Annotations - Last 30 Days

The petitioner and his wife were married in 1975 and divorced in 2006. They agreed to a stipulation of settlement which required the petitioner to make monthly maintenance payments of $1,250 to the ex-wife that would continue until her death or remarriage.  The settlement stated that the payments would be taxable to the ex-wife and deductible to the petitioner.  The stipulation of settlement was incorporated by reference into the divorce decree.  The ex-wife did not receive approximately $39,000 that she should have upon equal division of the couple's retirement accounts, ultimately resulting in a lawsuit with a judgment rendered in 2009 which, in part, resulted in a payment of approximately $50,000 from petitioner's non-IRA accounts.  On his 2009 return, the petitioner deducted over $63,000 for payments to his ex-wife.  The IRS concede that $15,000 was deductible as alimony, but not the balance.  The court agreed with the IRS because the judgment would have to be paid even if the ex-wife had died before payment had been made.  The court noted that the petitioner should have satisfied the judgment via a QDRO by a tax-free transfer from his IRA.  Laremore v. Comr., T.C. Sum. Op. 2014-94.

The IRS, in a recent Notice, has expanded the permitted election rules for health coverage under an I.R.C. Sec. 125 cafeteria plan.  The Notice discusses two specific situations and whether a cafeteria plan participant can revoke the election.  The one situation involves a participating employee who has hours of service reduced to get under the 30 hours/week threshold, but the reduced hours don't impact eligibility for coverage under the employer's group health plan.  The other situation concerns an employee that is a participant in the employer's group health plan and wants out of that coverage to be able to buy health insurance in the Obamacare "marketplace."  In both situations, the IRS said the election could be revoked.  IRS Notice 2014-55.

In a recent Notice, the IRS announced the fee that will be imposed under Obamacare on the issuer of a specified health insurance policy for the policy year ending after September 30, 2014 and before October 1, 2015.  The fee will be $2.08 for each life covered by the plan.  The fee is used to fund the executive branch non-physician organizations that will make decisions about the procedures that Medicare will cover - the so-called "death panels."  IRS Notice 2014-56, I.R.B. 2014-41  

This case involved the merger of two corporations, one owned by the parents and one owned by a son.  The parents' S corporation developed and manufactured a machine that the son had invented.  The son did not patent the invention, and the parents' corporation claimed the research and development credits associated with the machine.  The sons' corporation sold the machine (liquid dispenser) to various users, but the intellectual property rights associated with the machine were never formally received.  The two corporations were merged for estate planning purposes, with the parents' receiving less stock value than their asset ownership value.  The lawyers involved in structuring the transaction "postulated" a technology transfer for significant value from the son to the parents that had occurred in 1987.  The transfer was postulated because there were no documents concerning the alleged transaction executed in 1987.  Instead, the lawyers executed the transfer documents in 1995.  The IRS asserted that no technology transfer had occurred and that the merger resulted in a gift from the parents to the son of $29.6 million for which no gift tax return had been filed and no taxes paid.  The Tax Court agreed with the IRS and the resulting gift tax (at 1995 rates) was $14.8 million.  No penalties were imposed on the taxpayers.  Cavallero v. Comr., T.C. Memo. 2014-189.

Since 2010, food stamp enrollment has outpaced job creation in Illinois.  Presently, the Illinois labor force is approximately 300,000 workers less than at the beginning of 2008.  Simultaneously, the number of Illinois residents on Food Stamps has increased by almost 750,000.  Illinois Policy Institute, Report of Sept. 10, 2014.

The petitioners, a married couple, had a disabled child that they attempted to provide for via income-producing real estate.  The petitioners engaged in multiple I.R.C. Sec. 1031 exchanges that ultimately, and upon their tax advisor's advice, turned into an abusive tax shelter.  They received $375,000 in settlement of their claims of a lawsuit against their accountants and claimed the sum was not taxable as a return of capital.  In essence, the petitioners claimed that the award represented compensatory damages for losses they suffered due to accountant negligence with respect to the disposition of their real property.  The IRS claimed the amount was fully includible in income as damages for lost profits.  The Court noted that generally such awards represent a return of capital that is not includible in the taxpayer's income.  Under the facts of the case, the petitioners claimed amounts exceeding what they could prove was lost.  Thus, some portion of the $375,000 award will be includible in income and some will be a non-taxable return of capital.  Cosentino v. Comr., T.C. Memo. 2014-186. 

