Annotations 08/2013

(plaintiff owns over 4,000 acres and entered into oil and gas lease with company in 2004 that assigned lease to defendant; plaintiff sued to have lease nullified on basis that it did not anticipate use of fracking; plaintiff had earlier transferred some of subject property into conservation easements with state DNR to protect areas around creek and associated tributaries from development; lease agreement barred drilling near creek and associated streams and gave plaintiff right to approve drilling sites; plaintiff construed delay rental clause to require drilling to commence on or before May 5, 2011, but defendant disagreed with that interpretation; in early 2011, defendant notified plaintiff of plans to horizontal drill from another property that would go under plaintiff’s property and that drill site was larger than allowed in lease; plaintiff sought to nullify lease on basis that defendant had not paid in full for delayed drilling on balance of property and that plaintiff had not approved horizontal drill site and that fracking not anticipated in lease; court denied both parties’ motions for summary judgment because genuine issues of material fact exist as to whether plaintiff unreasonably withheld or delayed approval for drill site which means reserves for trial issue of whether defendant properly extended lease beyond primary term; likewise, genuine issue of material fact exists as to parties’ understanding of meaning of “delay rental” as used in lease, so issue of whether defendant required to tender delay rental payments during secondary term to be resolved at trial). 

(homosexual persons whose relationship is recognized as a legal "marriage" under state law will be treated as married persons for federal tax law purposes; thus such persons can later reside in state that does not recognize homosexual marriage and file a joint return; such persons can (but don't have to) amend returns to claim joint filing status for open tax years in which such persons married (but can't amend return to file single return); such persons can no longer file as single taxpayer; ruling inapplicable to state taxes; ruling specifically uses term "legal" to make clear that it is limited in application to states in which homosexual marriage is legal (and does not apply to civil unions, etc.), but is silent with respect to its application to homosexual marriage in states where such unions are not legal but are allowed; while U.S. Supreme Court opinion in Windsor directed at equal protection for homosexual couples, ruling uses phrase "same sex" rather than homosexual, and, therefore, has application to same-sex, non-homosexual marriages; ruling completely contrary to position of Social Security Administration (SSA) taken in Program Operations Manual System (POMS) in which SSA says that all claims filed on or after Jun. 26, 2013, or that were pending final determination as of that date, can be paid when the Number Holder was married in a state that permits homosexual marriage and is domiciled at the time of the application or while the claim is pending a final determination in a state that recognizes homosexual marriage;  SSA's position consistent with Sec. 216(h)(1)(A)(I) of SSA which determines family status by looking to courts of state in which individual domiciled and whether that state would consider applicant validly married at time of application; the 31 states that bar the state from recognizing a homosexual marriage granted in another state will need to enact legislation decoupling from federal definition).

(petitioner claimed trade or business treatment as a trader; petitioner held call options on average for one to five months and numerous stock positions for over a year; IRS deemed petitioner to be an investment portfolio manager rather than being in the trade or business of trading; petitioner had 204 trades in 2006 on 75 days, 303 trades in 2007 on 99 days (including seven months in 2006 in which petitioner executed less than three trades in any given month; in 2008, petitioner executed  1,543 trades but only on 112 days; petitioner claimed $300,000 deduction on Schedule C associated with trades including margin interest expense (should have been claimed on Schedule A and limited to investment income); IRS denied deductions and court agreed; trading days does not include days in which investments open; petitioner not attempting to swings in daily market due to overall holding period of call options).

(in prior opinion, Mitchell v. Comr., T.C. Memo. 138 T.C. No. 16 (2012), court disallowed petitioner's charitable deduction for permanent conservation easement donation due to failure to satisfy mortgage subordination requirement of Treas. Reg. Sec. 1.170A-14(g)(2); in prior case, petitioner argued that conservation purpose of easement was protected in perpetuity even without subordination agreement because probability of default on mortgage negligible, but court rejected argument on basis that regulations require subordination agreement; in present case, petitioner argued that Kaufman v. Comr., 687 F.3d 21 (1st Cir. 2012) required Tax Court to reconsider prior decision; Tax Court disagreed, noting that Kaufman not binding on Tax Court because it addressed different legal issues - the "proceeds" regulation governing entitlement to proceeds on judicial extinguishment of easement while present case involved mortgage subordination regulation; court also noted that subordination regulation is specific and there is no "functional" subordination contemplated by the Regulation; court also rejected petitioner's argument that Carpenter v. Comr., T.C. Memo. 2012-1 creates a safe harbor and that the Regulation should be read as a safe harbor - court noted that Treas. Reg. Sec. 1.170A-14(g) is specific, mandatory and cannot be ignored; petitioner argued that court should create general rule with respect to perpetuity requirement of I.R.C. Sec. 170(h)(5)(A) based on Kaufman; court rejected argument on basis that Kaufman did not create general rule that protecting proceeds from extinguishment of conservation easement would satisfy perpetuity requirement of Treas. Reg. Sec. 1.170A-14(g)).

