Case Summaries 08/2010

(taxpayer cannot change NOL carryback period once an election has been made; thus, once election is made to carryback NOL to 3, 4 or 5 years, election is irrevocable and can't be changed once the election is made). 

(attorney fees awarded in accordance with Equal Access to Justice Act; all conditions satisfied). 

(anaerobic digestion systems that are purchased for use on dairy farms are exempt from sales and use tax; such property constitutes equipment that is used directly and exclusively in agricultural production activities). 

(Administration proposes allowing all of the 2001 and 2003 tax cuts applicable to taxpayers with annual incomes above $200,000 ($250,000 MFJ) to expire, which is estimated as a $629 billion tax increase between 2011 and 2020; proposal also includes limiting tax rate applicable for itemized deductions for the same taxpayers, which would increase taxes by an additional $292 billion). 

(cash surrender value of stock in life insurance company's flexible premium variable universal life insurance contract is contract's cash value, and additional rider has no impact on calculation of net single premium under I.R.C. Sec. 7702).

(plaintiff, food activist group, appeals from trial court's grant of summary judgment for defendant on basis that federal law pre-empted California Proposition 65 warnings that grilled chicken contains known carcinogens; trial court decision reversed).

(land properly valued as agricultural for property tax purposes; land contained residence, hay barn and sheep barn; property owners provided evidence showing income received from farming). 

(10.55-acre tract improved with residence and barn was agricultural in nature for property tax purposes; alfalfa produced on 6 acres and 2 acres used for grazing horses; owner participated in federal farm programs and filed Schedule F). 

(increases corporate estimated tax payment in third quarter of 2015 for large corporations).

(clarifies events that trigger acceleration of COD income deferral and what "issued in connection with a trade or business" means).

(plaintiffs allege various violations of MSWPA, but facts revealed that plaintiffs' employment was neither seasonal nor temporary in nature, thus no violation of MSWPA found; defendant's motion for summary adjudication granted). 

(estate's valuation involving built-in, long-term capital gains discount for estate's interest in corporation sustained; court determined discount supported by evidence and calculation of IRS expert unconvincing). 

(disclaimers rescinded so as to avoid gift tax; disclaimers involved individual's undivided interest in property received from parent's through QPRTs; execution of disclaimers was mistake and was not timely made; government's counterclaim for gift tax denied). 

(married couple executed mutual wills that gave entire estate to survivor and then on survivor's death, one-half to the husband's children and one-half to the wife's children; wills also stated to be irrevocable on death of first of them to die; husband died and wife remarried and executed new will leaving her property to new husband if he survived and to her children and his children equally if she died first; wife sold first marital home after first husband's death (which they had owned in joint tenancy) and put sale proceeds in three separate CDs held in joint tenancy with her second husband; children of first husband sued to impose constructive trust on property; trial court ruled for wife and appellate court determined that because will did not restrict surviving spouse's use of property received from deceased first husband, children had no interest in spouse's property until she died; but, creation of jointly held CDs breached contract by removing them from her estate; case remanded so court could order wife to eliminate second husband's interest in CDs and enjoin wife from doing anything inconsistent with children's interest under contractual will (excluding expenses for her support)). 

(plaintiffs, blueberry farmers, claimed that defendant's pesticide caused injury to their blueberry plants and sued for negligent misrepresentation based on defendant's marketing brochure; court finds that because marketing brochure did not qualify as "labeling" under FIFRA, plaintiffs' claim was not preempted; no evidence that plaintiffs relied on oral representations; plaintiffs failure-to-warn claim would not have resulted in labeling requirement in addition to or different from what FIFRA requires so claim not preempted; genuine issue of material fact remained as to whether risk of harm to plaintiffs' crops was foreseeable and whether the risk could have been reduced or avoided by another reasonable design). 