The petitioner and his wife were divorced in 2010 and, as part of the settlement, the petitioner's former wife quitclaimed her 50 percent interest in the former marital home to the petitioner.  The petitioner claimed a long-term homeowner credit on his 2010 return and the IRS denied the credit because he had not "purchased" the home as defined by I.R.C. Sec. 36(c)(3).  The court agreed.  The transfer of the interest in the home was incident to a divorce and the petitioner received a carry-over basis in the home as to that interest which is a prohibited manner in which a home can be acquired and qualify for the credit.  Sullivan v. Comr., T.C. Sum. Op. 2014-89.

The petitioner was diagnosed with a degenerative disease that ultimately prevented him from working.  He had a disability policy through his employer and received short-term disability benefits for the last few months of his employment.  He later applied for long-term disability benefits, but was denied because the insurance company determined that he wasn't totally disabled.  The petitioner sued and obtained a settlement amount of $65,000 that would be reported as long-term disability benefits.  The petitioner claimed that the amount was excluded from income under I.R.C. Sec. 104(a)(2) as payment for physical illness, and would also be excludible under I.R.C. Sec. 104(a)(1) as a worker's compensation payment.  The IRS disagreed and the court upheld the IRS determination.  The amount was not paid for any claim of physical injury or sickness, but for a failure to pay disability benefits that the company had contracted to pay.  The court also noted that under California law a settlement had to be approved by the CA Workers' Compensation Appeals Board, and that the petitioner had not submitted the payment for approval.  The court also noted that the amount was paid for sickness on a disability policy that the employer paid for where the premiums were not included in the petitioner's income.  As such, the amount as included in the petitioner's income.  Ktsanes v. Comr., T.C. Sum. Op. 2014-85.

In this case, a personal service C corporation paid an $815,000 bonus to its sole shareholder and attempted to deduct the amount.  The corporation paid the amount in an attempt remove corporate profit and the corporation reported zero taxable income for the year in issue by virtue of the deduction for the bonus paid.  The IRS disallowed the deduction on the basis that the corporate bank account only contained $288,000 at the time the bonus was paid and that the deduction is only allowed when sufficient funds are available to pay the amount.  The Tax Court upheld the IRS position on the basis that the amount of the payment cannot be treated as a distribution when the account has insufficient funds to honor the check.  Thus, the deduction was disallowed.  The court also noted that the sole shareholder's wife kept the corporate books and records and wrote the check at issue thereby subjecting the transaction to "special scrutiny."  Vanney Associates, Inc. v. Comr., T.C. Memo. 2014-184. 

The taxpayer was an architect that used a bonus that he received from his architectural firm in 1975 to buy 420 acres of farmland and an old run-down farmhouse.  The taxpayer continued to live in town until 2010.  From time-to-time, he farmed the tillable ground and rented the pasture ground to neighboring farmers for cash rent.  For the tax years at issue, the taxpayer reported substantial losses as a result of deducting expenses related to the farmhouse in addition to expenses related to the farm ground.  The IRS denied the deductions related to the farmhouse.  The farmhouse had never been rented out for cash and family members occasionally lived in the house over the years in exchange for improvements made to the house.  The Tax Court, ruling for the IRS held that the farmhouse-related deductions were not allowed either under I.R.C. Sec. 212 or Sec. 162 because the taxpayer failed to present evidence that he incurred claimed expenses and because  the taxpayer failed to establish the existence of a real estate rental business.  In addition, the Tax Court determined that the taxpayer had failed to establish that the farmhouse was held for the production of income.  On appeal, the court affirmed. The appellate court noted that the taxpayer had not established a profit motive for any alleged farmhouse rental business and did not establish that he ever treated the farmhouse as part of the farm ground (which did involve a business activity).  The appellate court also held that the farmhouse was not property held for the production of income.  Meinhardt v. Comr., No. 13-2924, 2014 U.S. App. LEXIS 17455 (8th Cir. Sept. 10, 2014), aff'g., T.C. Memo. 2013-85

