Annotations 05/2011

(decedent was domiciled in Georgia and devised condominium in Florida to mistress; decedent had entered into contract pre-death to sell condominium, but died before closing; condominium ultimately sold and mistress sued to recover sale proceeds; executor, trustee of marital trust under will and beneficiary under will claimed devise had adeemed; trial court held that devise had adeemed; on appeal, court held that specific devisee (mistress) entitled to remaining balance of purchase price attributable to specifically devised property that has not been paid as of date of decedent's death; dissent would have applied doctrine of equitable conversion which would have made the condominium personal property as of date of decedent's death and ademption under GA law would have applied). 

(in reversing U.S. Tax Court, court upholds IRS regulation applying six-year statute of limitations to overstated basis cases).

(under calculation required by I.R.C. SEc. 45(b)(2), credit for renewable electricity production for calendar year 2011 under I.R.C. Sec. 45(a) is $.022/KwH on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy, and solar energy, and $.011/KwH per kilowatt hour on the sale of electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facilities, qualified hydropower facilities, marine and hydrokinetic energy facilities). 

(state (CA) rules regulating air pollution from farm-based diesel engines not pre-empted by federal Clean Air Act; rules which require operators of non-vehicular diesel engines to register with defendant and pay usage fee have direct application to plaintiff's irrigation pumps that are powered by diesel engines; rules not pre-empted because they don't directly control emissions but only require certain information be gathered, fees collected and only apply to stationary engines; defendant had legitimate interest in controlling air pollution in district (even though court stated that rules at issue did not involve emission standards or control of emissions). 

(AZ immigration law that imposes sanctions on employers who hire illegal aliens is not pre-empted by federal law (The Immigration Reform and Control Act) because AZ law does no more than impose licensing conditions on businesses operating within AZ; law not preempted by E-verify because program only voluntary at national level and no congressional intent to bar states from mandating participation; Court stated, contrary to claims by various state attorneys general, that AZ law fell "well within" the confines of the authority the Congress chose to leave to the states; Court's opinion demonstrates immigration is inherently a local and state problem and national law not overall solution due to need to tailor solution to needs of each particular state). 

(paving company submitted single rezoning application asking to change zoning of adjacent ag lots to mining; trial court ruled that defendant’s approval of two zoning changes pursuant to single application submitted by paving company was not arbitrary and capricious; zoning activity was reasonable because it kept mining activity in contiguous zone; property owners objected to zoning changes and appealed; appellate court found no violation of due process as property owners had sufficient opportunity to express views and no evidence of illegal contract to zone).

(son of decedent who moved back to decedent's farm and operated it after decedent declared dead made claim in probate estate for farm management fees and reimbursement for farm expenses; doctrines of quantum meruit and unjust enrichment not properly before court and son not entitled to any management fee; son received all crop income, cash rent, FSA payments and proceeds of cattle sales and sale of pickup, used home rent-free and used truck and equipment without charge for five years; son entitled to reimbursement for principal payments on mortgage - which benefited estate).

(court upholds trial court's denial of injunctive relief and damages to plaintiff associated with drainage and diversion of excess surface water by defendant; defendant's repairs to terrace in accordance with Iowa Code Sec. 468.621 and even if defendant could be found liable for altering natural flow of water, evidence did not support plaintiff's damage claim).  

(wind farm located in a U.S. possession in which all beneficial owners, either directly or indirectly, are U.S. citizens or domestic corporations, where membership interests sold to investors, is property described in I.R.C. Sec. 168(g)(4)(G) and will not be treated as property that is used predominantly outside the U.S. for ADS purposes). 

(court upholds trial court's denial of injunctive relief and damages to plaintiff associated with drainage and diversion of excess surface water by defendant; defendant's repairs to terrace in accordance with Iowa Code Sec. 468.621 and even if defendant could be found liable for altering natural flow of water, evidence did not support plaintiff's damage claim).

