Annotations 02/2012

(promissory note held by Medicaid applicant’s spouse is countable resource; state law excluding promissory notes from countable resources only applicable to promissory notes that Medicaid applicants hold and has no application to promissory notes that spouses of applicants hold; penalty period imposed because spouse purchased annuity within five-year look-back period).

(study by John Christy, Alabama state climatologist, showing that snowfall in Sierra Nevada has not changed materially in 130 years; study concludes there is no evidence of climate change; over last 50 years, amount of snow in mountains has not decreased during same time that greenhouse gas supposedly increased impact of "global warming").

(petitioners, married couple, not entitled to deduction for medical and dental expenses beyond amounts allowable by IRS; wife injured in auto accident and compensated by insurance for medical expenses; lack of substantiation with respect to dental expenses and no evidence offered to allow estimation of such expenses; photocopies of adding machine printouts not sufficient to substantiate other medical expenses). 

(I.R.C. §2704 applied to lapsing voting rights of stock held by decedent (founder of Atlanta Falcons NFL franchise) at time of death such that value of estate enhanced from $22 million to $30 million; at time of death, decedent controlled corporation (and decedent’s family controlled corporation both before and after decedent’s death) and owned class A common stock having 11.64 votes per share; class B stock had one vote per share; articles of incorporation specified that upon decedent’s death, or decedent’s sale or transfer of class A shares, class A shares to be converted to class B shares with effect that voting power of class A shares lapsed; I.R.C. §2704 applied such that lapse disregarded; fact that family lacked control to reverse lapse of voting power immaterial; lapse occurred at time of death and not when articles amended to create the lapse conditions; no gift tax return filed when articles amended; restriction on voting rights not bona fide business arrangement because that provision (I.R.C. §2703(b)(1)) only applicable upon sale of shares). 

(petitioner not entitled to deduct claimed Schedule C expenses; petitioner operated sign business but had also obtained real estate license and did some work as real estate agent; petitioner never had revenue from real estate business, but claimed expenses attributable to real estate business; no objective evidence that petitioner intended to make profit from real estate business; no supportive evidence that decline in housing market barred petitioner from making real estate sales).

(petitioner failed to establish that Cessna airplane not used predominately in petitioner's business for purposes of I.R.C. Sec 179, and Sec. 179 recapture triggered; Sec. 274(d) substantiation requirements not satisfied to establish specific business purpose for use of plane - entries in spiral notebooks inadequate by merely listing date and destination of airplane and automobile trips; basis in S corporation not substantiated; accuracy-related penalty imposed).

(IRS guidance specifying that Schedule K-1 can be filed electronically; effective Mar. 5, 2012).

(plaintiffs, landowners, sued defendants (neighbors) over boundary line and also sought injunctive relief for what they claimed was a trespass; trial court ruled for defendants; on appeal, court determined that evidence sufficient to support finding that fenced enclosure of pasture not treated as boundary fence; but, evidence was sufficient to support finding that landowner failed to exclusively use land that was presently horse pasture). 

(plaintiff owns two race horses, and contracted with defendant to care for and train the horses; contract between the parties stated that plaintiff remained responsible  for all expenses incurred by the horses; defendant claimed that plaintiff failed to pay for care of horses over a two-year period; plaintiff filed counterclaim that defendant breached contract by failing to properly care for and train the horses; trial court ruled for defendant on breach of contract claim; appellate court reversed based on lack of evidence to support trial court judgment).

(plaintiff's dog bitten by defendant's dog when defendant's dog escaped from fenced-in backyard; trial court granted defendant's motion for summary judgment as to plaintiff's request for punitive damages; an appeal, court determined that trial court should have granted summary judgment to defendant on all points; no evidence in record that defendant's dog had previously attacked other dogs or persons; evidence of other behavior of defendant's dog misplaced; plaintiff's claim for veterinary expenses denied because it was raised for the first time on appeal).

(plaintiff injured while working in pasture on ranch when he was pinned beneath overturned ATV; brought negligence action against employer for failing to make timely effort to search for him; evidence at trial established that injury would have been much less severe had plaintiff been discovered sooner; jury awarded plaintiff $750,000 for his injuries, court added costs and prejudgment interest; employer and plaintiff both appealed; appellate court adopted Restatement (Third) of Torts § 40(a) and (b)(4) and held employer had special relationship with employee who is in danger or injured, which gives rise to a duty to protect the employee; plaintiff sought additional costs to be awarded, but presented no legal authority and award affirmed; plaintiff also sought review of prejudgment interest award; unliquidated claims are not subject to pre-judgment interest, because plaintiff presented settlement offer rejected by employer but lower than jury verdict, court held interest should have been computed on entire $750,000 award; remanded to trial court for recalculation of interest due).