The plaintiffs own land subject to an oil and gas lease that the defendant holds.  The defendant did not drill for oil or gas for over 30 years based on a determination that doing so would not be cost effective.  The plaintiffs argued that the defendant breached an implied duty to develop the land and, as a result, the lease should be terminated.  The trial court granted judgment as a matter of law to the defendant because the plaintiffs failed to present substantial evidence showing that the defendant breached the implied covenant to prudently develop.  On appeal, the court affirmed.   The simple fact that the defendant admitted that it would not be commercially feasible to drill on the plaintiffs' land does not automatically require lease cancellation.  The burden is on the plaintiff to prove, by substantial evidence, that the defendant to breach the implied covenant to prudently develop the leased land.  That burden was not carried.  Novy v. Woolsey Energy Corp., et al., 327 P.3d 1052 (Kan. Ct. App. 2014). 

The defendant owned a three-acre property that used to be a quarry but was presently used to convert tree stumps, yard waste and logs into mulch.  The plaintiff township notified the defendant that the mulching activity violated a township ordinance for operating non-permitted mill, warehouse and wholesale uses on the property.  After notice and a hearing, the zoning board determined that the mulching activity violated the ordinance as a manufacturing use.  The trial court affirmed the board's decision on the basis that the raw materials used in making the mulch did not originate on the property and none of the resulting mulch was used on the property.  On further appeal, the appellate court affirmed.  The court determined that the activity was not protected under state (PA) Municipalities Planning Code (MPC) or the right-to-farm act.  The activity failed to meet the definition of "forestry" or "silviculture" under the MPC and did not involve  the production of agricultural crops and commodities.  Likewise, the appellate court determined that the mulching activity was not protected by the right-to-farm law because it didn't fit within that statute's definition of "agricultural activity."  Tinicum Township v. Nowicki, et al., No. 2176 C.D. 2012, 2014 Pa. Commw. LEXIS 440 (Comw. Ct. Pa. Sept. 9, 2014). 

The defendant operated a flour mill in Illinois and a grain bin was part of the facility.  The defendant discovered a burning smell and hired the other defendant, a salvage company, to save as much of the wheat stored in the bin as possible.  A week after beginning work, the salvage operator noticed smoke coming from the bin and called the fire department.  Before firefighters arrived, the salvage company sent several of its workers into the bin to remove tools that could be an obstruction to the firefighters.  While the workers were in the bin, the bin exploded, severely injuring the workers.  At trial, the jury awarded $180 million consisting of $80 million in compensatory damages and $100 million in punitive damages, $99 million of which was allocated to the operator of the flour mill.  On appeal, the court overturned the punitive damage award against the flour mill operator.  The court determined that the flour mill operator could not be held liable for failing to provide a safe workplace.  In addition, the court held that the salvage operator was not liable for $1 million in punitive damages.  The court determined that the parties knew of the unsafe condition and were trying to correct it when the bin exploded and the parties did not know that an explosion was imminent.  The court noted that the verdict was the result of "hindsight bias."  The court remanded the case for a redetermination of how compensatory damages were to be paid.  Jentz, et al. v. ConAgra Foods, Inc., et al., No. 13-1505, 2014 U.S. App. LEXIS 17425 (7th Cir. Sept. 9, 2014).

The petitioner and his company were members of an LLC taxed as a partnership.  The partnership experienced financial issues and the petitioner's company inquired of their attorney whether they could contribute promissory notes to the LLC.  The attorney advised the petitioner that the notes would provide basis to the petitioner equal to the face value of the notes.  Based on that advice, the petitioner contributed unsecured promissory notes without any assumption of the LLC's debt.  The notes contained incorrect dates and incorrect values as to amounts payable. The court held that the petitioner's basis in the notes was zero.  There was no evidence that the petitioner was personally obligated to contribute any fixed amount for a specific, preexisting LLC liability. No accuracy-related penalty was imposed.  VisionMonitor Software, LLC v. Comr., T.C. Memo. 2014-182.