(taxpayer who provided services to foreign government was common law employee and, as a result, cannot take deduction for contributions to simplified employee pension plan and must pay excise tax on excess pension contributions). 

(sale of conservation easement on approximately 580 acres of land to American Farmland Trust in bargain sale transaction and on 520 acres in bargain sale transaction to Ducks Unlimited generated state (CO) conservation credit of $260,000, and taxpayer sold $231,600 of the credit for $178,332; state credits are capital assets and amount received on sale was short-term capital gain; taxpayer cannot tack holding period attributable to land to holding period in credit because credits never part of taxpayer's real property rights; court's opinion based on earlier opinion in Tempel v. Comr., 136 T.C. No. 15 (2011)). 

(conversion of 64-acre parcel in residentially-developed area to viticulture is an “agricultural activity” that is exempt from otherwise applicable zoning requirements; activity involved installation of several 250-gallon tanks, planting of three acres of grapes capable of producing 12 tons of grapes annually (15,000 bottles of wine); winery activities are an ag activity and court’s decision in Terry v. Sperry, 186 Ohio App.3d 798 (Ohio Ct. App. 2010) thus inapplicable; because ag activity involved, pavilion used for wine making and selling exempt from township zoning regulations and past use of pavilion immaterial; crush pad attached to winery also exempt from township zoning; bridge constructed to provide access to forested portion of lot entitled to variance from setback requirements – no detrimental impact on adjoining properties or on delivery of governmental services and owner unaware of setback requirement at time bridge built; concurring opinion noted that ag use occurred after residential development of surrounding property and could constitute a nuisance, but that issue was not before the court). 

(plaintiff injured during horseback ride when thrown from horse and sued defendant for negligence; genuine issue of material fact existed concerning whether defendant had posted signage required by state Equine Activity law to preserve assumption of risk defense; assumption of risk defense not available under common law because specific law covering liability arising from equine activities applied; res ipsa loquitur inapplicable; however, summary judgment for defendant appropriate because plaintiff could not establish any evidence of negligence on defendant’s part – no evidence that defendant’s caused horse to gallop or that horse was unsafe for a novice rider or that trail negligently maintained). 

(revocation of PLR 201005014 (Feb. 5, 2010) and substitution of present letter ruling with no retroactive effect; prior letter ruling had concluded that the value of certain items of clothing and accessories that taxpayer provided to employees were excluded from gross income as deminimis fringe benefits under I.R.C. Sec. 132(a)(4)). 

(decedent's will left everything to niece, but if she didn't survive, then equally to niece's two children in trust; niece died in 1995 and decedent hospitalized in 2007; niece's husband procured new will from decedent within two months of decedent's death that gave niece's husband and children money outright and named husband as personal representative and an interest as a contingent residuary beneficiary; trial court applied doctrine of partial invalidity to eliminate husband of niece as administrator and residuary beneficiary;  on appeal, court affirmed with result that one-half of residuary devise passed under intestacy law and that residuary devisees were tenants in common in residuary estate). 

(taxpayer formed business entities as a management entity and an operating entity; both entities were S corporations, but management entity was owned by ESOP which allowed for deferral or avoidance of tax on management fees earned by the management entity, while payor entity received operating deduction; IRS challenged management fees due to lack of legitimate business purpose and lack of economic substance; taxpayer conduct sufficient actual business activity to avoid being a sham - provision of personnel services, maintained an investment and bank account, paid employees by check adopted retirement plan followed corporate formalities and filed income and employment tax returns; management fees not deductible to extent not associated with providing employees to operating entity).

(fair market value of the cash value of a life insurance policy is includible in recipient's income; but, cash value remained in issue so summary judgment denied for defendant). 

(petitioner had CODI from settlement of outstanding student loan obligation; amount of CODI is amount owed on loan and what petitioner had paid).

