Annotations 06/2009

(court upholds jury determination that defendant violated the state law rule of reasonable use of surface water by constructing berm blocking flow of water which caused the water to back-up on the plaintiff; case remanded for new trial on plaintiff's claim for punitive damages because evidence of defendant's "spiteful" conduct present).

(settlement proceeds received from mortgage company over dispute concerning foreclosure of petitioner's home includible in petitioner's gross income because it was not compensation for physical injury or illness, but portion of settlement used to pay attorney fees is deductible; petitioner's spouse did not satisfy requirements for innocent spouse relief; spouse failed to testify as to why she had no reason to know of the understatement on the return).

(landowners not holding rights to appurtenant water have standing to object to a temporary easement on their property, but do not have standing to object to condemnation of water rights which they do not possess; question of whether defendant can condemn water rights over plaintiff's property not ripe for decision because plaintiff does not hold water rights and current eminent domain proceeding does not seek a permanent easement for point of diversion).

(court upheld IRS's disallowance of petitioner's medical expense, charitable contribution and miscellaneous itemized deductions for failure to provide substantiation for expenses beyond what IRS allowed).

(divorced taxpayer ordered to vacate home more than three years ago not eligible to claim first-time homebuyer credit on purchase of new home because ownership interest retained in home during three year period before purchase of new home).

(I.R.C. Sec. 6166 election not available to extend time for payment of generation-skipping transfer tax imposed on death of child as a result of the termination of the child's interest in the trust; I.R.C. Sec. 6166 election applies only to direct skips resulting at the death of an individual; thus, generation-skipping tax imposed on taxable termination is not eligible to be paid in installments).

(payments that a utility company receives as reimbursement for costs incurred in relocation of transmission facilities to accommodate municipal development projects are not, consistent with I.R.S. Notice 87-82, 1987-2 C.B. 389, non-shareholder contributions to capital under I.R.C. Sec. 118(a); amounts includible in income).

(grants contained in Sec. 1603 of ARRA of 2009 are not tax credits and receipt of grant is not taxable income to recipient; recovery by Treasury of any overpayment (or recapture) to be handled as a debt owed to the government requiring the Justice Department to sue to recover if not voluntarily repaid to Treasury).

(case involves sale of farmland subject to multiple CRP contracts; no written document provided that buyer would assume existing CRP contracts, but seller informed FSA of sale and that buyer intended to assume CRP contracts and that FSA should direct all subsequent correspondence to buyer; FSA informed seller that he was required to refund all annual rental payments plus interest, all cost-share payments plus interest and liquidated damages because buyer did not become successor to CRP contracts within 60 days as required by regulation; NAD determined that (1) verbal agreement between buyer and seller for buyer's succession to CRP contracts should have been reduced to writing; (2) buyer did not obtain FSA approval to succeed to or modify the contracts; (3) while FSA allowed buyer to cancel CRP contract, cancellation did not constitute succeeding to remaining CRP contracts; (4) allowing buyer to cancel one CRP contract did not harm seller because buyer required liquidated damages; Director Review upheld and seller appealed; court granted summary judgment for government on seller's equitable estoppel, unclean hands, declaratory judgment, intentional interference with contractual relations, intentional breach of contract, negligence and plaintiff's claim for attorney fees).

(plaintiff sought compensation for time spent donning and doffing protective gear as well as showering and walking to and from workstations after donning and before doffing; Sec. 203(o) of FLSA exempts compensation for employee time spent changing clothes if such exemption is contained in collective bargaining agreement; while lower courts divided on definition of "clothes" and Supreme Court did not address the issue in IBP v. Alvarez, 546 U.S. 21 (2005), court reasoned that "clothes" includes all garments and accessories worn by a person at any one time; thus flame retardant jackets and pants, glasses, boots, snoods and hard hats are "clothes" under the FLSA).  

(court upholds informal rule contained in Medicaid Manual Sec. 3259.7 issued by HHS Center for Medicare and Medicaid Services providing that income placed in a Special Needs Trust be considered in determining the extent of benefits to which a Medicaid-eligible person is entitled; rule does not conflict with 42 U.S.C. Sec. 1396(p)).

(farmer killed when combine grain header manufactured by defendant malfunctioned and crushed farmer while he was working on the header; jury question presented on farmer's assumption of risk, expert testimony on defective design admissible, jury question presented on proximate cause and reasonable foreseeability of farmer's actions, but defendant had no post-sale duty to warn). 

(Iowa's one-time fee for new vehicle registrations is a sales tax (rather than an excise tax) that is deductible under I.R.C. Sec. 164).

(plaintiff had right, under state drainage code, to enter onto defendant's property to replace underground drainage tile and repair covered drain tile system already in place; no extension of existing drainage tile involved). 

