Annotations 09/2009

($500,000 payment petitioner received in settlement of whistleblower retaliation claims against county government includible in gross income; petitioner failed to show that the county intended to compensate petitioner for personal physical injury or personal physical sickness).

(legal expenses arising from taxpayer's divorce not deductible as ordinary and necessary expenses, but a portion of the expenses related to the defense of interests in taxpayer's ex-wife's bankruptcy estate are deductible; no accuracy related penalties applied because matter so complex).

(petitioner's niece and nephew determined to be qualifying children for EITC purposes for one year because they shared the same place of abode with petitioner, but there was conflicting evidence concerning whether they shared the same place of abode in other years).

(taxpayer's proposed disclaimer of right to receive trust distribution upon termination of trust is not subject to gift tax; disclaimer was qualified under I.R.C. Sec. 2518 and did not constitute an acceptance of benefits).

(plaintiffs, contract poultry growers, failed to state a claim for promissory estoppel, fraud, and intentional infliction of emotional distress; non-TX plaintiffs failed to establish entitlement to invoke TX law and have, therefore, failed to state a claim under the TX Deceptive Trade Practices Act, but TX plaintiffs did state such claim; all plaintiffs have stated a claim under the Packers and Stockyards Act for terminating growers who would not upgrade their chicken houses to include cool-cell technology despite the fact that the grower contracts did not require such upgrades; defendant's motion to dismiss granted in part and denied in part).

(defendant, Bureau of Land Management, violated National Environmental Policy Act by not considering the environmental consequences of its approval of a land exchange that would result in a mining company obtaining fee simple ownership of land on which mining activities would not be subject to the Mining Law Act of 1872).

(in case of first impression, court upheld deficiency determination against decedent's estate in finding that decedent and surviving spouse did not utilize Belgian community property regime after being exiled from Uganda; thus, entire amount of stock held only in his name is includable in his gross estate; decedent was UK citizen, but was born and lived in Uganda where he married and lived until exiled in 1972; the couple moved to Belgium, where they lived until the decedent's death in 2002; the couple did not change their marital property to a community property regime, thus 100% of decedent's stock was included in decedent's estate; Sec. 6651(a)(1) penalty applied for estate's failure to timely file return). 

(fenceline, adverse possession case; encroaching fence posts must be relocated to boundary line, but trial court judgment limiting relocation to the fence posts which encroached six inches or more reversed).

(charitable contribution deduction denied for contribution of a conservation easement restricting development of 10,000 square feet of unused development rights over a certified historic structure; easement does not preserve a "historically important land area" or a "certified historic structure" within the meaning of I.R.C. Sec. 170(h)(4)(A)(iv)).

 ($109,959 in "fees" paid to prostitutes in 2004 and 2005 by 78-year old petitioner who had been a tax attorney for over 40 years not deductible as a medical expense and neither are amounts paid for medical texts and pornographic material; purchases not for treatment of medical condition, but were personal items).

(relates to the exclusion from gross income for amounts received on account of personal physical injuries or physical sickness that reflect amendments under the Small Business Job Protection Act of 1996; deleted is the requirement that to qualify for exclusion from gross income, damages received from a legal suit, action, or settlement agreement must be based upon “tort or tort type rights;” taxpayers affected are those receiving damages on account of personal physical injuries or physical sickness and taxpayers paying such damages). 

(taxpayer's proposed disclaimer of right to receive trust distribution upon termination of trust is not subject to gift tax; disclaimer was qualified under I.R.C. Sec. 2518 and did not constitute an acceptance of benefits).

(question of whether decedent's transfer of assets from marital fund to family limited partnership constituted a completed transfer for gift tax purposes was directly at issue in the estate tax case and in the gift tax case; decedent did not complete transfer as claimed - because attempted transfer to FLP was not completed and did not constitute a gift, a gift tax liability attributable to the transfer did not arise, and no gift tax deduction allowed; estate tax deficiency upheld; decision affirms T.C. Memo. 2007-370).

