Annotations 05/2013

(spendthrift trust beneficiary executed $350,000 personal guarantee to company in which beneficiary was principal; beneficiary represented that he had almost $7 million available to him in the trust; business defaulted and trustee refused payment on guarantee due to trust's spendthrift limitation; lender sued on basis that state (FL) law makes enforceability of spendthrift trust provisions a violation of guarantee of equal access to courts contained in FL Constitution and that there is no longer a common law right to execute money judgment against any beneficial interest that debtor held; trial court granted summary judgment to trustee and appellate court affirmed; validity of spendthrift limitations recognized before statutory amendments and have not been abolished). 


(plaintiff fell from her horse when defendant, a jogger, approached from behind with stroller and two dogs; horse got spooked when dog barked and took off on a canter causing plaintiff to fall; plaintiff sued and defendant claimed assumption of risk as defense on basis that tendency of horses to spook was normal risk of horseback riding; court held defense inapplicable insomuch as defense required horseback riding activity to be sponsored or supported by the defendant; court affirmed summary judgment for defendant on negligence claim on basis that actions for injuries caused by domestic animals are only available in strict liability which required evidence that defendant knew of under dog’s vicious tendencies; no evidence presented that defendant knew that dogs would cause a horse to spook).


(petitioner worked on commission basis for employer and was also entitled to percentage of revenue generated by a sales associate he recruited; for tax year in issue, he had $50,984 in non-employee compensation and claimed expenses of $45,011.62; IRS disallowed much of the claimed expense deductions due to lack of substantiation and credit card finance charge because it wasn't related to petitioner's business). 


(taxpayer wishes to make election under I.R.C. §469(c)(7) and Treas. Reg. §1.469-9(g)(3) to treat all interests in rental real estates as single rental real estate activity; Filing Form 3115 not valid way of making election; election must be made by attaching statement with taxpayer’s original return for the tax year).


(plaintiffs leased natural gas to defendants and claimed that defendants had deliberately and fraudulently underpaid gas royalties for over 10 years and covered up the fraud by falsifying accounting statements; defendants claimed that suit time-barred by statute of limitations; court held that state (OH) law incorporated by reference UCC four-year statute of limitations for breach of contract actions involving sale of goods, thus plaintiffs could proceed with breach of contract claim involving royalty underpayments occurring within four years of filing of complaint; court also determined that leases were divisible contracts, thus statute of limitations ran separately from date of each monthly payment; court also determined that claim of fraudulent concealment sufficient to survive motion to dismiss; court reversed district court’s dismissal of contract claim; case remanded). 


(plaintiff grows blueberries and defendant that distributes ag chemicals and employees licensed pest control advisors; defendant’s employee recommended fertilizer to use on blueberries and, upon usage, plaintiff’s blueberries were damaged or destroyed; product label did not warn of potentially adverse effects; plaintiff sued in strict liability for design defect; negligence for failure to warn, misrepresentation and fraudulent concealment; defendant claimed that court lacked subject matter jurisdiction because all claims arise out of state law; court determined that, consistent with U.S. Supreme Court decision inBates v. Dow Agroschiences LLC, 544 U.S. 431 (2005), that nothing in FIFRA precludes states from providing remedy to farmers and plaintiff can assert state law claims based on alleged FIFRA violations to extent that claims would not impose requirement that is in addition to or different from FIFRA requirements, but cannot assert federal claim; plaintiff cannot rely on FIFRA to establish federal question jurisdiction; motion to dismiss for lack of subject matter jurisdiction granted; plaintiff has until Jun.18, 2013, to amend complaint or face dismissal and closure of case). 


(Chapter 12 case in which creditor found to have willfully violated automatic stay and court awarded actual damages including attorney’s fees, lost milk proceeds, one cow and amount for lost milk production; creditor moved to vacate order; motion to vacate denied). 


(case involves federal historic rehabilitation tax credit (HRTC) as continued in the Tax Reform Act of 1986 that is available to owners of building; plaintiff owned building in question and Pitney Bowes Corporation was partner of plaintiff (C corporations are not subject to at-risk and passive activity loss rules); IRS took position that plaintiff merely vehicle to transfer HRTC to Pitney Bowes and that all HRTCs should be reallocated to New Jersey Sports and Exposition Authority; Tax Court ruled for plaintiff and allocated HRTCs to Pitney Bowes; on appeal, court reversed because Pitney Bowes did not have "meaningful stake" in plaintiff's success or failure and, as such, was not a bona fide partner in plaintiff).


