Annotations 08/2011

(plaintiff, in early 2007, seeded and fertilized land owned by defendant that plaintiff had hayed for many years via oral agreement in exchange for rental payment; defendant’s son later cut and sold hay; trial court award compensatory damages of $5,974.73; defendant had not given any notice that arrangement was going to be terminated; trial court judgment affirmed).


(plaintiff sued on numerous theories to recover damages to unimproved tract of real estate incurred upon excavation of lot when water immediately filled excavated troughs; investigating engineer determined that drainage flow of lot had likely been altered by development of surrounding property such that “structural integrity” of purchased lot destroyed; trial court dismissed case; no contract of sale between parties and deed contained no representations concerning condition of lot as being suitable for building, and no similar representations made on any similar document or in any statement by defendants; summary judgment for defendant property on bad faith misrepresentation issue; summary judgment for defendant also proper on lack of disclosure claim; state law does not recognize implied warranty pertaining to sale of real estate). 


(plaintiffs, ranching operation, appealed trial court order allowing culvert and rock bridge placed in irrigation ditch by defendants, servient owners, to remain in ditch; trial court concluded structure did not unreasonably interfere with plaintiffs’ easement rights in ditch; appellate court reversed; “secondary easement” in Montana allows owner of ditch easement right to enter onto servient tenement to maintain ditch; interference with canal or ditch easement is prohibited; defendant's placement of permanent, irremovable culvert seriously interfered with plaintiffs secondary easement rights; appellate court ordered removal of structures).


(no Sec. 179 deduction allowed for airplane owned by spouse's S corporation which husband used only for flying lessons for himself; airplane never used in trade or business; no additional penalty levied because taxpayer acted in good faith reliance on advice of competent tax advisor). 


(taxpayers, married couple, entered into offer-in-compromise with IRS pertaining to 2007 tax year; taxpayers sought refund of additional child tax credit, earned income tax credit and economic stimulus rebate; OIC contained provision that any refund or overpayment in 2007 would be retained by the IRS; court dismissed claim related to overpayment; court agreed with plaintiff that stimulus payment was advance payment for 2008 tax year and not covered by OIC).


(value of catered meals provided to flight crew members that are prepared by independent third party vendor at ground facility excludible from crew members' gross income under I.R.C. Sec. 119 and are taxpayer may deduct 50% of costs associated with providing meals).


(petitioner invented equipment and techniques used in kidney dialysis; petitioner engaged in activity for profit; petitioner mixed trips to China with pleasure and business and failed to show that primary purpose of trips was business – travel expenses not deductible; legal fees associated with obtaining patent in China deductible; other alleged business expenses not deductible due to lack of substantiation); accuracy-related penalty imposed). 


(plaintiff owned oil, gas and mineral rights to property and sought to quiet title to drilling, production, and related development; defendant (surface owner) argued that sandstone part of surface estate; court found the defendants did not provide enough evidence on record for "reasonable awareness" of interest in sandstone; statute of limitation began upon receipt of map 17-years later; mineral determination based on state law in location of property and intentions of the parties; sandstone has commercial value apart from land; court granted summary judgment, except plaintiff's Quiet Title claim §2409(a)(g) for which court does not have subject matter jurisdiction). 


(court rejected argument of petitioner (child’s father) to return to pre-1984 statute that gave primary financial supporter the child exemption in joint-custody situations; petitioner argued he provided more financial support; Congress deliberately removed I.R.C. §152(e) in 1984 stating IRS is not involved in dependency disputes; child’s mother had physical custody for greater part of year at issue).


(taxpayer entitled to sales and use tax refund with respect to purchase of electricity used to run fans and pumps in cooling tower used to produce ethanol; electricity primarily used in ethanol manufacturing process; Iowa Code Sec. 423.3(47)(b) exempts sale of electricity consumed by machinery or equipment described in Sec. 423.3(47)(a) as being "directly and primarily used in processing by a manufacturer"; under Iowa Code Sec. 423.50, electricity is sales tax exempt when it is purchased and used in processing of tangible personal property that is intended to be sold ultimately at retail; "processing" included the conversion of raw material into marketable tangible personal property; cooling tower used directly and primarily in ethanol manufacturing process).