(certain software features on defendant's Outlook, Money and Windows Mobile infringed on plaintiff's patent, but $358 million damage award not supported by evidence; case remanded to district court on damages issue).

(defendant's dog kenneling business located in federally-designated Wild and Scenic River corridor is a permissible use under easement permitting "livestock" businesses as an acceptable use; dogs considered livestock when kenneled for profit - use synonymous with pasturing horses for profit). 

(debtor breached fiduciary duty under PACA by failing to preserve trust assets for the benefit of plaintiffs until payment received in full; while trust imposed under PACA is a technical trust, absent evidence in the record of debtor's actual knowledge of PACA duties, material issue of fact existed which prevented court from concluding on summary judgment that debtor's failure to hold sale proceeds in trust for plaintiffs constituted defalcation).

(plaintiff presented sufficient evidence on its claims that NGFA arbitration clause contained in grain contract held to be procedurally and substantively unconscionable to overcome defendant’s motion for summary judgment). 

(affirmance of district court decision dismissing plaintiff's complaint under Administrative Procedures Act claiming that EPA violated the Clean Water Act by approving Iowa's 2004 list of waters that included waters that do not meet certain water quality standards).

(defendant failed to prove by clear and convincing evidence that driveway easement had been extinguished, and plaintiff proved that defendant substantially interfered with plaintiff's use of the easement).

(plaintiff lacks standing to seek review of EPA final ruling which imposed stricter air quality controls on emitting sources in and around tribal lands).

(IRS final regulations adopted providing rules for determining whether a donor may petition the Tax Court for declaratory judgments on gift valuations and providing guidance on the definition of exhaustion of administrative remedies; to be eligible for declaratory judgment procedure of I.R.C. Sec. 7477, Tax Court must determine that donor exhausted all administrative remedies (i.e., appeals conference is timely requested and donor fully participates in appeals conference or if request is not granted)).

(taxpayer did not engage in horse activity with intent to make a profit - over $500,000 of losses not fully deductible; addition to tax for failure to timely file return applied as did 20 percent penalty for substantial underpayment of tax; taxpayer's spouse entitled to spousal relief from joint and several liability with respect to understatements of tax resulting from disallowance of taxpayer's ER physician business expense deductions, but is not entitled to relief from tax deficiencies arising from horse activity). 

(eight-year period for expiration of agricultural-preserve status under Minn. Stat. Sec. 473H.08, subd. 2 commences when the landowner delivers the form provided by the Commissioner of Agriculture to the relevant authority under the statute).

(under Missouri law, creditor (Ford Motor Co.) held a purchase-money security interest in debtor's negative equity in debtor's trade-in vehicle, and debt attributable to cash-sale price of debtor's new vehicle was secured; entire debt was secured).

(plaintiff, a veterinarian, was injured while performing veterinary services for defendant and a livestock auction; defendant, as plaintiff's direct employer was plaintiff's "immediate employer" and is primarily liable to pay plaintiff's worker's compensation benefits and defendant not entitled to indemnity from livestock auction). 

(court affirmed Tax Court's determination that plaintiff's exchange of properties does not qualify for deferral of gain under I.R.C. Sec. 1031; transactions were structured to avoid the related party restriction of I.R.C. Sec. 1031(f) via a series of transactions which also were designed to allow related parties to receive nonrecognition treatment while cashing out of investments using basis-shifting provisions of I.R.C. Sec. 1031; but a principal purpose of the overall transaction was tax avoidance and, thus, I.R.C. Sec. 1031(f)(4) violated). 

(petitioners had $8,768 of discharge of indebtedness income arising from settlement of credit card debt; there was no dispute as to the amount or enforceability of the debt; petitioners may not deduct fee paid to company that negotiated settlement with credit card company).

(qualified small business owner does not include in income any interest paid by the Small Business Administration to the lender and has no interest deduction for the payment).