(petitioner attempted to deduct expenses attributable to his business, but spreadsheet for various expenses lacked description of business purpose and had errors in mileage calculations; petitioner's testimony suggested he converted personal trips into business trip; substantiation requirements of I.R.C. Sec. 274(d) not satisfied). 


(motion to dismiss in class action case alleging misleading labeling of “all natural” on soup products that contain genetically modified corn; claim brought under State Deceptive and Unfair Trade Practices Act and common law unjust enrichment theory; defendant argued that claim was preempted because label approved by USDA for beef and chicken soup products with GM corn (current controversy over vegetable soups regulated by FDA); court held product line issue not logical as it would preclude all claims against any defendants using same labeling; court held state claim not preempted by federal regulation; defendant also argued claim should be dismissed because it implicates a federal agency’s expertise and FDA has no special labeling required of GM products; court agreed with plaintiff that because FDA has declined to regulate “natural” claims, claim should not be dismissed; court declined to dismiss state law’s “safe harbor provision” or alternative unjust enrichment claims because both well-pled; motion to dismiss denied). 


(plaintiff owned a 100 acre farm and mortgaged five acres for her son to build a barn on them; after the barn was complete, the plaintiff’s property taxes went up; plaintiff (mother) and defendant (son) went unannounced to an attorney’s office to draw up a deed; dispute arose regarding purpose of deed; plaintiff argued that she was transferring only five acres and defendant argued for transfer of entire farm; plaintiff was elderly and waited in car while defendant spoke to attorney alone; attorney prepared deed giving plaintiff life estate and transferring remainder to defendant; despite recommendation that deed not be filed until plaintiff’s death, deed was recorded by defendant; trial court held plaintiff did not intend to record deed and defendant removed deed from plaintiff’s safe and recorded without her permission and held deed should be set aside on basis of fraud, unconscionability, and lack of delivery; defendant appealed; appellate court held fraud was not proven because plaintiff could not have acted in reliance on misrepresentation to attorney because she was not present and removal of deed would be stealing rather than evidence of fraud; appellate court also held deed was not substantively unconscionable because transaction was a gift rather than business deal; appellate court also overturned trial court’s finding of lack of delivery because recording of a deed creates a presumption of delivery and there was lack of evidence regarding how the deed was recorded and whether defendant did steal deed from plaintiff’s safe; case remanded for reconsideration on the evidence for delivery; court also directed undue influence claim made by plaintiff be addressed on remand). 


(S corporation entered into loan agreement with unrelated third party lender in return for promissory notes; S corporation defaulted and S corporation sued partners for failure to make payments and received judgment; in following year, court reduced amount of judgment; parties enter into settlement; issue was controlling date for when discharge of S corporation debt occurred; IRS concluded that entry of court's order was "identifiable date" fixing creditor's loss with certainty and controlled date of debt discharge; when settlement agreement contingent on certain events, those events must be satisfied; payment date didn't fix creditor's loss with certainty; court order dismissed with prejudice all "claims, cross-claims or counterclaims brought or that could have been brought herein"). 


(case involves longstanding harassment against defendant, rancher, by Bureau of Land Management (BLM); plaintiff sued defendant for trespass caused by presence of defendant's cattle on BLM land without federal permit; defendant claimed ownership of historic grazing preferences and property rights to stock water usage dating to 1860s; plaintiff starting denying renewal of grazing permits in 1993; court determined that defendant held procedural and substantive property interest in grazing permit for purposes of Due Process Clause that cannot be denied before defendant given due process; court also held that plaintiff's conduct of denying defendant grazing permits and water rights "shocked the conscience" in violation of the APA; court issued permanent injunction ordering plaintiff to grant defendant grazing permit renewal application). 


