statute of limitations does not bar lawsuit for specific performance; appellate court also held that 50 foot strip of property was held in trust for partnership and belonged to partnership; court also held it was error for trial court to determine third party easement was 30 feet when evidence insufficient to determine, so that issue was remanded; court also overturned injunction on partnership from spraying ingress and egress road with water from its center pivot because evidence showed water did not materially impede third party from using road; court declined attorney fee award for either party).  


(partnership sought specific performance of agreement to exchange parcels pursuant to survey to ensure adequate room for center-pivot irrigation; deeds not transferred and property sold to third party; third party brought suit to quiet title in disputed parcel; trial court held statute of limitations had run against partnership's claim and ruled in favor of third party; appellate court held that because partnership was in possession of property, five-year statute of limitations does not bar lawsuit for specific performance; appellate court also held that 50 foot strip of property was held in trust for partnership and belonged to partnership; court also held it was error for trial court to determine third party easement was 30 feet when evidence insufficient to determine, so that issue was remanded; court also overturned injunction on partnership from spraying ingress and egress road with water from its center pivot because evidence showed water did not materially impede third party from using road; court declined attorney fee award for either party).


(petitioner, long-time pastor as independent contractor, claimed various Schedule C deductions attributable to ministry; many expenses not sufficiently substantiated and deductions denied or limited; no deduction allowed for travel, meals and entertainment due to lack of substantiation; charitable contribution deduction limited due to lack of substantiation; petitioner entitled to deduction for business use of home; petitioner conceded failure to include over $10,000 of income on 2008 return; accuracy-related penalty imposed). 


(plaintiff claims it was a secured party and substantially complied with § 1631(e) of Food Security Act (FSA) (a.k.a. “The Farm Products Rule”) by providing notice of its security interest in farm products; the notice sent to the defendant left blank the space for a description of the property or county where the farm products that were claimed as collateral may be located; question for the Court was whether an Illinois state case holding that substantial compliance with notice under the UCC was sufficient or whether Illinois should follow the holding of Farm Credit Midsouth, PCA v. Farm Fresh Catfish Co., 371 F3d 450 (8th Cir. 2004), which held that FSA requires strict compliance; the court held that the FSA requires strict compliance with notice given under direct notice exception to the Act; the plaintiff failed to clearly state the location of the farm products in its direct notice to the defendant, so plaintiff did not hold a secured interest in the property; dissent stated that court’s opinion adopting a strict compliance standard underFarm Credit Midsouth leads to an absurd and illogical interpretation of Farm Products Rule because a party can make an error in identifying the secured party, but all parties will be deemed to have constructive notice of the claim, while a creditor can be unsecure where direct notice is given but the notice contains any minor error (even if the party has enough sufficient knowledge of the claim); on further review, state Supreme Court affirmed on basis that federal jurisprudence applied in addressing the issue of whether strict compliance was required to provide direct notice of a security interest in crops under the Food Security Act of 1985; court agreed with appellate court that Farm Credit Midsouth, PCA v. Farm Fresh Catfish Co., 371 F.3d 450 (8th Cir. 2004) was directly on-point with the issue presented and aligned with the Court’s analysis of the statute). 


(debtor filed Chapter 7 and creditor filed for relief under 11 U.S.C. Sec. 362(d) to foreclose against debtor’s real estate (house and 10 acres); debtor moved to convert case to Chapter 12; case converted and debtor proposed reorganization plan with payment of debt over 30 years at 4 percent interest; court granted debtor relief because debtor lacked sufficient income to repay creditor while simultaneously paying taxes and other maintenance costs associated with real estate; debtor’s claim that sufficient income could be generated by farming adjacent real estate not valid because debtor did not own adjacent tract; debtor could not provide creditor adequate protection via 11 U.S.C. Sec. 1205(b)). 


