Annotations 09/2010

(IRS publishes updates rules for determining amount of an employee's ordinary and necessary business expenses for lodging, meals and incidental expenses incurred during travel that will be deemed substantiated under Treas. Reg. Sec. 1.274-5; high per diem allowance is $233 and low rate is $160, effective for travel after Sept. 30, 2010).

(IRS guidance on tax treatment of amounts homeowners pay to repair damage caused by corrosive drywall building materials (i.e., Chinese drywall); safe harbor provided allowing homeowners to treat some damage as casualty loss and method provided for determining amount of loss; applicable to amounts paid to repair damage to personal residence or household appliances as a result of the corrosive drywall; amounts within safe harbor can be treated as casualty loss in year of payment; amounts paid to restore residence to condition immediately before damage may qualify for casualty loss treatment; losses claimed for replacement of household appliances limited to lesser of current cost to replace or basis; guidance effective for all returns filed after Sept. 29, 2010). 

(plaintiffs (dairy processing trade associations) challenged state (Ohio) administrative regulation that governs how consumers are informed about whether milk is produced from cows that were given a synthetic hormone (recombinant bovine somatotropin (rbST); law prohibited claims that milk is "antibiotic free" or "pesticide free" and plaintiffs claimed the statute violated their First Amendment rights and violated the Commerce Clause; court agreed that statute violated First Amendment but not Commerce Clause; law's also required that any dairy processor advertising that "this milk is from cows not supplemented with rbST" must place a disclaimer next to that claim saying the U.S. Food and Drug Administration has found no significant difference between milk coming from cows treated with rbST and those that are not; plaintiffs argued that other states allow an asterisk to be used after the claim linking to the disclaimer, which can be placed elsewhere on the label; court concluded that requiring a disclaimer is "reasonably related to the state's interest in preventing consumers from being deceived by production claims" and that specific typeface requirements put no undue burden on processors, but prohibition on the use of an asterisk "lacks a rational basis"; case remanded). 

(case involves plaintiff's PACA action against defendant for preliminary injunction to enjoin defendants from dissipating trust assets or making payment of any PACA trust asset to any creditor, person or entity until further court order or upon plaintiff's agreement; plaintiff's motion granted).

(court remands case for determination of whether state Private Road Act effects an unconstitutional taking of private property; Act allows owner of landlocked parcel to petition court of common pleas for appointment of board of reviewers to evaluate necessity of road to connect landlocked parcel to nearest public road, and upon finding of necessity board lays out private road at point causing least damage to private property; Act specifies that owner of landlocked parcel must pay damages to persons over whose property new road is built with owner of landlocked parcel then having exclusive use of road). 

(while defendant worked at plaintiff's farm, he was primarily employed as a worker at plaintiff's quarry as truck driver and rock crusher; defendant injured while working at plaintiff's farm when cow fell on him; defendant applied for workers' compensation benefits and plaintiff argued that defendant not entitled to coverage because he was exempt from coverage as an agricultural employee performing agricultural work; board determined that ag exemption did not apply and defendant entitled to benefits; court affirms board decision - defendant not employed in dual capacity, but was employed as worker at quarry and was paid accordingly; ag exemption inapplicable). 

(eliminates scheduled 9/30/10 sunset of  taxes on aviation-related fuel and ticket prices and extends them through December 31, 2010).

(real estate owned by two partnerships was deeded to individual partners and their spouses, and state then reassessed the parcels and raised their taxable values; conveyance by deed was a transfer that removes cap on reassessment; joint tenancy exception inapplicable).  

(court may order judgment-debtor to surrender all "right, title, and interest" in the debtor's non-party single-member LLC to satisfy a judgment-creditor's claims; defendant's argument was that a charging order is only remedy available to judgment-creditor against membership interest of an LLC member; charging order remedy does not replace remedy of Fla. Stat. Sec. 56.061 which allows "stock in corporations" to be subject to levy and sale under execution; statute equally applicable to membership interest in an LLC).

(defendant improperly extended its jurisdiction over prior converted croplands that are converted to non-agricultural use and where dry lands are maintained using continuous pumping; under new rule wetland determinations made based on what property's characteristic would be if pumping ceased; rules effectively changed regulatory definition by issuing internal memorandum on treatment of prior converted wetland without subjecting new definition in memo to notice and comment requirements; defendant's rule change invalidated). 

(plaintiff converted two acres of wetland to farming purposes after effective date of Swampbuster provisions and is ineligible for farm program benefits). 

(taxpayer's loan of securities to S corporation did not create basis in S corporation stock; no details on transaction provided – taxpayer apparently not “at risk”). 

(unemployment compensation received by debtor pre-petition is property of the bankruptcy estate and not exempt; I.R.C. Sec. 6334 inapplicable).