(taxpayers, married couple, entitled to deduct some business expenses under I.R.C. Sec. 162; as for deduction for business miles driven, mileage log showed beginning and ending miles, beginning and ending location and mileage for each trip - even though log did not show total mileage for all auto use during tax year in question or the business purpose of the auto's use, log substantially complied with "adequate records" requirement of Treas. Reg. Sec. 1.274-5T(b)(6) and to extent log deficient, taxpayer provided corroborative evidence sufficient to establish required elements for deductibility of $6,675 attributable to vehicle expense; amounts paid for tolls not deductible because taxpayer couldn't show tolls attributable to business trips; no deduction for uniform and shoe expenses - clothing and shoes adaptable for general, personal use; as to cell phone expense taxpayers did not allocate payments between personal and business use - no deduction available; expenses for office supplies not deductible due to lack of substantiation). 


(Social Security Administration's interpretation of Social Security Act is that posthumously-conceived child who was a natural child of the decedent not entitled to benefits unless inheritance rights exist under state law or other statutory requirements satisfied; posthumously-conceived child not dependent on decedent at time of decedent's death; SSA interpretation reasonable and entitled to deference and state (IA) law does not entitle child to benefits; court noted that, during pendency of appeal, IA legislature enacted law providing intestate succession rights to posthumously conceived children under certain circumstances (H.F. 245, 2011 Session, codified at Iowa Code Sec. 633.220A); SSA's final decision in case was Dec. 22, 2008, and state law not retroactive in application so of no effect on case).


(defendant’s amendments to plaintiff’s conditional use permit for operation of plaintiff’s feedlot upheld; plaintiff applied 800,000 gallons of manure from feedlot to 26 acres of plaintiff’s land and rain caused manure to run-off into public waterways; amendments further restricted plaintiff’s manure applications in terms of  location, time and weather conditions, and defendant required plaintiff to provide county with  financial assurance to offset future manure spills; defendant’s actions neither arbitrarily nor capricious;  state law (Minn. Stat. Ann. §394.301) allows more restrictive conditions for protection of public safety, and permit could have been revoked; defendant held six separate public meetings concerning permit). 


(plaintiff brought product liability claim against general contractor oversaw construction of grain elevator; explosion occurred at grain elevator allegedly because of defective bearing in an elevator leg; grain elevator not a "product" within meaning of Iowa product liability law or Iowa Code Sec. 613.18 (limitations on products liability of non-manufacturers); general contractor not an "assembler" or manufacturer or designer of the bearing or hazard warning system; consequently, general contractor entitled to protection of Iowa Code Sec. 613.18). 


(plaintiffs sued estate seeking injunctive relief and damages for flooding of farm property allegedly caused by field dike built on defendant’s land; trial court concluded applicable statute of limitations barred plaintiffs' claims; plaintiffs argued on appeal that trial court erred in concluding claims time-barred and should have applied 15-statute of limitations for adverse possession because flooding “seized” plaintiffs of possession and use of land and flooding constituted “continuous trespass”;  on appeal, court held two-year statute of limitations applied because plaintiffs’ claims arise from “defective and unsafe condition” of field dike - complaint time-barred).  


(Chapter 7 case; debtor's income tax liability not dischargeable; return due within three years before debtor filed bankruptcy).


(petitioner sold incorporated dental practice and claimed that goodwill proceeds were personal assets subject to tax at long-term capital gain rates; court disagreed). 


(Schedule C deductions disallowed due to lack of substantiation in excess of what IRS allowed). 


(taxpayer's understatement in income (i.e., omission of gross income exceeding 25 percent of gross income) caused by overstating income tax basis does not trigger the six-year statute of limitations set forth in I.R.C. Sec. 6501(e)(1)(A); three-year statute of limitations applies; opinion follows court's prior opinion in Burks v. United States, 633 F.3d 347 (5th Cir. 2011), and also consistent with opinions from the Fourth, Ninth and Federal Circuit Courts of Appeal; Seventh Circuit has decided to the contrary). 