(defendant, a division of the Obama Administration's Commerce Department, issued biological opinion to EPA as part of the process of getting EPA to reregister certain pesticides which concluded that pesticides would jeopardize viability of certain Pacific salmonids and their habitat and that pesticides could not be reregistered and used without substantial restriction; court determined that defendant's opinion not product of reasoned decision-making but was based on unsupported assumptions and conclusions and faulty analyses; defendant's opinion vacated). 


(collaboration between corporations involving development and eventual commercialization of product constituted partnership based on analysis of all factors; if result was production of product produced in significant part in U.S., Sec. 199 deduction available and would be allocated to partners). 


(petitioner took out variable rate loan on principal residence with ceiling on monthly payment; if rate causes ceiling to be exceeded, excess interest is capitalized; petitioner, cash basis taxpayer, deducted capitalized interest currently; court disallowed deduction on basis that interest not paid, but merely secured, and "paid or accrued" language of I.R.C. Sec. 163(h) not applicable because amount not actually paid and petitioner on cash method).


(petitioner, a lawyer in Grand Island, NE, failed to pay income tax for seven years resulting in IRS lien on principal residence; petitioner attempted to deduct interest and penalties as qualified residence interest under I.R.C. Sec. 163(h)(3)(A); court rejected petitioner's claim because neither lien nor filing of notice of lien caused the tax indebtedness to be secured by principal residence, and such interest is personal interest in any event; accuracy-related penalties imposed).


(debtor filed Chapter 12 and plaintiff objected to plan confirmation on basis that plan was not feasible, did not provide plaintiff with as much as plaintiff would receive under liquidation and was not fair and equitable to plaintiff; bankruptcy court determined that debtor's plan did project that all disposable income under the plan would be applied to payments, and confirmed plan; plaintiff claims on appeal that record insufficient to support such finding and debtor claims no proper objection made before bankruptcy court; on appeal, court determined that plaintiff's objection sufficient to put debtor on notice that debtor had to demonstrate compliance with 11 U.S.C. Sec. 1225(b)(1) that plan was fair and equitable to debtor; bankruptcy court record insufficient to explain $15,500 discrepancy in disposable income; bankruptcy court's order confirming plan reversed and case remanded). 


(farmer brought Fifth Amendment takings claim after bridge plaintiff used to reach portions of his leased land was removed and the Bureau of Indian Affairs refused to authorize replacement of the bridge; plaintiff was notified of removal of bridge due to its unsafe conditions and advised he would need to apply for a permit to replace bridge; plaintiff brought suit instead; when bridge was not replaced, plaintiff stopped making lease payments due to his inability to access property; new lessee went through permit process and rebuilt a replacement bridge; after several procedural issues that worked their way through separate court actions, the Claims Court held that the claim was ripe for adjudication and that no regulatory taking existed because plaintiff failed to establish he had a compensable property interest in the bridge; on appeal, court held plaintiff failed to exhaust his administrative remedies by going through the permitting process, so his claim was not ripe; court also upheld finding that plaintiff failed to establish recognizable compensable right in continued use of bridge and that plaintiff could  not make production profitable on the land without the bridge which caused him to abandon his lease, but plaintiff was not cut off from his property and his hopes and expectations of continued use of a bridge do not create a property interest; dismissal affirmed).


(plaintiff’s motion for leave to amend complaint involving breeding hog contract in which company provided to plaintiff boar semen containing disease that caused damage to breeding stock; court allowed amendment to reflect defendant’s name change as it was uncontested; court denied motion to add breach of contract claim based on additional agreement because it would require use of extrinsic evidence to vary unambiguous terms of contract not permitted under choice of law provision jurisdiction or state law in which suit was brought; court denied motion to add negligent misrepresentation claims as futile; claim based on negligence, so no claim allowed under state law and no duty owed to plaintiff regarding information; fraudulent misrepresentation claim also fails because no allegations that defendant knew statements made were false). 


(petitioner, former NFL player, was advised by Denver lawyer to invest in horse breeding program which turned out to be a tax shelter; petitioners invested over $13 million into the program which generated large losses for seven years; petitioners attempted to deduct losses, but IRS denied them on grounds that activity was a hobby and losses subject to hobby loss rules; $4.4 million deficiency upheld; no accuracy-related penalty imposed because petitioner not sophisticated in tax and relied on attorney in good faith). 