(defendant obtained permission from town to operate one-unit bed and breakfast at their home; plaintiff claimed that such use violated deed covenants that restricted property use to single family private residential purposes, and sought permanent injunction; trial court granted summary judgment for plaintiff; on appeal, court noted that plaintiff had to establish that covenants at issue ran with the land by showing that the grantor and grantee intended the covenant to run with the land, that there was privity of estate between the parties and that the covenant touches and concerns the land; court determined that plaintiff failed to carry burden; insufficient evidence present that parties intended covenants to run with the land – no deed language that covenants would be binding on sellers and their heirs and assigns; plaintiff not entitled to summary judgment). 

(plaintiffs, homeowners residing in neighborhood association associated with non-profit formed to negotiate with energy companies for mineral rights to drill natural gas, sued defendant (oil and gas company) for breach of contract, promissory estoppel and negligent misrepresentation upon not being offered contracts on same terms and conditions as some neighbors; defendant backed out of contracts (lease agreements) upon precipitous drop in natural gas prices; trial court dismissed claim for negligent misrepresentation; on appeal, court held that plaintiffs lacked standing on breach of contract claim and on promissory estoppel claim, and affirmed trial court on negligent misrepresentation issue; defendant and non-profit contracted between themselves only and plaintiffs did not sign any documents or pay dues to become member of non-profit; no clear contractual intent to benefit third parties present). 

(legal malpractice case based on attorney's failure to take proper legal steps to insure client's land was transferred to intended beneficiaries before client's death; client instructed attorney to sever joint tenancy on two tracts held with spouse, deed client's portion to the client’s daughters; lawyer advised that these steps were unnecessary because the client’s will would “take care of it”; client died with the tracts held in joint tenancy; surviving spouse renounced will, and daughters sued attorney claiming his error caused the spouse to receive the intended tracts of land against their mother’s intentions; district court dismissed case on statute of limitations grounds; the court agreed state statute (735 ILCS 5/13-214.3(d)) applied and established a six-month statute of limitations for malpractice actions when the attorney’s omission occurs upon the death of the client; on appeal, the court determined that the six-month statute of limitations did not apply because the injury alleged in the petition was not caused by the client’s death, but between when she directed the deeds to be changed in March 2007 and her death in May 2007; because the petition was filed within the two year statute of limitations; case reversed and remanded).

(in letter from Deputy Commissioner's Office of Treasury to Senior V.P. of Retail Industry Leaders Association, IRS states that it will not require businesses to reconcile gross receipts to Form 1099s issued by credit card companies with respect to 2011 income tax returns; IRS states that they have no intent to require reconciliation in future years). 

(owner of wholly-owned disregarded entity cannot split entity interest into separate classes of interests so as to be able to allocate basis and income, loss, deduction and credit among the separate classes; IRS noted that Rev. Rul. 99-5, 1999-1 C.B. 434 governs taxation of single-member owner of disregarded entity and provides that taxpayer selling portion of interest in disregarded entity treated as selling pro-rata share of each asset entity owns; I.R.C. does not provide for “split eligible entity interest transaction”). 

(unemployment rate increased to 7.9 percent during January; 157,000 net new jobs added; unemployment rate nearly 60% higher than what Obama Administration promised it would be if 2009 "stimulus" package passed and over 40% higher than what Administration promised unemployment would be if "stimulus" package not passed; labor-force participation rate unchanged; average duration of unemployment dropped to 35.8 weeks due to increase in newly unemployed; GDP shrank in fourth quarter of 2012). 

(settlor of revocable trust adjudicated as incompetent and brother appointed as limited guardian; settlor then amended trust which changed disposition of estate even though trust specified that settlor could not amend or revoke trust once determined to be incompetent; but, trust also said right to amend or revoke could be restored by court order or if trustee received written opinions from two “licensed physicians” that settlor was competent; two letters obtained, but only one physician “licensed”; settlor died and amendment challenged; trial court determined that amendment invalid and that decision affirmed on appeal). 

(petitioner purchased three-acre lakefront property and had existing house demolished to build a new home; demolition conducted after house donated to local fire department for burning in firefighter training exercise; $76,000 charitable deduction claimed for donation; Tax Court disallowed deduction and Tax Court decision affirmed on appeal; fire department only got right to burn house down and return underlying tract to petitioner without house).

(court rules in a split opinion that Proposition 8, passed by California voters, which defines "marriage" in the state Constitution as between one man and one woman, is unconstitutional; as result of different court opinion that created right to homosexual "marriage" in 2011 by modifying the interpretation of the state Constitution and how state initiative process works, court holds that state voters could not amend state constitution to disaffect persons who want same sex marriages; court's opinion gives judges ability to create "rights" beyond the voters' ability to amend through initiative process; opinion by Reinhardt, the most overruled Circuit Court judge in the U.S).