In early 2014, the Idaho Governor signed into law legislation that criminalizes the clandestine filming of certain agricultural production activities.  The court noted that the state had to show that the law's restriction on "protected speech" served the state's interest in protecting private property.  But, that requirement did not apply in connection with the portion of the law involving intentional damage to agricultural facilities, livestock, workers and equipment to which the governor was not a proper defendant.  The plaintiffs claimed that the legislature acted with animus against animal rights activists in passing the law, and the court noted that if such claim was true, any proffered justification for the law would be viewed skeptically.  As such, the court denied summary judgment for the state.  Animal Legal Defense Fund, et al. v. Otter, et al., No. 1:14-cv-00104-BLW, 2014 U.S. Dist. LEXIS 124622 (D. Idaho Sept. 4, 2014). 

This case involved several homosexual couples living in Louisiana (LA) that were   validly married in another state and one homosexual couple seeking to be married in LA.  The LA constitution defines marriage as between one man and one woman and statutory law bars recognition of homosexual marriages contracted in other states.  The LA Department of Revenue also requires homosexual couples lawfully married in other states to certify on their LA income tax return that they are filing as single persons for state income tax purposes.  The plaintiffs claimed that LA law unconstitutionally violated their constitutional rights to equal protection and due process, and that the LA income tax certification violated their free speech.  On the equal protection issue, the court determined that the LA constitutional ban on homosexual marriage was to be evaluated under rational basis review because the U.S. Supreme Court opinion in United States v. Windsor, 133 S. Ct. 2675 (2013)  did not require heightened scrutiny and the constitutional ban on homosexual marriage was rationally related to the legitimate state interest of achieving marriage's preeminent purpose of linking children to their biological parents.  Plaintiffs did not suffer discrimination based on gender because the ban on homosexual marriage applies to both genders equally irrespective of sexual orientation - neither homosexuals nor heterosexuals can marry someone of the same gender.  The LA constitutional and statutory provisions also had no hateful animus because the law furthered the state's legitimate purpose of linking children to an intact family formed by their biological parents, and the state's legitimate interest in safeguarding fundamental social change through democratic consensus rather than the courts.  On the Due Process claim, the court noted that homosexual marriage is not anchored to history or tradition and that no fundamental right guaranteed to everyone is involved.  The court specifically noted that the plaintiffs could not maintain that state law against cousins marrying or polygamy were invalid and admitted that such marriages would have unacceptable "significant societal harms."  Thus, rational basis review was invoked because no fundamental constitutional right was involved.  Under that analysis the LA constitutional and statutory provisions are constitutional.  The LA Department of Revenue requirement did not involve compelled speech, but prescribes conduct necessary to an essential government function of collecting taxes.  Robicheaux, et al. v. Caldwell, No. 13-5090, 2014 U.S. Dis. LEXIS 122528 (E.D. La. Sept. 3, 2014).  

This case involves a class of about 2,300 persons that drive full-time for FedEx delivering packages.  The claimed that they should be classified as "employees" and not as independent contractors for tax purposes and for purposes of the federal Family and Medical Lease Act (FMLA).  The trial court determined that the drivers were independent contractors for tax purposes, and the parties settled on the FMLA issue.  On appeal, the court determined that the drivers were employees based on their relationship with FedEx - FedEx controlled the drivers' appearance, the vehicles that they drove, the time of work and how and when packages were received and moved.  Alexander v. FedEx Ground Package System, Inc., No. 12-17458, 2014 U.S. App. LEXIS 16585 (9th Cir. Aug. 27, 2014). 

Plaintiff 1 owns property in a Louisiana parish. Plaintiff 2 has an option to purchase that property in the event that it can be used as a solid-waste landfill. In February 2012, the United States Army Corps of Engineers (COE) issued a jurisdictional determination (JD) stating that the property contains wetlands that are subject to regulation under the Clean Water Act. The plaintiffs sued, alleging that the JD is unlawful and should be set aside. The district court dismissed the suit for lack of subject-matter jurisdiction, concluding that the JD is not "final agency action" and therefore is not reviewable under the Administrative Procedure Act (APA). On appeal, the Fifth Circuit affirmed, finding that the JD did not oblige the plaintiffs to do or refrain from doing anything to the property. The court did find that the JD marked the consummation of the Corps' decision-making process as to the question of jurisdiction. However, because no actual legal consequences would flow from the JD, which merely informed the plaintiffs that the property was subject to regulation, it did not constitute reviewable final agency action under the APA. Belle Co., L.L.C. v. United States Army Corps of Engineers, No. 13-30262, 2014 U.S. App. LEXIS 14544 (5th Cir. Jul. 30, 2014).

