Case Summaries 07/2011
(for truckers and other owners of heavy highway vehicles, next federal highway use tax return (Form 2290) due Nov. 30, 2011, rather than Aug. 31, 2011; extension due to scheduled expiration of highway use tax on September 30, 2011, and need to eliminate confusion if the Administration signs any reinstatement or modification into law; IRS specifies that returns should not be filed nor payments made before Nov. 1, 2011; states must accept Schedule 1 that was stamped by IRS for previous year's return, thus farmers can register covered vehicles with state or local authority).
(case involved question of whether gross estate of surviving spouse had to include value of assets contained in credit shelter trust established under pre-deceased spouse's will; under the trust terms as stated in pre-deceased spouse's will, during surviving spouse's lifetime the co-trustees were authorized to apportion trust income among surviving spouse, the pre-deceased spouse's children and grandchildren “in accordance with their respective needs"; co-trustees also given right and power to invade trust corpus and to use such part thereof and if necessary, all of it, for the necessary maintenance, education, health care, sustenance, welfare or other appropriate expenditures needed by surviving spouse and the other trust beneficiaries taking into consideration the standard of living to which they are accustomed and any income available to them from other sources; surviving spouse never received any distributions from trust and question was whether term "welfare" caused trust to not be limited by ascertainable standard with result that surviving spouse held a general power of appointment over trust property at time of death which would cause the value of the trust assets to be included in the surviving spouse's estate; legal property rights that surviving spouse held at death determined under state law and court determined that Mississippi Supreme Court would construe "welfare" to further clarity "maintenance and support" in accordance with surviving spouse's standard of living; phrase "other appropriate expenditures" related to support-related purposes as necessary to maintain surviving spouse's accustomed standard of living; power limited by ascertainable standard and trust assets not included in decedent's gross estate).
(Ch. 12 debtor objected to creditor claim under farm equipment lease; debtor asserted lease was disguised as purchase agreement and security agreement which was not entitled to preferential treatment as lease; agreement provided debtor would make monthly payments for use of equipment with option to purchase at end of term at 10% fair market value at outset of lease; court held agreement constituted secured transaction under Neb. Rev. Stat. §1-203 and was not a lease; amount to purchase equipment at end of term was nominal, because only economically sensible decision was for debtor to exercise purchase option).
(amount petitioner ordered by court to pay ex-wife to cover her attorney fees and costs are not deductible as alimony because obligation lasted beyond ex-wife's death).
(petitioner deemed to be engaged in trade or business of renovating and selling homes; entitled to substantiated business deductions under I.R.C. Sec. 162; but cannot claim IRS standard business mileage expense deduction on pickup truck because truck also subject to expense method depreciation election under I.R.C. Sec. 179 (court noted that property that is held only for production of income is not eligible for Sec. 179 expensing).
(claim based on interference which resulted in execution of will that disinherited plaintiffs accrues upon death of testator; case involved family dispute and ownership of farm; no damages until decedent's death, so claim did not accrue until that time).
(in subsequent opinion, court holds that Tax Court did not err in determining taxpayer collaterally estopped from challenging finding that he was self-employed truck driver rather than employee of trucking company with result that income subject to self-employment tax; petitioner determined route to take and order of pick-ups; taxpayer not paid pre-determined wage, but percentage of gross and did not accrue vacation or pension benefits; taxpayer never sent a W-2 and did not object to receiving Form 1099; certain truck-lease payments would have been treated as deductible business expenses if IRS had examined return before issuing deficiency; case remanded on this sole issue).
(petitioner's 11-year old sister satisfied definition of "qualified child" under I.R.C. Sec. 152(c) such that petitioner could claim dependency exemption, EIC and child tax credit on behalf of sister; mother unable to claim petitioner as dependent for tax year at issue under facts of case).
(petitioner cannot claim dependency exemption or EIC for nephew or girlfriend's child because neither of them meet the definition of "qualifying child" under I.R.C. Sec. 152(c) or 152(d); income limitations applied).