(homosexual's failure to include employee discounts received for a domestic partner constituted "willful blindness" for failure to investigate the law; federal law (Defense of Marriage Act) is unequivocal with respect to its definition of a spouse; underreporting penalties applicable for taking a position on a return that is contrary to substantial authority and without a reasonable basis for such position).

(plaintiff suffered severe brain injury from bicycle crash caused by dogs owned by defendant's tenant that ran from the leased property onto public highway where plaintiff was bicycling; trial court judgment for defendant affirmed - defendant did not owe a duty to the plaintiff; plaintiff failed to raise nuisance claim at trial and precluded from raising it on appeal).

(Honda Odyssey minivan, with accessories (as purchased) weighed 6,005 pounds and eligible for I.R.C. Sec. 179 depreciation, and also not a "passenger vehicle" under I.R.C. Sec. 280F which would trigger the strict substantiation and mileage log rules for listed property; but, even though vehicle used 100 percent in taxpayers' real estate business, taxpayer failed to substantiate business use in accordance with Treas. Reg. Sec. 1.274-5T(c)(2)(i)), thus I.R.C. Sec. 179 depreciation not available).

(defendant's privilege tax on whitewater rafting preempted by federal Maritime Transportation Security Act; rafting activities occur on navigable waterway subject to jurisdiction of United States).

(married couple liable for tax deficiencies for two tax years; irrevocable trust created by one spouse was a sham that should be disregarded for tax purposes; trust was termed a "pure" trust and promoter was Ronald Ottaviano).

(IRS guidance provided concerning how a liquid qualifies as renewable diesel for purposes of I.R.C. Sec. 40A biodiesel fuel credit; liquid fuel must meet relevant American Society of Testing and Materials standards before liquid is blended with petroleum-based diesel fuel).

(taxpayer's additional capital contributions to business non-deductible under I.R.C. Sec. 1244 because increase in basis of I.R.C. Sec. 1244 stock after original issuance, do not qualify for ordinary loss treatment). 

(case involves suit over alleged misrepresentations in connection with cattle purchases made from livestock auction in Kentucky; case transferred to Eastern District of Kentucky - defendants had insufficient contacts with Oklahoma to be subject to jurisdiction in Oklahoma).

(case involves plaintiff's action against defendant for alleged nonpayment of debts owed for purchase of farm supplies under credit agreement; default judgment not granted and case proceeded to merits of plaintiff's motion for summary judgment, which was denied - dispute remained over validity of 2007 credit agreement, differences present over affidavits of plaintiff's credit manager, and only limited discovery had taken place).

(final partnership administrative adjustment untimely because it was issued after the three-year statute of limitations expired; basis overstatement is not an omission from gross income and does not trigger the six-year statute of limitations (follows Salman Ranch and Beard).

(defendant, tax protestor and promoter of fraudulent trusts, convicted of tax fraud and sentenced to 66 months in prison; certificate of appealabilitty denied - defendant's arguments either resolved on prior appeal or meritless).

(plaintiff failed to establish that soybean farming operation conducted for profit; activity appeared to be attempt to shelter income from other sources; lack of business records, activity not conducted in manner substantially similar to legitimate farming operations, no abandonment of unprofitable activities or adoption of new techniques, lack of evidence of substantial time put into soybean farming activity, no evidence of asset appreciation as proof of profit motive, no evidence of success in similar activities, history of income or loss not helpful to plaintiff's position, plaintiff had six-figure income from non-farm passive sources, no evidence of expenses claimed, but plaintiff did have knowledge and expertise in soybean farming; but amount previously abated by IRS was done with knowledge).

(effective Sept. 1, 2009, Iowa and its political subdivision's industrial machinery purchases in Nebraska are subject to sales and use tax because the Iowa Department of Revenue has taken the position that the two states' reciprocity laws are too dissimilar to provide an exemption and that the statutes must be virtually identical in order for reciprocity to exist between Iowa and Nebraska).