Annotations 03/2014

Plaintiff’s business involved purchasing hay from local farmers, storing it in three different storage yards, and compressing it and shipping it around the world. Defendant was an insurer that issued plaintiff a commercial output program policy. During the policy period, two fires occurred in February in one of plaintiff’s hay yards, destroying a number of haystacks. A third fire occurred in March at a different hay yard. The insurer denied coverage for nearly all of the hay loss, asserting that plaintiff had breached the “clear space requirements contained in the storage distance warranty” of the baled hay endorsement. The insurer, however, did pay $4,509,849.71 for loss of business personal property, loss of business income, and losses stemming from trans-loading. Plaintiff filed an action against the insurer, asserting claims of breach of contract and breach of duty to indemnify. Finding that there were disputed issues of material fact, the court denied the insurer’s motion for summary judgment on the question of plaintiff’s failure to strictly comply with the warranty. The court denied the plaintiff’s motion for partial summary judgment for the same reason. The court also denied the insurer’s motion to strike new evidence, stating that the parties’ (particularly defendant’s) objections were “voluminous, superfluous, and repetitive.” All-Star Seed v. Nationwide Agribusiness Insurance, No. 12cv146L, 2014 U.S. Dist. LEXIS 44798 (S.D. Cal. Mar. 31, 2014).


In this case, a contractor incurred expenses in traveling between home and work.  The U.S. Court of Appeals for the Third Circuit upheld the Tax Court's holding that the expenses were non-deductible commuting expenses.  The bank and various supply stores were not regular work locations for the contractor.  In addition, no depreciation was allowed for the contractor's vehicle and tools.  However, other business expenses were substantiated and were deductible.  The court also rejected the contractor's tax protestor arguments concerning the unconstitutionality of the federal income tax.  Accuracy-related penalties were imposed and upheld.  The U.S. Supreme Court declined to review the case.  Bogue v. Comr., 522 Fed. Appx. 169 (3d Cir. 2013), afff'g., T.C. Memo. 2011-164, cert. den., No. 13-1030, 2014 U.S. LEXIS 2279 (Mar. 31, 2014).


The defendants were several related entities that grew avocadoes and pomegranates on tracts of property they occupied as lessees, even though the tract at issue was inadvertently left off their lease with the owners. As part of their operation, one of defendant’s agents installed pipe gates and cable gates on the tract to deter trespassing, theft, and vandalism. The cables were difficult to see, so the agent had them marked with flagging tape to improve their visibility. On the opening day of dove season, the plaintiff and two coworkers were riding an ATV through the area.  The plaintiff collided with an unmarked cable, severing his left fingers, rupturing his left femoral artery, and breaking his left femur.  The plaintiff filed an action against the defendants, seeking damages for negligence, premises liability, and negligent infliction of emotional distress. His wife sought loss of consortium damages. The trial court entered judgment in favor of the defendants, based on the recreational use immunity statute, Cal. Civ. Code §846. On appeal, the court affirmed, ruling that the defendants were licensees entitled to the protection of the recreational use statute. The court found that they were occupiers of the land pursuant to a profit a prende. The court also found that the trial court had fairly and clearly explained the standard for the willful misconduct exception to the jury. Monroe v. Yurosek Farms LLC, No. F066028, 2014 Cal. App. Unpub. LEXIS 1653 (Cal. App. 5th Dist. Mar. 7, 2014).


Plaintiffs, a retired farm couple and their daughter, were Minnesota residents looking for land investments. Plaintiffs knew the first defendant, a South Dakota resident, because the husband had attended farm auctions where the first defendant was the auctioneer, and the husband had participated in a number of consignment sales with him. The second defendant was the auctioneer’s son. Without seeking professional assistance, the plaintiffs entered into several major land transactions with the defendants. The couple purchased from the first defendant a 1,040-acre tract that was supposed to be planted with corn by the defendant and his son. They also purchased from the first defendant a 160-acre tract in South Dakota and 50 percent of a 480-acre tract (CRP ground) for their daughter. The latter tract was jointly owned by the daughter and the second defendant. After plaintiffs discovered that the 1,040 acre tract was 1,000 acres of weeds and that the 160-acre tract was not even owned by the defendant, the plaintiffs filed an action against defendants for breach of contract, deceit, and rescission. Pursuant to a default judgment, the court found the second defendant liable to the daughter for CRP payments, real estate taxes, and shared expenses. The court also entered judgment against the first defendant (and his wife), finding that the first defendant committed actual fraud in connection with the sale of the 160-acre tract. The plaintiffs were awarded $20,000 in punitive damages, in addition to their $337,974.51 in compensatory damages. The court determined that the first defendant’s conduct was reprehensible, shocking and evidenced a manipulative mind bent on taking advantage of others who trusted him. Although the plaintiffs were not entitled to rescind their contract for the 1,040-acre tract, they were awarded $149,286.69 in compensatory damages. Greeley v. Walters, No. 105003JLV, 2014 U.S. Dist. LEXIS 42627 (D. S.D. Mar. 30, 2014).


Involved in this case was a federal agricultural drainage project for which National Pollution Discharge Elimination System (NPDES) permits were not obtained.  The plaintiffs did not seek permits because the drainage was believed to be exempt as agricultural irrigation discharges.  However, the plaintiffs argued that the drainage was not exclusively from ag land, but also involved groundwater from parcels unrelated to crop production.  The plaintiffs claimed that the discharges polluted downstream water that harmed habitat for fish and wildlife.  The court refused to grant the defendants motion to dismiss, holding that the plaintiffs had posited a plausible claim for relief.  The court emphasized that the exemption for discharges from irrigated agriculture only applied when no unrelated discharges were involved.  Pacific Coast Federation of Fishermen's Associations, et al. v. Murillo, et al., No. CIV S-2:11-2980-KJM-CKD, 2014 U.S. Dist. LEXIS 42506 (E.D. Cal. Mar. 28, 2014).   