(petitioner and wife divorced and divorce decree stated that petitioner was to pay the mortgage on the former marital home and receive the tax deduction for doing so with such payment not being taxable to former spouse; if former spouse sold home, she was to pay off the mortgage balance and be reimbursed by petitioner; she sold home and petitioner and her entered into settlement agreement as a result of court action with result that petitioner would pay her $20,000 and petitioner's maintenance obligation would terminate; during tax year in issue, petitioner paid former spouse over $21,000 and deducted the amount as alimony; amount not deductible because obligation to continue making payments did not terminate in the event of former wife's death, but just by satisfaction or mortgage or reimbursement to former wife of mortgage payoff amount).
(petitioner's drag racing activity not entered into with requisite profit intent based on evaluation of all factors; court determined that petitioner engaged in activity because of long-held interest in drag racing and derived substantial personal pleasure from the activity and had no good-faith expectation of making profit; losses not deductible).
(non Illinois residents, for Illinois income tax purposes, may allocate all of any federal deduction for alimony that is paid; the limit on the credit for taxes paid to other states is computed by allocating the alimony deduction paid to other states as if they followed the same allocation principles as Illinois).
(estate could not deduct $1.24 million in caregiver expenses paid to son on behalf of decedent due to lack of substantiation; administrator fee deductible along with attorney fees incurred in lawsuit challenging IRS claim of deficiency).
(salmon fishing regulations promulgated by Alaska Department of Fish and Game pursuant to the Upper Cook Inlet Salmon Management Plan which shortened fishing season and put additional limits on number of salmon that could be harvested by any particular fisherman did not violate property rights of Alaskan commercial salmon fishermen; existing 10-year leases and permits not devalued by regulations; fishermen did not have recognizable property interest in permits and lease terms specifically referenced ability of state to diminish value of lease via regulation which constituted a contractual waiver of ability to challenge regulations).
(travel expenses incurred by contractor in traveling between home and work non-deductible commuting expenses; no depreciation allowed for petitioner's vehicle and tools, but other business expenses substantiated and deductible; accuracy-related penalties imposed).
(petitioner entitled to neither dependency exemption nor child tax credit; child did not satisfy definition of qualifying child contained in I.R.C. Sec. 152; petitioner failed to attach required declaration from child's mother where she agreed not to claim dependency exemption for child).
(electricity storage device at location of aerogenerators constitutes qualified property (under I.R.C. Sec. 48(a)(5)) located at a qualified investment credit facility that is eligible for investment credit against cost of facility; credit potentially subject to recapture under I.R.C. Sec. 50(a)(1)(A)).
(a hearing is scheduled in Washington, D.C. concerning the Independent Payment Advisory Board (IPAB) created under the Patient Protection and Affordable Care Act; IPAB consists of 15-member panel modeled after England's National Institute for Clinical Excellence which was created to ration health care in an attempt to keep health care costs down by rejecting drugs and medical treatments on grounds of cost-effectiveness; Secretary of Health and Human Services in process of promulgating regulations governing IPAB; IPAB referred to as "death panel" by some politicians).
(under state (WA) law, property that is used principally for agricultural purposes must be foreclosed judicially; deed of trust to subject property stated that property was not used principally for agricultural purposes; but, plaintiff claimed that on date deed of trust executed property contained apple orchard of over 100 trees which annually produced apple crop for commercial sale; in recent years, plaintiff processed the apples for juice for personal consumption; plaintiff failed to establish that "principal" use of property was production of apples, thus plaintiff not entitled to injunctive relief).
(court order restores Endangered Species Act protection for threatened Preble's meadow jumping mouse in Wyoming; 1998 rule had protected the mouse in its entire range in Colorado and Wyoming, but USFWS removed ESA status from mouse in Wyoming in 2008 under rule which allowed ESA protection in one state but not necessarily in another; rule invalidated and protection for mouse reinstated in Wyoming as of August 6, 2011).