(plaintiff had right, under state drainage code, to enter onto defendant's property to replace underground drainage tile and repair covered drain tile system already in place; no extension of existing drainage tile involved).  

(lender's perfected security interest in debtor's grain "inventory, accounts and proceeds thereof" took priority over ownership claims of grain purchaser who had prepaid for certain quantity of grain; no documents of title showing purchaser's ownership of grain and any course of dealing ineffective to alter terms of delivery contract for future goods; no showing that debtor had sufficient grain at time of prepayment to satisfy contract requirements and lender's security interest attached to grain when grain acquired by debtor and before delivery to purchaser).   

(plaintiffs, almond growers and retailers, challenged USDA regulation requiring almond handlers to treat raw almonds in order to reduce risk of Salmonella contamination; USDA regulation upheld and plaintiffs required to exhaust administrative remedies).

(plaintiff, homeowner within 1/3 of mile from confined animal feeding operation failed to establish that she was aggrieved party under state law such that she could bring suit for alleged loss of value of home). 

(defendants, horse owners, failed to provide sufficient evidence to show that discharge from plaintiff's sewage lagoon associated with plaintiff's dairy operation caused death of defendants' horses). 

(taxpayer cannot qualify for first-time homebuyer credit on purchase of subsequent home if either taxpayer or taxpayer's spouse used mobile home as their principal residence within the three year period ending on the date of purchase of a new principal residence).

(taxpayer entitled to first-time homebuyer credit on home purchased from spouse's parents; taxpayer not related party to spouse's parents).

(clear language of crop insurance policies provide for binding arbitration that is subject to judicial review; court allowed plaintiff to amend complaint to change breach of contract claim to a claim requesting review of final arbitration award in defendant's favor).

(transfer of testamentary trust assets to LLC in order to facilitate trust's eventual termination and distribution of assets in form of equal ownership interests in LLC to 79 current remainder beneficiaries not inconsistent with trust terms; trustee would continue to manage LLC under trust's terms until termination; settlor's intent that 9,500 acres of farmland be preserved during children's lifetimes with land then distributed equally to grandchildren and great-grandchildren would be preserved by transfer of trust assets to LLC). 

(trial court determination that defendant guilty of promoting or staging animal fighting contest affirmed; substantial basis existed supporting issuance of search warrant).

(right of first refusal is an interest in real property that is subject to the statute of frauds; right of first refusal involved in real estate transaction did not contain adequate legal description - plaintiff not entitled to summary judgment). 

(60-day extension granted to trust to make election under I.R.C. Sec. 642(c) to claim a charitable deduction in year 1 for amount distributed to charity in year 2).

(debtors who exempted a motor vehicle under state (Iowa) exemption statute are entitled to prove that vehicle is tool of the trade under 11 U.S.C. §522(f)(1)(B)(ii) in attempt to avoid nonpurchase-money security interest in the vehicle; bankruptcy court's determination that debtors could not exempt truck as tool of trade under state law and could not avoid lien under Bankruptcy Code lien avoidance provisions in error).

(plaintiff's claim for misuse of easement over its property by defendant properly dismissed by trial court; burden on servient estate by increased number of easement users was merely de minimis).

(taxpayer's charter fishing activity not engaged in for profit; taxpayer only allowed to deduct expenses to extent of income received from charter fishing activity).

(taxpayer not entitled to defer reporting crop insurance proceeds due to lack of business practice of deferring more than 50 percent of crop; Rev. Rul 74-145 upheld as reasonable; affirming 130 T.C. 70 (2008)).

(taxpayers who obtain benefits and burdens of ownership of new home can claim first-time homebuyer credit even if seller still retains legal title; involved house purchased on contract for deed). 

(plaintiff's nonuse of water right not excused and right properly forfeited for nonuse).

(state regulation concerning the standard of care required of warehousemen in the operation of federally licensed warehouses is preempted by the United States Warehouse Act (USWA); defendant fulfilled its federal statutory duty with respect to information recorded on warehouse receipt; USWA does not impose duty on warehouseman to inspect or warrant the quality of the ag goods stored).

(because the main purpose of a gratuitous transfer of a subsidiary company's assets to family partnerships in exchange for a majority interest was not economic benefit, there was no constructive dividend that would result in taxable gain; in addition there was no benefit to the shareholder trusts).