(plaintiff petitioned FDA for exception to defendant’s (FDA) ban on interstate sales of raw milk – 21 C.F.R. Sec. 1240.61; states can regulate sales of raw milk within their borders and 29 states allow some form of raw milk sales; in late 2012, plaintiff sued FDA because it hadn’t ruled on plaintiff’s 2008 petition, and FDA then denied petition on Feb. 26, 2012; and amended lawsuit seeking finding that FDA’s denial “arbitrary and capricious” and now seeks to supplement administrative record with documents that it had not submitted to FDA when FDA was responding to petition; court determined that plaintiff failed to demonstrate sufficient grounds to supplement administrative record).

(plaintiff ran cows on defendant’s ranch via oral 60/40 share arrangement; defendant cared for and fed livestock in return for 60 percent of calf crop; plaintiff, a veterinarian, provided veterinarian services; in fall of 1997, plaintiff supervised inventory and evaluation of cows on ranch in which plaintiff had 108 cows; written lease executed in 2000 with plaintiff to provide 130 cows to be cared for by defendant with plaintiff receiving 40 percent of calf crop; plaintiff died in 2004 and defendant returned seven of plaintiff’s cows; plaintiff’s estate representative sued for breach of contract; trial court determined that plaintiff failed to furnish 130 cows as contractually required amounting to failure of consideration and the estate representative did not prove defendant’s breach; appellate court affirmed).

(plaintiff was tenant on farmland that was going to be sold; plaintiff talked with president of defendant about obtaining loan for purchase of property and claimed that defendant agreed to make loan with specified interest rate and 30-year repayment period; plaintiff was successful bidder at auction, but defendant did not make loan to allow plaintiff to complete purchase transaction; plaintiff sued for breach of contract; trial court ruled for defendant on basis that statute of frauds barred action; on appeal, court affirmed; alleged contract could not be performed within one year, no partial performance by simply bidding on property at auction and paying earnest money and funds for earnest money came from pre-existing line of credit)

(petitioner claimed medical expense deductions for purchase of various natural supplements and health foods to alleviate prostate cancer based on medical guidelines by Johns Hopkins Medical Urology, Harvard Medical School and Mayo Clinic; petitioner under care of two doctors since 2008 as part of phytotherapy treatment program; court noted that deductible medical expenses must be for treatment and purpose of alleviating prostate cancer in accordance with Treas. Reg. Sec. 1.213-1(e)(1)(ii); petitioner provided receipts to substantiate purchases and petitioners doctors suggested the supplements and health foods in accordance with medical guidelines; court determined that petitioner proved that health foods and supplements were for specific purpose of alleviating prostate cancer rather than simply for general health, and were deductible as medical expenses).

(plaintiff executed a contract to purchase tract from defendant in “as is” condition; before sale plaintiff hired lawyer to investigate tract and learned, post-sale, that some improvements on tract were constructed without permits or otherwise violated zoning laws and that land contained wetlands; plaintiff paid for some required changes to tract and sued seller for contract rescission based on misrepresentation and mutual mistake; defendant claimed that plaintiff’s lawyer knew about issues wither respect to tract and the such knowledge imputed to plaintiff; trial court granted summary judgment to defendant, and appellate court affirmed; attorney’s knowledge imputed to client under agency theory). 