(plaintiffs sued estate seeking injunctive relief and damages for flooding of farm property allegedly caused by field dike built on defendant’s land; trial court concluded applicable statute of limitations barred plaintiffs' claims; plaintiffs argued on appeal that trial court erred in concluding claims time-barred and should have applied 15-statute of limitations for adverse possession because flooding “seized” plaintiffs of possession and use of land and flooding constituted “continuous trespass”;  on appeal, court held two-year statute of limitations applied because plaintiffs’ claims arise from “defective and unsafe condition” of field dike - complaint time-barred).  


(horse/car collision case; court upholds trial court's grant of summary judgment for horse owner; plaintiffs failed to show that defendant failed to exercise due care in keeping his horses enclosed; res ipsa loquitur inapplicable in livestock trespass cases in Kansas; livestock owner not required to make physical inspection of fence - visual inspection sufficient; livestock owner routinely checked fences, regularly repaired the fences; no evidence that livestock had been out in the past). 


(money paid in accordance with settlement agreement is taxable as income rather than capital gains; money was paid for lost profits rather than for the sale of exchange of trade secrets or to terminate rights to a trade secret). 


(debtors, married couple, filed bankruptcy and wife claimed exemption for life insurance proceeds under state (KS) law; wife was named as beneficiary on life insurance policy that husband owned and he died within 180 days of filing bankruptcy petition; proceeds included in bankruptcy estate by virtue of 11 U.S.C. Sec. 541(a)(5)(C); bankruptcy court held that wife had separate and distinct interest in policies and proceeds so that she could exempt them; while 11 U.S.C. Sec. 541(a)(5)(C) did not supersede KS exemption statute and brought the proceeds into bankruptcy estate, wife could claim proceeds as exempt under state law). 


(respondents challenge Texas statute requiring business offering live nude entertainment and consumption of alcohol on premises to remit $5 fee for each customer admitted to state comptroller; Texas Supreme Court concluded fee was “content-neutral” and satisfied four-part “O’Brien” test, thus, did not violate First Amendment; $5 fee was minimal restriction on business and business seeking to avoid fee need only bar alcohol consumption; state met “O’Brien” factors, because state’s interest unrelated to suppression of free expression and restriction on freedoms under First Amendment no greater than essential to further state’s interest; Texas Court of Appeals ruling reversed and case remanded to trial court to consider issues raised by respondents).


(money paid in accordance with settlement agreement is taxable as income rather than capital gains; money was paid for lost profits rather than for the sale of exchange of trade secrets or to terminate rights to a trade secret).


(state trooper had probable cause to stop plaintiff who was operating forklift at 5 mph along shoulder of state highway without slow-moving vehicle sign; applicable statute applies to "farm vehicles" and "special mobile equipment for speeds not in excess of 25 miles per hour"'; while issuing warning, officer noticed smell of alcohol and field sobriety test resulted in plaintiff testing at .18 percent; driver's license properly suspended).


(energy cooperative and liability carrier appeal from judgment in favor of plaintiffs, dairy farmers, for private nuisance damages in amount of $1.25 million; farmers claimed stray voltage from cooperative’s old power line near newly constructed barn and milking parlor caused herd health, production, and milk quality problems; cooperative argued farmers lacked necessary possessory interest in affected property to bring nuisance suit; appellate court disagreed; Restatement 2d of Torts requires possessors to have physical relationship giving control over land and excluding others from such control and intent to exclude others from physical occupation of land; plaintiffs satisfied test and appellate court held farmers had sufficient property rights and privileges to recover damages for private nuisance). 


(some deductions for contract labor expenses disallowed due to lack of substantiation; taxpayer operated bailiff consulting business and hired daily workers to perform evictions, move property and serve process; no 1099-Misc returns filed with IRS until prepared for audit). 


