Annotations 06/2015

In the fall of 2014 Missouri voters approved a constitutional amendment placing a right-to-farm provision in the state constitution.  The plaintiffs brought a post-election challenge to the ballot title summary statement.  While the court said that the challenge was permissible, the court also held that the ballot title was sufficient and fair and did not need to refer to article VI of the state constitution which governs local governments.  The "right to farm" being "forever guaranteed" did not mean that the right would be unlimited or completely free from regulation.  A dissent would have disallowed the challenge in its entirety as impermissible "sandbagging."  Shoemyer, et al. v. Kander, No. SC94516, 2015 Mo. LEXIS 100 (Mo. Sup. Ct. Jun. 30, 2015).


At issue in this case was a lease of 175 acres of farmland among family members.  Dad died in 2003 and Mom died in 2007, and their beneficiaries were their five children.  At the time of Dad's death, it was believed that Mom and Dad owned the farmland in joint tenancy.  Accordingly, Mom put the farmland in a trust and retained a life estate.  The land was leased to a daughter and the land was managed by another child of the parents.  The daughter ultimately terminated the lease and the land was then leased to other family members.  After Mom's death, it was discovered that the land was actually owned by Mom and Dad as tenants in common rather than in join tenancy.  The existing lease continued, but then other family members sued for higher rent on the basis that the lease had actually terminated upon Mom's death.  Under state (IL) law an exception from the statutorily-required notice of termination applies when the landlord dies holding merely a life estate.  However, the court held that the exception did not apply because the trust owned the land, not the decedent.  Thus, due to lack of termination notice being given under state law (at least four months before end of the lease calendar year), the lease had not been terminated.  Lower v. Appel, No. 2-13-1288, 2015 Ill. App. Unpub. LEXIS 1458 (Ill. Ct. App. Jun. 29, 2015).


When developing regulations governing power plants, the Environmental Protection Agency (EPA) interpreted the Clean Air Act (CAA) in a manner that deemed the cost of the regulations imposed on a power plant to be irrelevant.  The D.C. Circuit had held that the EPA regulations were valid.  On further review, the U.S. Supreme Court reversed.  The Court held that the EPA acted unreasonably because the directive in the statute (42 U.S.C. Sec. 7412(n)(1)(A)) to determine whether the regulation was "appropriate and necessary" meant that at least some attention had to be given to cost, which included more that the expense of a power plant in complying with the regulations.  The Court held that the EPA regulations were not reasonable even under the deferential standard given the agency in ChevronMichigan, et al. v. Environmental Protection Agency, et al., No. 14-46, 2015 U.S. LEXIS 4256 (U.S. Sup. Ct. Jun. 29, 2015).    


The plaintiff filed a class action lawsuit against the defendant claiming that the defendant violated state (CA) law by marketing it's honey as "honey" without disclosing that it did not contain pollen (it is de-pollinated).  The defendant motioned to dismiss the case for lack of class standing and on the basis that the plaintiff's claims were preempted by federal food and drug laws.  The trial court granted the defendant's motion, and the appellate court affirmed.  The court noted that the "common or usual name" as required by federal law under the Federal Food, Drug and Cosmetic Act, of de-pollinated honey is "honey."   As such the defendant's product was appropriately labeled under federal law and the CA law that barred it from being labeled as "honey" was preempted.  Brod v. Sioux Honey Association Cooperative, No. 13-15584, 2015 U.S. App. LEXIS 11114 (9th Cir. Jun. 29, 2015).  


The plaintiffs asserted nuisance and negligence claims against the defendant with respect to the defendant’s hog farming operations in eastern North Carolina.  The defendant motioned to dismiss all claims related to “annoyance damages” on the grounds that such claims are not compensable under NC law.  The defendant agreed that damages in a temporary nuisance action such as this are allowed for “diminished rental value; reasonable costs of replacement or repair; restoration of the property to its pre-nuisance condition, and other added damages for incidental losses.”  The court determined that NC law is not clear on the availability of annoyance and discomfort damages in temporary nuisance actions, including amounts for “fear” of damages.  Thus, the defendant’s motion to dismiss was denied.  In re NC Swine Farm Nuisance Litigation, No. 5:15-CV-13-BR, 2015 U.S. Dist. LEXIS 82601 (E.D. N.C. Jun. 25, 2015). 