(enactment and implementation of Edwards Aquifer Act substantially advanced legitimate governmental interest and did not deprive defendants of all economically viable use of their property, but did unreasonably impede defendant's use of farm as pecan orchard because irrigation permit approved withdrawal of water for irrigation at less than sufficient amount which constituted regulatory taking, and outright denial of second permit on separate tract also constituted regulatory taking; trial court awarded compensation on tract where permit denied (tract 1) in amount of $134,918.40 based on difference in value of dry land farm in county and comparable irrigated farm; compensation for regulatory taking on tract where permit authorized for water withdrawals in insufficient quantity (tract 2) determined to be $597,575 based on market value per acre-foot of water denied; on appeal, court affirmed trial court finding that implementation of Act resulted in regulatory taking, but reversed trial court on computation of compensation owed defendants; appellate court determined that compensation on tract 1 to be computed as difference between value of land as commercial-grade pecan orchard with unlimited access to Edwards Aquifer water immediately before implementation of Act and value of land as commercial-grade pecan orchard without access to Edwards Aquifer water immediately after implementation of Act; compensation for tract 2 to be determined as difference between value of land as commercial-grade pecan orchard with unlimited access to Edwards Aquifer water immediately before implementation of Act and value of land as commercial-grade pecan orchard with access to Edwards Aquifer water limited to 120.2 acre-feet of water immediately after Act implemented).

(plaintiff injured in dog attack while visiting friend at home/property owned, but not occupied, by friend's father; friend lived in home rent-free and knew that daughter had dogs and had disciplined them on prior occasion and could have told daughter to not have dogs on the premises; trial court found father strictly liable for damages attributable to plaintiff's injuries as statutory "owner" of the dogs as a "harborer" of the dogs under Wis. Stat. Sec. 174.001(5) which subjects an owner of a dog to strict liability and defines an "owner" as "any person who owns, harbors, or keeps a dog"; on appeal, father asserted he was not an "owner" because he did not have custody over or care for the dogs and did not personally reside in home or on property where dogs resided; appellate court affirmed on basis that "harbor" in statute means to give lodging or to give shelter or refuge to dog and lacks the proprietary aspect of keeping a dog; father provided shelter and lodging for dogs and, thus, harbored the dogs).

(case involved battle of creditors concerning priority in proceeds of sale of debtor’s livestock; debtor had 89 head and executed security agreement in favor of creditor 1 on 4/7/07 that was perfected by a filed financing statement on 8/23/07 which gave creditor 1 security interest in “all assets, including but not limited to, all now existing and after acquired…farm products,…livestock,…including, but not limited to: cows and replacement young stock of all ages and breeds,…”; security interest of creditor 1 describes collateral as “all assets, including, but not limited to, all now existing and after acquired…farm products,…livestock,…including, but not limited to: cows and replacement young stock of all ages and breeds,…”; creditor 2 held a promissory note and PMSI that debtor executed in 2008 giving creditor 2 interest in 21 holstein heifers, 14 holstein cows and 10 holstein heifers; no dispute that creditor 1 had priority in livestock proceeds that creditor 2 had no interest in; court determined that creditor 1 had priority in all remaining cattle due to language of security agreement and financing statement; creditor 1 also beat out PMSI of creditor 2 because creditor 2 did not send “authenticated notification” required by state law).

(plaintiff is family farm operation in northeastern TX that challenged defendant's ability to lay Keystone XL pipeline across plaintiff's property on basis that defendant lacked right to use state eminent domain law to cross property with pipeline without plaintiff's permission; in 2009 TX legislature amended state law to allow common carriers to utilize eminent domain to obtain necessary easements and rights-of-way; defendant sought to use such statute to obtain necessary easements and bury pipeline 36 inches in diameter under plaintiffs property; trial court appointed three commissioners to assess condemnation damages and awarded easements to defendant and over $10 million in damages to plaintiff; plaintiff appealed and defendant motioned for summary judgment; plaintiff claimed that defendant was not common carrier but is an interstate pipeline; trial court denied plaintiff's motion to dismiss; appellate court affirmed trial court denial of plaintiff's motion to dismiss and affirmed lower court judgment that statutory amendment applied to defendant).

(defendant, chicken processing company, encountered financial problems and got approval from bankruptcy court to idle or sell various facilities; as result of plant closure or idling, defendant canceled or rejected over 150 contracts with contract chicken growers; terminated growers sued under Sec. 192(e) of Packers and Stockyards Act for impermissibly manipulating or controlling chicken prices; trial court ruled for growers and awarded over $25 million to growers; on appeal, court reversed on basis that Sec. 192(e) only prohibits price manipulations affecting market prices which are anti-competitive or injurious to competition and has an anti-competitive effect; defendant's unilateral attempt to raise prices by reducing supply of chicken not inherently anti-competitive; defendant had overextended itself in commodity chicken market and was driving chicken prices down at its own expense, and simply reversed its strategy; defendant's unilateral action had nothing to do with competition and was legitimate response of rational market participant to market changes).