(plaintiff's seeks declaratory judgment that plaintiff's property not subject to CWA, and also seeks injunction ordering Federal Government to cease criminal prosecution and civil litigation against plaintiff for alleged CWA violations; plaintiff purchased property in 2006 and government claimed that at least part of it was wetlands subject to CWA jurisdiction; plaintiff claims no CWA jurisdiction because land is either not a wetland, subject to an exemption meant to exclude prior converted wetland, or because plaintiff has necessary state permits; preliminary injunction denied because plaintiff not able to prove irreparable harm; case not comparable to Sackett v. Environmental Protection Agency, 132 S. Ct. 1367 (2012)because civil action has already been brought in this case, not just a compliance order; declaratory judgment not issued because issuance would not "finally and conclusively resolve controversy"; CWA Sec. 402 permits issued by state to allow storm water discharges are not prima facial defense to all CWA Sec. 1319 civil and criminal enforcement actions  - Sec. 404 discharges are regulated by COA and do not require EPA Sec. 402 permits; further discovery required on storm water violations and whether they occurred outside permit area; on prior converted (PC) wetland issue, court noted that abandonment rule not repealed by 1996 Farm Bill, but merely modified and EPA and COE use same abandonment rule for PC as Farm Bill provision; Congress did not intend to alter EPA's abandonment rule through 1996 Farm Bill; plaintiff's property subject to EPA's abandonment provision applicable to PC cropland). 


(appeal from determination that wooded lot did not qualify for farmland assessment; at trial, directed verdict given to township because testimony was only that plaintiff harvested wood once or twice on lot to heat farmhouse on additional lot on which farming activities occurred and wood used once to repair barn; ruling affirmed and plaintiff’s contentions on appeal without sufficient merit to warrant discussion in a written opinion).


(boundary dispute in which plaintiff claimed fence line constituted boundary by agreement; trial court determined there was lack of evidence concerning when fence was put in, why built or in its location, or who owned property on either side when built, so there was no evidence to disprove fence intended to be boundary; trial court held boundary was uncertain and implied agreement existed that fence to be treated as boundary line; on appeal, decision affirmed based on principle that when fence line treated as boundary for long period in the absence of evidence of circumstances establishing fence, fence is presumed to be boundary). 


(petitioners, married couple, had debt cancellation that they claimed was capital gain in nature; wife owned two homes that were both mortgaged and both fell into foreclosure; wife got caught up in home equity theft swindle promoted by lawyer and sells both homes to lawyers agents who get new mortgages processed to pay off the defaulted mortgages; short-term lease also obtained with option allowing wife to buy-back properties; state court voided sale but left new mortgage in place; wife paid off new mortgage; IRS not party to state action and not in privity with wife, lawyers or creditors, so not bound by state court action; wife admits to existence of capital gain when mortgage paid-off, but IRS claims additional amount owed on basis that wife had income on each sale to lawyers at full purchase pice; Tax Court disagreed with IRS position noting that wife received only cash to prepay rent on lease, real estate taxes and cancellation of personal liability on mortgage that was in default; Tax Court determines that gain recognized on discharge of debt is ordinary in nature, not capital; none of debt was qualified principal residence debt, but some could be home equity debt entitling wife to interest deduction up to $100,000 limit). 


(case involves dispute over farmland that had been owned 100 percent by husband and wife before transfers of undivided fractional interests to defendant, a son; at time of case, mother had died and father owned 6 percent and defendant owned 94 percent; plaintiff was longtime farm tenant (and father's grandson and defendant's nephew); farther, as co-tenant in possession of farmland, executed 11-year recorded rental agreement with plaintiff for $150/acre/year; defendant (and 94 percent owner) did not consent to agreement and claimed that agreement was unenforceable and that plaintiff would be trespassing upon attempting to farm; defendant motioned for dismissal of case; under state (OH) law, each tenant holds title independently of every other tenant, and co-tenant out of possession entitled to receive share of reasonable rental value of property exclusively used by co-tenant in possession; possession of one co-tenant is presumed to be possession of all; defendant made no request to physically possess tillable land or was denied ownership rights in farm; father had duty to account for rents and profits and pay defendant 94 percent of net rental income; father has absolute right of possession; under state law, a lease does not divest co-tenants of their interests in property; defendant retains right of partition and, if exercised, lease would be terminated; defendant's motion to dismiss denied).


(environmental activist organizations sued the Administrator of the federal EPA seeking declaratory and injunctive relief for defendant's alleged failure to reduce greenhouse gas emissions; theory advanced was that, as federal officers, defendant violated fiduciary obligations to protect the atmosphere under the federal public trust doctrine; federal court dismissed action based on finding that claims based on state common law rather than federal law and dismissed case; plaintiffs sought reconsideration under federal rules; court declined motion for reconsideration because plaintiffs failed to present change in law or clear error).  