Involved in this case was a federal agricultural drainage project for which National Pollution Discharge Elimination System (NPDES) permits were not obtained.  The plaintiffs did not seek permits because the drainage was believed to be exempt as agricultural irrigation discharges.  However, the plaintiffs argued that the drainage was not exclusively from ag land, but also involved groundwater from parcels unrelated to crop production.  The plaintiffs claimed that the discharges polluted downstream water that harmed habitat for fish and wildlife.  The court refused to grant the defendants motion to dismiss, holding that the plaintiffs had posited a plausible claim for relief.  The court emphasized that the exemption for discharges from irrigated agriculture only applied when no unrelated discharges were involved.  Pacific Coast Federation of Fishermen's Associations, et al. v. Murillo, et al., No. CIV S-2:11-2980-KJM-CKD, 2014 U.S. Dist. LEXIS 42506 (E.D. Cal. Mar. 28, 2014).   


The defendant, an Iowa attorney, represented an Iowa client with a net worth of $4 million who was charged with murder.  Within days of the charge, the defendant began drafting real estate documents transferring the accused's real estate into revocable trusts and to other persons outright.  The accused shortly thereafter informed defendant that they had found a buyer for a significant amount of land the accused owned.  The buyer was an irrevocable trust that the defendant claimed he did not draft.  The irrevocable trust named as trustee a distant cousin of the accused that resided in Tennessee and listed as an address a P.O. Box in California (facts which the court did not disclose, but were revealed at the underlying trial court action in this case).  The trust contained language acknowledging a writ of attachment in the pending lawsuit against the accused.  The defendant drafted a memorandum of contract of sale of the land to the trust.  The accused was ultimately convicted of voluntary manslaughter and a later civil trial resulted in a judgment against the accused/convicted of $5.7 million.  The decedent's widow filed a disciplinary complaint against the defendant for transferring assets to the irrevocable trust to defraud creditors.  The Grievance Commission of the Iowa Bar publicly reprimanded the defendant.  On appeal, the Court reversed and dismissed the complaint on the basis that it was not obvious to the defendant that the conveyances were fraudulent.  The Court reached this conclusion in spite of the extremely unusual nature of the trust where the trustee was an out-of-state individual and the trust address was listed as a P.O. Box in California.  The Court was persuaded that the defendant could have reasonably believed that the reason for the trust's creation was to consolidate the accused's property under "one tent" to allow the accused's wife to more easily manage farming operations.  Iowa Supreme Court Attorney Discipline Board v. Ouderkirk, No. 13-1124, 2014 Iowa Sup. LEXIS 33 (Iowa Sup. Ct. Mar. 28, 2014).


Various meat industry groups sued to enjoin enforcement of the Country of Origin Labeling (COOL) rules (78 Fed. Reg. 31, 367) that require meat retailers of "muscle cuts" to list the countries of origin and production steps occurring in each country.  The groups claimed that providing such factual information violated the COOL statute (7 U.S.C. Sec. 1638a(a)(2)(E)) and the First Amendment.  The trial court denied the injunction on the basis that the groups were not likely to prevail on the merits.  On appeal, the court affirmed.  The appellate court determined that the groups were wrong on their claim that the rule unlawfully bans commingling because the rules don't ban any element of the production process, but merely requires accurate labeling with the three phases of production that are named in the statute  and will require changes in the production process.  The court also held that there was no restriction on free speech in violation of the First Amendment because the rules merely require disclosure of factual information that have legitimate values of patriotism and providing assurance to customers of food safety to those that believe the U.S. is superior to other countries on the food safety issue.  The court's affirmance of the denial of the preliminary injunction means that the meat industry groups cannot suspend the enforcement of the rules while a lower court decides the merits of the case.  American Meat Institute, et al. v. United States Department of Agriculture, No. 13-5281, 2014 U.S. App. LEXIS 5710 (D.C. Cir. Mar. 28, 2014)


The petitioner and his wife married in late 2008 and purchased the marital home in late 2009.  Before the purchase, the wife had owned a principal residence and resided in it for more than five consecutive years as required by I.R.C. Sec. 36(b)(1)(D) to qualify as long-term homeowner.  The petitioner had not owned a home during the prior three-year period and, therefore, qualified as a first-time homeowner.  On the couple's joint tax return for 2009, the couple claimed a $6,500 long-term homeowner tax credit.  The IRS denied the credit in full on the basis that the spouses did not both qualify for long-term homeowner credit.  The IRS conceded that the petitioner would have qualified for the first-time homeowner credit in his own right and that the wife would have qualified for the long-term homeowner credit in her own right, but read the statute to require both spouses to satisfy either the long-term homeowner requirement or first-time homeowner requirement on joint return. The Tax Court reasoned that such a statutory construction  was "absurd," and held that both spouses qualified for one of the homeowner credits and that the credit was limited to the long-term homeowner credit of $6,500.  On appeal, the appellate court reversed on the basis that the statute was clear that the term "individual" included both spouses in a marriage and that each homeowner credit was independent of the other.  Thus, both spouses had to qualify for the same credit.  While the petitioner would have been able to claim the first-time homebuyer credit ($8,000) had he merely lived with his girlfriend in the purchased home without marrying her, the three-judge panel stated that it's holding was not "so gross as to shock the general moral...sense."  Packard v. Comr., 139 T.C. No. 15 (2012), rev'd. and rem'd., No. 13-10586, 2014 U.S. App. LEXIS 5584 (11th Cir. Mar. 27, 2014).


In this case, the estate of a deceased gambler, tried to deduct gambling losses in excess of gambling winnings and also tried to deduct gambling business expenses.  The court, however, held that the gambler did not engage in gambling activities with the intent of making a profit.  The gambler had significant losses from gambling and reported them along with gambling winnings on Schedule C.  The gambler had significant losses for a five-year period, had no business plan, no budget for gambling activities, did not have a separate bank account for gambling activities, made no attempt to make gambling activities profitable, did not consult anyone with expertise in gambling and didn't operate gambling activities  in a businesslike manner.  The court imposed an accuracy-related penalty.  Estate of Chow v. Comr., T.C. Memo. 2014-49 .