In this case, the petitioner claimed that the statutory limits on deductibility of IRA contributions were unconstitutional.  The court disagreed, and held that no deduction was allowed for IRA contributions because the petitioner's wife was an active participant in her employer's sponsored retirement plan and the couples combined MAGI was greater than the phaseout ceiling.  While the petitioner claimed that he never received airline "thank you" reward points, the court determined that the value had to be included in income.  Shankar v. Comr., 143 T.C. No. 5 (2014).

Under I.R.C. Sec. 501(c)(7), a club organized substantially for pleasure, recreation or another nonprofitable purpose is tax-exempt if no part of the club's earnings inures to the benefit of a private shareholder.  It's under this provision that social clubs (including sororities and fraternities) are tax-exempt.  However, IRS has ruled that an "online sorority" does not qualify to be tax-exempt under the provision.  The IRS said face-to-face interaction was required to achieve tax exemption under the statute.  The sorority did not have any fixed facility where members could meet, and the lack of spending funds for social or recreational purposes was crucial.  IRS said that the face-to-face annual meeting wasn't enough because is was an organizational meeting rather than a social meeting.  Under Rev. Rul. 58-589, commingling of members must be a material part of the organization for the organization to be tax exempt.  In addition, the social organization must simply provide personal growth or other benefits to members - it must focus on social and recreational activities.  Priv. Ltr. Rul. 201434022 (May 29, 2014).

The petitioners were a married couple where the lawyer-wife had died and the husband was an eye doctor.  The husband was the sole shareholder of his S corporation, and both of them had been convicted of willful failure to filed federal income tax returns and were sentenced to prison followed by a supervised release and a fine.  They hired a firm to perform forensic accounting to determine the correct tax liabilities for the years they failed to file returns and deducted the payment to the firm as legal and professional services on Schedule C.  They also deposited funds into the S corporation bank account, claiming that the deposits were loans that increased basis.  The court, agreeing with the IRS, denied any basis increase in the S corporate stock because the petitioners did not establish that the deposits were loans.  But, the court upheld the invoices for forensic accounting services.  Hall v. Comr., T.C. Memo. 2014-171. 

Two sons (acting as an LLC) entered into a contract with their parents under which the sons agreed to purchase the parents’ farm, including their home, for $100,000. The contract was apparently drafted to protect the family farm from future Medicaid claims in the event the parents had to go to a nursing home. The sons made a $20,000 down payment, and then used the rental income to make the $5,000 yearly payments due under the contract. They also paid the real estate taxes and maintained the property. The parents continued to live in the house. Three years after the contract was signed (and one year after the father began suffering from dementia), the parents sued the sons, asking the court to declare the contract null and void based upon undue influence. The district court granted relief to the parents (the father was not actively involved in the lawsuit because of his health), finding that the sons had a confidential relationship with the parents and that they had placed undue influence on them. On appeal, the court reversed, finding first that no confidential relationship existed between the sons and their parents. Such a relationship, the appellate court said, did not arise simply because of a blood relationship.  This finding was in spite of the fact that purpose of the confidential relationship rule (providing a presumption of undue influence) is not so much to afford protection to (in this case) the parents against the consequences of undue influence as it is to afford the parents protection against the consequences of voluntary action on their part induced by the existence of the relationship between the parents and their sons.  At the time the contract was signed, the parents were of sound mind and did not rely on their sons for the management of their daily affairs.  There was no evidence that the sons had a dominating influence over their parents so as to find a confidential relationship. Because there was no confidential relationship, the court found that the parents did not receive a presumption that their sons had acted with undue influence. The court then found that the parents failed to prove the four elements of undue influence: (1) grantor was susceptible; (2) opportunity to effect wrongful purpose; (3) disposition to influence unduly; and (4) result clearly appears to be the effect of undue influence. The court found that the evidence failed to prove that the sons induced their parents to sign the contract by undue influence.  The court did reform the contract to grant the parents a life estate in the house and outbuildings, and to require the sons to provide a suitable house in town for them if they were to both leave the farm. Koehn v. Koehn Bros. Farms, LLC, No. 13-1036, 2014 Iowa App. LEXIS 867 (Iowa Ct. App. Aug. 27, 2014).