This case involves claims filed under the Arkansas Deceptive Trade Practices Act and other state law causes of action with respect to allegations that the defendant used deceptive and misleading labels on Hunt’s canned tomato products.  The labels claim that the products are “100% Natural” and “free of artificial ingredients and preservatives.”  The class claims that the defendant mislabeled the products so as to charge a premium price, but that the products contain artificial ingredients including calcium chloride.  The defendant moved to dismiss the action on the grounds that the claim was preempted by the federal Food, Drug, and Cosmetic Act, failure to allege sufficient supporting facts and lack of standing.  The court, in part, granted the defendant’s motion for judgment on the pleadings which dismissed the plaintiffs’ claims for breach of implied warranty of merchantability and violations of the Arkansas Deceptive Trade Practices Act and breach of implied warranty of merchantability.  Other tort-based claims were preserved.  Gabriele v. Conagra Foods, Inc., No. 5:14-CV-05183, 2015 U.S. Dist. LEXIS 82585 (W.D. Ark. Jun. 25, 2015).    


A tract of land was owned by Mom and her eight kids.  Together they owned 100 percent of the surface estate and 100 percent of the mineral estate.  Mom and six of the children sold their interests in the surface and mineral estates to the remaining two children, reserving a royalty interest in the six children that sold their interests of "an undivided interest in and to the 1/8 royalties paid the land owner upon production of oil, gas and other minerals."  The two purchasing children then sold their interest in the minerals to the plaintiff who entered into an oil and gas lease with an oil production company.  The plaintiff claimed that the deed reserved a fixed royalty of 1/8 and, as such, each of the eight children held a 1/8 interest in a 1/8 royalty.  The two children that sold their interest to the plaintiff claimed that they had a floating royalty of 1/8, and the court agreed.  The court noted that at the time of the initial deed there was no existing lease in place and the usual royalty at that time contained in a mineral lease was 1/8.  Thus, the deed's reference to a 1/8 royalty was based on the assumption that a landowner's royalty would always be 1/8.  Thus, the 1/8 language referred to a future royalty that might be reserved.  The deed also referred to "royalties paid to the landowner"  and that royalties would be pooled and shared equally, which bolstered the selling children's argument.  Medina Interests, LTD v. Trial, et al., No. 04-14-00521-CV, 2015 Tex. App. LEXIS 6382 (Tex. Ct. App. Jun. 24, 2015). 


The debtor claimed his 1997 Peterbilt truck as exempt under the Colorado homestead statute on his Chapter 7 bankruptcy schedules.  The trustee objected, and the court agreed with the trustee.  The court determined that the homestead statute (C.R.S. Sec. 38-41-201(a)) didn’t apply because only two types of personal property are specifically exempt as a homestead – mobile homes and manufactured homes.  In addition, those two types of personal property are attached to land.  The debtor’s truck did not qualify as a homestead because it is not permanently or semi-permanently installed on real property and has no regular site and is not located in a residential area or mobile home park.  Colorado case law required an association with real estate to support a homestead exemption for the debtor’s truck.  In re Romero, No. 15-11254 TBM, 2015 Bankr. LEXIS 2065 (Bankr. D. Colo. Jun. 24, 2015).    


The petitioner suffered from Type 2 diabetes and lost his job as a result.  He made a withdrawal from his IRA before reaching age 59.5 and claimed that he was exempt from the 10 percent early distribution penalty.  Six weeks after the withdrawal, the petitioner went into a diabetic coma, was hospitalized for over a week and filed for disability.  The IRS claimed that the petitioner was not disabled on the date of the distribution as required b y I.R.C. Sec. 72(t)(2)(A)(iii) and, thus, owed the 10 percent penalty.  The court agreed with the IRS because the petitioner did not prove that he was disabled before and at the time of the distribution.  Trainito v. Comr., T.C. Sum. Op. 2015-37.        