In general, a deduction is disallowed for compensation exceeding $1,000,000. However, an exception allows a deduction when the compensation is based on an incentive plan that satisfies a "narrow set"  of requirements - (1) a compensation committee of the corporate board comprised solely of two or more outside directors sets the performance goals; (2) the material terms under which remuneration is to be paid are disclosed to shareholders and approved by a majority of the vote in a separate shareholder vote before payment of the remuneration; and (3) before the remuneration is paid, the compensation committee certifies satisfaction of the performance goals.  This case involved numerous shareholder claims against the company, one of which involved the effectiveness of a proxy statement in satisfying the above-mentioned rules.  The company had a long-term incentive plan for some its employees that became effective in 2006.  In 2011, the company sought to amend the plan and issued a proxy statement.  One of the shareholders sued on the basis that the proxy wasn't worded properly to allow the company to deducting the excess compensation.  The court, however, determined that the language of the proxy statement did give shareholder a real choice as to whether to accept the compensation plan in accordance with Treas. Reg. Sec. 1.162-27(e)(4)(i).  The court noted that the shareholders were to choose between the old incentive plan and the amended plan, and the language of the proxy was not coercive.  Kaufman v. Alexander, et al., No. 11-00217-RGA, 2014 U.S. Dist. LEXIS 39712 (D. De. Mar. 26, 2014). 


Decedent and spouse founded mail-order horticulture business.  Years earlier, the couple sold their stock to the company's ESOP with the company financing the purchase by borrowing $70 million including the trustee of the ESOP.  Decedent's spouse contributed his sale proceeds to a revocable trust that split into three marital trusts on his death.  The ESOP beneficiaries eventually sued and the horticulture business then filed bankruptcy.  While the lawsuit was pending, the decedent died and the marital trusts were valued in the decedent's estate at over $50 million.  The estate claimed a deduction for the pending litigation of just under $15 million.  The estate claimed discounts for litigation hazards, and lack of marketability (because the ESOP trustee froze the decedent from withdrawing principal).  IRS asserted an estate tax deficiency.  The Tax Court denied the discount for litigation hazards and also for lack of marketability.  On appeal, the court affirmed.  The pending litigation's impact on value as of the date of the decedent's death was not ascertainable with reasonable certainty.  Marital trusts included in decedent's estate.  Estate of Foster v. Comr., No. 11-73400, 2014 U.S. App. LEXIS 5563 (9th Cir. Mar. 26, 2014), aff'g., T.C. Memo. 2011-95.


The Clean Water Act (CWA) specifies that a "pollutant" cannot be discharged from a point source into the "navigable waters of the U.S. without a federal permit from the EPA.  In 2006, the United States Court of Appeals for the Second Circuit ruled that that discharge of water containing pollutants from one distinct water body to another constitutes the addition of a pollutant under the CWA that requires a permit.  Catskill Mountains Chapter of Trout Unlimited, Inc., et al. v. City of New York, 451 F.3d 77 (2d Cir. 2006).  But, in 2008, the EPA developed a regulation (78 Fed. Reg. 33697 (Jun. 13, 2008)) that excluded water transfers from the permit requirements of the CWA.  The rationale behind the rule was couched in the "unitary waters" interpretation that had been previously adopted by the U.S. Supreme Court.  The U.S. Circuit Court of Appeals for the 11th Circuit upheld the regulation in 2010 as a reasonable interpretation of the statute which requires an "addition" of a pollutant before a permit is required.  Friends of the Everglades, et al. v. South Florida Water Management District, et al., 570 F.3d 1210 (11th Cir. 2009), reh'g., den. 605 F.3d 692 (11th Cir. 2010), cert., den., 131 S. Ct. 643 (2010).  But, in this case, the federal district court for the Southern District of New York, reached a different conclusion   The court vacated the rule, siding with various environmental groups that had brought the case, on the basis that the rule violated the Supreme Court's plurality opinion in Rapanos v. United States, 547 U.S. 715 (2006).  The district court said that the type of water transfers subject to the rule were "navigable waters" under any of the various interpretations of CWA jurisdiction espoused by the Supreme Court in Rapanos.  Thus, the district court vacated the rule insomuch as the phrase "navigable waters" was interpreted by the Supreme Court.  The trial court remanded the rule to the EPA, with instructions for the EPA to provide additional explanation with respect to its interpretation of the rule.  The case is important to crop irrigation agriculture and many water management projects.  Catskill Mountains Chapter of Trout Unlimited, Inc., et al. v. United States Environmental Protection Agency, et al., No. 08-CV-5606 (KMK), 2014 U.S. Dist. LEXIS 42535 (S.D. N.Y. Mar. 28, 2014). 


The IRS sought to collect estate taxes.  The estate had made a protective election preserving the estate's ability to make an installment payment election under I.R.C. Sec. 6166 if the estate were later determined to be eligible to make the election.  About four years later, IRS issued a Notice of Deficiency and the estate moved for a redetermination of tax.  The court entered a stipulated decision for a deficiency which IRS assessed in April of 2005.  In late 2006, the IRS issued a final notice to levy and notice for hearing.  In early 2007, the estate requested a due process hearing and IRS responded to that request in May of 2008.  The estate argued that the collection of the original tax assessment was barred by the statute of limitations.  The court noted that a 10-year  statute of limitations for collection of estate taxes applied under I.R.C. Sec. 6502(a).  The estate claimed that the IRS action was filed more than 10 years after the date of the original assessment.  The IRS claimed that additional tolling was available under I.R.C. Sec. 6166 and 6503(d) which would extend the statute of limitations.  The court noted that the estate did not receive an extension of time to pay tax, but had merely made a protective election which did not extend the statute.  United States v. Baileys, No. 8:13-cv-966-JLS (CWx), 2014 U.S. Dist. LEXIS 67822 (C.D. Cal. Mar. 25, 2014).


This is another case that points out that an executor has personal liability for unpaid federal estate tax when the estate assets are distributed before the estate tax is paid in full.  I.R.C. Sec. 7402 controls and the executor was personally liable for $526,506.50 in delinquent federal estate tax and penalties - the amount of distribution at the time of the decedent's death.  United States v. Whisenhunt, et al., No. 3:12-CV-0614-B, 2014 U.S. Dist. LEXIS 38969 (N.D. Tex. Mar. 25, 2014). 