(in determining proper interpretation of phrase "waters of the United States" for purposes of the Clean Water Act and the federal government's jurisdiction, Justice Kennedy's "significant nexus" test expressed in Rapanos v. United States, 547 U.S. 715 (2006), is the only test to be used in determining jurisdiction; federal government may not base jurisdiction on satisfaction of either the Kennedy test or test set forth by plurality opinion; while not ruling specifically on EPA Draft Guidance of April 27, 2011, court's opinion refutes expansive jurisdiction claimed by EPA in Draft Guidance by asserting that jurisdiction could be based on either the Kennedy test or the plurality test of Rapanos).

(mother denied Medicaid benefits on account of transferring assets to daughter in the form of taking second mortgage on home and loaning proceeds to daughter so she could consolidate her debts; loan agreement not in writing, but daughter current on all payments; mother fell ill and entered nursing home; mother entitled to temporary restraining order (TRO) so that Medicaid benefits can be received during pendency of case because asset transfer not made with intent to qualify applicant for Medicaid benefits; ALJ determined that intent of transfer immaterial (and that asset transfer occurred rather than a loan); court granted TRO because of likelihood of prevailing on merits - federal Medicaid law specifies that assets that are transferred for purpose other than to qualify for Medicaid are not counted as eligible assets for Medicaid eligibility purposes). 

(defendant enjoined from removing plaintiff's survey stakes; defendant failed to prove title by adverse possession for failure to farm disputed property continuously for 20 years and boundary lines not established with any certainty). 

(petitioner not entitled to alimony deduction for family support payments; even though payments made in accordance with court order of dissolution of marriage, payments were clearly child support). 

(petitioner, who traveled as medical consultant, had tax home in CA rather than GA; petitioner worked in CA for approximately 3 years; travel expenses not deductible; expenses also not substantiated). 

(court refuses to re-examine its prior decision that collected runoff from logging operations (i.e., mud and sediment that washes off logging roads) into forests and rivers is a point source discharge of stormwater associated with industrial activity requiring an NPDES permit under the CWA; the runoff is collected in a system of ditches, culverts and channels which is subsequently discharged into streams and rivers; court's opinion appears contrary to U.S. Supreme Court opinion in Coeur Alaska, Inc. v. Southeast Alaska Conservation Council, et al., 129 S. Ct. 2458 (2009) in which Court held that slurry from mining operations constitutes "fill material" that is subject to COE permit requirement, but which does not need a pollution discharge permit from the EPA because it is specifically excluded from the definition of "pollutant" under the CWA making it immaterial that it might be determined to be a point source pollutant). 

(extension of interim guidance on deductibility under I.R.C. §67 of costs paid  to investment advisor by non-grantor trust or estate; extension is until IRS publishes final regulations on the issue (i.e., extension is for tax years beginning before date that final regulations are issued); initially, IRS provided in Notice 2008-32 that taxpayers do not have to determine the part of a bundled fiduciary fee that is subject to the 2 percent floor for any tax year beginning before 1/1/08 and later guidance specified a later cut-off date; regulations are necessary in light of U.S. Supreme Court decision in Knight v. Comr., 552 U.S. 181 (2008)). 

(defendant defaulted on FSA loans and plaintiff sued to foreclose mortgages on land that served as collateral for the loans; default judgment for plaintiff entered; defendant filed bankruptcy on day before property to be auctioned off, but couldn't propose plan for paying off debt and bankruptcy court lifted automatic stay so that sale could proceed; parcels brought $322,000 at sale - insufficient amount to allow debtor to pay off debt in full; plaintiff sought to set sale aside on basis that price was inadequate; motion denied, as was debtor's motion to redeem parcels because debtor had waited too long; deficiency judgment entered for unpaid portion of loans (plus interest); only issue on appeal was selling price of property and defendant submitted appraisals indicating that property worth $513,000; trial court's order confirming sale affirmed - appraisals of doubtful value). 