(plaintiffs own oil and gas rights to property; defendant owns surface rights; controversy over which party required to bear the cost of relocating two pipelines on property; defendant placed fill dirt over one pipeline, which required plaintiff to relocate pipeline to safer location; defendant wanted to place cell phone tower on property, but second pipeline was in way, so defendant buried pipeline causing safety issues; plaintiff brought suit for injunctive and declaratory relief regarding the excavated pipeline; court denied injunctive relief due to defendant’s secession of excavating,  but granted summary judgment finding defendant upset status quo, so it was required to pay for cost of pipeline relocation; remaining claim went to trial; jury found defendant responsible for depositing dirt on tops of pipeline and court held it responsible for costs; on appeal court held defendant upset status quo because pipelines were in existence at time defendant purchased property; placing fill dirt over top of pipeline was for defendant’s benefit, so it must bear cost of relocation of that pipeline; court stated same conclusion for excavated pipeline; district court judgment affirmed). 


(Chapter 11 case involving issue of whether non-debtor parent company's pre-petition abandonment of subchapter S tax status is void as a post-petition transfer of property of the bankruptcy estate or is avoidable; upon revocation of S election, debtor subsidiary converted to LLC from a qualified Sub-S subsidiary; bankruptcy court ordered reinstatement of S and QSUB statuses respectively; on appeal, court vacated bankruptcy court decision on basis that QSUB status not "property" of bankruptcy estate because such status not "property"; S and QSUB status is not property, and it can be revoked at will by S corporation shareholders; definition of "property" contained in 11 U.S.C. Sec. 541(a)(1) not satisfied; as a result, debtors lacked standing to initiate adversary proceeding seeking avoidance of "transfer" of debtor's QSUB status). 


(U.S. Supreme Court grants certiorari in case to resolve split between U.S. Circuit Courts of Appeal on issue of whether U.K. windfall profits tax paid by plaintiff’s U.K. subsidiary is creditable under I.R.C. §901; Third Circuit held that it was not and Fifth Circuit held that it was; court reversed Third Circuit decision; British utility partly owned by plaintiff U.S. company was privatized between 1984 and 1996 which caused profits and share prices to soar; British Labour party (liberal progressives) imposed windfall profit tax of 23 percent on difference between profit-making value and price at which government sold company; plaintiff claimed credit on 1997 return for "income, war profits, or excess profits taxes" paid to another country pursuant to I.R.C. Sec. 901(b); Tax Court upheld credit and Third Circuit reversed; Court reversed Third Circuit on basis that tax was tax on "excess profits" of privatized utilities; Court noted that U.K. artificially calculated value and tax was nothing more than a tax on profit above a threshold).


(no charitable deduction for non-cash contributions due to lack of substantiation; deduction allowed for tax return preparation fees but limited to 2 percent of AGI floor; no deduction for legal expenses allowed that related to landlord/tenant dispute (personal in nature); no casualty loss deduction for water damage because of failure to show that insurance claim had been resolved during year at issue and no substantiation of unreimbursed loss, and petitioner failed to show what items were compensated by insurance and/or the FMV of any property at time of casualty). 


(property contained in a revocable trust is subject to a federal tax lien because the property in the trust is treated as the property of the settlor under I.R.C. Sec. 676).


(family farm/ranch partnership sought court action to dissociate brother from partnership after brother brought suit for disclosure of additional partnership documents; after trial, court held brother should be dissociated based on two statutory provisions; court found brother engaged in conduct making it not reasonable to carry on partnership business with him as partner; evidence showed mutual lack of trust between brother and other nine family members in partnership, threats made by brother to family members, testimony by all other partners that removing brother was in best interest of partnership, and court’s determination that brother’s version of events where he was “magnanimous savior of the family” lacked credibility; court determined irreparable deterioration of relationship between partners proven by family was valid basis for dissociation; court found alternative reason for dissociation when it found brother engaged in wrongful conduct that adversely affected partnership; court found brother harassed and belittled his father and refused to agree to any future planning for partnership leaving business at standstill; state (Kan.) Supreme Court denied review).