The debtors filed Chapter 12 and had their reorganization plan confirmed, but defaulted on the payments they were required to pay under the plan.  Two creditors had the automatic stay lifted with respect to them and the debtors did not request and receive their voluntary dismissal such that the refilling limitations of 11 U.S.C. Sec. 109(g)(2) were never triggered.  Instead, the court determined that the filing by the creditors of affidavits of default that constituted the requests for relief.  But, before the affidavits were filed, the debtors filed for a voluntary dismissal.  The court granted the dismissal and lifted the stay.  When the debtors re-filed Chapter 12 about a month later, the creditors claimed that the debtors were not eligible because of the 11 U.S.C. Sec. 109(g)(2) bar (180-day limitation).  The court allowed the re-filed case because the debtors had filed their motion for voluntary dismissal before the creditor affidavits were filed.  Thus, 11 U.S.C. Sec. 109(g)(2) was never triggered.  In re Herremans, No. BG 15-01567, 2015 Bankr. LEXIS 2201 (Bankr. W.D. Mich. Jun. 23, 2015).


 The plaintiffs operate commercial cattle operations and bought vaccines that were designed and manufactured by the defendant.  After vaccinating their cattle, the cattle suffered symptoms of endotoxemia which lead to the  death of several thousand cattle and the reduced performance of the balance.  The plaintiffs sued in state court for breach of contract warranties, negligent design and manufacture, failure to warn, failure to comply with the Viruses, Serums, Toxins, and anti-Toxins Act (VSTAA) and unfair and deceptive trade practices.  The defendant removed the case to federal court and motioned for dismissal.  The defendant claimed that the plaintiffs’ claims were preempted by regulations of Animal and Plant Health Inspection Service (APHIS) (the regulatory body that tested the vaccines).  The court disagreed, noting that the VSTAA does not contain any express attempt to preempt state law, and that the U.S. Supreme Court’s decision in Wyeth v. Levine, 555 U.S. 555 (2009) which held that a government agency’s intent to preempt is insufficient.  The plaintiff failed to engage in any Wyeth analysis and the court denied the plaintiff’s motion to dismiss.  The court also refused to dismiss the plaintiff’s failure to comply claim and held that the negligence and unfair and deceptive trade practices claims should likewise go forward.  The court extended the discovery deadline.  Franklin Livestock, Inc., et al. v. Boehringer Ingelheim Vetmedica, Inc., No. 5:15-CV-63-BO, 2015 U.S. Dist. LEXIS 80440 (E.D. N.C. Jun. 22, 2015). 


The plaintiff operates a large-scale wind energy generation facility in Kansas.  The defendant is a rural electric cooperative.  The parties are subject to a Renewable Energy Purchase Agreement (REPA) that establishes the terms and conditions of sale of energy between the parties.  Due to inadequate transmission capabilities and the relatively higher cost of energy production via wind, the grid operator did not allow the plaintiff to put power on the grid at various times between March 2012 and August 2014 and, as a result, the plaintiff lost nearly $2 million in revenue due to the reduced sales of energy and the loss of tax credits.  Under the terms of the REPA, the defendant was to pay for curtailment losses that are economic and the plaintiff bears the burden with respect to emergency curtailments.  The parties did not dispute that economic curtailments were at issue.  However, the defendant maintained that the matter involved a question of federal law, but the court determined that was only the case if an emergency curtailment was at issue, which it was not.  Thus, the case involved a matter of breach of contract to be resolved in state court.  The court did not allow, however, the plaintiff’s request for costs, expenses and attorney fees.  Smoky Hills Wind Farm, LLC, et al. v. Midwest Energy, Inc., No. 6:15-CV-1116-JTM-KMH, 2015 U.S. Dist. LEXIS 80365 (D. Kan. Jun. 22, 2015).


The plaintiff grew and packed raisins and refused to forfeit 47 percent of his crop in one year and 30 percent of his crop in another year to the USDA for the privilege of selling the balance of his crop not subject to the marketing Order implemented in 1949 that is based on the Agricultural Marketing Agreement Act of 1937 allowing the USDA to seize the specified percentages of his crop.  The USDA fined the plaintiff $483,843.53 for the market value of the raisins he refused to give up, plus a $200,000 civil penalty for disobeying the marketing order.  The plaintiff sued for a constitutional taking.  Reversing the Ninth Circuit, the U.S. Supreme Court held that a physical taking was involved since title to the subject grapes had been taken by the government.  As such, the plaintiff was entitled to "just compensation" under the Fifth Amendment.  That amount was the market value of the amount of the grapes that the government seized.  Horne v. United States Department of Agriculture, No. 14-275, 2015 U.S. LEXIS 4064 (U.S. Sup. Ct. Jun. 22, 2015).  