Waterkeeper Alliance, Inc. v. Hudson, et al., No. WMN-10-487, 2012 U.S. Dist. LEXIS 179962 (D. Md. Dec. 20, 2012)(plaintiff claimed that defendant discharged chicken litter containing various pollutants into navigable waters of the United States (ditches that drained into Chesapeake Bay) from defendant's 300-acre farm without required CWA permit; plaintiff's initial claim involved alleged chicken litter in pile near river, but pile turned out to be sewage sludge (bio-solids) from Ocean City, MD intended for use as fertilizer on defendant's crops; plaintiff then changed claim to assert that pile tainted with chicken manure and that chicken manure illegally discharged in trace amounts from exhaust fans in defendant's confinement chicken houses (two houses each containing 40,000 chickens), equipment tires and boots; while court noted that possibility that some pollution had come from defendant's chicken houses, plaintiff failed to meet burden of proof by preponderance of evidence in establishing that illegal discharge occurred; plaintiff did not sample dust emitted from fans to determine if chicken litter present, and no eyewitness account of actual discharge; obvious source of discharge was cow manure from 42 cows pastured near ditch (non-point source discharges not regulable under CWA); contract chicken supplier (Perdue Farms) had no connection with defendant's cattle operation and is not liable as beyond Notice of Intent which was limited to poultry waste, and insufficient evidence presented to establish CWA liability on Perdue Farms even if court had found CWA violation stemming from defendant's poultry operation; in subsequent action, Waterkeeper Alliance, Inc. v. Hudson, et al., No. WMN-10-487, 2013 U.S. Dist. LEXIS 121500 (D. Md. Aug. 27, 2013), court rejected defendants' request for attorney fees on basis that court could not hold that underlying claim was frivolous, unreasonable or without foundation).

(plaintiffs, married couple, were riding their motorcycle when it was sideswiped by motorist that was texting; plaintiffs each lost their left legs; motorist settled and plaintiffs sued motorist's friend who sent text messages to motorist; trial court ruled against plaintiffs on basis that cause of accident was motorist's negligent driving; on appeal, court affirmed on basis that evidence insufficient to establish that friend knew or had reason to know that recipient of text messages would read the sole text that was sent while recipient was driving; court refused to hold cell phone companies liable for not designing feature that would block text's from being received while driving; one judge wrote concurring opinion on basis that tort law already sufficiently addresses matter and 41 states already restrict texting and driving).

(petitioner owned working interests in oil leases that it purchased as "income programs" in TX wells from Energytec, Inc who was the primary worker of the wells; issue was whether Energytec and plaintiff were partners; no partnership agreement, just distribution of net income; plaintiff couldn't do anything with respect to wells; when operating agreement offered, plaintiff refused to sign; payment initially based on projected yields, but projections too optimistic and plaintiff ended up owing Energytec, Inc. money; plaintiff sued Energytec, Inc. for conducting Ponzi scheme and claimed deduction for theft loss; Energytec, Inc. filed bankruptcy; IRS claims plaintiffs not in partnership and plaintiffs argue court lacks jurisdiction because it is not a partnership; Energytec, Inc. did not file Form 1065 and Form 1120 stated company in oil business but did not refer to existence of partnership; court determines partnership exists with associated FPAA and notice of deficiency, and court lacks jurisdiction to redetermine affected items attributable to a source partnership  before source partnership-level proceeding complete; I.R.C. Sec. 469 issues not, therefore, before court).

(petitioners, married couple, purchased condo and wife responsible for managing condo; wife did not keep contemporaneous written record showing time spent on condo rental activities; petitioners' Schedule E showed rental loss for which petitioners claimed deduction; petitioners failed to satisfy 750-hour test of I.R.C. Sec. 469(c)(7) due to lack of substantiation of time spent on rental activities).

(case involves sham partnership where IRS disallowed losses associated with tax shelter activities; court upholds imposition of 40 percent gross valuation misstatement penalty; court joins Third, Eleventh and First Circuits in holding that taxpayer that overstates basis and participates in sham transactions should be punished at least as severely as one who does only the former; opinion contrary to holding of Ninth and Fifth Circuits; court notes that U.S. Supreme Court has granted cert. to resolve conflict).