(debtor was real estate developer that resided in WA and suffered in the housing market downturn in 2008; debtor established self-settled asset protection trust in mid-late 2008 that adopted Alaska law as governing law; debtor's son named as trustee and trust provided for discretionary distributions for benefit of debtor, his children, grandchildren and step-children; debtor transferred approximately 78 percent of his assets to trust; trustee made substantial distributions to debtor and did not refuse requests for distributions; debtor filed bankruptcy in early 2011 and trustee moved to set aside trust as invalid and transfers to trust as fraudulent transfers; AK law allowed self-settled trusts, but WA did not; based on numerous factors, court determined that WA law applied to trust; as such, transfers to trust void as matter of law and were fraudulent under 11 U.S.C. Sec. 548(e)(1) (sufficient badges of fraud present) and WA Uniform Fraudulent Transfers Act; court's opinion follows Kilker v. Stillman, No. G045813, 2012 Cal. App. Unpub. LEXIS 8542 (Cal. Ct. App. Nov. 26, 2012), and Rush University Medical Center v. Sessions, 980 N.E.2d 45 (Ill. 2012); cases illustrate how difficult it can be for non-resident to use that state's self-settled spendthrift trust statute when settlor sued in domiciliary state).


(Chief Counsel's Office points out an inaccurate paragraph in IRS Pub. 225 with respect to livestock sold on account of weather-related conditions; IRS points out that taxpayer can replace livestock with "other property...used for farming" under I.R.C. Sec. 1033(f), if replacing the livestock with "property similar or related in use" is not feasible due to weather-related conditions or environmental contamination; IRS notes that livestock cannot be replaced with "other property...used for farming" because of market conditions). 


(adversary proceeding in bankruptcy case in which court asked to what extent plaintiff can enforce it lien on crops grown by debtor and sold to defendant; defendant argued plaintiff did not have a properly perfected interest in crop;  plaintiff did not include on its UCC forms the name or county code for disputed county or any specific parcel of land in disputed county in which crops were grown; court held defendant was liable to plaintiff for bushels purchased directly from counties stated on UCC forms and entered judgment in an amount equal to this crop, but not in the disputed county; plaintiff had no proof of where “washout potatoes” were grown, so no lien was perfected on these potatoes; plaintiff argued transport of the potatoes into the counties in which the lien attached created a lien for potatoes existing in those counties; court disagreed, holding that plaintiff’s description of six specific parcels limited the lien to crops grown on those parcels and not to crops brought into the counties, so plaintiff’s rights were limited to those parcels and no lien attached to “washout potatoes”). 


(husband and wife brought action for involuntary judicial dissolution of family farming company; company filed motion to dismiss citing fact that husband was not shareholder of company, so had no standing; court held all shares held by limited partnership rather than individuals, so husband was not shareholder; court also held husband and wife were not beneficial owners, so they lacked standing to bring action to dissolve company; on appeal court agreed under language of statute for dissolution, husband must be individual shareholder to bring action; dismissal affirmed).  


(DPAD resulting from reclassification of amounts previously classified as grain purchases as PURPIMs is a deduction incurred in connection with the conduct of patronage business and is inherently patronage-based; thus, such amount can only be used to reduce patronage-sourced income, not non-patronage–sourced income). 


(petitioner filed for Chapter 13 and listed certain tax refunds as debts owed to the debtor and claimed an exemption for such refunds; debtor subsequently filed tax return showing no tax liability and certain refundable credits comprising the federal and state refund owed debtor (which included a refundable child tax credit of I.R.C. Sec. 24); court determined that debtor's refund resulted from overpayment of tax rather than the child tax credit; trustee's objection to debtor's claim of 100 percent exemption in child tax credit, to extent not moot, is sustained because child tax credit not property of debtor's bankruptcy estate; additional child tax credit not exempt as "public assistance benefit"). 


(debtor was failed ethanol plant that filed Chapter 7 bankruptcy; bankruptcy trustee sought declaration against creditor that contracted corn deliveries were property of debtor's bankruptcy estate and that creditor's security interest in corn was unperfected; creditor claimed that corn was not delivered and that possession and title did not pass until corn actually weighed by debtor; creditor also claimed that it owned corn stored in bins at debtor's plant; court held that corn was property of bankruptcy estate because, under terms of contracts, delivery complete when corn physically changed hands from growers to debtor; under state (NC) law, creditor's reservation of title until corn weighed limited to security interest in corn; creditor did not perfect security interest in corn due to failure to file financing statement, and perfection did not occur via possession of corn in bins at debtor's plant that were leased to creditor; storage bins not marked so as to indicate creditor's collateral (as required by contract), hence no notice to third parties which could perfect security interest).