A location in northern Idaho was listed as a Superfund site due to mining activity.  A 2003 trial resulted in the plaintiff being found 22 percent liable for the environmental damage.  The plaintiff filed bankruptcy in 2005 in an attempt to deal with over $6 billion in environmental liabilities in the United States.  The parties in this case executed a "mutual release" in 2008 that the defendant, a railroad company, claimed absolved of any additional cleanup cost.  In a separate agreement, the plaintiff settled with a city for $482 million and the bankruptcy court later approved that settlement.  Later, the plaintiff filed a CERCLA contribution action against the defendant to force the defendant to pay a share of the $482 million.  The trial court upheld the 2008 mutual release, but the appellate court found the mutual release to be ambiguous because it could be read to release the defendant from only those claims involving remaining site cleanup costs that the defendant incurred.  Asarco, LLC v. Union Pacific Railroad Company, No. 13-35356, 2014 U.S. App. LEXIS 16614 (9th Cir. Aug. 27, 2014). 


In Announcement 2002-18, the IRS took the position that frequent flyer miles that an are awarded to a taxpayer in exchange for purchases are only taxable if they are converted to cash, or are changed to compensation paid in the form of travel or other promotional benefits (or in situations where such benefits are used for tax avoidance purposes).  In this case, the Tax Court held that the receipt of points that a bank issued to the petitioner which were then redeemed to buy a plane ticket were includible in income.  The court pointed out that the points were a non-cash award for the petitioner opening a bank account with the bank and were really in the nature of interest or money and that Notice 2002-18 didn't apply.  Shankar, et al. v Comr., 143 T.C. No. 5 (2014).

The Internal Revenue Code (Code) taxes the income of a U.S. taxpayer that is earned in a foreign country.  That foreign country also taxes the same income.  However, the Code allows many taxpayers to either deduct the foreign taxes from gross income for U.S. tax purposes or claim a credit capped at the lesser of the proportion of U.S. tax of the taxpayer's taxable income from foreign sources or the taxpayer's entire taxable income as it bears to the taxpayer's taxable income.  In 2013, the U.S. Supreme court held that foreign paid taxes are creditable under I.R.C. Sec. 901.  The court, affirming the Tax Court, has followed the Supreme Court's guidance.  PPL Corporation and Subsidiaries v. Comr., No. 11-1069, 2014 U.S. App. LEXIS 16479 (3d Cir. Aug. 26, 2014).

Plaintiff seed companies filed an action against the County of Kauai, seeking to invalidate and enjoin enforcement of Kauai County Code § 22-22 (2013) (Ordinance 960), relating to pesticides and genetically modified organisms (GMO). Generally, the provision (which was originally set to take effect August 16, 2014, but was delayed until October 1, 2014) required commercial agricultural entities to: issue weekly and annual reports regarding their use of "restricted use" pesticides and their possession of GMOs and to establish pesticide buffer zones between crops to which “restricted use” pesticides were applied and surrounding properties. The plaintiffs argued that the law was preempted by state and federal law and that it imposed burdensome operational restrictions violating their due process and equal protection rights. They also alleged that the buffer zone requirement would result in “takings” without just compensation. On motions for summary judgment, the court ruled that Ordinance 960 was preempted by state law and was, therefore, invalid. The court stated that its decision “in no way diminishes the health and environmental concerns of the people of Kauai… [but] simply recognizes that the State of Hawaii has established a comprehensive framework for addressing the application of restricted use pesticides and the planting of GMO crops, which presently precludes local regulation by the County.” The court did not find that the Ordinance was preempted by federal law. It also did not need to rule on the constitutional claims since state preemption invalidated the law. Syngenta Seeds v. County of Kauai, NO. 14-00014 BMK, 2014 U.S. Dist. LEXIS 117820 (D. Haw. Aug. 23, 2014).