The petitioner was a dressage trainer and rider and tried to deduct her horse-related expenses.  Based on the nine factor analysis of the regulations, the court concluded that the petitioner did not conduct the activity with a  profit intent.  Importantly, the petitioner had only tack as an asset in the activity and there was no expectation that it would increase in value.  The petitioner had no other successes in relevant businesses, and the horse-related expenses were far greater than income from the activity.  The petitioner also had significant income from other sources and derived pleasure from the horse activity.  McMillan v. Comr., T.C. Memo. 2015-109.


A father and two daughters drowned at a beach near a city dike.  The surviving wife/mother sued the defendant city on a gross negligence theory for failure to post more warning signs that were posted or close the beach.  The trial court dismissed the case and the state (TX) Supreme Court affirmed.  There was no evidence that the defendant was aware that perils at the beach exceeded what a reasonable recreational user of the beach could expect - there was no extreme degree of risk.  In addition, the mere fact that existing warning signs had been destroyed in a hurricane and had not yet been replaced (2 years later when the beach reopened and the drownings occurred) did not mean that the city had any actual knowledge of any risks beyond inherent risks of open-water swimming.  In addition, the plaintiff failed to offer any evidence of the extent or nature of any previous drownings during the dike's 100-year existence.  As a result the TX recreational use statute barred liability for the defendant.  Suarez v. City of Texas City, 465 S.W.3d 623 (Tex. 2015).     


The plaintiffs, a married couple, bought stock in a small company which later came under SEC scrutiny for a “pump and dump” scheme as a result of the corporate officers  releasing false information about sales that never occurred which enhanced the stock price before the officers sold their stock at a large gain.  The buyers of the stock, including the plaintiffs, suffered a total loss as a result of an SEC investigation that halted trading.  The company involved eventually filed bankruptcy.  The plaintiffs  claimed a deductible theft loss (ordinary loss that was fully deductible).  The IRS claimed that the loss was a capital loss (which would only offset other capital gains or $3,000 of other income annually).  The court noted that for the loss to qualify as a theft loss, the wrongdoers must have acted with the specific intent to deprive the taxpayer of their property, and the taxpayer must have transferred their property to the wrongdoers.  The court, agreeing with the IRS, determined that the second part of the test was not satisfied – the taxpayers’ stock was not transferred to the corporate officers but was sold to general investors in an open market.    Thus, the taxpayers’ stock had not been stolen.  Greenberger v. United States, No. 1:14-CV-01041, 2015 U.S. Dist. LEXIS 80643 (N.D. Ohio Jun. 19, 2015). 


The plaintiffs, a married couple, were injured in an auto accident when the wife lost control of the couple's vehicle in a rural area when the vehicle came into contact with corn mash (a byproduct of ethanol production) that had spilled from a truck onto a roadway the day before.  During the day before the accident, a state trooper was working a traffic stop in the area when he saw the mash spilling from the truck owned by the private party defendant.  The officer completed his traffic stop and then closed the lane of the road in question.  The local rural fire department responded to the spill and moved it onto the unpaved shoulder and into the ditch.  The truck owner was not required to assist with the cleanup and was issued a citation after the cleanup was complete, with the roadway then reopened.  As noted, the accident occurred the next day when the corn mash migrated back onto the traveled portion of the roadway.  Eyewitness testimony noted that the plaintiffs' vehicle contacted the mash before losing control and sliding off the roadway.  The trial court held that the political subdivisions (local town, county and rural fire department) were immune from liability under state law, and also held that the truck owner owed the plaintiffs no duty because any duty they owed the plaintiffs had been extinguished when the officer deemed the roadway safe and reopened it.  On appeal, the court affirmed the trial court as to the grant of summary judgment to the truck owner because the truck owner did not owe any duty to the plaintiffs on account of the roadway being deemed safe for vehicular travel and the authorities had been actively engaged in removing the obstruction.  However, the court reversed the grant of summary judgment to the political subdivisions.  The court reasoned that there was a single incident("spot or localized defect) of spillage of corn mash and that the migration back to the roadway from the shoulder was not a separate incident.  Thus, the political subdivisions were on notice of the incident and had reasonable time to correct the problem and had waived their sovereign immunity under Neb. Rev. Stat. 13-910(12).  Kimminau v. City of Hastings, et al., 291 Neb. 133 (2015).          