(petitioners, married couple, claimed mortgage deduction for interest paid that had been added to negative amortization loan; loan allowed petitioners ability to pay lower interest rate than stated rate based on adjustable index; difference between interest paid and accrued was bank's margin; petitioners claimed gross interest paid as reported on Form 1098 as deduction; interest shortage also reported which was amount charged to account but not paid; gross amount was $59,554 and shortage was $33,288, with net interest paid of $26,266; court allowed deduction of $26,266 because petitioners on cash basis and had not yet paid full amount claimed; no accuracy-related penalty imposed).  


(lawsuit re-filed by Mississippi Gulf Coast residents and property owners against oil companies for release of by-products that allegedly led to "global warming," which plaintiffs claimed produced conditions that formed Hurricane Katrina; previous suit dismissed by district court, Court of Appeals panel overturned district court dismissal, but review by court en banc could not occur due to lack of quorum; appellate decision lawfully vacated before loss of quorum; motion to dismiss present suit granted by district court based on res judicata and collateral estoppel of district court opinion in first lawsuit; as a precaution court also dismissed for lack of standing, presentation of non-justiciable political question claims; pre-emption of state law claims by federal law; statute of limitations, and failure to state a claim for relief; plaintiffs' claims completely dismissed; plaintiffs again filed suit involving same claims; appellate court noted that district court's judgment had not been disturbed; court denied plaintiffs' claim for equitable exception to res judicata; case dismissed). 


(debtor defaulted on bank loan and had CODI to extent forgiven debt exceeded value of mortgaged property; bank issued Form 1099-C to debtor and IRS; lender then sought to collect difference between amount due and value of mortgaged property against debtor (who was in bankruptcy); court determined that filing of Form 1099-C did not bar collection of difference in value between amount due and value of property; Form 1099-C is not admission by creditor that debt had been discharged; IRS regulations on matter not entitled to Chevron deference). 


(petitioners, married couple, engaged in plane chartering, grape farming, and money lending; IRS challenged approximately $156,000 in claimed deductions for three years at issue plus interest and penalties; court disallowed cost of failed effort to establish zinfandel vineyard, deductions for private airplane venture and deductions for wife's claimed business expenses associated with spa visit limousine wine-tasting tour and pleasure trips; petitioner failed to maintain contemporaneous logs and trips primarily personal in nature; parties given until August to submit respective assessments of tax due). 


(petitioner received a pre-age 59 and 1/2 distribution from IRA and claimed that the distribution amount was not subject to the 10 percent early withdrawal penalty because the funds were used to acquire a home by a first-time homebuyer; petitioner claimed that funds were used towards downpayment, but only petitioner's brother listed as owner on deed and purchase agreement; petitioner did not execute any separate agreement with brother with respect to her purported ownership interest in house; petitioner did pay warranty fee bills for plumbing repairs and receipts for contractor payments, but such payments not qualified acquisition costs as defined by I.R.C. Sec. 72(t)(8)(C) without any proof of ownership; second IRA distribution also subject to early withdrawal penalty). 


(plaintiff was trustee of trust established for himself and his siblings by his father which contained father's life insurance policy; plaintiff borrowed from trust on three occasions (as authorized by trust terms) and repaid loans with interest; plaintiff's siblings later sued for breach of fiduciary duty based on self-dealing and obtained judgment with court imposing constructive trust on plaintiff's interest in trust with defendant serving as trustee; after inability to obtain funds to pay court-ordered payment, plaintiff filed bankruptcy and sought discharge of state-court imposed debts to trust; defendant opposed discharge and prevailed at bankruptcy court on basis that debts were within 11 U.S.C. Sec. 523(a)(4) exception to discharge for debts that are a "defalcation" while acting in a fiduciary capacity; appellate court (7th Cir.) affirmed; issue presented was whether "defalcation" requires finding of ill intent or scienter and, if so, what kind of scienter required; Court holds that "defalcation" requires positive fraud, or fraud in fact, involving moral turpitude or intentional wrong or conscious disregard to substantial and unjustifiable risk to known fiduciary duty; appellate court applied standard of "objective recklessness"; appellate court opinion vacated and case remanded). 