In 1992 and 1993, the plaintiffs donated two lakefront conservation easements to a land trust. After nearly a decade of IRS litigation, the Sixth Circuit Court of Appeals determined that the easements met the qualifications for permanent conservation easements, but that they were not worth as much as stated on the tax returns because they were not as large as the parties had believed them to be. Because they incurred significant interest, penalties, and attorney fees, the plaintiffs sought to sell a portion of the property, but their neighbors complained that a sale would violate the terms of the easement. The trust filed an action against the plaintiffs to reform the easements to the size they were originally believed by the parties to be. The plaintiffs filed a counterclaim, asserting breach of contract, slander, and tortious interference.  The case was partially dismissed and partially settled. Shortly thereafter, the plaintiffs filed their present action, asserting malicious prosecution, abuse of process, and tortious interference with a business relationship against the trust and the neighbors. The district court dismissed the claims on res judicata grounds. On appeal, the court affirmed the summary judgment, but on grounds that the plaintiffs had failed to state a claim. The trust had a valid business interest in determining whether the plaintiffs could divide their property. The plaintiffs also failed to set forth facts showing that the neighbors interfered with any valid business relationship or that the plaintiffs incurred required “special damages.”  Glass v. Van Lokeren, No. 302385, 2014 Mich. App. LEXIS 496 (Mich. Ct. App. Mar. 25, 2014).


The U.S. Supreme Court reversed the United States Court of Appeals for the Sixth Circuit in holding that lump-sum severance paid to laid-off employees constitutes taxable wages for FICA purposes.  The employer paid the FICA tax on the severance payments and then filed for a refund.  The bankruptcy court, district court and appellate court all agreed with the employer that severance pay was not subject to FICA tax.  The appellate court, in supporting it's decision did not utilize the FICA definition of wages, but the Supreme Court did utilize the FICA definition contained in I.R.C. Sec. 3121(a). A different case had held that severance pay constituted FICA wages and the Supreme Court was asked to clarify the opposing court decisions.  However, the Supreme Court held that employers can avoid FICA taxes on severance pay if an employer creates a trust, funds it and employees are then paid weekly with payments tied to state unemployment benefits received.  United States v. Quality Stores, Inc., et al., No. 12-1408, 2014 U.S. LEXIS 2213, rev'g., 693 F.3d 605 (6th Cir. 2012).


Here the IRS ruled, in accordance with I.R.C. Sec. 368(a)(1)(D), that a proposed corporate reorganization resulting in the division of their corporation into two corporation would not trigger gain or loss.  The IRS noted that the proposed transaction satisfied all of the requirements of I.R.C. Sec. 355, but expressed no opinion on whether the reorganization had a legitimate business purpose as required by Treas. Reg. Sec. 1.355-2(b).  Priv. Ltr. Rul. 201411012 (Dec. 4, 2013).


The IRS has followed-up comments by the President that people that find health insurance unaffordable, but are otherwise subject to the individual mandate, will not be fined if they claim a "hardship" exemption.  On www.healthcare.gov., the Administration lists 13 things that can be claimed as a "hardship" for purposes of the exemption from the individual mandate.  A 14th item specifies that the exemption applies if a person "experienced another hardship in obtaining health insurance."  That opens the floodgates and makes the individual mandate completely illusory, with IRS having no way to monitor claimed hardships.  Given that forcing people to buy insurance is the key to Obamacare, the recognition by IRS that the individual mandate is really optional effectively guts the law.  IRS Health Care Tax Tip 2014-04 (Mar. 20, 2014). 


The IRS was asked to rule on whether particular rights associated with a marital trust set up via an antenuptial agreement was a contingency under I.R.C. Sec. 2056(b)(1) that negated the martial deduction for distributions to the trust.  The IRS determined that the right of the spouse to elect an amount to fund the marital trust was not a contingency because of trust language that gave the spouse beneficial enjoyment of marital trust assets.  IRS also determined that the spouse had a qualifying income interest for life in the LLC units.  Priv. Ltr. Rul. 201410011 (Nov. 9, 2013).


The taxpayer severed employment with employer at a time when she was not yet 59 and 1/2 years old and received her 401(k) via check.  The taxpayer asked the employer to withhold taxes, and the employer withheld 20%, sent the amount to the IRS and gave the taxpayer a Form 1099-R.  The taxpayer reported the income from the 401(k) and the withheld amount on her self-prepared return.  IRS claimed that an additional 10 percent penalty tax applied on the early distribution.  The taxpayer couldn't show that she used the funds to pay medical expenses, health insurance premiums, expenses associated with a disability or to buy a first home.  Thus, no safe harbor applied.  The taxpayer argued that the penalty tax shouldn't apply because she asked the employer to withhold all taxes.  The court agreed with the IRS that the taxpayer needed to report the 10 percent penalty tax on line 58, and $639 refund not allowed.  Fields v. Comr., 2014 T.C. Memo. 48. 


The decedent utilized the cash basis of accounting and held stock in a company for which she held the stock certificates in her possession.  In late 2006, the company merged with another company and the decedent became entitled to $51/share with her stock then being canceled.  Under the merger agreement, the company deposited the decedent's funds with a paying agent, entitling the decedent to receive over $1 million as of the date of the deposit - Nov. 20, 2006.  The decedent could collect the funds by surrendering the stock certificates.  The decedent (or her daughter who was the decedent's agent under a duly executed power of attorney) took no action to receive the funds before the decedent's death on March 29, 2007.  In late 2007, some stock certificates were surrendered and the account funds were placed in the account of the decedent's estate on January 8, 2008.  In early 2009, the estate completed the procedure for receiving the balance of the account funds attributable to the stock certificates that could not be located with the balance of the account funds paid out in late 2009.  The company issued Form 1099 that indicated that the decedent received the full account balance in 2006, and the amount was initially reported on the decedent's 2006 return.  Also, the decedent's estate reported the full account balance on it's 2006 return, but then later sought a refund.  The IRS denied the refund, and the court upheld the denial.  Santangelo v. United States, No. 3:12CV71DPJ-FKB, 2014 U.S. Dist. LEXIS 36114 (S.D. Miss. Mar. 19, 2014). 