(district court applied incorrect definition for determining what research qualified for the I.R.C. Sec. 41 credit; Treas. Reg. Sec. 1.41-4 does not require qualifying research to go beyond the current state of knowledge in the field; appellate court applied the rule established in Cohan v. Commissionerand found that the taxpayer shouldn't be penalized for not keeping records of hours worked on a research project and that the court should instead rely on testimony to determine a fair estimate of what amount of credit is allowable; appellate court's opinion is consistent with Tax Court's opinion in Union Carbide Corp., et al. v. Comr., T.C. Memo. 2009-50 in which the taxpayer was allowed to use estimates to determine its qualified expenses for the I.R.C. Sec. 41 credit).

(gain from sale of residence qualifies for exclusion from income under I.R.C. Sec. 121; taxpayer owned and used the property for at least for two years or more during the five-year period ending on date of sale).

(plaintiff's nonuse of water right not excused and right properly forfeited for nonuse). 

(genuine issue of material fact existed concerning whether use of "&" instead of "and" in debtor's name was seriously misleading under UCC Revised Article 9; lack of evidence in record as to what constituted standard search logic for Nebraska Secretary of State's UCC records and how two searchers conducting the same search could come up with different and incomplete results).

(contract for compensation of field work performed before sale of farm upheld and buyer determined to be in breach for failure to negotiate compensation as required by contract terms; genuine issue of material fact remains as to amount of compensation required; but, defendant did not commit conversion of plaintiff's irrigation tubes which plaintiff left on the premises after the contractually-required date for removing them).

(plaintiff suffered injury from fall off horse due to slipping saddle, but failed to provide sufficient evidence to overcome defendant's motion for summary judgment under state Equine Activities Act - defendant not shown to either know or should have known that tack faulty; but, skittish behavior of horse immediately preceding plaintiff's ride sufficient to present jury question as to whether horse's behavior put defendant on notice that plaintiff, a beginning rider, had sufficient ability to ride the horse).

(petitioner not entitled to exclude discharge of indebtedness income because of failure to prove insolvency at time debt discharged).

(petitioner not entitled to exclude discharge of indebtedness income stemming from unpaid car loan payments; failed to prove that outstanding debt was unenforceable under state law or that he was insolvent at time of discharge).

(bankruptcy court did not err in concluding that debt in question had been incurred as a result of actual fraud and, therefore, was not dischargeable under 11 U.S.C. Sec. 523(a)(2)(A); 11 U.S.C. Sec. 523 (a)(2)(A) does not require the creditor to prove that its reliance on debtor's misrepresentation was reasonable, but only that such reliance was justifiable - which does not require an investigation on the creditor's part). 

(married couple sole owners of C corporation that employed several workers withheld federal income taxes and FICA taxes and issued forms W-2 to employees reflecting that the taxes had been withheld, but corporation did not pay any of the taxes or file forms 940 or 941 electing instead to use corporate funds to pay for the owners' personal expenses; owners determined to be aware of filing responsibilities, refused to cooperate with IRS and appear for scheduled appointments, used the withheld taxes for personal benefit and claimed income tax withholding despite knowingly never paying the taxes; corporation subject to penalties under IRS Sec. 6651 for fraudulent failure to file and failure to file quarterly returns and pay the withholding tax, Sec. 6656 for failure to deposit employment taxes, and Sec. 6672 for failure to collect and pay over FICA taxes).

(thermal oxidizer provided to debtor under an "Agreement"; "Agreement" determined to be true lease that bankruptcy trustee could assume or reject under 11 U.S.C. Sec. 365). 

(concerns tax issues involved in proposed corporate reorganization and whether business purpose requirement of Treas. Reg. Sec. 1.355-2(b) is satisfied).

(milk sold as "Organic" alleged to not actually be organic because dairy allegedly failed to satisfy federal production requirements and plaintiff claimed damages related to paying higher price for "Organic" milk; allegations preempted because dairy in compliance with federal law).  

("black liquor" (byproduct of paper milling process in kraft mills) is a liquid fuel derived from biomass and, when combined with diesel fuel, creates an alternative fuel mixture for purposes of the alternative fuel credit under I.R.C. Sec. 6425(e) and may also qualify for the cellulosic biofuel producer credit under I.R.C. Sec. 40(b)(6), but not both). Download Memo

(court lacked subject matter jurisdiction over case and granted plaintiff's motion to remand case to state court; at issue was alleged violations of state Unfair Trade Practices Act and Uniform Commercial Code arising from defendant's refusal to pass along to plaintiff (gasoline retailer) the 5.1 cent per gallon tax credit applicable to gasoline blended with 10 percent alcohol; case did not involve any question concerning interpretation of federal tax statute).

(defendant's dogs determined to be "dangerous dogs" in accordance with state law; dogs ordered to be neutered and microchipped and confined at all times in the interior of defendant's home or in secured pen, but cannot be destroyed because of lack of proof that a person sustained "serious personal injury" as required by statute).