(taxpayer proposed that joint and survivor life insurance policy on married couple would be purchased by newly created irrevocable trust (second trust) from previously existing trust; both trusts were grantor trusts and on death of surviving spouse assets of initial trust to be distributed outright to couple's children; after creation of initial trust, one child diagnosed with disability impacting ability to manage property; taxpayer proposed to create second trust with children as beneficiaries, but that disabled child's property held in special needs trust; second trust t0 buy policy from initial trust at value as determined by interpolated terminal reserve plus last gross premium payment before sale date; IRS determined that proposed purchase would not constitute transfer for value with the result that no portion of insurance proceeds ordinary income to beneficiaries; both trusts grantor trusts, and husband treated as owner of second trust; thus computation of gain or loss with respect to second trust same as with first trust and transaction within exception to transfer for value rule under I.R.C. Sec. 101(a)(2)(B) to extent policy insures husband's life; to extent policy insures wife's life, that portion of policy transferred to husband as partner of insured under I.R.C. Sec. 101(a)(2)(B) under partnership theory). 


(In advance of TIGTA report, Administration, via Treasury Department executives in staged Q&A at ABA Taxation Section Meeting, admits that certain conservative groups and Christian organizations were targeted and profiled over three-year period when application for I.R.C. Sec. 501(c)(4) status made and "tea party" or "patriot" appeared in application or group was conservative Christian religious organization; at least 300 groups targeted; IRS also illegally sought list of donors to approximately 75 of those groups; head of IRS tax-exempt organization office responsible for such targeting and profiling also member of Humane Society of United States (HSUS), an anti-agriculture animal liberation organization that has 501(c)(4) status but spends the vast majority of its annual budget on political lobbying activity; IRS refused congressional request to investigate HSUS political activity).


(petitioner acquired C corporation through an IRA followed by loan guarantees to the corporation; court held that such loan violated I.R.C. Sec. 4975(c)(1)(B) which prohibits loan guaranties by petitioner either directly to the IRA or indirectly to the IRA through of an entity owned by the IRA; prohibited transaction rule violated and IRA terminated; accuracy-related penalty upheld). 


(trial court admitted will to probate over objection that will not offered within four-year time period as required by state (TX) probate code; decedent's surviving spouse met with lawyer shortly after spouse's death and told she had option to probate will or execute affidavit of heirship; spouse believed that either option resulted in her inheriting all of decedent's property; affidavit prepared; at time of death decedent owned two tracts of land as his separate property; surviving spouse had dispute with son who kept livestock on property and he was asked to remove his livestock so the property could be leased; surviving spouse then notified that TX intestate succession law specifies that when surviving children are present (as for property that is not community property), the surviving spouse is entitled to life estate in one-third of land of decedent, with remainder to children; will filed more than four years after decedent's date of death; surviving spouse found not to be in default of four-year rule; spouse elderly at time issue arose and had no training in legal matters and honestly believed that affidavit transferred all property to her as would decedent's will; question of "default" under statute is question of fact and not question of law; trial court's determination allowing admission of will to probate upheld). 


(trial court admitted will to probate over objection that will not offered within four-year time period as required by state (TX) probate code;  decedent’s surviving spouse met with lawyer shortly after spouse's death and told she had option to probate will or execute affidavit of heirship; spouse believed that either option resulted in her inheriting all of decedent's property; affidavit prepared; at time of death decedent owned two tracts of land as his separate property; surviving spouse had dispute with son who kept livestock on property and he was asked to remove his livestock so the property could be leased; surviving spouse then notified that TX intestate succession law specifies that when surviving children are present (as for property that is not community property), the surviving spouse is entitled to life estate in one-third of land of decedent, with remainder to children; will filed more than four years after decedent's date of death; surviving spouse found not be in default of four-year rule; spouse elderly at time issue arose and had no training in legal matters and honestly believed that affidavit transferred all property to her as would decedent's will; question of "default" under statute is question of fact and not question of law; trial court's determination allowing admission of will to probate upheld). 