A bank’s assignor loaned money to a development company to purchase and develop subdivision property. The loan was secured by real property, and the owner of the company executed a personal guaranty on the loan. The company defaulted on the loan, the owner defaulted on the guaranty, and the bank filed an action to collect the debt. In affirming the trial court’s grant of summary judgment for the bank, the court ruled that the bank’s assignor did not violate its duty of good faith and fair dealing. The company could not modify the note by imposing conditions not apparent on the face of the agreements. The company’s contention that the loan was for a lesser amount than it had expected (and thus prevented it from developing the subdivision as planned) was to no avail, because the company executed the loan document after knowing the true amount, and even renewed the loan thereafter.  There was nothing in the record to indicate that the bank’s conduct made the company’s performance useless or impossible. L. D. F. Family Farm, Inc. v. Charterbank, No. A13A2478, 2014 Ga. App. LEXIS 181 (Ga. Ct. App. Mar. 19, 2014).


In a news release, the IRS has said that it has reached a settlement with a "group of appraisers" that used a flat percentage reduction of typically 15 percent from fair market value when valuing permanent  façade easement donations.  While the Tax Court has said that flat percentage reductions are not qualified appraisals, the U.S. Court of Appeals for the Second Circuit vacated the Tax Court's decision (Scheidelman v. Comr., 682 F.3d 189 (2d Cir. 2012).  The news release notes that the settlement was based on admitted violations of Sections 10.22(a)(1) and (2) of IRS Circular 230, and that the appraiser group agreed to a 5-year suspension from valuing façade easements and engaging in any appraisal services that could subject them to penalties.  So while the IRS lost in court on the valuation issue, they were able to pressure the appraisers into a settlement on alleged Circular 230 violations. IR 2014-31 (Mar. 19, 2014).   


The plaintiff sued the defendant, IRS, claiming entitlement to an $8,000 first-time homebuyer credit (FTHBC) associated with the plaintiff's purchase of a home in 2010.  However, from 2007 to March of 2010, the plaintiff held a joint tenancy ownership interest in another home (within the prior three years of the 2010 purchase for which the FTHBC was claimed).  The defendant moved for summary judgment and Magistrate Judge recommended granting of the IRS motion.  The plaintiff objected to the Magistrate's report and recommendations, arguing that I.R.C. Sec. 36 was ambiguous and that plaintiff was entitled to hearing.  The court disagreed, noting that I.R.C. Sec. 36 was not ambiguous on the specific issue presented and that plaintiff did not make specific written objections to the report.  Ballington v. Internal Revenue Service, No. 3:12-cv-01604-JFA, 2014 U.S. Dist. LEXIS 34991 (D. S.C. Mar. 18, 2014).


This case involved a CERCLA site in NY that was contaminated with excessive amounts of lead and defendant (landowner) entered into agreement with NY Department of Environmental Conservation (NYDEC) to cleanup the parcel; defendant contracted with third party to perform cleanup work, and third party subcontracted with plaintiff to transport and dispose of contaminated soil. The third party ultimately stopped paying plaintiff and plaintiff insisted that defendant pay plaintiff directly for all subsequent services which was done. When the project was complete, plaintiff couldn't recover balance of payments owed to it from third party and sued defendant for that balance based on 42 U.S.C. Sec. 9607 (liability for CERCLA response costs) which plaintiff claimed pinned liability on the landowner until all parties who contributed to cleanup were made whole for all costs of their work.  The court determined that CERCLA did not require the landowner to ensure that a subcontractor was made whole for their work and noted that the defendant had already borne the cost of its actions; court noted that there was no privity of contract between contractor and subcontractor).  Price Trucking Corp v. Norampac Industries, Inc., No. 11-2917-cv, 2014 U.S. App. LEXIS 5093 (2d Cir. Mar. 18, 2014). 


The plaintiff owned and operated a horse farm, where she taught riding lessons and boarded horses. When she decided to leave the country, she entered into a contract to sell the property to defendants, who purchased the property under a land contract. Plaintiff agreed to enter into the contract on the condition that the mother of one of the defendants would sign a personal guarantee. After two years of making monthly payments, the defendants were unable to obtain the financing necessary to make the final balloon payment due under the contract. The property value had dropped, and the defendants abandoned the property. Plaintiff sought to mitigate her damages by selling the property to a neighbor at a reduced price (only after providing notice to the defendants). The trial court granted a directed verdict in the amount of $178,093.89 for the plaintiff in her breach of contract action against defendants. On appeal, the court affirmed. Plaintiff was entitled to seek contract damages and mitigate those damages by selling the property. She did not, through the sale of the property, exercise the different remedy of foreclosure. There was consideration for the mother’s personal guarantee because the plaintiff agreed to enter into the contract only because of that guarantee.  Knox v. Briskin, No. 315003, 2014 Mich. App. LEXIS 465 (Mich. Ct. App.  Mar. 18, 2014).    


The Farm Service Agency (FSA) filed an amended proof of claim in the debtor’s Chapter 12 bankruptcy action, seeking to add to its secured claim $31,732, an amount allegedly overpaid months earlier by the Commodity Credit Corporation (CCC) to the debtor under the Supplemental Revenue Assistance Payments (SURE) Program. The debtor objected to the amended claim, arguing that the FSA could not voluntarily refund prepetition overpayments to the SURE Program, without Court approval, and then seek a larger secured claim for itself based on the refund. The court agreed, sustaining the objection. The CCC, not the FSA, was the party with standing the file the claim. Neither the FSA nor the CCC timely fulfilled any of the requirements to assert a right to setoff as set forth in In re Britton, 83 B.R. 914 (Bankr. E.D.N.C. 1988). The court allowed CCC 30 days to file an unsecured claim in the amount of $31,732. In re Barefoot, 12-02160-8-DMW, 2014 Bankr. LEXIS 1062 (E.D. N.C. Mar. 18, 2014).