(petitioner purchased home on Nov. 11, 2009, and claimed FTHBC of $8,000; IRS disallowed the credit and assessed accuracy-related penalty; IRS claimed that petitioner purchased the residence from his father, a related person, which automatically disqualified the purchase from being eligible for the FTHBC; petitioner paid FMV for the home, but court agreed with IRS without analyzing that the statute actually only bars an acquisition of a home from a related party via gift or inheritance and not in a FMV sale transaction; accuracy-related penalty not imposed).  


(petitioner, former IRS employee and CPA, filed as MFS in 2007 and claimed a mortgage interest deduction of $47,477 on VA residence and second residence in WV; IRS disallowed the deduction in full on basis that it exceeded the allowable limitation for MFS return ($500,000 plus $50,000 of home equity indebtedness); parties agreed to deduction of $29,494 on 2007 return and petitioner sought to change filing status to MFJ; court determined that I.R.C. Sec. 6013(b)(2)(B) bars filing of joint return after filing of separate return if petitioner files a timely petition with Tax Court with respect to noticed of deficiency for year at issue, thus petitioner barred from filing MFJ return; petitioner then claimed that because she wasn't informed of the MFS limitation before filing Tax Court petition, she would have filed an amended return electing MFJ status; no authority cited to support petitioner's argument; court upholds parties agreement and imposes accuracy-related penalties). 


(Chapter 11 case in which debtors (married couple) owned second and third homes that they tried to rent out; debtors lost money on rental homes and claimed loss deductions against husband's unrelated earnings; court determined that debtors not engaged in renting homes with requisite profit intent and had actually acquired homes for personal purposes and actually used them for family purposes on annual basis; debtors did not rely on rental homes as primary income source; debtors also failed to satisfy 750-hour test under passive loss rules for all years at issue). 


(non-veterinarian enjoined from providing equine tooth-floating procedure for compensation without a license; on appeal, court held state Constitution did not prohibit legislature from requiring licensure for veterinarian services; state has legitimate interest in establishing competence of individual practicing veterinary medicine and prohibition on her activities is rationally related to this purpose and not a denial of constitutional rights; court also held that distinction between non-licensed animal dentists and non-licensed animal farriers are similar enough that differentiation under statute would be illogical or irrational; trial court affirmed). 


(petitioner purchased whole life insurance policy in 1976 with face value of $40,000 and annual premium payment of $556 for first 13 years; automatic premium loan provision selected; policy modified in 1986 by replacing old policy with new one with $125,000 of coverage and annual premium of $2,256 and automatic premium loan provision selected; petitioner made deposit of $7,582 into premium deposit account to cover premiums through 1990; from 1991-2009, company made premium payments automatically with loans against cash value of policy; policy lapsed in 2009 when outstanding loan balance exceeded policy's cash value and Form 1099-R issued showing gross distribution of $86,762 and taxable amount of $37,981 for 2009; petitioner claimed he never got the 1099-R, but it was mailed to petitioner's correct address; IRS position upheld and accuracy-related penalty upheld). 


(petitioner owned rental properties and also had office in home; court disallowed basis increase in rental properties based on property tax assessed values; no depreciation on one property because not placed in service by end of tax year; lack of substantiation resulted in depreciation deductions on other properties and home office).


(water agreement executed on property as part of loan process; for 12 years, plaintiff received all water it needed from well pursuant to water agreement; defendant attempted to terminate water agreement after dispute with plaintiff; court held plaintiff entitled to water from well for any purpose without interference; on appeal, court held water agreement created appurtenant easement rather than merely a license; court also held that easement allowed for development of plaintiff’s property, so use was not limited to one property; judgment affirmed). 