(plaintiff volunteered to chaperon night hike for sixth graders; trail conditions were dark and slick and plaintiff slipped while crossing a creek bed, injuring himself; plaintiff filed negligence claim; trial court dismissed suit because plaintiff had assumed risk inherent in participating in night hike; appellate court affirmed on basis that risks were ordinary activity inherent risks of night hiking).

(petitioners (married couple) did not timely file returns from 1998 through 2003; upon filing returns, petitioners claimed large deductions including NOL carryovers, business losses and office expenses - including Sec. 179 deduction for fish tank and dining room furniture; IRS disallowed all losses and expenses for lack of substantiation and assessed additional tax and penalties; petitioners claimed they maintained adequate records but didn't produce any at trial; court failed to believe that petitioners were credible; penalties upheld - petitioners put blame on return preparer for late-filed returns due to preparer serving prison sentence for murdering spouse and person who took over for preparer made numerous mistakes, but court upheld penalties). 

(irrevocable trust provides that beneficiary has lifetime power of appointment over trust to distribute any portion of trust income or principal during life or at death to charitable organizations; distribution of gross income from trust to charitable organizations made in accordance with power are made "pursuant to terms of the governing instrument" as required by I.R.C. Sec. 642(c)(1) and qualify for charitable deduction). 

(self-employed real estate agent contributed to pension plan and deducted contribution on line 19 of Schedule C rather than line 18 of Schedule C on belief that she could deduct pension contributions in the same manner as a corporation; court determined that petitioner’s contribution not an I.R.C. §162 business expense for self-employment tax purposes, but it is an AGI adjustment for income tax purposes; petitioner owes self-employment tax on contribution, but not income tax; no accuracy-related penalty imposed).

(case involves appropriate valuation of donated conservation easements with specific issue of whether “highest and best use” of land subject to easements was gravel mining or agricultural use as irrigated farmland; petitioners, corporation and two couples, owned land with another corporation in undivided one-fourth interests; tract was 1,560 acres with part used for gravel mining; with help of local accounting firm (Kennedy & Coe), petitioners conducted series of like-kind exchanges impacting approximately 163 acres not zoned for mining gravel; after transactions, each petitioner owned about 55 acres outright; appraiser hired and each taxpayer claimed charitable contribution donation under “before and after” approach due to easement restrictions; petitioner claimed highest and best use was for gravel mining; IRS denied deductions; court determined that highest and best use of land was for agricultural use resulting in lower value of property before imposition of easement restrictions, resulting in deduction of $100,000 rather than $2,000,000; court opined that highest and best use of any land is its current use unless taxpayer shows compelling reason for different use; petitioners had also overstated demand for gravel; accuracy-related penalty not imposed; court noted that for post-8/17/06 filed returns, “reasonable cause” exception to penalties repealed).

(under sublease agreement, lessee agreed to construct building on land lessor’s land; construction financed by lessor in addition to lessee’s contribution; lessor to own all of real property and most constructed improvements and lessee to own all personal property and some real property improvements to be constructed; agreement required lessee to incur specified indirect costs associated with construction (not substitute for rent); costs must be capitalized in accordance with I.R.C. §263A – statute denies deductions for amounts paid for new buildings or permanent improvements that enhance property value).

(debtors moved to Massachusetts from Arizona less than 730 days prior to filing bankruptcy  so met requirements for domicile in Arizona under code; trustee argued exemptions claimed by debtors must be based on Arizona law, which is an “opt-out” state, meaning Arizona debtors can only use state exemptions; debtors argued this applied only to current residents; court held Arizona’s opt-out requirements applies only to residents, state’s statute does not have extraterritorial powers, and federal preemption does not apply to opt-out statutes; debtors can rely on federal exemptions).

(series of transactions proposed as part of plan to divide S corporation between family members qualifies as reorganization pursuant to I.R.C. Sec. 368(a)(1)(D); transaction done to avoid future disputes among family members over management and other business purposes).

(U.S. labor force shrunk by 2.5 million jobs in January as compared to December of 2011, and labor force participation rate declined to 63.7 percent, a 30-year low; BLS report notes that there are fewer non-farm payroll jobs in the economy as of January 2012 than there were in 2000 despite the U.S. population increasing by 30 million over the same timeframe; BLS also notes that in 1980, less than 30 percent of all jobs were low-income while that number today exceeds 40 percent; due to shrinkage of labor force by 1.2 million (December to January), unemployment rate fell to 8.3 percent; unemployment rate 13.0 percent higher than what Obama Administration promised unemployment would peak at if 2009 "stimulus" bill passed; rate is 38.3 percent higher than what Obama Administration projected unemployment would be in February of 2012 if "stimulus" bill passed and 22.0 percent higher than what Obama Administration projected unemployment would be in February of 2012 if stimulus bill not passed; relatedly, Treasury Department reports that it collected $310 million more in withholding tax for first quarter of fiscal 2011 (Oct. 2010 - Jan. 2011) than it did in first quarter of fiscal 2012; reduced withholding collections could be as a result of fewer people paying (i.e., less employment) or increased employment combined with a shift to lower-paying jobs; thus, Obama Administration's claim that 243,000 jobs were created in January, if true, means that the jobs created were very low-paying jobs combined with the loss of some higher paying jobs).