(Tax Court's valuation of plaintiff's charitable contribution for donation of historic preservation facade easement and imposition of accuracy-related penalty vacated; no dispute that contribution qualified for a charitable deduction, but controversy surrounded the valuation of the donated easement; Tax Court erred in relying solely on comparable-sales method of IRS expert to value the easement; Tax Court to consider that method along with methods used by plaintiff's expert; Tax Court failed to rule on the highest and best use of the property in determining property's fair market value - here whether the highest and best use is as a luxury hotel or a non-luxury hotel; Tax Court should have determined whether easement had any effect on contiguous building that plaintiff also owned since plaintiff had plans to combine the buildings into single property; penalty to be reconsidered in light of revaluation on remand).

(taxpayer failed to properly identify transactions involving inventory as hedges; hedge treatment denied; documentation only showed that taxpayer engaged in transactions for economic purposes rather than accounting or tax purposes). 

(credit card cash rewards paid to card holder do not constitute income in accordance with I.R.C. Sec. 61; cash rewards directed to be paid to charity eligible for charitable deduction when charity receives cash; written acknowledgement provided to card holder does not satisfy record keeping requirement because date amount paid to charity not included). 

(nuisance case involving owners of adjoining farmland; issue involves excess surface water and whether defendants unreasonably interfered with the natural flow of the water resulting in damages to the plaintiff; trial court judgment for plaintiff reversed and case remanded; trial court erred in jury instructions and application of res judicata).

(decedent's retained control over portion of property given to son via implied agreement resulted in only the value of the portion of the property decedent retained possession or enjoyment over being included in decedent's estate; Tax Court opinion requiring full value of transferred property to be included in estate vacated; IRS argument in case contrary to IRS's own position taken in Treas. Reg. Sec. 20.2036-1(c)(1)(i) and Rev. Rul. 79-109; terms of any implied agreement through which decedent retained control matter; case remanded to Tax Court). 

(husband deeded farmland to wife and did not retain any reserved rights to the property; husband's motives irrelevant; divorce case involving division of marital property and spousal support). 

(court upholds defendant's designation of 850,000 acres of land as critical habitat for 15 endangered or threatened species despite deficiencies in defendant's wetlands designations; vernal pools at issue deemed to be unique type of wetland ecosystem and all of the designated land was necessary to be set aside from development even though requirements for species' survival not present on entire tract; designation viewed by court as way to protect endangered species in the future; no consideration of impact of designation on home and land values or local economy). 

(nuisance case involving owners of adjoining farmland; issue involves excess surface water and whether defendants unreasonably interfered with the natural flow of the water resulting in damages to the plaintiff; trial court judgment for plaintiff reversed and case remanded; trial court erred in jury instructions and application of res judicata).

(passed largely along partisan lines, bill increases taxes by $9.6 billion (without provisions being subject to committee hearing) on U.S.-based multinational corporations by barring the splitting of creditable foreign taxes from associated foreign income, preventing businesses from claiming tax benefits when engaging in covered asset acquisitions (i.e., Sec. 338(g) transactions), limiting use of Sec. 956,  subjecting earnings of foreign subsidiaries of U.S. companies to withholding tax when earnings are repatriated to a foreign parent corporation as a dividend; and repealing the 80/20 withholding rules for dividends; bill also eliminates the advance earned income tax credit and phases out increase in food stamp payments implemented in 2009 spending bill (approximately a $59/month cut in food stamps for family of four) and cuts $1.5 billion in funding for DOE's renewable energy loan program; increases spending by estimated $26 billion for hiring of teachers in government schools and contains provision forcing governors to accept the funds allocated to their respective states by giving Education Secretary discretion to allocate funds in lieu of application by governor for funds).

(decedent’s will published in accordance with state law, executed and witnessed in accordance with state law and trial court did not abuse discretion upon refusal to accept proposed jury instruction on presumption of undue influence). 

(law enforcement authorities cannot use global positioning surveillance (GPS) to track criminal suspects without warrant; such use violates suspect's 4th Amendment rights even though such usage successfully tracked suspect's movements lending credence to allegation that defendant involved in drug trafficking; case factually distinguishable from use of radio beepers used by law enforcement to track vehicles on public roads; court's opinion not applicable to "dragnet-type law enforcement practices"). 

(married taxpayers filing jointly were engaged in real property business as defined by I.R.C. Sec. 469 and were qualified to elect to treat all interests in rental real estate as single rental real estate activity, but inadvertently filed joint return without required statement; taxpayers granted 60-day extension of time to make election to treat all rental real estate activities as single rental real estate activity). 