(expenses incurred to repair hearing aids can qualify for reimbursement under a flexible spending account if allowed by the terms of the flexible spending account plan). 

(plaintiff's failed to establish title to disputed tract via adverse possession; hunting and related activities of plaintiffs' predecessors do not constitute open, notorious, visible, exclusive and hostile use of disputed area; swampy area and man-made ditch do not constitute substantial enclosure as defined by state law; adverse possession not established via doctrine of acquiescence). 

(petitioner sought declaratory judgment after refused permit from Michigan Department of Environmental Quality (MDEQ) to build a home on his property on Lake Michigan shoreline; permit sought under part 353 of Natural Resources and Environmental Protection Act (NREPA) denied as agency interpreted its jurisdiction under statute to include “natural ordinary high-water mark,” (NOHWM) which is distinct from the ordinary high-water mark (OHWM); trial court found agency had jurisdiction based on distinction between OHWM and NOHWM; appellate court reversed lower court’s declaratory judgment; held lower court followed inaccurate interpretation of the NREPA because legislature did not intend separate distinctions; NOHWM interpreted to refer to the specified elevations as measured by the land in its natural state, unaltered by humans; dissent argued critical difference between NOHWM and OHWM and legislature intended different result based on these differences).

(case involves "most favored nations" clause in mineral lease agreement; trial court determined that $7.6 million payment and higher lease royalty were owed to plaintiff/lessor because of the clause which required bonus-related payment and higher royalty for lessor if original lessee or its "successors and assigns" acquired other nearby leases for higher bonus or royalty; defendant transferred undivided one-half interest in lease related to deeper zones of production, and transferee later acquired third party mineral leases for higher per-acre bonus payments and greater royalties; plaintiff sued to enforce clause; court affirmed trial court's judgment and amended it to make both co-owners responsible for money judgment). 

(petitioner not entitled to exclude Social Security disability benefits from income; while benefits double taxed, there is no statutory relief for petitioners on that basis; in addition, benefits not excludible under I.R.C. Sec. 104 as workers' compensation or accident/health benefits). 

(when IRS re-examines audited tax year upon review of claim for refund, such re-examination is not a "second inspection" under I.R.C. Sec. 7605(b) (which prohibits unnecessary exams or investigations).

(decedent's 1987 will split estate equally between son and daughter; decedent's 2008 will appointed son personal representative and trustee of trust that gave son's two children $100,000 and $10,000 respectively once age 30 attained; under 2008 will, daughter would inherit $350,000 with son receiving balance of estate; decedent's estate valued at $3 million at death; daughter challenged will and trust as product of son's undue influence and that decedent suffered from insane delusion and lacked testamentary capacity; trial court determined that son did not exert undue influence over will and trust and that decedent had testamentary capacity; appellate court affirmed and held that trial court did not err in finding no presumption of undue influence in execution of will and trust; daughter failed to carry burden of showing lack of testamentary capacity; court reversed and remanded on issue of insane delusion because decedent claimed that she had not seen daughter in many years when facts established that daughter actually visited decedent frequently including 15 months before 2008 will executed).

(recordation of agreement of sale of water right put plaintiff on record notice of equitable interest in water right, but notice of equitable interest insufficient under the facts to subvert plaintiff's claim of having purchased same water right in good faith). 

(case involves title to disputed 15-acre tract; fence separating adjacent tracts had been in place at least 30 years). 

(FSA financed debtors' pheasant farm and took security interest in all equipment and brood stock; upon farm's failure, FSA foreclosed and also got deficiency judgment of $217,715 against debtors; Chapter 7 filed and court granted relief to extent of $7,000 of sale proceeds used for moving expenses; FSA failed to exercise vigilance to protect its security, debtors' conduct in killing remaining pheasants so that they wouldn't starve to death not willful nor malicious, but $7,000 amount excepted from discharge). 