The plaintiff is a farming/ranching partnership consisting of brothers.  The defendant owns about 33,000 acres of farmland.  The parties entered into a cash lease in 2009 for over 10,000 acres and the lease terminated after the 2009 crop harvest, but required the defendant to  give the plaintiff a first opportunity to rent the leased premises before renting it out for the 2010 crop year.  The parties again entered into a leasing arrangement involving two leases for separate tracts totaling over 29,000 acres.  One lease said the plaintiff again had the first opportunity to rent for the next crop year, and the other lease said the plaintiff had the option to rent for the '13, '14 and '15 crop year.  In April of 2012, the defendant informed the tenant of the right of first refusal and inquired as to whether the plaintiff wanted to rent the land for the future.  The parties met in person in late July after the plaintiff said they wanted to rent on the same terms as the previous year, but the defendant wanted to raise the cash rent amount.  The plaintiff was told that a decision had to be made by August 1, 2012.  The plaintiff did agree to the higher cash rent on August 1 by calling the defendant.  The plaintiff then made financial commitments and purchases in anticipation of leasing the land.  Just over a week later, the defendant sold the land and sought a court determination that the lease to the plaintiff had not been extended and told the plaintiff to cease farming operations.  The defendant then served the plaintiff with notice to quit and vacate the property.  A third party then took possession of the land and planted winter wheat on over 12,000 acres at a cost of over $1 million.  The trial court found that the parties had an enforceable contract and that the plaintiff had exercised its option to lease the property for the '13-'15 crop years.  A second trial resulted in a finding that the plaintiff was not damaged, was not unjustly enriched by receiving the proceeds of the winter wheat crop that the third party planted, and that the defendant had unclean hands.  On appeal, the court affirmed.  Dowling Family Partnership v. Midland Farms, LLC, No. 27114, 2015 S.D. LEXIS 82 (S.D. Sup. Ct. Jun. 17, 2015).


The decedent's surviving spouse found a copy of the decedent's will on his desk among his papers.  The original could not be found and the attorney that drafted the will had died several years earlier.  Two nephews of the decedent petitioner the court for formal probate of the copy of the will and the surviving spouse petitioned the court for an informal intestate probate.  The trial court held that the nephews had overcome the presumption that the original was revoked.  Both of the nephews had a close relationship with the decedent and helped him with farming and farmland was left to them under the terms of the will.  The surviving spouse did not know about the existence of the will.  On appeal, the court affirmed.  Estate of Deutsch, 2015 S.D. LEXIS 81 (S.D. Sup. Ct. Jun. 17, 2015). 


In this case, a married couple executed a transfer-on-death (TOD) deed naming the husband's daughter and her husband as beneficiaries of a farm that the husband owned.  The farm was owned solely by the husband even though the TOD recited that both the husband and wife owned the farm.  An initial draft of the TOD gave the wife a life estate in the farm upon the husband's death when the TOD would become effective to transfer the farm.  A subsequent version (the version at issue) eliminated the life estate in favor or an oral understanding that the wife could live on the farm as long as she desired.  The husband died the sole owner of the farm, and the surviving wife claimed that the TOD was ineffective because it stated that both the husband and wife owned the farm.  The wife also attempted to revoke the TOD after her husband's death.  The trial court held that the wife had no marital interest in the farm and that the TOD was effective to transfer the farm to the husband's daughter and her husband.  The trial court also determined that the TOD designation was not the result of undue influence and that reformation to grant the wife a life estate was not warranted by the evidence.  The trial court denied reconsideration.  On appeal, the court affirmed.  It was sufficient that the actual owner of the farm was named as an owner of the farm and the TOD was not invalidated simply because it also said that other people had an ownership interest in the farm. The court also determined that the evidence did not support an undue influence claim, and that the wife had no ability to revoke the TOD.  The evidence also did not support a reformation of the TOD designation.  Sarow v. Vike, No. 2014AP1476, 2015 Wisc. App. LEXIS 427 (Wisc. Ct. App. Jun. 11, 2015).


The petitioners claimed deductions for business travel and medical expenses.  However, they did not prepare mileage logs as the trips were incurred and did not record the business purpose of trips.  In addition, logs maintained did not provide the names and addresses of customers or the businesses that were visited or the business purpose of the trips.  Claimed medical expenses did not list the name of the patient, the medical purpose of the service or expense and did not list the doctor visited.  The court upheld the denial of the deductions.  Renner v. Comr., T.C. Memo. 2015-102.