The petitioner had a house built in Wichita, Kansas and moved in to it in November of 2009.  She had previously owned a different home in Wichita, but sold it in 2004 due to job issues and moved in with her daughter.  In 2005, the petitioner resumed employment with her prior employer with her post of duty considered to by in California.  In 2007, the petitioner bought a membership in an R.V. park in California and purchased a fifth-wheel (trailer) that was placed on a lot in the R.V. park.  She lived in the trailer while working in California.  On her 2009 return, the petitioner claimed a first-time homebuyer tax credit and IRS denied the credit due to the petitioner's ownership interest in and use of the trailer.  The IRS also imposed an accuracy-related penalty.  However, the court determined that the trailer did not meet the definition of "principal residence" under I.R.C. Sec. 36(c)(2) because the trailer was not "affixed" to the land under state (CA) law and, thus, did not meet the requirement of being a fixture under local law contained in Treas. Reg. Sec. 1.121-1(b)(1) (which governs for purposes of I.R.C. Sec. 36).  Accordingly, the court allowed the first-time homebuyer tax credit.  Oxford v. Comr., T.C. Sum. Op. 2014-80.

Plaintiffs, the owners of a farming company, entered into an oil and gas lease with an energy company. The lease granted the energy company the right to lease the property for five years and the option to extend the lease for an additional five-year term under the sale lease terms and conditions. Two years into the lease, the energy company assigned its rights under the lease to an oil exploration company. Six years after the initial lease term began, the exploration company filed an affidavit in the county official records stating that the lease had been extended for a second five-year term. The Plaintiff filed an action against both the exploration company and the energy company, alleging claims of slander of title and tortious interference with business relations.  The complaint alleged that the energy company retained an interest in the lease under the terms of the assignment. The court dismissed the action against the energy company, finding that the energy company’s rights in the lease were extinguished through the assignment contract. The court refused to grant relief to the exploration company by tolling the terms of the lease pending final disposition of plaintiff’s claims. The court found that to do so would be premature because the underlying merits of the plaintiff’s claims were not yet resolved. Feisley Farms Family, L.P. v. Hess Ohio Res., LLC, No. 2:14-cv-146, 2014 U.S. Dist. LEXIS 118519 (S.D. Ohio Aug. 25, 2014).


On the same day it upheld a large jury verdict in favor of employees in a similar class action against the same employer, the Eighth Circuit upheld a jury verdict in favor of the meat processor in this case.  The plaintiffs represented a class of employees at a meat-processing facility in Columbus Junction, Iowa. They sued the meat processor for not paying wages due under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., and the Iowa Wage Payment Collection Law (IWPCL), Iowa Code 91A.1 et seq. The plaintiffs alleged that they had been uncompensated for time spent “donning“ and “doffing” safety apparel and walking from where the apparel was located to and from the job site. The district court entered partial summary judgment for the meat processor, ruling that the claims for donning, doffing and walking during the 35-minute lunch period were not compensable. The jury returned a verdict for the processor on the other claims, finding that the plaintiffs did not prove that the activities in question were “integral and indispensable to a principal activity.” On appeal, the Eighth Circuit affirmed, finding that sufficient evidence existed that the disputed activities were not integral and indispensable class-wide. The court also found that the trial court did not err in allowing the jury to hear evidence supporting the processor's good faith defense. Summary judgment was properly granted as to the mealtime claims because the evidence showed that the mealtime period was primarily for the employees’ benefit, not for the benefit of the employer. Donning and doffing during the 35-minute meal period was thus not compensable.  Guyton v. Tyson Foods, No. 13-2036 , 2014 U.S. App. LEXIS 16278 (8th Cir. Iowa Aug. 25, 2014).

The plaintiff was a farming company that purchased 300 acres from an owner who had contracted with a private company to build grass waterways. The former owner received a federal subsidy from the Natural Resources Conservation Service for building the waterways. He did not, however, pay the contractor for building the waterways because he contended that there was a lip or ridge along the edge of the grass waterways that prevented proper draining. The contractor sued the former owner in state court, and the former owner filed counterclaims. The state court entered summary judgment against the former owner and denied the farming company’s motion to intervene (the farming company had by that time purchased the property). The farming company then filed its action in federal court alleging that the grass waterways were improperly designed and built and that they did not conform to federal law. All defendants moved to dismiss the suit on a variety of grounds, including lack of federal subject-matter jurisdiction. The district court concluded that the suit sounded in state tort law with no federal subject-matter jurisdiction and granted the motions dismissing the case. On appeal, the Sixth Circuit agreed, finding that the farming company could point to no statute providing an express or implied right of action for its suit. Stew Farm, Ltd. v. Natural Res. Conservation Serv., No. 13-4111, 2014 U.S. App. LEXIS 16274 (6th Cir. Ohio August 25, 2014). 

