Annotations 06/2013

(May 2013, jobs report; unemployment rate increased to 7.6 percent; economy added only 175,000 jobs during May, well below level needed to restore economy to pre-recession unemployment rate; unemployment-to-population ration remained at 58.6%; the only reason unemployment has declined over the past two years is because many persons have ceased looking for work and are no longer counted as unemployed – government “stimulus” policies ineffective at reducing unemployment; labor force participation rate was 63.4% for May, the lowest rate since May of 1979 other than for March and April of 2013; labor force participation among men is at all-time low with only 72.7 percent of men working or looking for work; unemployment rate is 52 percent higher than what Administration promised it would be in May of 2013 if 2009 "stimulus" bill passed, and 43 percent higher than what Administration promised it would be in May of 2013 if 2009 "stimulus" bill not passed; if labor force participation rate would have remained at the rate it was at when President Bush left office and labor force would not have shrunk, unemployment rate would be over 11 percent). 

(Mexican Land Trusts utilized by U.S. citizens to hold ownership interests in residential real estate in parts of Mexico are not "trusts" for purposes of Treas. Reg. Sec. 301.7701-4(a); thus, there is no need to file Form 3520 and penalties for failure to file are not applicable;  follows Priv. Ltr. Rul. 201245003 (Jul. 30, 2012)).

(surviving spouse sold 8.49 acres to second wife and balance of farmland to LLC formed with son; six of the couple's nine children sued to set conveyances aside in attempt to divide mother's undivided 50 percent interest in entire acreage among the nine children; children based claim on argument that father possessed only life estate in 50 percent interest of predeceased spouse; thus, conveyances expired on his death with all nine children having an interest in predeceased mother's 50 percent interest unencumbered by claims of purchasers or mortgagors; farm owned in tenancy in common by spouses; upon wife's death, husband owned undivided 50 percent and life estate in other 50 percent with remainder to children; court noted that wife's will clearly gave husband power to sell real estate comprising wife's 50 percent undivided interest). 

(I.R.C. §163(h)(3) limitations on mortgage interest deductibility are to be applied on a per-mortgage basis rather than on per-individual basis; unmarried co-owners collectively limited to interest deduction of $1.1 million ($1million of acquisition indebtedness and $100,000 of home equity indebtedness).

(petitioner moved into mother-in-law’s home and spent $34,000 to improve residence in exchange for half of home sale proceeds via oral agreement; petitioner lived in home for two years after mother-in-law died; seven years later mother-in-law’s family attempted to sell home; petitioner sued mother-in-law’s estate incurring $2,000 of legal fees; petitioner settled suit for $17,000; petitioner claimed capital loss carryovers of $3,000 for 2005-2007 which IRS denied due to petitioner’s failure to establish ownership of home (or enforceable property interest) or that petitioner made the improvements with intent to make profit; court ruled for petitioner on basis that her testimony concerning agreement was credible and agreement gave petitioner enforceable interest in home sufficient to satisfy I.R.C. Sec. 165 and was entitled to loss deduction; petitioner’s basis was $34,000 plus $2,000 less $17,000 resulting in basis of $19,000; capital loss carryover deduction of $3,000 allowed for each year in issue). 

(petitioners were engaged in various rental activities and made election to treat all of the rental activities as a single activity; petitioner satisfied 50 percent test, but could not meet the 750-hour test; passive loss test not satisfied). 

(travel expenses incurred by contractor in traveling between home and work non-deductible commuting expenses; bank and various supply stores not regular work locations for petitioner; no depreciation allowed for petitioner's vehicle and tools, but other business expenses substantiated and deductible; tax protestor arguments concerning unconstitutionality of income tax rejected; accuracy-related penalties imposed).

(petitioner conveyed conservation easement on 882 acres of undeveloped land to land conservancy; at time easement granted, land under long-term contract limiting use and development; petitioner claimed $4,691,500 charitable deduction as value of easement, but could only take $1,343,704 of deduction in tax year due to ceiling imposed by I.R.C. Sec. 170(b)(1)(B); unused portion carried over to 2006, 2007 and 2008; IRS challenged carryover amount; petitioner claimed highest and best use of property was as residential development and vineyard and IRS claimed there was no reduction in FMV of property due to easement; court agreed with IRS - petitioner failed to establish that FMV after easement was less that FMV of property before easement grant; petitioner also failed to establish that either residential development or vineyard use was property's highest and best use before easement imposed; petitioner failed to show that vineyard use a legally permissible use or economically feasible due to restricted access to property and lack of water; 40 percent gross valuation misstatement penalty imposed for underpayments for years at issue - no reasonable cause exception). 

(petitioner, pediatric dentist, learned of supposed tax benefits of ESOP - retirement plan that would be funded by stock in petitioner's corporation); for unexplained reasons, petitioner form corporation in addition to existing medical corporation and paid it a management fee to operate petitioner's dental practice; new corporation never provided any management services and fee decided by petitioner and fee not based on hours or value of services; deduction for management fees disallowed and accuracy related penalties upheld; petitioner's claimed losses from companies subject to passive loss rules). 

(Chapter 12 case; issue involves confirmation of debtor's modified reorganization plan and its feasibility; debtor's farm income and expense projections were consistent with historical figures for debtor's farm; bank objected to plan's repayment term and interest rate, and issue was whether debtor could stretch out repayment of short term obligation; court finds that debtor's proposed repayment term of 15 years was appropriate even though original loan was for one year - preservation of debtor's farming operation requires longer term; proposed interest rate approved - prime plus risk factor of 2.5 percent is consistent with U.S. Supreme Court opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004)). 

(Chapter 12 case; debtor argued qualification as “family farmer” ; as such, debt limit of $3,792,650 applied; debtor claimed that creditor had received amount from auction that needed to be applied to reduce debtor’s outstanding debt which would bring debtor within debt limit; evidence did not support debtor insomuch as funds held by receiver at time of petition and, as such, debt not deemed reduced until money distributed; case dismissed and, in the alternative, case dismissed for filing in bad faith). 


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