(Chicago lawyers formed investment partnership and entered into contract with bank that held title to farmland in an "Illinois Land Trust"; partnership held only personal property interest and entered into crop-share lease with farmer; farmer signed-up for federal farm program benefits and local FSA office ultimately determined that partnership not eligible for share of benefits commensurate with lease because bank held legal title to land and not partnership; administrative appeals agreed with FSA's determination; on appeal, trial court affirmed on basis of definition of "owner" contained in 7 C.F.R. Sec. 718.2 and that no IL courts had ever held that a land trust beneficiary is a "legal owner"; court also rejected partnership's argument that FSA had allowed beneficiary of deed of trust to qualify as an "owner" insomuch as FSA position was not arbitrary and capricious).  


(wife had losses from rental real estate activities and could not satisfy tests for real estate professional via spouse's participation in combination with her participation because couple filed separate returns; losses disallowed as passive activity losses under I.R.C. Sec. 469).   


(plaintiff, a peanut company, hired defendants to fumigate its peanut storage dome; plaintiff filed an action against defendants, alleging that it sustained almost $20 million in damages from a fire it asserts was caused by defendants' improper application of pesticide; plaintiff asserted claims of negligence and breach of contract, and the defendants asserted a defense of contributory negligence; defendants then filed a motion to exclude the testimony from two of plaintiff’s expert witnesses, and a motion for summary judgment; the court denied the motion to exclude, finding that there was a valid scientific foundation for their testimony as to the piling and ignition theories; the court granted summary judgment for defendants on the breach of contract claim, finding that the agreement barred recovery for consequential damages, which comprised plaintiff’s entire loss in the fire; the court denied summary judgment as to the negligence claims, finding that the damage exclusions in the application agreement did not bar recovery; the court also denied summary judgment to defendants on the question of whether the plaintiff could pierce the corporate veil; fact questions remained).    


In this IRS administrative ruling, a corporation that intended to be taxed as a REIT owned properties that it leased out via a triple-net lease on which the tenants would produce harvestable crops.  To qualify as a REIT, a requirement (contained in I.R.C. Sec. 856(c)(4)(A)) is that at the close of each quarter of the tax year, at least 75% of the value of a REIT's total assets must be real estate (including interests in real estate), cash (and cash items) and government securities.  IRS noted that Treas. Reg. 1.856-3(d) defines real property as land or improvements thereon and disregards the treatment of such items under local law.  Also, Prop. Treas. Reg. Sec. 1.856-10 (issued in May of 2014) indicates that water and air space superjacent to land and natural products and deposits that are unsevered from the land also count as "real estate" until they are severed or extracted.  Thus, the commercially harvestable plants, until severed, are "real property" for REIT purposes.  Priv. Ltr. Rul. 201424017 (Mar. 12, 2014).


In this case, the decedent instructed his bank to transfer several million dollars worth of securities from his account to an account in his wife's name.  The transfers were made in stages, with some of them occurring after the decedent died.  The state probate court held that the decedent's death ended the agency relationship between the decedent and the bank and that the investment securities transferred post-death were ineffective and those securities were in the decedent's gross estate.  On appeal, the state appellate court affirmed.  However, on further review by the state Supreme Court, the appellate court's opinion was reversed.  Under the state (SC) version of Article 8 of the Uniform Commercial Code (Investment Securities) the Court determined that the South Carolina Code Sec. 36-8-101 transformed the decedent's instructions to transfer the securities into an "entitlement order" under which the bank was mandated to transfer the securities at the time the decedent made the order.  As such, the decedent's subsequent death was immaterial as to the transfers and none of the securities were included in the decedent's estate.  In re Estate of Rider, 756 S.E. 2d 136 (S.C. 2014). 


The landowner bought the tract at issue as part of a transaction in which the landowner purchased an entire peninsula on which the tract was located.  The landowner developed the other land into a gated community and did not treat the tract as part of the same economic unit, but later decided to develop the tract.  In order to develop the tract, the landowner needed to acquire a CWA Section 404 permit.  The permit was denied and the landowner sued for a constitutional taking.  Initially, the U.S. Court of Federal Claims  determined that a constitutional taking had occurred and that the relevant parcel against which to measure the impact of the permit denial was the tract plus a nearby lot and scattered wetlands located nearby that the landowner owned.  On appeal, the U.S. Court of Appeals for the Federal Circuit held that the tract was the relevant parcel.  On remand, the Court of Federal Claims, held that the loss of value caused by the permit denial was 99.4 percent of the tract's value, or $4,217,888 based on the difference in the tract's value before and after the permit denial.  The court rejected the government's argument that the "before valuation" must account for the permit denial.  The court said that the government cannot lower the tract's value by arguing the possibility of the permit denial.  The court noted that such an argument was also rejected in Loveladies Harbor, Inc. v. United States, 28 F.3d 1171 (Fed. Cir. 1994) and Florida Rock Industries, Inc. v. United States, 791 F.2d 893 (1986).  Lost Tree Village Corporation v. United States, No. 08-117L (Fed. Cl. Mar. 14, 2014), on remand from 707 F.3d 1286 (Fed. Cir. 2013).


This case involves a huge offshore aerogenerator project off of Cape Cod, MA.  The U.S. Fish and Wildlife Service (FWS) failed to conduct a "feathering operational adjustment" under the Endangered Species Act (ESA) with respect to the roseate tern and piping plover which, if required, would cause a seasonal shut-down of generators.  The court determined that such failure was violated the ESA, and granted summary judgment to the plaintiffs on this issue.  The court also granted summary judgment to the plaintiffs on their claim that the National Marine Fisheries Service (NMFS) violated the ESA by not issuing an incidental take statement concerning North Atlantic right whales.  On this issue, the court noted that the "harassment, killing or harming" of any threatened or endangered species qualified as a "take" under the ESA.  Public Employees for Environmental Responsibility, et al., No. 10-1067 (RBW) (DAR), 2014 U.S. Dist. LEXIS 33129 (D. D.C. Mar. 14, 2014).