The IRS claimed that the petitioner had a tax deficiency of $2,500.  The return was prepared by a return preparation service known as "Tax Whiz," and claimed a $2,500 American Opportunity Tax Credit (AOTC) which resulted in the return showing a $1,853 refund due to petitioner.  However, the petitioner admitted that he did not have any qualified educational expenses for the year in issue and was not entitled to the credit.  The petitioner also admitted that he did not examine the return before Tax Whiz filed it.  The petitioner did not receive the refund because IRS intercepted it and had it applied to the petitioner's outstanding child support debt.  The court held that the petitioner was not entitled to the AOTC, and was liable for the resulting deficiency.  Reliance on a tax return preparer does not absolve a taxpayer from the responsibility to file an accurate return, the court noted.  The court lacked jurisdiction to review the reduction of the petitioner's overpayment to pay his child support debt.  Devy v. Comr., T.C. Memo. 2015-110.


As part of an estate plan, a husband created a trust for the benefit of his wife and their descendants.  The trustee could pay to or use for the benefit of any of the beneficiaries any amount of the trust income and principal as the trustee determined necessary for a beneficiary's support, health and education.  The husband also established two grantor retained income trusts (GRATs) with the remaining trust assets at the end of the GRAT term paid to the trust.  The couple filed gift tax returns and elected to split the gifts to the trusts such that one-half of each gift would be deemed to have been made by each spouse for purposes of gift tax.  The IRS, citing, I.R.C. Sec. 2513 and Rev. Rul. 56-439, denied split gift treatment because the spouse was a beneficiary of the trusts.  A split gift election is only permissible for gifts to someone other than a spouse.  No gifts were eligible for split gift treatment.  Priv. Ltr. Rul. 201523003 (Jan. 28, 2015).


The debtor filed Chapter 12 bankruptcy and listed a bank debt in his schedules.  The bank debt was secured by real estate.  The bank was notified of the deadline to file claims and was also notified of the meeting of creditors.  The bank filed a proof of claim more than a month after the deadline, but the bank's attorney did timely file a notice of appearance identifying the bank as a creditor.  The debtor proposed a reorganization plan that provided for no payments on the bank's disallowed claim, but the plan did retain the bank's lien and did provide for post-bankruptcy payments on the bank debt.  The bank objected and the debtor asserted that the bank's claim was untimely.  The court disallowed the bank's claim as untimely because the bank had done nothing that could be treated as the equivalent of filing a proof of claim on a timely basis.  An entry of appearance and request for notice were insufficient to qualify as an informal proof of claim.  The court also determined that the debtor's motives for objecting to the late filed claim had no bearing on whether the late filed claim should be allowed.  The court held that 11 U.S.C. Sec. 502(b)(9) required that the bank's claim be disallowed.  In re Swenson, No. 14-40173-12, 2015 Bankr. LEXIS 1922 (Bankr. D. Kan. Jun. 12, 2015). 


The decedent had four children and gave one daughter a power of attorney and established a joint checking account with another the daughter.  Two other children alleged that the decedent’s funds had been misappropriated and two daughters had received almost $300,000 combined. A forensic CPA was not able to determine if the transfers were appropriate or reasonable.   On an action for the removal of the personal representative, the trial court determined that there could not be any undue influence if the principal is lucid.  On appeal, the court reversed.  The court stated that, under state (ND) law, the trial court was to determine whether the two daughters assumed a confidential relationship with the decedent and, if so, a presumption of undue influence would apply as to any and all benefits the daughters obtained on account of that relationship.  In re Estate of Bartelson, No. 20140244, 2015 N.E. LEXIS 157 (N.D. Sup. Ct. Jun. 11, 2015).


In this case, the son had farmed with his father for 25 years until the father's death.  The father's will left one-half of the farm personal property to the son with the other half passing to the son's three non-farm siblings.  The will also left the farmland to the four children equally with the son having a right of first refusal with respect to any sale of the farmland.  The son filed a claim in the probate estate that he was entitled to all of the farmland based on an oral promise from his parents and that he had detrimentally relied on that promise.  The trial court denied the claim and the son appealed.  On appeal, the court affirmed on the basis that the evidence failed to establish a clear and definite promise that the son would receive the farmland without paying for it.  The court also held that the evidence failed to support the son's claim that he was entitled to be reimbursed for funds he spent on machinery and buildings over the prior 25 years.  In re Estate of Beitz, No. 14-1492, 2015 Iowa App. LEXIS 519 (Iowa Ct. App. Jun. 10, 2015).