(USDA licensed rights in patents of three grapevines that produce table grapes; patents issued under the Plant Variety Protection Act to CA Table Grape Commission; licenses gave Commission right to sublicense patents and retain 60% royalties from sublicensing efforts; plaintiff grape growers purchased grapevines covered by patents, signed licenses and paid fee; plaintiffs brought action challenging validity and enforceability of patents and inequitable conduct of USDA and Commission; federal court held district court correctly held USDA was a necessary party to plaintiff's declaratory judgment claim based on Patent Act; Section 702 of Administrative Procedure Act waives sovereign immunity for non-monetary claims against federal agencies and waiver broad enough to allow plaintiffs' to pursue equitable relief against USDA on patent claims; court upheld district court ruling dismissing antitrust claims and ruling allowing plaintiffs to pursue inequitable conduct claim). 


(over past four quarters, seasonally-adjusted housing prices fell 5.9 percent, and housing prices 0.6 percent lower in second quarter of 2011 than in first quarter of 2011; June 2011 housing price index 18.8 percent lower than April 2007 peak; in Iowa, housing prices have decreased 1.61 percent over last five years; national average decline over past five years is 18.78 percent). 


(will contest case; surviving spouse challenged jury verdict that will of deceased wife was unenforceable because surviving spouse exerted undue influence; surviving spouse challenged conveyance of 77-acre tract to daughter months before will execution; admission of nurse’s reports to prove undue influence were admissible as business records regarding decedent’s medical treatment; legally sufficient evidence to support jury’s finding of undue influence to subvert decedent’s intention to give family farm to daughter; handwritten deed conveyed farm to daughter; deed was delivered and evidence showed decedent intended to convey farm to daughter).


(interlocutory appeal where city challenged trial court's partial denial of its plea for jurisdiction, and contends underlying case should be dismissed in entirety under doctrine of sovereign immunity; appellees, property owners and operators of agribusinesses near landfill, filed suit against city for inverse condemnation alleging landfill retention ponds overflowed from heavy rains, ruined crops and destroyed structures; city claimed sovereign immunity and contended appellees failed to identify applicable waiver; appellate court held appellees' claims failed to rise to level of inverse condemnation and other claims barred by sovereign immunity; case remanded and appellees allowed to amend pleadings).


(USDA licensed rights in patents of three grapevines that produce table grapes; patents issued under the Plant Variety Protection Act to CA Table Grape Commission; licenses gave Commission right to sublicense patents and retain 60% royalties from sublicensing efforts; plaintiff grape growers purchased grapevines covered by patents, signed licenses and paid fee; plaintiffs brought action challenging validity and enforceability of patents and inequitable conduct of USDA and Commission; federal court held district court correctly held USDA was a necessary party to plaintiff's declaratory judgment claim based on Patent Act; Section 702 of Administrative Procedure Act waives sovereign immunity for non-monetary claims against federal agencies and waiver broad enough to allow plaintiffs' to pursue equitable relief against USDA on patent claims; court upheld district court ruling dismissing antitrust claims and ruling allowing plaintiffs to pursue inequitable conduct claim). 


(court rejected Tax Court's finding that wife of taxpayer not bona fide employee for purposes of medical reimbursement plan; immaterial that reimbursements originated from joint checking account of taxpayer and spouse; taxpayer carefully followed rules for establishing employment relationship and deducting amounts paid under plan; court rejected IRS position that deductibility of medical reimbursements hinges on whether or not expenses might be paid from another source, even if that source has an obligation to pay, as lacking any support in caselaw; on remand, Tax Court is to determine whether wife was bona fide employee by applying common law principles of agency). 


(defendants, off-farm siblings, appeal from trial court judgment reforming terms of parents’ revocable living trusts and determining brother, on-farm heir, was to receive farmland held in limited liability partnership in addition to one-fourth interest in residue of parents’ trusts; defendants claimed parents’ revocable trust indicated farmland held in LLP should have been distributed equally between four children; appellate court affirmed concluding trial court did not err in distributing farmland in LLP to on-farm heir’s generation skipping trust; parents’ revocable trust clearly referenced on-farm heir and evidence showed parents’ intent to gift land to on-farm heir; appellate court ordered documents reformed due to errors in drafting by LLP attorney).