The plaintiffs represented a class of employees at a meat-processing facility in Storm Lake, Iowa. They sued the meat processor for not paying wages due under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., and the Iowa Wage Payment Collection Law (IWPCL), Iowa Code 91A.1 et seq. The workers alleged that they were not paid for time they spent putting on and taking off personal protective equipment and clothing before production, before and after lunch, and at the end of the day. The employees also sought compensation for transporting the clothing items from their lockers to the production floor. Because this time resulting in hours that exceeded 40 hours per week, the plaintiffs sought overtime compensation. The jury entered a verdict in favor of the class, awarding damages (including liquidated damages) in the amount of $5,785,757.40. On appeal, the Eighth Circuit affirmed, ruling that the district court did not abuse its discretion in certifying the class because individual issues did not predominate over class issues. The court also found that the plaintiffs showed uncompensated overtime work by applying average donning, doffing, and walking times to employee timesheets. This evidence was "susceptible to the reasonable inference" that the jury's verdict was correct. Judge Beam dissented, arguing that the class should not have been certified and that the state law claims should not have been joined with the federal claims. Bouaphakeo v. Tyson Foods Inc., No. 12-3753, 2014 U.S. App. LEXIS 16283 (8th Cir. Iowa Aug. 25, 2014).

In this case, the petitioner had various real estate activities in addition to his day job.  He produced spreadsheets of his time spent in the real estate activities involving single-family homes, but did not produce any contemporaneous log or calendar.  The spreadsheets were created after-the-fact.  The court also determined that the spreadsheet data was excessive, duplicative and counterfactual.  The court determined that the petitioner was not a real estate professional and that losses associated with the real estate activities were not deductible.  The court also imposed a 20  percent accuracy-related penalty.  Graham v. Comr., T.C. Sum. Op. 2014-79.

The petitioner invested in three partnerships that were created to provide investors with charitable deductions from investments in cemetery plots that were held for over one year and then contributed to charity.  The partnerships failed to hold the plots for longer than a year, but reported that the investors could claim charitable contribution deductions for more than the appraised values, as opposed to basis.  The partnerships also had no income or expense for the tax years at issue other than the charitable deductions.  The petitioner claimed a loss on his investments based on the partnership interests being worthless at year-end.  IRS denied the losses on the basis that the petitioner's investment lacked profit intent.  The court agreed with the IRS and that profit intent was clearly lacking.  The partnerships, the court noted, were not created to realize any income or make a profit.  Just because the Congress allows a deduction for a charitable contribution does not mean that a loss incurred in generating a charitable deduction should be allowed.  The charitable contributions were allowed.  McElroy v. Comr., T.C. Memo. 2014-163.

The petitioner founded a company of which he turned over day-to-day management to his son and moved to Florida (from company headquarters in Louisiana).  When the business started to fail, he visited the business more often and increased his efforts on research and development, even inventing a new products and securing a new line of credit.  The business carried in excess of a $3 million loss from 2008 to a prior year and received a refund of approximately $1 million.  IRS denied the loss on audit on the basis that the petitioner was passive.  The petitioner claimed that he spent more than 100 hours in the business during the tax year at issue and that his involvement for those hours was regular, continuous and substantial.  The court agreed with the petitioner, based on all of the facts and circumstances, that he was materially participating for purposes of the passive loss rules.  The court noted that.  The court did not require the petitioner to produce a log book or calendar recording his participation.  Wade v. Comr., T.C. Memo. 2014-169.

Here, the petitioner was a merchant marine that spent much time away from home and rented his home to a friend.  The rental amount was below fair market rental value, and the friend only paid for one month.  The petitioner did not attempt to collect the unpaid rent amounts.  The petitioner claimed a deduction for rental losses which IRS denied on the basis that the petitioner could not prove that he rented the home at market value and made no attempt to collect unpaid rent.  The court upheld the IRS position, noting additionally that the petitioner could not establish his time spent away from home and not at sea.  Hunter v. Comr., T.C. Memo. 2014-164

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