(plaintiff was a tenure-track law professor earning $100,000 per year; defendant father owned substantial tracts of ranchland that was mismanaged by his son; the father asked the daughter to assess the status of his operation; she cleaned up many financial problems and oversaw a civil action against her brother, who had embezzled from the business; after the daughter began devoting more and more time to managing the business, she alleged that her father told her that if she moved to the ranch, he would bequeath her property worth more than one million dollars; the daughter alleged that she left her job and moved her family to the ranch in reliance on that promise; several years later, a dispute arose and the father told the daughter that her services were no longer needed; after the father disinherited the daughter, she filed a promissory estoppel claim against him, seeking damages stemming from leaving her job in reliance upon the promise of a substantial inheritance; in reversing the trial court’s grant of summary judgment in favor of the father, the court ruled that a reasonable fact finder could have found that the daughter reasonably relied on the father’s promise and that the father could have reasonably anticipated that reliance; the court also held that there need not be misrepresentation for promissory estoppel).


(defendant was appointed as co-executor of a decedent's estate; decedent died in 2004, but had not filed federal income tax returns for 1997 and 2000-2003; in 2005, decedent's estate filed returns on decedent's behalf for years in which returns had not been filed; IRS asserted deficiency of $276,908 against the estate; in early 2006, law firm representing estate was notified of outstanding tax liability; law firm reported to probate court distributions to executors of $470,963 and that estate had insufficient assets to pay outstanding tax liability; court determined that co-executors personally liable for unpaid tax debt via 31 U.S.C. Sec. 3713; co- executors knew of tax liability before distributing estate assets that rendered the estate unable to pay tax debt; court found no merit in defendant's claim of reliance on erroneous advice from law firm representing estate because defendant had actual knowledge of tax debt; summary judgment for IRS).  


In this case, a married couple divorced with the ex-wife having custody of their son.  For the tax year at issue, the couple did not attach Form 8332 to the return, but did attach a copy of a 2003 arbitration award that allocated the exemption for the child to the ex-husband which allowed the ex-husband to claim the child and conditioned ex-wife providing ex-husband Form 8332 on ex-husband being current on child support payments in accordance with the divorce decree as of the end of the tax year.  Ex-husband was current on child support, but ex-wife did not execute and provide Form 8332.  IRS issued a notice of deficiency denying the child exemption for the ex-husband.   The ex-husband argued that the Congress intended that the parent entitled to the deduction be the one who receives it,  and that I.R.C.  Sec. 152(e)(2)(A) was ambiguous because the statute does not define “written declaration.”  The ex-husband also noted that state courts often allocate the federal dependency during divorce proceedings and that the principles of federalism required the IRS and federal courts to respect those allocations.  The  ex-husband also claimed that he was entitled to equitable relief.  The court noted, however, that I.R.C. Sec. 152(e)(2) requires that the taxpayer to attach a “written declaration signed by the custodial parent declaring the custodial parent “will not claim”  the child as a dependent in that calendar year.  In addition, the court noted that the statute  allows the custodial parent to transfer that claim to the non-custodial parent “by written release” which was not done. There must be an unconditional release of the right of the ex-wife to not claim the son as a dependent for the year in issue.  In addition, the court noted that the Child Tax Credit was unavailable.  Finally, since both parties were unable to claim their respective child as a dependent the Child Tax Credit was not allowed.  Armstrong v. Comr., No. 13-1235, 2014 U.S. App. LEXIS 4693 (8th Cir. Mar. 13, 2014), aff'g., 139 T.C. 468 (2012).


(an irrigation district mowed the canal banks of plaintiff’s property because it held an easement along the  banks; because of obstructions near the canal, the large commercial mower entered plaintiff’s property to turn and navigate; plaintiff filed an action against the district, alleging that negligence in mowing had caused damage to his plants, sprinklers, outbuildings, and a well; the district filed a counterclaim alleging that it held an easement and seeking the removal of all physical encroachments on the easement; the district court granted partial summary judgment for the district, dismissing plaintiff’s claim for damages to property within the 16-foot easement, but denying judgment on the claim for damages to property outside of the easement; at trial, the district court found that the district was not liable for any damage to plaintiff’s property outside of the easement because it did not breach its duty of care to plaintiff; the district court found that plaintiff’s outbuildings, sprinklers, and garden unreasonably interfered with the district’s ability to occupy the canal banks with its equipment and ordered that they be removed; on appeal, the court found that the district court did not abuse its discretion when it found that plaintiff did not establish that the district caused the damage to his property; the district court also properly ordered plaintiff to remove his encroachments; plaintiff could not use his property in a manner that unreasonably burdened the district’s enjoyment of the easement; the court remanded for a determination of the precise location of the easement).    


(plaintiff, a horseback-riding instructor, entered into a contract with defendants to board her two horses at defendants' stables; one of plaintiff's horses died in a fire at the stables, and plaintiff filed an action against defendant, seeking damages for, inter alia, breach of contract and gross negligence; the trial court entered summary judgment against plaintiff, and she appealed; in affirming the trial court’s judgment, the court found that "gross negligence" involves conduct so reckless that it demonstrates a substantial lack of concern with regard to whether an injury will result; the court found that there was simply no genuine issue of material fact regarding whether defendants acted with gross negligence or wanton and willful misconduct;  defendants took quick action upon discovering the fire and saved many of the horses).


(plaintiff owed tax debt to IRS of approximately $5.5 million; IRS put lien on plaintiff's home in Newton, Massachusetts; after lien in place third party creditor of plaintiff received judgment against plaintiff for approximately $100,000; defendant then sought to take plaintiff's home via eminent domain and wanted the IRS lien discharged; home valued at $2.3 million; IRS issued certificate of discharge pursuant to I.R.C. Sec. 6325(b)(2)(A); plaintiff's taken via eminent domain and plaintiff then sued for additional compensation; judgment creditor asserted interest, IRS issued notice of levy asserting right to any amount recovered; additional compensation awarded and IRS asserted claim to judgment proceeds; trial court determined that IRS had discharged its lien; appellate court reversed on basis that IRS certificate of discharge under I.R.C. Sec. 6325(b) discharges only the property specifically listed on the discharge certificate).


(identical rulings concluding that trust with distribution committee was not a grantor trust of the grantor or any committee members; the only possibility of being a grantor trust was with respect to an I.R.C. Sec. 675 committee; powers held by grantor and committee resulted in contributions to trust being incomplete gifts that were only complete upon trust distribution of gifted amounts).