(petitioners transferred to county more than 65 acres of undeveloped land for $1,550,000 in part-gift/part-sale transaction; land value reported at $2,950,000 and charitable contributions claimed; IRS rejected charitable deductions on basis that I.R.C. Sec. 170 requirements not satisfied; expert testimony involved issues of development rights, environmental legislation and appraisal methodology that used a statistical model involving polynomial regression analysis to correlate relationship between number of lots undeveloped parcel can be subdivided into and per lot selling price; court gave guidance as to proper role of expert witness in court and then rejected each witness' conclusion due to errors in analysis and application; court reconstructed FMV on its own; thus, appraisal attached to Form 8832 was flawed, but was excused due to reasonable cause; no penalty imposed and partial charitable deduction allowed). 


(LG Chem of Holland, Michigan, received $142 million of taxpayer dollars under the Recovery and Reinvestment Act (Act) of 2009 to develop lithium ion batteries; company's groundbreaking ceremony attended by President Obama; company still has not moved manufacturing production to U.S. from South Korea, and employees reported by Detroit News using time to play cards, watch movies and volunteer helping non-profits; 60,000 lithium batteries for use in GM vehicles to have been produced by the end of 2013 and none have yet to be produced; under Act, company forced to repay Energy Department $842,189 as "unreasonable and unallowable" employee costs; under Sec. 1513 of Act, quarterly reports by Recovery Accountability and Transparency Board to be submitted to the Congress by the Chairman of the Council of Economic Advisors detailing impact of programs funded by Act; presently, reports are four reports behind schedule with none made in 2012 and the last one actually made for the quarter ending June of 2011; Board to terminate on September 30, 2013). 


(plaintiffs brought suit against former attorney for negligence and breach of fiduciary duty by attorney and his LLC established to secure plaintiffs’ loans; plaintiffs contend the breach renders the mortgages unenforceable; defendant brought counterclaim for unpaid legal fees and to foreclose on mortgage; jury found for defendant on negligence claims and court awarded unpaid attorney fees to defendant; in separate proceeding, court ordered in rem judgment in favor of defendant on agricultural property; plaintiffs appealed claiming failure of defendant to obtain mediation release before filing counterclaim seeking to foreclose on agricultural property meant district court lacked jurisdiction to hear counterclaim; appellate court held counterclaim foreclosing on agricultural property required mediation release in accordance with Iowa Code Sec. 654A, so district court lacked subject matter jurisdiction; matter reversed and remanded for dismissal of counterclaim without prejudice).


(Chapter 7 bankruptcy debtor and real estate agent sought to exclude her Mercedes automobile, which was collateral for a non-purchase money lien, from her bankruptcy estate under California’s exemption to exclude up $18,350 in any property; appellate court held that “any” means “any” even if it is a fancy car; real estate agent also sought to exclude the lien on the vehicle as a tool of her trade; appellate court held that this is possible and remanded to bankruptcy court to determine whether debtor’s car qualified as a tool of her trade). 


(case involves contract to develop farm owned by defendants; plaintiff entered into purchase contract for $13 million; under contract, plaintiff could walk away from transaction after "due diligence" period and defendant would retain down payment of $650,000; if defendant breached contract, down payment forfeited and defendant liable for plaintiff's costs; plaintiff given right of specific performance under contract; as plaintiff sought financing and regulatory approval real estate market went south; at time when plaintiff not ready to go to closing, plaintiff demanded that defendant cure title defect even though defendant under no obligation to do so until closing; plaintiff sued for breach even though no closing scheduled and buyer still wanting to go forward with contract; defendant cleared title and made demand to proceed to settlement and plaintiff sued for return of downpayment and costs; court determined that plaintiff merely trying to force defendant to provide cost-free option period and that defendant not in breach; judgment for defendant). 


(by presumption, IRS has historically treated dual-use property (property held for sale or lease) that dealer holds as inventory property not eligible for depreciation; presumption rebuttable if dealer can establish that property actually used in dealer's trade or business and cost recovered through use in business; dealers in construction and ag equipment are typically resellers or enter into leases (under which the property is either reacquired at end of lease or purchased by lessee); in Notice, IRS requesting comments as to whether construction and ag equipment held for sale or lease to customers should be treated as inventory or depreciable property, and under what circumstances the property would qualify for like-kind exchange treatment). 