The plaintiffs owned a vacation property bordering a lake and received a permit to maintain a boat dock and stone steps on the public land between their property and the lake.  The lake and shoreline is managed by the defendant.  The defendant revoked the plaintiffs' permit, after conducting a hearing, for causing herbicides to be sprayed on public property and for removing brush (and mowing the shoreline) from the previously sprayed land.  The plaintiffs challenged the revocation for lack of due process.  The trial court held that the defendant had not acted arbitrarily or capriciously and that the plaintiffs' constitutional due process rights had not been violated.  The appellate court affirmed.  The court noted that the plaintiffs had no property interest in the permit to which due process rights could attach, and that the permit clearly specified the conditions that had to be satisfied to keep the permit.  McClung v. Paul, No. 14-3463, 2015 U.S. App. LEXIS 9491 (8th Cir. Jun. 8, 2015).


The taxpayer took a distribution from his IRA and then suffered a work-related injury that put him on medical leave.  The leave period expired after the 60-day IRA rollover period.  But, the taxpayer was also caring for his disable wife at the same time.  The taxpayer sought relief from the 60-day rule, but IRS determined that relief would not be granted because the taxpayer used the withdrawn funds to pay personal expenses during the 60-day period and didn't return the funds to the account for more than six months after the 60-day period had expired.  Thus, the funds had, in effect, been used as a short-term, interest-free loan that the taxpayer used to pay personal expenses.  U.I.L. 201523025 (Mar. 13, 2015). 


The petitioner built a commercial building and entered into a 10-year lease with the lessee.  Under the terms of the lease, monthly rent payments were to be paid but the lessee could make a one-time payment to the petitioner which could be used in calculating rent and thereby reduce the amount owed under the lease.  A $1 million payment was made and the IRS claimed that the petitioner should have reported it as income.  The petitioner claimed that the amount was a reimbursement of construction costs or, if it was rental income, could be reported over the life of the lease.  The Tax Court agreed with the IRS that the amount was rental income that was to be fully reported in the year received under I.R.C. Sec. 467.  The rental agreement did not specify any specific allocation of fixed rent.  Thus, the rent allocated to a rental period is the amount of fixed rent payable during that rental period.  The constant rental accrual and proportional rental accrual methods were inapplicable to the lease at issue.  Stough v. Comr., 144 T.C. No. 16 (2015).


Iowa HF 661, effective July 1, 2016, instead of repealing the inheritance tax, the Bill specifies that a step grandchild is exempt from Iowa inheritance tax rather than being subjected to the tax along with siblings, nieces and nephews and unrelated persons.  In addition, the Bill allows a surviving spouse to relinquish the elective share amount of a deceased spouse's estate upon being notified of the rights being relinquished.   


The petitioner used funds in his IRA to start a business via an LLC.  The initial capital contribution to the LLC was $319,000 of the petitioner's IRA funds.  The IRA was created after the LLC with funds from the petitioner's 401(k) with a prior employer.  The LLC was created and the petitioner directed the IRA custodian to acquire LLC shares, reporting the transactions (there were two of them) as non-taxable rollover contributions with the IRA now owning LLC interests.  The LLC employed the petitioner as its general manager, and also employed the petitioner's spouse and children.  The LLC paid a salary to the petitioner for his services as general manager.  The IRS asserted a tax deficiency of $135,936 plus an accuracy-related penalty of over $26,000.  The Tax Court agreed with the IRS, holding that the payment of a salary and the directing of compensation from the LLC violated I.R.C. Sec. 4975(c)(1)(D) and I.R.C. Sec. 4975(c)(1)(E) as a prohibited transaction.  On appeal, the court affirmed.  The payment of salary amounted to an indirect transfer of the petitioner's income and assets of his IRA for his own benefit and indirectly dealt with the income and assets for his own interest or his own account in a prohibited manner.  As a result, the IRA was terminated with the entire amount taxable income, plus penalties.  Ellis v. Comr., No. 14-1310, 2015 U.S. App. LEXIS 9380 (8th Cir. Jun. 5, 2015), aff'g., T.C. Memo. 2013-245.