(plaintiff, divorced, bought home in July of 2009 and claimed $8,000 FTHB tax credit; IRS disallowed credit because plaintiff had claimed deductions for real estate taxes and mortgage interest on prior joint return with wife within statutory time period and, thus, was not a first-time homebuyer; IRS also asserted that plaintiff’s wife had owned couple’s home as principal residence which ownership was attributed to plaintiff for purposes of FTHB tax credit; former spouse continues to own couple’s prior residence and divorce decree not final until after plaintiff purchased home in 2009; court noted that plaintiff could only qualify for FTHB tax credit if home purchased after divorce final and he no longer had any prior interest in marital home; settlement agreement entered into by couple in July not final adjudication of divorce; divorce not final under state law until September 28, 2009; plaintiff had beneficial interest in marital home within three years of purchase of new home and plaintiff does not qualify for FTHB tax credit).

(defendant is sole source of 100% pure Akaushi beef and plaintiff purchased almost 1,200 cattle from defendant and related suppliers, agreeing to certain use and alienation restrictions on the cattle; plaintiff later sued under Sherman Act and PSA seeking declaratory and injunctive relief to invalidate restrictions based on allegations of monopoly and unfair practices in livestock market or that restrictions not enforceable because defendant not sole source of such cattle which caused fraudulent inducement to enter into contract; plaintiff requested leave to amend complaint; defendants request continuance; leave to amend granted).

(involves request for extension of time to file Form 8939 to make I.R.C. §1022 election and to allocate basis in accordance with I.R.C. §1022; decedent died in 2010; executor satisfied for requirements of extension of time to file Form 8939; 120-day extension granted).

(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; on further review, court affirmed; appellate court determined that taxpayer had insufficient debt basis in S corp. to allow pass-through losses because taxpayer served merely as conduit for loans and there never was any direct indebtedness to the taxpayer; business expense deductions also disallowed because taxpayer did not operate any networks and, thus, not actively conducting business; relatedly, no amortization deductions under I.R.C. Sec. 197 for FCC licenses that taxpayer acquired because no active trade or business).

(petitioner received early retirement plan distribution but didn’t report amount on timely filed return (for which he only signed return after filing deadline);  petitioner did not pay additional 10 percent penalty and didn’t show reasonable cause for failure to pay penalty; court did not err in allowing IRS agent to testify).

(plaintiff awarded 2011 Grand Champion Market Lamb and animal sold for $23,000 at state fair; upon later slaughter, drug screen in retinal sample disclosed presence of feed additive FDA-approved for cattle but not for sheep; plaintiff denied any wrongdoing with respect to feed additive; defendant stripped title from plaintiff and required plaintiff to forfeit prize money; plaintiff also banned for two years from sheep department and banned for life from state fair 4-H sales; any subsequent violation would subject plaintiff to lifetime ban from participation in state fair; plaintiff not able to independently test samples, and claimed property right in lamb and that due process rights violated due to lack of hearing to challenge results of drug tests; plaintiff also claimed that punishment excessive and that defendant's policy of treating results of drug tests as final and binding unconstitutional; trial court granted summary judgment for defendant; on appeal, court noted that plaintiff had agreed to terms and conditions established in defendant's handbook which included provision that drug testing was "final and binding"; however, court remanded case for evidentiary hearing on penalties; appellate court noted that trial court decision addressed only admissibility of drug test results).

(plaintiff's corporation (plaintiff was sole shareholder) went out of business in 1998 and was dissolved administratively in 2005; IRS assessed corporate taxes for tax years 1994-1996 and received Tax Court judgment; by the time judgment received, corporation not in existence and IRS sought to collect corporate tax liability from plaintiff; corporation had made distributions to plaintiff from 1995 to 2002 of over $3.6 million during time it was winding up operations; court determined that plaintiff liable for tax as "transferee of corporate assets; court indicates that outcome likely different if corporation liquidated without having made distributions to plaintiff).