(defendant, Pennsylvania dairy farmer, marketed raw milk for sale in Maryland and Washington D.C. areas and created raw milk buying organization; plaintiff charged defendant with violating criminal provisions of Public Health Services Act (42 U.S.C. §§264 and 271 and Food, Drug and Cosmetic Act (21 U.S.C. §§331(a), 343(e)(1) and (i)(1)) for offering raw milk for sale for direct human consumption to out-of-state consumers; plaintiff moved for injunction and summary judgment; court determined that no issues of disputed fact present and that defendant continued to sell raw milk after notice from plaintiff; injunctive relief warranted against sales of milk to out-of-state customers; defendant can continue to sell raw milk to in-state customers; court’s order found at United States v. Allgyer, No. 11-02651, 2012 WL 355261 (E.D. Pa. Feb. 3, 2012)). 

(ag cooperative with farmer members with net proceeds distributable to farmer-members; some of net proceeds capitalized into inventory ("c-Check"); c-Check payments to members are PURPIMs and are to be reported in Box 3 of Form 1099-PATR; cooperative can disregard such payments when computing its Sec. 199 deduction).

(state inheritance tax case; decedent inherited share of publicly traded stock from family member; stock separately valued as of date of death rather than when shares distributed by family member's estate; under state law, transfer occurred as of date of decedent's death).

(plaintiff, billing agent for volunteer fire department, sued persons who were involved in auto accidents and their insurance carriers under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) on the claim that personally-owned vehicles fall within the definition of "facility" from which a hazardous substance has been released and, as such, the vehicle owners are responsible for ''response costs" resulting from such release; defendant argued that CERCLA exception from liability for a "consumer product in consumer use" which is excluded from the definition of "facility"; trial court dismissed the case; appellate court affirmed).

(appellate review of a landowner’s challenge to county’s approval of a proposed wind farm’s environmental impact report (EIR); some landowner claims dismissed for failing to exhaust administrative remedies in failing to raise issues with the county board of supervisors; all other challenges dismissed for lack of merit; trial court affirmed).

(defendant had numerous mobile homes and junked automobiles on two lots in unincorporated portion of county; after hearing, defendant deemed in violation of county code and fined; three years later, plaintiff sought relief for continuing code violations; defendant moved for jury trial, but court held defendant had no constitutional right to jury trial for this type of action; trial court ruled for plaintiff on finding that defendant's land use was public and per-se nuisance; trial court ordered removal of junked automobiles, recreational vehicles used for residential purposes, debris and all mobile homes beyond one per lot; appellate court affirmed finding of nuisance and that defendant's land use was not grandfathered as non-conforming use, and that plaintiff's ordinance constitutional).

(plaintiff attended family reunion and was injured when the 2-person ATV he was riding tipped over; plaintiff sued the landowners; landowners filed a third-party action against the plaintiff’s half-sister who was driving the ATV at the time of the accident and plaintiff's parents; trial court dismissed claims on defendants’ and third-party defendants’ summary judgment motions finding plaintiff had assumed the risks of riding the ATV vehicle and was not entitled to recovery; judgment reversed because issues of fact existed on whether assumption of the risk was established by the parties).

(plaintiff seeks judgment for unpaid tax liability of $4,941,722.94 from taxpayer’s wholly owned corporation; corporation formed in 1977, but dissolved by Secretary of State on July 31, 2005; tax obligation at issue is for years 1994-1996 in total amount of $923,049, but with interest and penalties is now just under $5 million; plaintiff seeks value of all assets transferred after 1994, but defendant argued that only the distributions made between 1997 and 2002 should be considered because that’s the only time the corporation had sufficient assets to pay tax liability; court determined that defendant liable for taxes to extent of funds withdrawn from corporation; defendant potentially liable for penalties and interest based on timing of distributions and asset values according to state law). 

(Chapter 11 case involving petition of group of commodities customers seeking application of Subchapter IV of Chapter 7 and Part 190 of CFTC regulations that would give priority to commodities customers of debtor-parent’s subsidiary, a futures commission merchant; conversion to Chapter 7 a necessary requirement and debtors must have acted as a “commodity broker”; statute inapplicable to Chapter 11 debtors even under court’s equitable powers; debtor did not meet definition of commodity broker).