The Iowa legislature has passed HF 624 which allows custom farming contracts with beginning farmers to last for 24 months rather than the current requirement that they be an annual contract.  


SF 512 exempts all-terrain vehicles that are "used primarily in agricultural production" from sales tax.  


The Iowa legislature unanimously passed HF 661 which allows a deduction on the Iowa Form 1041 for administrative expenses that were not taken or allowed as a deduction in calculating net income for federal fiduciary income tax purposes.  Thus, deductions taken on the Federal Form 706 can be claimed on the Iowa 1041 (Iowa has no estate tax).  The bill also allows administrative expenses to be deducted that would otherwise be disallowed for exceeding the 2 percent of adjusted gross income floor.  The effective date of the Bill is for tax years ending on or after July 1, 2015.


An S corporation had rental income from a property that it leased to others.  The S corporation, through its officers, employees and independent contractors, provides various services with respect to the property including janitorial and trash removal, maintenance and repairs and inspection services.  The S corporation also provided security services.  The IRS determined that the rental income was not passive.  Priv. Ltr. Rul. 201523008 (Feb. 4, 2015).


The plaintiffs entered into a grazing contract with the defendant to graze the plaintiffs' cattle on the defendant's ranch.  The contract required the defendant to provide adequate grass and water "as nature shall provide" as well as feed and mineral according to the nutritional needs of the cattle.  The contract also required the defendant to monitor the condition of the cattle and provide veterinary care as needed, and otherwise optimize the quality of the grass for the cattle.  The defendant also was required to provide labor for handling the cattle.  However, the cattle started to be unable to stand and the defendant's ranch manager had a veterinarian check the cattle.  The veterinarian diagnosed malnutrition and prescribed a magnesium solution and more food.  The ranch manager followed the instruction and the cattle improved.  The plaintiffs placed additional cattle on the ranch, but there was a pneumonia outbreak that afflicted the calves that was only partially treated.  In addition, the cattle were not rotational grazed, had insufficient grass and lost significant weight.  The plaintiffs sued for damages and the trial court determined, based on the evidence, that the average conception rate for the cows would have been 92 percent, but that the rate for the plaintiffs' cows was 83 percent.  The body scores of the cattle (degree of flesh on a cow) was also well below average.  Two bulls died after leaving the ranch and two others had to be sold for salvage value.  The trial court determined that the defendant breached the grazing contract and awarded $240,416.90 in damages as compensation for the reduced value of the open cows, the lost value of calves never conceived, the costs associated with rehabilitating the body condition of the bulls and cows, the lost value of dead and salvaged bulls and the reduced value of stocker cattle that did not put on the expected weight.  On appeal, the Court of Appeals, dismissed one of the plaintiffs for lack of standing because that plaintiff's cattle were actually owned by his entities, not by him personally.  In all other respects the court upheld the trial court's determinations.  On further review, the Supreme Court affirmed.  The court flatly rejected the defendant's claim that all the grazing contract required him to do was "supply water and grass as nature availed."  Instead, the contract clearly required the defendant to provide veterinary care, monitor the condition of the cattle and provide food and minerals according to the needs of the cattle, and manage the grazing to optimize grass quality.  The Court upheld the damage award as determined by the Court of Appeals, after dismissing one of the plaintiffs for lack of standing.   Damages were awarded for the difference in value between an open and bred cow (the market calf after factoring for risk and costs) at the lower than expected conception rate, but not for calves that were never conceived.  The damage award also included an amount for costs associated with rehabilitating the body condition of the cattle (i.e., putting on weight).  The plaintiff was also entitled to damages reflecting the cost of virgin 2 year-old bulls because there was no market for used bulls due to the risk of spreading venereal disease.  Eilert, et al. v. Ferrell, No. 107,359, 2015 Kan. LEXIS 356 (Kan. Sup. Ct. Jun. 5, 2015).

 


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 Clean Water Act 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.  As a result, only a nominal value remained and the entire value of the tract had essentially been taken which constituted a taking under the rationale of Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992).  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. 2014-5093, 2015 U.S. App. LEXIS 9018 (Fed. Cir. Jun. 1, 2015), aff'g., 115 Fed. Cl. 219 (2014) on remand from 707 F.3d 1286 (Fed. Cir. 2013).


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.

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