 (plaintiffs, brothers, established an employee plan for their construction business employees; plan was I.R.C. Sec. 419 plan that provided for death benefits for management  and unlimited deductions for payments to plan; plan bought life insurance for beneficiaries who could borrow against cash surrender value of their policies, but were required to pay back any loans (with interest) with any unpaid loans at death coming out of death benefit; if employment terminated, plan discontinued or employer discontinues, benefit eliminated; employee could make irrevocable designation of life insurance; plaintiffs borrow from plan and sign promissory notes, but made only nominal payment on loan; plan made no attempt to collect or hold plaintiffs in default; plan trustee disclosed loans to IRS on Form 5500 (Schedule G) claiming loans were secured and will be paid when mature and are not uncollectible; at answer stage of pleading, IRS claimed plaintiffs had cancellation of indebtedness income (CODI); IRS stipulates at trial that loans are bona fide and that trust had collection policy requiring demand letter to be issued to borrowers in default and that Forms 1099 would be sent to borrowers that remained delinquent; no demand letter sent to either plaintiff in 2002, so IRS concluded that trust intended to forgive loans and CODI resulted in 2002; however, court noted that trust had no policy for collection of delinquent loans until 2002; plaintiffs' right to receive proceeds not highly contingent; no CODI until company leaves plan, either or both of plaintiffs leaves company or plan ceases; Form 5500 did not necessary mean that loans uncollectible in year issued - merely in default). 


(IRS issues nonacquiescence in Patel v. Comr., 138 T.C. No. 23 (2012) where the petitioners, married couple, purchased house with intent to tear it down and construct new house on same property; instead of tearing house down, petitioners donated house to local fire department for fire training exercise in course of which house would be burned down; petitioners obtained demolition permit and completed all necessary requirements, including execution of documents giving fire department right to conduct training exercises and burn the house down; house burned down; petitioners reported charitable contribution of $339,504; court upheld IRS denial of charitable deduction in total ($92,865); petitioners did not donate ownership interest in house to charity, but only right to conduct training exercises (license); Sec. 170 (f)(3) denies charitable deduction for donation and use property regardless of value; donation was of only a partial interest, and donation of partial interest not deductible; accuracy-related penalty not imposed because taxpayers within reasonable cause exception of I.R.C. Sec. 6664(c) based on all the facts and circumstances and uncertain status of law on issue; IRS nonacquiescence notes IRS disagreement with court's conclusion that uncertain state of law is factor supporting finding of reasonable cause and good faith where taxpayer did not investigate status of law and did not obtain professional tax advice; IRS position is that taxpayer cannot act in good faith for purposes of not having accuracy-related penalty apply if taxpayer unaware of state of applicable law and made no reasonable attempt to become aware of state of applicable law). 


(plaintiff, on behalf of minor children, sued homeowner after homeowner had danced suggestively with the plaintiff’s mother and teased the plaintiff’s father before he shot and killed the mother and himself; summary judgment granted because homeowner owed no duty to plaintiff to protect them from the criminal acts of the father who was a guest in her home; on appeal, court upheld because plaintiff did not have a special relationship with the victims and criminal; homeowner did not have a duty to avoid provoking the father and the court declined to extend a duty to reduce domestic violence by refraining from teasing those who may be potentially violent; court held imposing this duty would impose the duty on domestic abuse victims to prevent their own abuse). 


