Annotations 01/2011

(1,100 acre tract included in decedent's gross estate not entitled to fractional interest discounts; during life, decedent had transferred one-fifth remainder interest to each of his five children, but retained a life estate in the property; decedent failed to sell the remainder interests for their actuarial fair market value; full FMV of property included in decedent's estate at death - $6,390,000). 

(taxpayer's information technology consulting company (conducted in her home in West Des Moines, Iowa) determined to not be a qualified personal service corporation, and taxpayer's cat breeding activity not conducted as a trade or business resulting in non-deductible expenses; court made numerous other findings:  taxpayer's business cannot deduct under I.R.C. Sec. 162(a) amounts related to cat-breeding activity that were treated as reimbursements to taxpayer and her personal partner as well as amounts paid for taxes and licenses, and such amounts must be included in gross income as constructive dividends; taxpayer cannot deduct amounts for home mortgage interest and real estate taxes; taxpayer's corporation cannot deduct amounts paid into investment fund maintained for the business; no deduction allowed for premium amounts paid on account of health insurance policy purchased for taxpayer). 

(annual fee paid by holders of water rights and licenses not illegal tax; case remanded for determination of whether underlying regulations implementing fee are constitutionally defective). 

(35 year-old male attending illegal cockfight on January 30, 2011, died as result of stabbing by bird that had knife attached to it; coroner concluded that decedent died due to accidental "sharp force injury" to right calf).

(Florida resident acquired home used as primary residence as joint tenant with right of survivorship with his mother, and at time of acquisition had minor child; state constitution provides that the "homestead shall not be subject to devise if the owner is survived by spouse or minor child"; resident died and court held that residence was not decedent's homestead with result that it passed at decedent's death to mother as surviving joint tenant; residence not homestead property at time of purchase, thus constitutional provision inapplicable). 

(EPA does not have authority under FIFRA to bring a misbranding action in lieu of a cancellation proceeding against registered rodenticide products based only on such products' non-compliance with EPA's 5/28/08 "Risk Mitigation Decision for Ten Rodenticide Products; EPA cannot bring enforcement action based on such non-compliance until EPA completes administrative cancellation procedure required by Section 6 of 7 U.S.C. Sec. 136d). 

(plaintiffs, married couple, who had gambling earnings of for the years at issue and substantially more gambling-related losses, cannot deduct losses not entitled to deduction for gambling losses; taxpayers not engaged in gambling trade or business; taxpayers not devoted full-time to gambling activity). 

(amounts farmers' cooperative pays to members and other participating patrons for grain sales are PURPIMS; cooperative's I.R.C. Sec. 199 deduction to be computed without regard to any deduction the grain payments may generate).

(study by Crompton, Pielke and McAneney accepted for publication in Environmental Research Letters concludes that it will be at least another 120 years (and perhaps as many as 550 years) before losses caused by Atlantic tropical storms can be statistically attributed to "climate change").

(USDA, after completing EIS, announces that Roundup Ready alfalfa will be completely deregulated and, as such, will not have any more restrictions than does non-genetically modified alfalfa; announcement comes after USDA Secretary warned via January 19 letter from prominent Senators to not exceed statutory authority granted by the Plant Protection Act by taking into account non-scientific factors in the regulation of Roundup Ready alfalfa). 

(decedent retained beneficial interest in home as of time of death and sufficient possession or enjoyment via I.R.C. Sec. 2036 for home value to be included in decedent's estate for tax purposes; decedent took title to home in 1989 and lived in home until her death in 2000; title conveyed from decedent to decedent and two grandchildren in 1989 and then reconveyed back to decedent in 1994, and then to decedent as trustee in 1997 and then to decedent's daughter and three granddaughters in 1999 (with decedent remaining on the title) - all as gratuitous transfers; provision of purchase funds in 1989 provided by family members was a gift to decedent resulting in decedent taking a beneficial interest in home - no resulting trust created; the fact that decedent lived in home as of date of death was evidence of retained possession and enjoyment of home). 

(Chapter 12 farm debtor borrowed money from co-op to finance crop input costs with co-op taking security interest in crops to be grown; debt excepted from discharge under 11 U.S.C. Sec. 523(a)(2)(B) because debtor submitted materially false documents to co-op for purpose of causing co-op to grant him financing; debtor also failed to tell co-op that he was feeding co-op's collateral to debtor's cattle (silence regarding material fact may constitute actionable false representation under 11 U.S.C. Sec. 523(a)(2)(A)); co-op justifiably relied on debtor's misrepresentations and suffered loss as a result). 

