Annotations 09/2011

(taxpayers’ debt on variable life insurance policy exceeded cash surrender value; insurance company notified taxpayers if they did not make minimum loan repayment, policy would terminate resulting in taxable event and filing of 1009-R; taxpayers claimed discharge of indebtedness excludable from gross income due to insolvency; IRS assessed $171,631 income tax deficiency against taxpayers for 2004 tax year, determining taxpayers joint return mischaracterized proceeds from termination of life insurance contract as discharge of debt; U.S. tax court agreed with IRS position, and 10th Circuit Court of Appeals affirmed; discharge of indebtedness only occurs when debts are legally discharged; taxpayers did not prove discharge or insolvency, and were required to report gain as income).

(taxpayer proposes to sell 99-year conservation easement on farmland; land acquired in 1991; taxpayer has owned undivided 1/4 interest in land until gifting 1/2 of such interest to spouse; portion of land enrolled in CRP from 1991 to 2010; balance of land farmed by taxpayer's sibling since 1991; taxpayer farmed other land and reported farm income on Schedule F; aggregation election could be made under Treas. Reg. Sec. 1.469-4(c) for all farming activities; test for material participation requirement of state law exclusion of capital gain upon sale of easement is whether totality of participation in all farming activities that are aggregated; material participation test satisfied overall even if not satisfied with respect to specific farmland at issue; as long as 10-year holding period satisfied, Iowa capital gain exclusion available). 

(petitioner filed complaint seeking permanent injunction against dairy farm operation, its president, and three managers for violating Federal Food, Drug and Cosmetic Act (FDCA); petitioner alleged defendants sold cull cows treated with non-FDA approved drugs and antibiotics without veterinary prescription authorizing use, thereby delivering adulterated food for introduction into interstate commerce; court found dairy administered drugs to animals without “adequate control measures” and failed to keep appropriate records, creating reasonable possibility that edible tissues from animals may be rendered injurious to human health; dairy violated 21 U.S.C. §331(k) by adulterating drugs while held for sale and after shipment in interstate commerce; defendants “extralabel” use of new animal drugs resulted in violative tissue residues in violation of §331(u); court ordered parties to submit proposed agreed injunction within 28 days of court order).

(unemployment rate remained at 9.1 percent which is 13.75 percent higher than what Obama Administration promised it would peak at if 2009 "stimulus" bill passed; rate is 42 percent higher than what Obama Administration projected unemployment would be in September of 2011 if "stimulus" bill passed; and 26 percent higher than what Obama Administration projected unemployment would be if stimulus bill not passed; 103,000 jobs created in September (which number includes the return to work of 45,000 Verizon employees that had been on strike); number of jobs created must be 125,000 each month and labor market must add 285,000 jobs monthly for the next 4 and 1/2 years to archive pre-recession unemployment rate by 2016; labor force participation rate was 64.2 percent; average duration of unemployment rose to 40.5 weeks; hourly wages increased by $.04 and average weekly hours increased by 0.1 hours (essentially returning to July levels)). 

(plaintiff, beneficiary of mother’s estate, alleged father orally agreed in 1970’s that she could purchase house from estate for $30,000; house appraised at $87,000 in estate; will gave all six beneficiaries equal, undivided portion; executors sold property to defendants over plaintiff’s objections in 2004; plaintiff filed suit alleging fraud in 2010; plaintiffs claims were dismissed for failure to allege tortious conduct within two year statute of limitations and failure to “state with particularity the circumstances constituting fraud or mistake”). 

(after several years of trying to enact legislation, effective Sept. 1, 2011, S.B. 18 specifies that eminent domain can only be exercised for "public use" (which is undefined in the Act) and replaces all statutory references to "public purpose"; Act adds public hearing and notice requirements and voting mandates to exercise of eminent domain; Act adds specific requirements for bona fide written purchase offers; Act requires that all public and private entities wanting to exercise eminent domain power to submit letter to state comptroller for review by TX legislature; Act provides landowners with statutory rights to repurchase property that doesn't meet "public use" requirement). 

(taxpayer invested in cell phone industry and obtained FCC licenses to serve rural areas; taxpayer formed S corporation and contributed license to it in exchange for stock; another S corporation created that acquired more licenses and transferred them to LLCs in exchange for LLC assuming debt for licenses; S corporation had no income except that allocated to it from first S corporation; all entities went bankrupt and taxpayer claimed it had sufficient basis to deduct losses because money was borrowed from one S corporation and loaned to another S corporation; IRS disallowed flow-through losses on basis that transfer of funds was not first loaned from the S corporation to the taxpayers and then to the other S corporation; step-transaction doctrine applied; payments recharacterized as loans only via year-end reclassifying journal entries and other documents; allocation of purchase price of equipment to depreciable assets not correct  and that some entities not actively engaged in trade or business and, thus, no amortization for deductions related to FCC licenses).

(petitioner (self-employed, licensed, clinical social worker and psychotherapist) provided services at various assisted living facilities; petitioner failed to keep adequate records separating business and personal expenses; petitioner blamed flood for inadequate records, but did not attempt to recreate records; court granted some business deductions, but denied others for lack of substantiation; petitioner entitled to charitable contribution deduction of slightly over $1,000).