(wireless cellular assets (i.e., antenna support structures) are in asset class 48.14 with a recovery period of 15 years in accordance with Rev. Proc. 87-56; cell site equipment (excluding the switch) and leased digital equipment are in asset class 48.12 with a recovery period of 10 years).
(IRS announces that it is ceasing investigation into selected I.R.C. Sec. 501(c)(4) organizations and whether contributions to such organizations are subject to gift tax; IRS has lost two cases on the issue - Stern v. United States, 436 F.2d 1327 (5th Cir. 1971) and Carson v. Comr., 641 F.2d 864 (10th Cir. 1981), aff'g., 71 T.C. 252 (1978); federal law prohibits gift tax assessments on "political organizations" as defined by I.R.C. Sec. 527 by virtue of I.R.C. Sec. 2501(c)(4); Senate Finance Committee had begun questioning the IRS tactics as political meddling).
(report denotes that persons not authorized to work in the U.S. were paid $4.2 billion in refundable additional child tax care credit (ACTC); American Recovery and Reinvestment Act of 2009 increased ACTC eligibility by changing income threshold such that, for 2010 2.3 million filers unauthorized to work in the U.S. claimed ACTCs totaling $4.2 billion).
(landowners set forth sufficient evidence to rebut presumption that county roadway is four rods wide; landowners objected to county's removal of trees and fences along their farm property as not being within county's right-of-way).
(debtors sought confirmation of Chapter 12 plan; while no creditors objected, court raised issue of whether plan could provide for payment of "crammed-down" mortgage loan secured by debtors' real estate over period exceeding 5-yr plan period that is the maximum in Chapter 12 cases; at issue was property valued at $400,000 but subject to lien of $400,000 and second lien of $100,000; debtors proposed to pay trustee $350 monthly for 36 months (total of $12,600) and trustee would pay $400,000 to creditor with interest at 4.25% per annum over 360 months - so question was whether debtors' plan could provide for payment of restructured mortgage claim over 30 years pursuant to 11 U.S.C. Sec. 1225(a)(5) - which allows a plan to pay a secured creditor the value of the collateral over time as long as the deferred payments have a present value equal to the value of the collateral; court concludes that there is no statutory limit in Chapter 12 on length of time over which secured claims may be paid, thus plan's 30-year amortization of crammed-down mortgage loan consistent permissible; plan confirmed).
(President Obama incorrectly states that, “We actually now have the lowest tax rates since the 1950s. Our tax rates are lower now than they were under Ronald Reagan. They’re lower than they were under George Bush — senior or George Bush, junior.”; fact - present 35% rate higher than the 28% rate in effect from 1988-1990 and 31% rate in effect for 1991 and 1992).
(some medical expenses deductible, but other expenses and charitable contributions not deductible because not substantiated).
(unmarried couple that lived together and shared housing costs but where house in male’s name did not allow female to deduct mortgage interest; female not equitable owner of home because she had no legal right to rents or profits from home, bore no risk of loss associated with home and had no right to obtain legal title by paying balance of purchase price).
(petitioner, retired minister, established business but failed to conduct it with requisite profit motive; expenses deductible to extent of income; accuracy-related penalty upheld).
(day trader that engaged in substantial trading activities and lost over $2 million in 2000, $400,000 in 2001 and $278,000 in 2002 held to be an investor rather than one engaged in trade or business of trading securities; taxpayer engaged in day trading approximately 37 days annually during the tax years in issue and entered into an average of 135 trades; number of days engaged in trades not substantial; taxpayer held a majority of the stocks for over 30 days with few stocks sold on same day as purchased; capital loss treatment applied (had there been gains, gains would have been taxable at capital gain rates).
(petitioner’s rental real estate activity subject to passive loss rules; material participation rules not satisfied; petitioner not a real estate professional).