(first-time homebuyer tax credit not available on home taxpayer purchased from taxpayer's father; IRS referenced I.R.C. Sec. 36(c)(3)(A)(i) to reach its conclusion, but failed to note that I.R.C. Sec. 36(c) does not bar fair market value sales between related parties where buyer's basis is a purchase price basis).

(election to carry back a 2008 or 2009 net operating loss for one of the available periods (3, 4 or 5 years) is irrevocable and cannot be changed once the taxpayer makes the election (simply reiterates statute and prior IRS communications on the issue)).

(tax home of petitioner, a pipefitter, is his principal place of employment; thus, petitioner may deduct expenses incurred while traveling away from home except for personal living expenses). 

(petitioner, pastor of family-run church, not entitled to casualty loss deduction of $119,304 for loss of personally-owned cabin used for church purposes; petitioner did not rent the cabin with profit intent or use it in connection with a trade or business). 

(advertising company's call tracking service sold to car dealerships is exempt from sales tax; tracking service is non-taxable information service).  

(TIGTA reports notes that IRS has no ability to verify if taxpayers are eligible to claim more than the maximum amount for various education credits with the result that taxpayers that were really not qualified for education credits received $55.8 million in Hope credits that they should have in tax year 2008 alone). 

(taxpayer is operator of adult home-care business offering full-time care; customer payments made monthly for room rent and services provided; taxpayer depreciated out business portion of home over 27.5 years and IRS agent rejected that, claiming it was 39-year property; on review by National Office of IRS, conclusion was that bedrooms constituted "dwelling units" under I.R.C. Sec. 168(e)(2) and that all of the gross rental income (not counting monthly fee for services) is "rental income" from the "dwelling units"; home qualifies as "residential rental property" depreciable using 27.5-year recovery period). 

(two-year statute of limitations applicable to claims for equitable innocent spouse relief is invalid; holding contrary to the Seventh Circuit Court of Appeals in Lantz). 

(charitable deduction for donated facade easement denied; no credible evidence of fair market value of easement offered; underpayment penalty not applicable because reliance on appraisal was in good faith). 

(petitioner failed to convince court that his weed-pulling activity at his property that generated tax loss was sufficient to satisfy 750-hour test for purposes of passive loss rules; court checked state highway map and confirmed that property visits petitioner claimed with associated weed-pulling activity were simply not possible). 

(Cherokee Nation cannot be added as plaintiff in lawsuit that State of Oklahoma filed against defendant on allegations of water pollution by defendant's poultry operations; trial court had ruled that Oklahoma could not win damages (Oklahoma had sought over $600 million in damages) against the defendant because Oklahoma failed to include the Cherokee Nation as a plaintiff; granting motion to intervene would cause lengthy delay in trial that could prejudice defendant's rights and Cherokee Nation can file its own separate lawsuit against the defendant; trial concluded in February of 2010, but trial court has not issued ruling yet).

(charitable deduction denied for cash donation and for donation of petitioner's timeshare on Miami Beach to charitable foundation; petitioner failed to show reasonable cause for failure to provide a qualified appraisal). 

(failure to participate in income contingent repayment plan which would have eliminated student loan payments, did not bar discharge of loans because participation in program would trigger large tax liability). 

(time spent "on-call" with respect to rental property does not count toward 750-hour test of passive loss rules; passive loss rules apply). 

(petitioner's claimed $1,500 Hope education credit on 2002 return disallowed and amount included in underpayment for purposes of negligence penalty; petitioner conceded disallowance but challenged negligence penalty because he thought credit was some sort of manipulation by accountant of tax code). 

(plaintiffs seek to challenge constitutionality of Raisin Marketing Order, but Judicial Officer of USDA dismissed petition and trial court affirmed dismissal due to lack of subject matter jurisdiction because plaintiffs failed to file action within 20 days of entry of judicial officer's decision to dismiss plaintiff's petition; plaintiff's filing was not timely because USDA did not notify plaintiffs of judicial officer's decision until after 20-day timeframe had expired (envelope returned to USDA in shredded condition) and did nothing to fix problem; USDA claims it lacks discretion to remedy the problem; case affirmed - matter completely within USDA discretion and it is up to Congress to fix the problem inherent in this case). 

(case involves what parties are entitled to particular tract of land in estate; case involves will construction; prior divorce of decedent and settlement agreement between the former spouses). 

(CWA precludes pre-enforcement judicial review of administrative compliance orders, and such preclusion does not violate due process; plaintiff had filled-in approximately one-half acre of property with dirt and rock in preparation to build a house, but EPA issued a compliance order alleging that parcel was wetland subject to CWA permit requirements; plaintiff sought hearing with EPA to challenge finding, but hearing not granted and defendant continued to assert jurisdiction; plaintiff then sued in federal district court seeking injunctive and declaratory relief, but trial court granted defendant's motion to dismiss for lack of subject matter jurisdiction because CWA precludes judicial review of compliance orders before EPA starts enforcement action; case affirmed). 