(case involves allegations by class of consumers purchasing dairy products between 2004 and 2006 that defendants (sellers of milk and cheese) manipulated and increased cheese prices on the Chicago Mercantile Exchange (CME) Cheese Spot Call Auction market; complaint also included allegation that one defendant engaged in price manipulation because CME contracts used as basis for USDA milk contracts and wholesale whole milk and cheese prices with customers; CME cheese market constitutes approximately one percent of U.S. cheese supply; complaint alleges that loss defendant incurred on buying cheese contracts more than offset by profits from increase in milk and cheese prices triggered by increase in CME cheese spot prices, and one defendant supposedly claimed that trading scheme increased dairy farmer revenues by $1.3 billion; defendants paid $12 million fine to CFTC; defendant filed motion to dismiss case, and court determined that indirect purchasers have standing to pursue state law claims based on NY, TN, MI and KS law, but lack standing to pursue federal claims; federal claims dismissed; status hearing set for Sept. 6, 2013).

(petitioner claimed head-of-household status and dependency deduction for a person she claimed was her son that was only two years younger than petitioner; petitioner’s testimony not credible that claimed son was adopted and no other family relationship existed;  alleged son not member of petitioner’s household during tax year in issue, but only lived with petitioner temporarily during tax year; “son” too old to be qualifying child and lack of evidence that “son” disabled; lack of evidence that petitioner provided more than 50 percent of support to “son”). 

(plaintiff, tenant under crop-share lease with father, sued brothers and a corporation of one brother when parents conveyed two-thirds of leased land to one brother via contract and other third to same brother via gift; plaintiff claimed contract unconscionable, that contract constituted conversion of the land due to inadequate consideration, that brothers tortiously interfered with plaintiff’s business and inheritance, and intentionally or negligently inflicted emotional distress; trial court granted summary judgment for defendants; plaintiff’s unconscionability claim barred because plaintiff not party to contract and parents testified as to satisfaction with contract; conversion claim fails for same reason; no wrongful interference with plaintiff’s possessory interest and contract price irrelevant; tortious interference with contract claim fails due to lack of proof that defendants entered into purchase contract to buy land with purpose of interfering with plaintiff’s lease agreement; claim for tortious interference with bequest fails because due to lack of evidence that parents intended to leave farmland to plaintiff or that parents incompetent to amend will; no intentional infliction of emotional distress due to lack of evidence of invasion of legally protected interest of plaintiff by willful and malicious conduct). 

(defendant, former owner of coal-fired power plant, did not obtain preconstruction permit and did not install pollution-control technology before altering plant which plaintiff claimed defendant was required to do under federal law; plaintiff filed complaint more than 10 years after alterations made and after plaintiff sold plant; plaintiff suing former owner to get permit and install pollution control technology, and suing current owners for damages and injunction; court ruled for defendant on basis that plain text of 42 U.S.C. Sec. 7475(a) did not bar operation of facility without best available technology or permit, and state (PA) law paralleled federal requirements; suit against defendant dismissed and other claims dismissed due to lack of jurisdiction).

(petitioners, married couple, resided in Quincy, IL, but traveled for business; I.R.C. Sec. 163 allows deduction for mortgage interest on principal residence and one other residence as elected by taxpayer; neither Code nor regulations detail how election to be made or timing of election; petitioners had motor home on which they claimed mortgage interest deduction; court agreed with IRS and all deductions other than for interest expense should be disallowed under I.R.C. Sec. 280A(a) due to lack of substantiation the identifiable portion of motor home used for business; while IRS asserted that petitioners couldn’t claim I.R.C. Sec. 162 travel-related expenses because petitioners lived in motor home and were, as a result never away from home, some expenses allowed during exam and court dismisses argument of IRS on this point). 

(trial court held that state (CO) law subjecting out-of-state retailers to sales and use notification and reporting requirements (Colo. Rev. Stat. §39-21-112(3.5)) violated Commerce Clause; permanent injunction issued; court noted that Quill Corp. v. North Dakota, 504 U.S. 298 (1992) prohibits states from imposing the same obligations on out-of-state retailers with no physical presence in the taxing jurisdiction); defendant failed to meet “very high burden of proof under the strict scrutiny standard” to overcome facial invalidity of the Colorado law”; on appeal, court determined it couldn’t review trial court’s ruling because Taxpayer Injunction Act (TIA) divested trial court of jurisdiction over plaintiff’s claims because issue was whether case involved sought to bar CO from exercising sovereign power to collect revenues; state law provides procedures to challenge use tax notice and reporting requirements that, after administrative remedies exhausted, plaintiff could proceed to state court and ultimately to U.S. Supreme Court; case remanded for dismissal of Commerce Clause claims and dissolution of permanent injunction).