(debtor is a grain farmer that forward contracted grain with a buyer with the contract price to be set in the future on all but one of the contracts; debtor rejected all of the contracts without paying anything to the buyer; buyer claimed it had priority on its contract damages, but court disagreed; price-later contracts did not provide any benefit to the bankruptcy estate, and could not be treated as an administrative claim; because market price exceeded contract price for the contract that set price in advance, the fixed-price contract did not benefit the estate). 

(overstatement of basis in ownership interests of taxpayer's companies constitutes an omission of income under I.R.C. Sec. 6501(e) resulting in a six-year (rather than three year) statute of limitations; IRS Final Regulations (eff. Dec. 14, 2010) upheld). 

(taxpayer determined to be self-employed member of fishing boat crew and, therefore, liable for self-employment tax; taxpayer's compensation tied to amount of catch and was not wages). 

(defendant claimed jurisdiction over 4.8 acres of wetland located on plaintiff's property that was approximately seven miles from nearest "navigable" water; defendant claimed jurisdiction on basis that 4.8 acres were adjacent to ditch that qualified as "waters of the United States", thus defendant denied plaintiff permit to develop 4.8 acre tract; claim of jurisdiction consistent with Justice Kennedy's test set forth in Rapponos as being "similarly situated" to the wetlands at issue; however, there was insufficient physical evidence to establish the required "significant nexus" - simply saying that an adjacent tributary flowed into the subject area without any measurements of actual flow is not enough).   

(taxpayer cannot offset taxable income derived from sale of "renewable" energy credits to local electric utility by depreciation deduction for expenses attributable to solar photovoltaic system; system was installed in taxpayer's home and generated electricity for personal use).

(plaintiff, Tennessee poultry farmer that entered into poultry production contract with defendant, claimed that defendant engaged in retaliatory conduct against plaintiff for plaintiff's participation in regional grower's association in violation of the Agricultural Fair Practices Act and that defendant violated the Packers and Stockyards Act by engaging in "unfair, discriminatory or deceptive practices"; plaintiff's claim dismissed - plaintiff failed to allege his involvement with an "association of producers" as required by AFPA, and failed to prove that defendant's conduct injured competition as required under 7 U.S.C. Secs. 192(a) and (b) and failed to even plead that defendant's conduct had an adverse effect on competition). 

(challenge to validity of deed executed in 1940s barred by doctrine of laches; court did not make any specific findings of fact or analyze requirements needed to establish elements of laches). 

(psychiatrist, upon advice of CPA, converted practice from sole proprietorship to a two-member LLC with taxpayer owning 95 percent interest and a "managing" C corporation owning 5 percent; the 95 percent interest was divided between a 10 percent general partner interest and an 85 percent limited partner interest attributable to intangible assets of the taxpayer's practice; second corporation formed to provide services to taxpayer's practice; self-employment tax paid only on general partner interest rather than on entire net income of practice as sole-proprietor; court holds that managing C corp. and service corporation serve no significant business purpose and were mere shells formed only for tax avoidance purposes that are disregarded for tax purposes; LLC becomes single-member LLC and business taxed as sole-proprietorship; taxpayer liable for accuracy-related penalties). 

(taxpayer cannot reduce Schedule C gross receipts by cost-of-goods-sold due to lack of evidence as to how amounts actually used, or deduct like amount as a bad debt; taxpayer was investing in friend's start-up business of producing fly fishing "de-hookers" and "de-flyers"; parties agreed to treat investments as loans; no loan documents prepared, no promissory notes issued, no repayment schedule, no maturity date and no interest rate specified - it was merely hoped that repayment would occur from future business profits). 

(punitive damages awarded to taxpayer on account of insurance company's contract breach are includible in income). 

(case involves constitutional challenge to individual mandate provision of 2010 Health Care Act; court refuses to grant government's motion for summary judgment because plaintiffs had standing and matter ripe for decision; suit not barred by Anti-Injunction Act because penalty for non-compliance with mandate provision not a tax). 

(transactions between marital trust and trust for children classified as transfers for full and adequate consideration rather than dispositions of life estates; involves QTIP property). 