(defendant, shareholder of S corporation engaged in production process for assembling of gift baskets for food and wine items for sale, claimed flow-through domestic production activities deduction (DPAD); defendant claimed that designing gift basket was complicated, multi-step process involving selection of sizes and colors, materials, ensuring quality control and reviewing packaging; actual production of baskets were outsourced; food items in baskets were either purchased as individually wrapped packages or, if not, are repackaged by contract-hire co-packer; defendant has workers function assembly-line style to produce the baskets into “gift towers”; no DPAD claimed on S corporation’s original (2005) return, but DPAD claimed on 2009 amended return in amount of $275,982, and defendant claimed 75 percent of S corporation’s DPAD on own return; refund paid by IRS and IRS later sued to recover refunds; IRS claimed that S corporation only packaged and repackaged items in baskets and gift towers and was not entitled to DPAD; defendant claimed that S corporation engaged in manufacturing and production of gift baskets and towers; court determined that activity involved qualified manufacturing or production in accordance with Treas. Reg. §1.199-3(e)(2); new product created with different demand). 


(petitioner owned various businesses that provided tax return preparation services and leased cars and household items; petitioner also owned farmland that was sharecropped by local farmer on which petitioner also attempted to raise catfish in pond; due to medical condition, petitioner unable to keep up with various businesses and petitioner's wife took over financial and business duties, but made numerous errors; professional tax preparer prepared returns based on faulty information supplied by petitioner's wife; upon audit, IRS determined substantial underpayment of tax for numerous years and asserted fraud penalties; court determined that petitioner reasonably relied on wife to keep accurate books and did not willfully attempt to conceal income and fraudulent intent not present; IRS not entitled to extended statute of limitations under I.R.C. Sec. 6501(c)(1) when fraud involved; determinations and adjustments for tax years at issue time-barred). 


(parties entered into agreement for plaintiff to supply two loads of grapes for shipment from Chile to Brazil; loads were fumigated and prepared for shipping; trucks never arrived to pick up the loads after three weeks due to (allegedly) Feb. 27, 2010 earthquake; loads eventually picked up and some grapes failed inspection upon arrival in Brazil; outstanding balances on invoices remained and PACA violation claimed; PACA violation found). 


(taxpayer owned improved real estate containing I.R.C. Sec. 1250 property that had been depreciated; taxpayer wanted to donate property to charity and claim charitable deduction; issue was whether contribution to be reduced by 20 percent of accumulated depreciation on the property under I.R.C. Sec. 291(a)(1); IRS determined that 20 percent reduction inapplicable if property contributed to charity; basis of property in hands of donee same as taxpayer's basis at time of gift). 


(appeal following jury trial over trees allegedly damaged by application of 2, 4-D herbicide sprayed on neighboring farms; jury found in favor of defendant; plaintiff appealed trial court’s denial of plaintiff’s directed verdict motion on res ipsa loquitor theory and granting of defendant’s motion to dismiss punitive damage; on review, court agreed jury question was generated regarding cause of damage to trees and no evidence submitted regarding bad faith of defendant justifying punitive damages). 


(defendant disqualified plaintiff's grand champion steer from county fair which required forfeiture of all awards and prizes; disqualification a result of presence of flunixin (Benamine) in steer's urine sample; defendant claimed that it need not prove how the drug was introduced into the steer, and plaintiff's denied any knowledge of how drug introduced into steer; provisions of state administrative code that plaintiff's cited for violating required defendant to prove that plaintiff's took some action that caused drug to be introduced into steer; while separate provision of administrative code allowed defendant to find plaintiff liable without any evidence of plaintiff's conduct, that provision not contained in notice of hearing given to plaintiff; trial court reversed defendant's order; on appeal, court affirmed). 


(plaintiff, environmental activist group, filed request under Public Information Act to obtain nutrient management plan records of particular farm; request denied by state (MD) department of agriculture; state ag department also denied second request for information on all MD confinement poultry operations; plaintiff then sued to obtain names of confinement poultry farm operators, nutrient records and enforcement records from prior three years; court denied request based on confidentiality of information contained in nutrient management plans; all information contained in nutrient management plan confidential indefinitely; plaintiff received free legal help in filing lawsuits against MD poultry operations by Univ. of MD Environmental Law Clinic; plaintiff ordered to pay court costs). 


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