(decedent's will frafted with use of pre-printed form which made specific devises, but did not contain a residuary clause; decedent inherited real and personal property after executing will and died without amending will; court held that after-acquired property passes by intestacy; testator's intent limited to disposition of specific bequests and will made no mention of real estate or non-IRA account). 


(state of PA revised state Medicaid eligibility requirements that had the effect of making it more difficult for disabled persons to qualify for Medicaid benefits by placing strict requirements on pooled trusts; limits allowed the use of pooled trusts only by persons with special needs that were age 65 or under and disqualified all members of pooled trust from receiving exemption if one member failed to meet specified requirements; plaintiffs claimed that restrictions were invalid as exceeding federal law; PA claimed that restrictions did not involve Medicaid eligibility, but only regulated special needs trusts in general; court invalidated portion of law making persons ineligible that were Medicaid-eligible under federal law; court also invalidated portion of law that forced pooled trusts to use one-half of funds remaining in deceased beneficiary's account to reimburse PA for Medicaid services provided during life, and portion that forced trusts to only make expenditures reasonably related to beneficiary's needs).


(court affirms lower court determination that generation-skipping trusts established for settlors' children should be reformed; during life settlors (married couple) executed identical revocable trusts specifying that interests in LLLP pass to GSTT trusts; before deaths, some farm land deeded to LLLP; upon death of both settlors, trustee petitioned court for reformation order and scrivenor submitted affidavit that settlors intended to give their LLLP interests only to the trust for a son; clear and convincing evidence present to support reformation).


(retailer's sales of farm items are exempt from state sales and use tax if they are used solely for planting, harvesting, processing or transporting a forestry product; exempt items include such things as chainsaws and hand pruners). 


(brother, partner in family farming and ranching partnership, appeals trial court order dissolving partnership and settling capital accounts; purpose of partnership between brothers was to pay real estate mortgage payments of individual partners so partners could own land and homes individually without bank mortgages; appellate court held trial court finding that partners agreed there would be no accounting for unequal contributions of proceeds from sale of individually owned land to pay partnership debt not clearly erroneous; trial court ordered to revisit partner’s entitlement to reimbursement for amounts charged to personal credit card; trial court erred in determining partner’s transfer of interest in land to wife violated Uniform Fraudulent Transfer Act and trial court erred in concluding partner not liable for breach of fiduciary duty for failing to pay partner’s life insurance premiums).  


(when an estate makes an I.R.C. Sec. 6166(b)(8) (applicable to holding company stock) election, it cannot use the deferral option of I.R.C. Sec. 6166(a)(3) (general installment payment election); election applicable to all entire estate tax liability and not the portion that qualifies under I.R.C. Sec. 6166(b)(8); there is not ability to make a "bifurcated" election). 


(dispute over insurance coverage between plaintiffs and defendants, owners of donkey basketball entertainment business, arose when worker suffered paralyzing injury while stacking and moving bales of hay for use in business; owners sought coverage for liability to worker under insurance policy issued by plaintiff; plaintiff filed action seeking declaratory judgment that they were not obligated to cover defendants in this case; court interpreted language of insurance contract  and found in favor of owners; owners (as insured) intended to purchase insurance for company operating under new name and insurer was aware of name change; injuries sustained while caring for animals covered injury under policy; worker was not “employee” at time of injury, thus, employer’s liability exclusion does not apply; court ordered plaintiff to provide coverage).


(defendant seller appealed trial court order to complete exchange of land with plaintiff buyer; buyer approached seller proposing land trade to satisfy setback requirements of local zoning ordinance; parties shook hands and buyer proceeded with construction plans; thereafter, seller threatened to demolish building for failure to pay more than amount which parties originally agreed; buyer sought specific performance of contract; seller claimed statute of frauds precluded enforcement of oral agreement and agreement too indefinite for enforcement; appellate court held that buyer occupied parcel and undertook expense of construction in reliance upon agreement; doctrine of part performance applied as exception to statute of frauds; ordered parties to perform on oral agreement). 