(plaintiff need not provide written notice to account holders before raising credit card interest rates on account holders who defaulted on a payment - unanimously reversing U.S. Circuit Court of Appeals for the Ninth Circuit; Federal Reserve Board regulation at issue amended in 2009 (five years after case filed) to require advance notice of 45 days for higher interest rates; existing cardmember agreement disclosed conditions that had to be complied with to remain eligible for lower interest rates).

(IRS will utilize Rev. Ru. 58-93, 1958-1 C.B 188 in situations where a corporate reorganization could qualify under multiple provisions of I.R.C. Sec. 368; result is that transaction will be treated as a Type A rather than Type D reorganization). 

(trial court's award of summary judgment to government reversed in case involving utilization of step-transaction doctrine to eliminate discounts of gifted LLC interests; question remained as to when gifts to taxpayers' children were effective under state law). 

(plaintiff, nursing home operator, denied WOTC for about 3,000 employees and defendant's delay in clarifying eligibility requirements for WOTC did not entitle taxpayer to refund; certification errors by state offices could not be corrected in federal tax proceedings).

(H.R. 2, the "Repealing the Job-Killing Health Care Law Act" by 245-189 vote; Act repeals the Patient Protection and Affordable Care Act (P.L. 111-152)). 

(USDA's determination that plaintiff made false claims for crop insurance in violation of Federal Crop Insurance Act upheld). 

(farmer acquired easement by implication and easement of necessity for ingress and egress to access farm field that had been cut off by sale and development of adjacent property; even though no easement of record, farmer had been using currently-existing driveways for over twenty years). 

(proposed amendments to 2006 grazing regulations on federal land put new limitations on BLM's enforcement powers and increased ranchers' ownership rights to improvements and water on public lands (as a result of BLM's historic loss in the Hage litigation); plaintiff (anti-grazing activist organization) challenged regulations on basis that BLM violated NEPA by failing to take required "hard look" at environmental effects of revised regulations, failed to consult with USFWS as required by ESA, and violated FLMPA in promulgating 2006 regulations; trial court granted summary judgment to plaintiff and defendants appealed; trial court decision affirmed - BLM violated NEPA and ESA in adopting 2006 amendments, and also affirmed trial court's permanent injunction enjoining BLM regulations of 2006; because trial court did not consider plaintiff's FLPMA claim, trial court's grant of summary judgment on that point vacated and case remanded on that point for further consideration). 

(Treas. Reg. Sec. 1.6015-5(b)(1) establishing a two-year statute of limitations for filing of innocent spouse relief claims upheld as valid; I.R.C. Sec. 6015 (b) and (c), but not (f); thus, Treasury can create regulation requiring two year deadline; opinion reverses 132 T.C. No. 10 (2009); case remanded to determine if equitable tolling present). 

(money received via gift certificate or gift card is not includible in gross income; rather such amounts are payments for goods or services to be received in the future). 

(PTIN relief granted for preparers that have made good faith effort to obtain PTIN and have been notified that IRS either couldn't process application or received acknowledgement of application; preparer can use PTIN issued before September 28, 2010, or their Social Security number if filing fee still paid). 

(Chapter 7 case in which debtor had transferred ERISA pension plan from former employer to Sec. 401 plan when debtor become self-employed; debtor used funds in plan to pay living expenses and start franchise businesses; upon filing bankruptcy, debtor claimed amount in plan as exempt asset; court agreed, even though debtor's conduct concerning funds in plan rendered them to be non longer a "tax qualified" plan under I.R.C. Sec. 401(a). 

(debtor created self-settled asset-protection trust under state law on Feb. 1, 2005; trust created for debtor's benefit and benefit of debtor's heirs with the express purpose of shielding assets from creditors; debtor's mother named trust protector; trust funded with $80,000 cash and remote real estate valued at $60,000; debtor accumulates over $250,000 of debt (primarily credit card debt) largely as result of contested divorce, shrinking market for his business and illness, and files Chapter 7 four and one-half years after creating trust; trusts assets not listed as part of bankruptcy estate; bankruptcy trustee claimed that transfers to trust void under 11 U.S.C. Sec. 548(e) - which was added by BAPCPA to close self-settled trust loophole in five states that authorized them, including Alaska; court voided transfers because evidence established that debtor's financial status declining before trust created which led to conclusion that transfers made with intent to hinder, delay and defraud present or future creditors; BAPCPA extended statute of limitations to ten years in cases where it appears a transfer occurred to shield assets from creditors). 