(taxpayer cannot claim patronage dividend deductions for amount paid to members out of earnings not attributable to corn purchases made in accordance with Uniform Agreements entered into with members).

(payments cooperative made to members and other patrons for grain are per-unit retains paid in money (PURPIMs) and cooperative's DPAD to be computed without taking into account any deduction for such payments (one of numerous rulings on the issue)). 

(summary judgment granted for defendant, a fertilizer plant, on plaintiff’s claim that defendant contaminated groundwater beneath plaintiff’s property; res ipsa loquitur not applicable because plaintiff provided no reasonable basis for inference that owner of defendant personally negligent to a substantial degree in producing groundwater contamination).

(ag conservation easement contributed in bargain-sale transaction deductible to extent I.R.C. Sec. 170 satisfied). 

(father-son farming operation determined to be partnership for tax purposes and not a joint venture between two individual proprietorships; no formal written partnership agreement; while parties shared farm income equally, most expenses allocated to father resulting in net losses on father's personal return even though father had high non-farm income from CPA practice; no partnership return filed; farm bank account created; insurance policy purchased for farming operation; farming operation registered with state as a partnership; accuracy-related penalty upheld against father). 

(grain payments that farmers' cooperative made to members are PURPIMs with the result that cooperative's DPAD computation to be made without any regard to any deduction for such grain payments (resulting in higher DPAD that cooperative can pass through to members)).

(argument of defendant (USDA Ag Secretary) that plaintiffs (California almond producers) should not be able to use the court system to challenge USDA rule which effectively bars the selling of domestically raised raw almonds flatly rejected; USDA rule requires that domestically grown almonds to be pasteurized or chemically treated, but does not apply to foreign-raised almonds and, as a result, economically harms domestically grown almonds; contrary to defendant's position, court holds that Agricultural Marketing Agreement Act of 1937 does not have any express provision that would bar the plaintiffs' claims; trial court decision for defendant reversed). 

(truck towing fertilizer spreader on public highway with lights obscured by fertilizer spreader; fertilizer spreader not an implement of husbandry and subject to statute requiring towed vehicles  to display unobscured rear lighting). 

(parties entered into settlement agreement resolving class action case involving customers who suffered losses or damages from failed businesses that acted as qualified intermediaries for like-kind exchanges; case dismissed).

(“feed bill” encompasses all purchases made on single account). 

(taxpayers cannot exclude from gross income amounts attributable to interest received on account of taking of property via eminent domain power; taxpayers failed to show that the interest exceeded the amount legally required; interest also not paid in connection with government's borrowing authority). 

(parties entered into settlement agreement resolving class action case involving customers who suffered losses or damages from failed businesses that acted as qualified intermediaries for like-kind exchanges; case dismissed).

(court denies federal government's motion to dismiss plaintiff's constitutional challenge to the individual mandate provision in Patient Protection and Affordable Care Act; court finds that no court has ever determined whether federal government's power to tax can regulate an individual's decision to not participate in commerce). 

(case involves plaintiff's challenge to defendant's actions that have impacted plaintiff's permits to graze cattle on public land allotments; defendant's actions in denying permits largely upheld; plaintiff made numerous procedural errors). 

(Office of Surface Mining can charge reclamation fee on coal sales insomuch as fee constitutes delayed tax on extracted coal; time of collection does not convert constitutional tax or fee to unconstitutional tax; liability for tax is incurred at time of extraction and OSM merely collects fee at time of sale). 

(under Illinois law, two estate beneficiaries held liable as transferees for the estate's tax deficiency to the extent of their bequests, which include payments to their attorney paid to enforce claims against the estate; court lacked jurisdiction to assess additions for failure to pay tax because the IRS failed to give notice). 

(court upholds bankruptcy court's method of allocating as pre-petition asset a portion of debtor's post-petition tax refund; debtor failed to prove that bankruptcy court's approach should be set aside). 

(Act will increase federal budget deficit by $814 billion between 2009 and 2019).