(11 U.S.C. Sec. 1222(a)(2)(A) does not apply to income taxes incurred post-petition by the debtor).


(taxpayers, dairy-farm operators, appealed defendant's issuance of 16 jeopardy tax assessments for portions of tax years 2007 through 2009 for assessed income tax and sales tax liabilities; taxpayers asserted the jeopardy assessments were void as a matter of law because IDSR failed to provide taxpayers with an administrative hearing following protest, violating constitutional procedural due process rights; IDSR claimed tax court lacked subject matter jurisdiction over taxpayers’ appeal because use of jeopardy assessments was warranted and use of best information available (BIA) assessments was reasonable; tax court denied IDSR motion for summary judgment and ordered department to void all jeopardy assessments against taxpayers because department did not show presence of statutorily prescribed exigent circumstances that taxpayers intended to quickly leave state, remove property from state, or conceal their property in the state).


(appellant inherited two-thirds interest in real estate from father’s estate; father’s second wife’s heirs inherited one-third after surviving spouse made spousal election against estate; appellant appealed court order setting aside his right to purchase other heirs’ one-third interest in parcel; during probate, appellant argued certain estate property was owned personally by him; appellate court did not address legal claims and dismissed appeal because order appealed was interlocutory and not an appealable final judgment). 


(state (MD) law allows creditors filing claims before personal representative of estate appointed to file with register of wills in county of decedent's residence at death; decedent live in one county until taken to hospital in another county after an injury, and remained in hospital for 11 months until death; defendant filed claim for hospital bill of $206,343 with register of wills where hospital located and when will later admitted to probate in such county, personal representative denied defendant's claim as not being timely filed because decedent did not "reside" in such county at death; court allowed hospital's claim on basis that creditor must be able to easily determine residency and on basis of objective facts concerning residency; court noted that mere presence in county at time of death does not establish residency under state law, but it was highly unlikely that decedent would have ever been able to return home). 


(estate executor paid estate tax in 2003 and filed Form 706 in 2004 and then filed claim for refund of estate tax in 2007; IRS moved for summary judgment on basis that refund sought was outside look-back period set forth in I.R.C. Sec. 6511(b)(2)(A) which limits refund to portion of tax paid within look-back period of three years immediately preceding filing of claim (plus the period of time for filing the return); executor received extension of time to file Form 706 and also received second extension; court affirmed trial court decision that IRS had no authority to grant second six-month extension based on Treas. Reg. Sec. 20.6081-1; thus, because executor's claim filed more than three years plus six months after payment of estate tax, refund request was untimely). 


(IRS determined that self-dealing was not present upon executor's sale of limited partnerships held in marital trust of pre-deceased spouse for which decedent (as surviving spouse) was sole beneficiary; after surviving spouse died, trustees of testamentary charitable lead trust inherited part of limited partnerships from decedent; buy-sell agreement triggered upon decedent's death requiring executor to sell to the limited partnership, the limited partnership interests; no self-dealing as sale qualifies as estate administration). 


(estate executor paid estate tax in 2003 and filed Form 706 in 2004 and then filed claim for refund of estate tax in 2007; IRS moved for summary judgment on basis that refund sought was outside look-back period set forth in I.R.C. Sec. 6511(b)(2)(A) which limits refund to portion of tax paid within look-back period of three years immediately preceding filing of claim (plus the period of time for filing the return); executor received extension of time to file Form 706 and also received second extension; court affirmed trial court decision that IRS had no authority to grant second six-month extension based on Treas. Reg. Sec. 20.6081-1; thus, because executor's claim filed more than three years plus six months after payment of estate tax, refund request was untimely. [note - case similar to Estate of Telesmanich v. Comr., T.C. Memo. 2011-181], in which court held that incorrect information provided by IRS to estate executor was not proven to be the reason the executor failed to timely pay taxes because executor had no access to the funds to pay taxes until eight years after decedent's death caused by international probate matters; I.R.C. Sec. 6404(e)(1) inapplicable to excuse abatement of interest).


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