Case Summaries 07/2010

(stock sale constituted sale rather than loan or securities lending transaction; taxpayer transferred both burdens and benefits of stock ownership; no genuine indebtedness, no obligation to repay, transaction not treated as loan and analogous to Rev. Rul. 57-451; accuracy-related penalty applied).


(payment from former employer not related to physical injury or sickness and, thus, not excludible from gross income). 


(passive activity loss from rental real estate activities not deductible; taxpayer did not properly account for hours spent in the activities and no grouping election made - aggregation of rental properties on Schedule E is not a proper grouping election).


(defendant's denial of concealed weapon permit to plaintiff was in retaliation for plaintiff's exercise of First Amendment rights and was unconstitutional; defendant's actions so egregious that court ordered defendant to take court-approved course on the Constitution; defendant (county sheriff) denied permit because he believed the plaintiff to be strange and untrustworthy; permit ordered to be issued). 


(defendants decision to reintroduce nonessential experimental population of endangered falcons into current range of existing falcon population before completing EIS permissible). 


(real estate broker sought recovery of one-half of commission paid to another broker who represented purchaser in sale of three pieces of ag property; court upheld trial court determination that no implied agreement existed).


(taxpayer, C corporation, that provides free sperm to clients seeking to become pregnant, does not qualify for I.R.C. Sec. 501(c)(3) status; taxpayer does not promote health for benefit of community and taxpayer not operated exclusively for exempt purposes). 


(income received by non-resident for teaching in the U.S. is includible in income because, under agreement, petitioner expected to remain in U.S. for more than two years; applicable tax convention only exempts income for teachers who come to the U.S. for a period expected to be two years or less). 


(plaintiff, owner of patented strain of herbicide-resistant soybeans, cannot use European patent on such soybeans to block Dutch companies from importing soy meal from Argentina that is used for animal feed; while soy meal contains residue of plaintiff's patented gene, it is "dead material" that is no longer being used (post-harvest) for patented purpose of resisting pesticides; DNA that simply exists is not patentable under European Union biotech directive and for a patent to be enforceable, the genetic information must be "performing the function described in the patent"; plaintiff cannot collect royalties from Dutch importers of the soy meal; Court's opinion consistent with court advisor's opinion issued on Mar. 9, 2010).


(rodeo events held on plaintiff's land were not bona fide farm activities and, thus, were subject to county's land use regulations and could only be conducted via permit conditions). 


(CPA disbarred from practice before IRS for failure to exercise due diligence in preparing tax returns for corporation and married couple as shareholders; CPA violated Sec. 10.22 of Circular 230 for failing to determine correctness of data client supplied to him in preparing returns at issue; CPA failed to disclose potential penalties and possibility to avoid them by disclosure in accordance with Sec. 10.34(b) of Circular 230; CPA had also failed to file his personal tax returns for five consecutive years). 


(see, e.g., Pigford, et al. v. Glickman, 206 F.3d 1212 (D. D.C. 2000)(USDA Secretary Vilsack fires and then offers to rehire Shirley Sherrod (immediate past Georgia Director of Rural Development for USDA) whose land trust that was established in the 1960s was the largest recipient of thePigford Farms settlement (scheduled to receive $13 million plus an unspecified amount of debt forgiveness) and scheduled to personally receive (along with spouse) over $300,000 in the settlement of claims of discrimination by USDA; Sherrod was appointed to the Georgia position in August of 2009 after settlement reached with USDA in the Pigford litigation which resulted in claims totaling over $1.15 billion made by more black farmers than were reported to have been operating at the time the allegations of discrimination arose (probably at least in part because class includes persons who "attempted to farm" and did not receive USDA assistance)).  Click here to listen to Roger McEowen's interview by K-State Research and Extension radio where he covered the beneath-the-surface legal issues associated with this case.


(IRS announcement that it has issued regulations detailing the administration of the 10% excise tax on indoor tanning services that becomes effective July 1, 2010). 


(I.R.C. §121 exclusion of gain on sale of principal residence not available where taxpayer did not reside in home for requisite two years out of five years immediately preceding sale; taxpayer wanted to remodel home, but zoning laws prevented remodeling so taxpayer tore home down and built a new home; before moving in to new home, taxpayer sold home at substantial gain; gain not excludible under I.R.C. §121; divided Tax Court held that rebuilt home on same location as old home does not simply replace the old home for exclusion purposes; court did not address question of what outcome would be if home merely remodeled and then sold before occupancy and use test satisfied or adjoining lot purchased and then entire property (including lot with home) sold). 


(equipment that uses solar energy to heat a swimming pool is not qualified energy property as defined by Sec. 48(a)(3)(A); as a result it does not qualify as 5-year MACRS property for purposes of I.R.C. Sec. 168).


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