(time spent donning and doffing of poultry processing workers' personal protective equipment does not constitute "changing clothes" under 29 U.S.C. Sec. 203(o) and is, thus, not compensable under the Fair Labor Standards Act).
(four years before death, decedent executed quitclaim deed to 160 acres and home to petitioner, but retained life estate; will did not mention deed; deed never delivered, but stored with decedent’s will in decedent’s safe; petitioner did not know about deed; deed did not fail for lack of delivery because decedent had intent to make sure petitioner had farm and home).
(case involves dispute concerning storage of natural gas under land that plaintiff owns; storage field surrounded by "buffer zones" in which no natural gas can be extracted because of interference with operation of storage field; buffer zones effectively bar plaintiff from entering into lease for natural gas deposits under plaintiff's property or an agreement to store gas on plaintiff's property; plaintiff alleges trespass, unjust enrichment, conversion, chemical contamination, negligence, taking under the PA Eminent Domain Code and Fifth Amendment of U.S. Constitution, and violation of right to pure water guaranteed under PA Constitution; parties agree that sole remedy rests in PA Eminent Domain Code; thus, only portion of complaint brought pursuant to Eminent Domain Code proceeds to discovery to determine if defacto taking has occurred).
(in negligence case, court must instruct jury to consider the known or reasonably foreseeable characteristics of lawful visitors when a lawful visitor is injured by a natural condition on the defendant's property; failure to give such instruction is error).
(expenses paid to caregivers on behalf of decedent who suffered from dementia were deductible under I.R.C. Sec. 213(d)(1)(C) as long-term care services as defined in I.R.C. Sec. 7702B(c); medical doctor certified need for services).
(Roth IRA conversion scheme failed; taxpayer had traditional IRA and established Roth IRA with $2,000 contribution; both IRAs established new corporations with corporation owning the Roth IRA receiving $2,000 Roth contribution; and corporation owning traditional IRA receiving $1.3 million of traditional IRA assets; corporations then merged together with result that Roth IRA owned $1.3 million in assets where they would allegedly be permanently tax-free; scheme set up by Grant Thornton accounting firm in Kansas City to which client paid $120,000 for the scheme; court determined that taxpayer had no business purpose for the transaction, but merely used corporate formations and mergers in attempt to avoid taxes and disguise excess contributions to Roth IRA; penalties imposed; scheme ended up costing taxpayer $425,513 in taxes and approximately $105,000 in penalties).
(report projects that ARRA (a.k.a. 2009 stimulus bill) added or saved slightly less than 2.4 million jobs (private and public) at a cost (to date) of $666 billion - $287,000 per job; report also points out that over during first half of 2011, economy would have added or saved more jobs had ARRA not been enacted than it has with enactment of ARRA; report notes that unemployment was 7.3 percent at time ARRA enacted and is presently 9.1 percent and national debt is $4.5 trillion higher now than prior to enactment).
(unemployment rate fell to 9.1 percent (which is 13.75 percent higher than what Administration promised it would peak at if 2009 "stimulus" bill passed; and 42 percent higher than what Administration projected unemployment would be in July of 2011 if stimulus bill passed; only 117,000 jobs created and labor market added 154,000 jobs in July; number must be 125,000 and 285,000 respectively every month for next 5 years to achieve pre-recession unemployment rate by 2016; labor force participation rate was 63.9 percent; long-term unemployed (jobless for 27 weeks or more) accounted for 44.4 percent of the unemployed).
(USDA food inspector slipped and fell on piece of chicken viscera at plaintiff’s plant; inspector was invitee because plaintiff could not have conducted business without presence of USDA inspectors; plaintiff failed to produce evidence to show adherence to inspection and cleaning procedures on day of inspector’s fall).
(debtor’s attempted transfer of ownership units in LLC to third party in exchange for release from a note forbidden by LLC Operating Agreement; thus no transfer occurred and there was no preferential transfer under 11 U.S.C. §547 or fraudulent transfer under 11 U.S.C. §548).