(plaintiffs promote research and development of wheat varieties and develop plant varieties protected by Plant Variety Protection Act (PVPA); an involuntary plaintiff (Kansas State University Research Foundation (KSURF) developed Fuller variety of hard red winter wheat and protected it with PVPA certificate with duration of 20 years; KSURF granted lead plaintiff exclusive license to offer Fuller variety for sale and right to sub-license; plaintiffs claimed that defendants conditioned at least one PVPA-protected variety for reproductive purposes without proper authorization; plaintiffs allege that amount conditioned could produce over four million 50-pound bags of seed in five generations; plaintiffs sought injunctive relief; court determined that plaintiffs' pleading lacked sufficient allegations to satisfy basic pleading requirements and does not point to even a single act of the defendant that violates the PVPA; as such, complaint is inadequate, but plaintiffs given 10 days to file amended complaint otherwise judgment will be entered for defendants).


(decedent, a surviving spouse, was beneficiary of several trusts, four of which were at issue; of those four, two were QTIP trusts, one was a marital deduction trust and one was a revocable trust; in 2001, QTIP trusts and marital deduction trust liquidated and assets (family partnership (FP) interests) transferred to existing revocable trust; decedent, at age 74 terminated trust and all assets (including FP interests) sold to children for 10-year deferred private annuity; under annuity, if decedent died within 10 years, significant cash was removed from decedent's estate; decedent received doctor's note that she was in reasonably good health at time annuity purchased, but doctor did not testify at trial and IRS viewed annuity as sham transaction (disguised gift for which decedent didn't receive adequate consideration) when decedent died slightly over 3 years later (but before any payments received); decedent and children used I.R.C. Sec. 7520 tables to value annuity properly, but IRS argued tables not appropriate for valuation because of decedent's health issues at time annuity purchased and lack of security for annuity (IRS bears burden of proof to use something other than tables to value annuity); court ruled for decedent (no disguised gift on transfer of FP interests for annuity) - doctor wrote that she had a greater than 50 percent chance of living for more than 18 months (thus, not terminally ill); IRS did not challenge doctor's letter, but relied on decedent's 24-hour home health care as argument that decedent would die within 10 years; court determined that home health care not dispositive of terminal illness or incurable disease, but that she was wealthy and could afford such care; annuity transaction not illusory; decedent did not retain indirect interest in FLP interests to cause inclusion in estate under I.R.C. Sec. 2036; but, decedent triggered gift tax under I.R.C. Sec. 2519 on value of QTIP trust assets (minus the value of decedent's qualifying income interest in QTIP trusts) because court determined that termination of QTIP trust was part of simultaneous transfer of assets in the QTIP trusts to decedent immediately followed by transfer of those assets to the decedent's children in a single transaction; NOTE:  court's finding that decedent had disposed of her income interest in QTIP trust in private annuity sale thereby triggering gift tax under I.R.C. Sec. 2519 on value of remainder interest in QTIP incorrect; (1) court's ignoring of initial transfer to decedent resulted in sale by the trust of trust assets for annuity which is not an I.R.C. Sec. 2519 disposition (income interest merely continues in newly acquired asset; (2) I.R.C. Sec. 2519 inapplicable  to principal distributions to surviving spouse from QTIP trust - under court's holding, decedent would have been hit with double taxation if it weren't for the annuity properly excluding the value of the assets from decedent's estate; (3) raises questions as to when a sale will be deemed to be sufficiently beyond distribution date to avoid I.R.C. Sec. 2519; (4) under facts of case, distributions of QTIP trust assets made to decedent's family members four years before QTIP trusts liquidated and were reported for gift tax purposes which should have triggered I.R.C. Sec. 2519 at that time and would have prevented it from applying in 2001).    


(petitioner not entitled to deduct expenses of horse activities because activity not engaged in for profit; evidence not presented to establish business-like record keeping, conformance with standard industry practices, or changes to improve profitability; petitioner did not seek expert advice, that she had any reasonable expectation that her stud horse would appreciate in value after eight years between siring any foals and lameness prohibiting dressage competitions, or that she has ever operated any horse business at a profit; court also held that death of horse was not a deductible casualty loss as losses resulting from diseases are not deductible; court also denied deductions for legal fees incurred in a lawsuit against her homeowner’s association because there was no evidence of any connection between lawsuit and any trade or business; petitioner not liable for accuracy-related penalties due to success in previous audits establishing reasonable cause and good faith efforts by petitioner).