(court ruled that a $30 million malpractice claim against the pre-deceased spouse of the decedent that was outstanding at the time of the surviving spouse's death was not deductible by the estate because the value of the claim was not certain enough as of the date of death; thecourt did allow, however, a $250,000 deduction for the amount that the estate paid to settle the claim).


(appellees filed an action against appellant, seeking an injunction enjoining him from interfering with their easement on his road; the trial court granted relief to the appellees, and, on appeal, the court affirmed; the court found that the trial court did not clearly err in finding that the easement had not been abandoned by appellees for nonuse; because appellant did not raise the seven-year statute of limitations in the lower court, he could not raise the issue on appeal; the trial court did not err in allowing appellees to construct a wider gate across the roadway because appellant’s narrow gate was interfering with the appellees’ farming use of the roadway; finally, the court found that the deed granting the easement "to have and to hold the same unto said GRANTEES and their heirs and assigns forever" granted an appurtenant easement, not one personal to the grantee).


(plaintiff alleged that he purchased working interests in several mining partnerships from the original owner of the leaseholds; for about 40 years, he received a proportionate share of the proceeds of the operations; the payments stopped when defendant purchased the majority interest in the partnerships; the wells then began to operate at a net annual loss, and defendant would bill plaintiff for his share of deficiencies, which he refused to pay; plaintiff filed this action against defendant seeking an accounting and compensatory and punitive damages; defendant sought summary judgment on the ground that plaintiff could produce no written instrument conveying him ownership of the working interests;  plaintiff responded that he possessed "an ownership interest in a partnership," not a real property interest and that such an interest could be proven by parol evidence and course of conduct; the district court entered judgment in favor of defendant, but on appeal the Fourth Circuit certified the following question to the West Virginia Supreme Court of Appeals:  "Can the proponent of a working interest in a mineral lease prove his entitlement thereto without resort to proof that the lease interest has been conveyed to him in strict conformance with the Statute of Frauds").


(debtor is in business of buying and selling livestock for slaughter and processing, and sold farmer's livestock to a buyer; before filing bankruptcy, debtor paid farmer about $900,000 for completed sales of livestock; after bankruptcy filing, bankruptcy trustee sought to recover funds paid to farmer as a preferential transfer in accordance with 11 U.S.C. Sec. 547(b); bankruptcy court and district court ruled against trustee; on appeal, court reversed; appellate court noted that further proceedings necessary to determine how much of $900,000 traceable to constructive trust in favor of farmer; debtor did not have ownership interest in farmer's cattle, but merely possessed cattle for purpose of sale and was in a bailment relationship with farmer; on remand, trial court to determine if any equitable defenses bar farmer from recovering on restitution claim; farmer did not show that all of funds paid to farmer were its property; case reversed and remanded).


(petitioner, professional gambler, claimed losses from bets on horse races that exceeded petitioner's gambling winnings; in Mayo v. Comr., 136 T.C. 81 (2011), non-wagering business expenses claimed in connection with conduct of gambling business are deductible business expenses and are not subject to the limitation on the deductibility of wagering losses (limited to gambling winnings); petitioner argued that his pro rata share of amount race track took out of betting pool to cover expenses and fees was a deductible business expense not subject to the I.R.C. Sec. 165(d) limitation on wagering losses to extent of wagering gains, and that I.R.C. Sec. 165(d) violated the equal protection clause of the Constitution because gambling is no longer "taboo"; court disagreed with both of petitioner's arguments; track's obligations do not obligate petitioner in any manner and basis for enactment of I.R.C. Sec. 165(d) still applies).


(plaintiff was in his bedroom when a large tree branch crashed through his window and severely injured him and damaged his home; the tree was on a lot that was maintained for the benefit of the residents of a neighboring subdivision; the plaintiff and his wife sued the subdivision for negligence, nuisance, and trespass, and the trial court granted summary judgment for the subdivision; on appeal, the court reversed as to the negligence claim, finding that the evidence would allow a reasonable fact finder to conclude that defendant possessed and controlled the lot, that defendant should have more closely inspected the tree or hired a professional to do so, and that defendant had actual or constructive notice of the danger posed by the trees on the lot; the trial court also erred in finding that a heavy storm was an intervening, superseding cause of the damage; a relatively common weather event could not constitute an intervening superseding cause under Michigan law; such an event was foreseeable).


(current and former employees of a chicken processing company filed claims  against the company, seeking payment of unpaid wages allegedly withheld in violation of the South Carolina Payment of Wages Act (SCPWA) and damages for retaliation against them for instituting workers' compensation proceedings;  a jury returned a verdict in favor of 16 employees on the SCPWA claims, and the trial court in a bench trial found in favor of 8 employees on the retaliation claims; on appeal, the Fourth Circuit reversed the jury award on the SCPWA claims, concluding that they were preempted by § 301 of the Labor Management Relations Act ("LMRA") because the claims involved an alleged failure by the company to properly count the employees’ hours as required by the collective bargaining agreement; the court also reversed the judgment on the retaliation claims as to six employees, finding that they failed to present evidence sufficient to show that they had “instituted” workers’ compensation claims; the court affirmed as to the remaining two employees’ retaliation claims).


(Appellant trustee challenged the district court’s denial of summary judgment in his favor in an action brought by appellees to dissolve an alleged partnership formed between appellant and appellees to purchase a farm; appellant argued that the district court should have granted summary judgment on the grounds that the court lacked personal jurisdiction over one of the plaintiffs (because the plaintiff allegedly did not authorize the appellees to sue on its behalf) and that it lacked subject matter jurisdiction over the action; in affirming, the court ruled that whether the plaintiff authorized the appellee to bring suit on its behalf was an issue of fact not appropriate for summary judgment; the court also ruled that a district court had subject matter jurisdiction to hear all types of civil cases; instead of arguing that this was a case the district court did not have subject matter jurisdiction to hear, the court found that the appellant was actually arguing that the appellees lacked standing, a totally different concept; because a reasonable person could conclude that a partnership was formed, summary judgment was inappropriate).


Pages

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

RSS​ Facebook Twitter