(issue initially concerned priority of creditors in proceeds of milk produced on debtor's farm; after issue decided, this case involves request for attorney fees and costs). 

(livestock sold directly to final consumer subject to sales tax; direct sales are not a non-taxable sale for resale). 

(charitable community and wholly-owned corporation may file single Form 990; trust deemed to be single entity under Treas. Reg. Sec. 1.170A-9T(f)(11)(i) and corporation treated as component part of trust under Treas. Reg. Sec. 1.170A-9T(f)(11)(ii)). 

(increases annual limit for Endow Iowa Tax Credit to $3.5 million (enhancement of $800,000) and specifies that any particular taxpayer limited to five percent of aggregate amount of tax credits that are authorized). 

(plaintiff obtained title to disputed strip of real estate by adverse possession; fact that deed filed with county register of deeds does not put party claiming title by adverse possession with imputed constructive notice that bars adverse possession claim based on good faith belief of ownership). 

(defendant held prescriptive easement for use of roadway over plaintiffs' land). 

(case involves allegations of violations of animal waste disposal permits and the NPDES permit requirements; trial court erred in finding that defendants engaged in land application of manure when weather forecast contained greater than 50 percent chance of precipitation within 24 hours after completion; state failed to establish greater than 50 percent chance of precipitation and no expert testimony utilized to explain whether excessive manure application and snow melt was likely to have caused the runoff; case remanded for reconsideration of correct amount of civil penalties). 

(pre-deceased spouse's will created two trusts that gave surviving spouse special powers of appointment that could only be exercised by specific reference; surviving spouse's will left all "property over which I may have a power of appointment" under a residue clause which left property to a daughter; court held that residuary clause referenced only decedent's estate and property in estate, and did not include property subject to the power of appointment). 

(Treas. Reg. Sec. 1.6015-5(b)(1) imposing a two-year statute of limitations on equitable innocent spouse claims is invalid; court follows its decision in Lantz). 

(government property disallowed business deductions for vehicle, travel, entertainment and janitorial expenses, properly disallowed deduction from rental income of passive losses from dental equipment leasing business and that marketing operation not engaged in for profit; no allocation between business and personal use of vehicles, did not establish year placed in service, failed to show travel and entertainment expenses related to dental convention, failed to substantiate other expenses; farming operation engaged in for profit and loan repayment from son should be excluded from income).

(court upholds defendant's denial of married couple's claimed capital gain deduction from sale of farmland for failure to own the farmland for statutorily-required 10-year period; farmland gifted to husband and his siblings in 1990 and operated in family trust until 1999 when it was distributed equally to all siblings before transfer to LLC; farmland sold in 1999 and husband's share of gain was $74,949 and husband attempted to deduct amount of gain on Iowa return; husband did not "hold" the property for required 10-years under Iowa Code Sec. 422.7(21)(a); at time Iowa Dept. of Revenue regulation did not match how holding period of capital asset measured under Internal Revenue Code and did not allow time asset held by any other person if property has same basis as it had in the other person; 2006 amendment to conform to I.R.C. not merely clarification of intent that federal rules apply - it was a substantive change in the law). 

(estate included assets transferred to family limited partnership; no bona fide sale and decedent retained control over assets; decedent retained economic benefits and control over property and transfers did not involve bona fide sale for full consideration; FLP paid over $200,000 of decedent's estate taxes from FLP funds which indicated implicit agreement that transferor would retain enjoyment of transferred property; however, estate entitled to equitable recoupment for income taxes that children and grandchildren overpaid on sale of the assets).

(estate included assets transferred to family limited partnership; no bona fide sale and decedent retained control over assets; decedent retained economic benefits and control over property and transfers did not involve bona fide sale for full consideration; FLP paid over $200,000 of decedent's estate taxes from FLP funds which indicated implicit agreement that transferor would retain enjoyment of transferred property; however, estate entitled to equitable recoupment for income taxes that children and grandchildren overpaid on sale of the assets).