(petitioner donated conservation easement in accordance with negotiations with local zoning board and in return for county approval of subdivision exemption; IRS denied charitable deduction because donation involved quid pro quo; 20 percent substantial understatement penalty imposed; court noted lack of testimony from practitioner that prepared return; 40 percent gross valuation penalty of I.R.C. Sec. 6662(h)(2) rejected - petitioner's appraisal was from qualified appraiser and was a qualified appraisal and utilized "before and after" approach to valuation). 


(plaintiff family formed trusts that came to own stock in S corporation that owned C corporation stock; trust made QSub election so as to be able to disregard existence of C corporation (Treasury Regulations treat a QSub election as a deemed liquidation of the subsidiary, and under I.R.C. Secs. 332 and 337, the liquidation of a 100 percent subsidiary is not taxable - neither subsidiary nor parent has gain) and treat as division; appreciation in S corporation assets was $226 million and shareholders increased income tax basis in S corporation stock by like amount; taxpayer's argued that unrecognized gain be treated as tax-exempt income that subsidiary earned that passed through to shareholders resulting in basis increase; S corporate stock then sold for $230 million and shareholder reported loss on returns for year in issue; IRS determined that no basis increase should have occurred on QSub election - I.R.C. Sec. 337 does not result in exemption from income, but simply non-recognition because S corporation continued investment in subsidiary by holding assets directly rather than via stock ownership; court agreed with IRS  and noted that situation not analogous to discharge of indebtedness recognized by S corporation which results in basis increase; no accession to wealth when subsidiary liquidated; no basis increase in shareholders from $15 million to $241 million upon QSub election - non-recognition of $226 million gain under I.R.C. Sec. 337 did not involve tax-exempt income so no related basis increase under I.R.C. Sec. 1367(a)(1) result was cumulative gain of $215 million on stock sale and not $11 million loss). 


(stockholder in residential cooperative housing corporation could claim casualty loss deduction related to $26,390 assessment paid so that retaining wall in common area could be repaired; stockholder had sufficient property interest in wall under state (NY) law; case remanded so Tax Court could determine if loss was actually caused by casualty; petitioner leased apartment building from housing corporation that she owned stock in and court determined that stockholder's rights were granted by lease agreement which gave her right to use grounds in complex and exclude persons that are not tenants or their guests).


(field workers were employed by farm labor contractors to perform work for defendant farm; under facts and circumstances, court held that contractors were independent contractors of farm, so plaintiffs not employees of farms through employment with contractors; under joint employment analysis, however, employees of contractor were jointly employed by defendant farm under Migrant Seasonal Agricultural Workers Protection Act because the worker is so economically dependent upon the agricultural employer as to be considered an employee; court also held defendant farm negotiated workers' wage rate and workers paid directly from funds received by defendant farm, so plaintiffs employed under state law).


(court upheld trial court’s summary judgment motion dismissing plaintiff’s claim for personal injuries after her vehicle struck a John Deere 710D front loader owned by a municipality and operated by a city worker; based on precedent, court upheld that the front loader was not a motor vehicle subject to exception to governmental immunity; court also upheld motion in limine as harmless because it dealt with damages which the jury never considered after finding plaintiff’s injuries were not caused by a motor vehicle accident; court also upheld denial of motion for mistrial based on juror misconduct because jurors observed plaintiff during her lunch break, but did not stalk her as alleged; court also upheld the court’s granting a motion for JNOV of plaintiff’s ambulance bill after the jury concluded she did not suffer an accidental injury).


(plaintiff sued lawyer for malpractice with respect to clerical error in will; plaintiff was not a client of the lawyer; original will contained the clerical error that was corrected in later will that named plaintiff as prospective beneficiary in handwritten provision; second will was signed but not witnessed or notarized even though lawyer advised decedent that it needed to be in order to be valid; first will (which did not name plaintiff as beneficiary) admitted to probate; plaintiff claimed that lawyer owed plaintiff duty of care to ensure execution of later will; court rejected plaintiff's claim on basis that imposition of such duty would create conflict of interest by imposing simultaneous duty on lawyer owed to both decedent (client) and plaintiff (non-client)). 