(case involves how, under KS law, a claim for self-dealing conduct is proven; trial court determined that plaintiff failed to make prima facie case for self-dealing, but appellate court reversed holding however that error was harmless; both trial court and appellate court made errors in application of standards to evaluating evidence and establishing burden of proof; case remanded to trial court). 

(defendant granted summary judgment on plaintiff's claims for compensation for storm-water damage as a result of changed water flows due to public-improvement drainage project). 

(defendant granted summary judgment on plaintiff's claims for compensation for storm-water damage as a result of changed water flows due to public-improvement drainage project).  

(defendant granted summary judgment on plaintiff's claims for compensation for storm-water damage as a result of changed water flows due to public-improvement drainage project).  

(plaintiff alleges violations of overtime provisions of FLSA including failure to pay for time spent donning and doffing required uniforms and gear, gathering required materials, tools and equipment, and post-donning and pre-doffing walking to and from work stations; procedural case on motions).

(draft of decedent's will sought to be admitted to probate by plaintiff, decedent's niece, who was also seeking to invalidate decedent's will; decedent did not see draft before death and trial court refused to admit will to probate and appellate court affirmed; appellate court also affirmed award of attorney fees to plaintiff). 

(res ipsa loquitor applicable to plaintiff's case which involved injuries plaintiff sustained on defendant's farm when dock on which plaintiff was walking gave way under plaintiff; dock was destroyed in accident; plaintiff established elements of res ipsa loquitor - (1) accident was type that would ordinarily happen in absence of negligence - properly maintained docks don't give way; (2) dock was in exclusive control of defendant; and (3) plaintiff did not contribute to accident). 

(case involves Organic Food Production Act (OFPA) of 1990 and suit brought by dairy consumers against several national chains and largest U.S. provider of store-brand organic milk on claim that such milk was falsely labeled based on the way the cows were raised and fed; court holds that all claims against the certifying agent which certified Aurora's milk as organic were preempted by OFPA; all claims that Aurora and retailers sold milk as organic when in fact it was not are preempted; but plaintiffs' claims based on state laws regulating deceptive advertising practices were not preempted; matter remanded for further proceedings on state law claims). 

(inverse condemnation case; summary judgment for defendant granted because no taking occurred). 

(estate entitled to deduction in excess of $60 million attributable to loan interest, attorney fees and miscellaneous expenses; other deductions denied attributable to attorney fees and executor fees). 

(area homeowners petitioned court for injunctive relief to abate nuisance per accident caused by operation of nearby shooting range; injunction denied due to lack of evidence supporting claim). 

(bankruptcy appeal dismissed as moot; trustee had been authorized to assume executory contract for sale of feed yard and associated farmland that was auctioned off pre-petition as a single tract and consummate the sale).

(any proposal to impose penalty via I.R.C. Sec. 6662(b)(6) at examination level must be reviewed and approved by appropriate field operations director). 

(farmers' cooperative may treat payments it makes for grain delivered to it by members and other participating patrons as "per-unit retain allocations paid in money" with the result that the co-op need not take into account any deduction for such grain payments when computing the co-op's DPAD). 

(case involves construction of homestead exemption in bankruptcy; consolidated case involving debtors from Arizona and Washington and debtors argued that value of home locked-in at time of filing Chapter 7 petition and full value of equity claimed as exempt under state law; trustee made no objection to exemption but case remained open and trustee later sought sale of property for benefit of creditors after fair market value had increased beyond sum of encumbrances against the home and debtor's exemption; trustee allowed to sell the property because debtor who claims homestead exemption at specific dollar amount holds only exempt interest in amount claimed exempt and not the entire property - any additional value in the property remains the property of the bankruptcy estate, regardless of whether the extra value was present at time of filing or whether property increased in value after filing; result is that Chapter 7 debtor will never know the exact status of homestead property until the bankruptcy case is closed or the trustee abandons the property; court cited In re Reilly, 130 S. Ct. 2652 (2010) for its holding). 

(automatic stay not imposed; debtor had previously filed two other Chapter 12 cases within prior two years which were dismissed; case not filed in good faith). 

(case involves claim that defendant's operation of waste disposal facility constituted a nuisance; some evidence existed on the question of whether the CEO and manager actively directed and participated in activities that allegedly created a nuisance so summary judgment as to them not proper; right-to-farm law inapplicable because facility in question not an agricultural facility). 

(petitioners, married couple, cannot deduct losses for wife's rental real estate activity due to limitations of passive loss rules and can't deduct them as start-up costs under I.R.C. Sec. 195; petitioners could not claim first-time homebuyer exception to 10 percent penalty under I.R.C. Sec. 72(t) because they had already received the $10,000 exception for first-time homebuyer at earlier point in time). 

 (no bad debt deduction for non-bona fide debt; capital loss claimable, however).