(tar sands imported into the U.S. and that are refined in accordance with the same process that is used to refine crude oil and where no distinction exists between finished product that is refined from crude oil and tar sands are not subject to I.R.C. Sec. 4611 excise tax on petroleum; plain language of statute neither clearly includes or excludes tar sands from definition of "crude oil" and no regulations exist; Congressional history shows intent to exclude tar sands from definition). 

(plaintiff's claim that defendant's operation of gun range was a nuisance barred by state law granting immunity from criminal or civil liability to owners and authorized users of firearm ranges based on noise or sound emission or an action based in private nuisance; negligence claim likewise fails). 

(The Small Business Paperwork Mandate Elimination Act of 2011; would repeal the new information reporting requirements contained in the Patient Protection and Affordable Care Act of 2010 (payments of $600 or more annually to corporate and non-corporate payees in the taxpayer's trade or business). 

(tar sands imported into the U.S. and that are refined in accordance with the same process that is used to refine crude oil and where no distinction exists between finished product that is refined from crude oil and tar sands are not subject to I.R.C. Sec. 4611 excise tax on petroleum; plain language of statute neither clearly includes or excludes tar sands from definition of "crude oil" and no regulations exist; Congressional history shows intent to exclude tar sands from definition).

(plaintiffs suffered windstorm damage to farm buildings and sought recovery under insurance policy; policy excluded coverage for damages resulting from faulty or inadequate maintenance; defendant refused coverage under exclusionary clause and instructed plaintiffs to have appraisal done pursuant to appraisal clause in policy which applied if parties couldn't agree on claim; plaintiffs sued claiming that appraisal clause inapplicable and on basis that exclusionary language also inapplicable; trial court ordered appraisal to be conducted; reversed on appeal because factual issues remain over meaning and application of contract clauses, causation and liability). 

(Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) is the appropriate review standard under which Treasury Regulations underlying an ambiguous Code provision are to be evaluated; using the Chevron standard, Treas. Reg. Sec. 31.3121(b)(10)-2 upheld with result that medical residents are to be considered employees rather than students and, as such, cannot receive exemption from Social Security tax). 

(former wife entitled to permanent spousal support even though certificate of marriage (relating to 1991 marriage ceremony) twice rejected and couple decided not to mail certificate back in a third time so as to continue to benefit taxwise from "single" filing status and avoid the "marriage penalty"; sometime between 2000 and 2002, parties were married in subsequent ceremony; marriage dissolved in 2008 and former husband claimed that marriage existed only from later ceremony, but wife claimed they were married in 1991 under state (CA) law even though marriage certificate was never registered; court ruled for wife and, as a result, she was entitled to permanent spousal support based on length of marriage; registration of certificate immaterial and couple received material tax benefits from claiming they were "single" on their tax returns). 

(trust transfers subject to GSTT; grandfathering exemption for trusts that are irrevocable at time GSTT enacted is ambiguous as applied to exercise of a general power of appointment, and regulation which interprets exemption is reasonable and denies exemption for transfer at issue). 

(pension plan disability benefits received from employer pension plan not excludible from income under I.R.C. Sec. 104(a)(1) or (a)(2) or I.R.C. Sec. 105; amounts received under collective bargaining agreement rather than statute and payments made in lieu of tort suit, and payments made without respect to the nature of the injury). 

(grain payments made by cooperative to members and participating patrons are PURPIMs in accordance with I.R.C. Sec. 1382(b)(3); for purposes of computing cooperative's I.R.C. Sec. 199 deduction, cooperative's QPAI and taxable income to be computed without regard to any deduction for grain payments to members and participating patrons; I.R.C. Sec. 199 deductions that are passed through in a year in which cooperative incurs NOL will not affect amount of loss that cooperative can carry back or forward under I.R.C. Sec. 172).

(amounts non-resident received by taxpayer under contract with Iowa Association of School Boards is Iowa-sourced for purposes of Iowa individual income tax; taxpayer received over $80,000 per year for three years for working less than 20 percent of the time in Iowa for the years at issue making periodic site visits in Des Moines; IRS had received Forms 1099 for years at issue from company with Iowa address; taxpayer independent contractor rather than employee of non-Iowa firm).