(plaintiff sells crop insurance policies to farmers that have been underwritten by "approved" crop insurance providers; defendant was employed by plaintiff as an agent until terminated in May of 2012; upon being hired, defendant signed non-compete agreement barring solicitation of customers of plaintiff for one year following termination of employment with plaintiff; plaintiff seeks preliminary injunction to prevent defendant from engaging in conduct that allegedly violates non-compete agreement; after termination, former customers contacted defendant to ask questions and later sought to become defendant's client at defendant's newly established business; preliminary injunction granted due to presence of clear and present need for equitable relief, threat of harm to plaintiff in not issuing injunction significant, agreement's non-competition provision valid and enforceable, and plaintiff likely to succeed on merits; issuance of preliminary injunction conditioned on plaintiff providing bond or other security of $100,000).  


(plaintiff sued in tort and contract for alleged sale of defective (moldy) pig feed by defendant; defendant moved to dismiss the tort-based claims under the economic loss doctrine; motion granted).


(motion for summary judgment in personal injury case; plaintiff was injured while working on oil rig; plaintiff was an employee of an independent contractor hired to run casing on an oil rig; defendant’s employee was operating elevator to lift joints of casing up to derrick; plaintiff sued defendant for injury after elevator struck plaintiff; defendant argued it was not liable because an independent contractor had control of premises at time of injury; court held questions of fact remained regarding control; court also declined summary judgment on assumption of the risk defense; court held plaintiff’s claim did not require expert testimony; court did grant summary judgment on plaintiff’s claim for punitive damages as simple negligence does not merit punitive damages).


(decedent, before death, contributed 72 percent of capital stock in corporation that owned two apartment buildings to non-profit housing corporation and claimed charitable deduction of $1,045,289; due to deductibility limitation, taxpayer carried over excess amount to 2006; IRS denied carryover amount on basis that taxpayer failed to satisfy appraisal requirements; court determined that taxpayer's appraisals valued apartment units (which were not donated) rather than underlying stock that was actually donated; as a result of appraisals of wrong asset, IRS not given cannot determine whether interest actually contributed was properly valued; statutory requirements to obtain charitable deduction very specific and must be precisely followed). 


(petitioner was a real estate agent that also managed bank properties; activity with respect to bank properties generated losses of $203,962 for year at issue; petitioner deducted loss on basis that petitioner materially participated in activity; loss deduction denied for lack of substantiation of necessary hours; accuracy-related penalty imposed). 


(petitioner owned bed and breakfast with spouse; $170,000 tax liability triggered upon sale for approximately $2 million because of failed I.R.C. Sec. 1031 exchange; before petitioner knew of tax liability sale proceeds used to buy apartment building; petitioner lived in one unit and elderly mother lived in another unit with three other units rented; IRS moved to seize apartment building and petitioner sought to pay on liability monthly while trying to find lender to refinance; IRS appeals rejected petitioner's offer and petitioner appealed; IRS conceded that appeals officer abused discretion by not asking for revised financial data; Tax Court remanded for supplemental hearing with appeals officer; new appeals officer failed to follow Tax Court's guidance and asserted that petitioner committed fraud and put lien on apartment building and suggested that IRS seize and sell building; IRS later determined that no fraud committed but rejected monthly payment arrangement because IRS claimed that petitioner could pay liability in full; case returned to Tax Court where court determined that IRS had made many errors and failed to gain sufficient information to support conclusion that petitioner's collection alternative not reasonable; IRS abused discretion by sustaining proposed levy against apartment building; Tax Court could not independently review whether proposed collection alternative is appropriate; case remanded to appeals for consideration of proposed payment arrangement, petitioner's financial information and whether hardship existed). 


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