(debtor engaged in the business of purchasing, repackaging and selling perishable agricultural produce(hereinafter, "Produce") in interstate commerce subject to and with PACA license; sellers entered into agreements to grow tomatoes and squash for sale to debtor with payment due 30 days after debtor picked produce; partial payment timely made before debtor filed Chapter 7; sellers followed appropriate procedures and court entered order establishing PACA trust claims, and trustee objected on basis that sellers hadn’t preserved their interests in PACA trust by complying with statutory notice requirements of 7 U.S.C. Sec. 499e(c)(3) or (4); court determined that sellers had not substantially complied with PACA statutory notice requirements to preserve their benefits; sellers note sent to USDA did not refer to PACA trust or intent to preserve benefits of such trust; trustee’s objections sustained).

(defendants operate cattle company and cattle company executed various promissory notes and loan agreements with plaintiff under which plaintiff reserved right to inspect cattle herds pledged as collateral; cattle company employee stole cattle and defendant didn’t pay notes and loans upon maturity, subsequently filing bankruptcy; defendants also made personal guarantees and plaintiff sought to enforce guarantees; defendants counterclaimed for negligence, negligent misrepresentations, and breach of the duty of good faith and fair dealing and basis that defendants negligently inspected loan collateral and provided appellants with inaccurate reports on status of loan collateral and provided inaccurate reports on status of loan collateral and failed to remove employee from company’s line of credit; trial court granted plaintiff’s motioned to dismiss and gave defendant’s opportunity to file amended counterclaims; counterclaims refilled and court dismissed with prejudice; on appeal, court held that plaintiff owed no duty to defendant to report on status of loan collateral; no negligent misrepresentation because defendant didn’t prove plaintiff intended that defendant rely on alleged misrepresentations; no breach of duty of good faith and fair dealing because no damages proven; trial court decision affirmed).

(Chapter 12 case with confirmation delayed until U.S. Supreme Court ruling in Hall on whether post-petition taxes dischargeable which Court later determined were not estate obligations that could be treated as unsecured claims; reorganization plan then submitted that proposed paying post-petition taxes through plan with estate assets; confirmation denied and case converted to Chapter 7; real estate and equipment sold and Chapter 7 discharge received; creditor filed motion for marshaling of assets; bank held first mortgage on land, first priority lien on equipment and first priority lien on crop proceeds and creditor held second priority lien on equipment and crop proceeds and no junior mortgage on real estate; basic issue is that insufficient funds in bankruptcy estate to pay all claims and IRS has claim for priority taxes; denial of marshaling would allow more non-tax debt to be paid and debtor claims that allowing marshaling would inhibit fresh start; court noted that “inequity” of other creditor receiving less or nothing is not a valid reason to deny marshaling; requirements for marshaling satisfied; creditors restated motion to marshal assets granted as real estate has been sold and fact that creditor’s receipt of portion of sale proceeds will prevent IRS debt from being reduced not grounds to deny marshaling which prefers interests of junior lienholder; hearing to be held to address issues of distribution including trustee compensation).

(defendant hosted amplified music concerts in conjunction with other festivities on farm and plaintiff, neighbor that lived in adjacent subdivision, filed action to abate common-law nuisance and enforce decision of county board of zoning appeals that limited concerts to single annual event; trial court granted defendant’s motion to dismiss; on appeal, court reversed; appellate court determined that concert noise substantially interfered with plaintiff’s use and enjoyment of plaintiff’s property, and plaintiff subject to harassment by defendant, state right-to-farm law inapplicable to provide defense with rebuttable presumption of valid property use because music concerts not related to production of agricultural products).

(partnership challenged a trial court’s judgment approving a commissioners’ report partitioning a 525.39 acre tract jointly owned by the partnership and a second owner; partnership argued that it was entitled to an implied easement along a roadway extending across the middle of the second owner’s property; in affirming the trial court’s judgment, appellate court ruled that partnership failed to establish three of the four requirements for an implied easement: (1) because a portion of the requested easement belonged to a third party, the partnership had not established the “unity of ownership” between the dominant and servient estates necessary for an implied easement; (2) the partnership did not establish “continuous use” of the easement such that the parties must have intended an easement to pass by implication; and (3) the partnership did not establish that an implied easement was a “reasonable necessity” because the commissioners granted the partnership two means to access its property, one that was specifically granted to provide access during flooding). 

(plaintiffs sought forfeiture of portion of defendant’s water right on basis that defendant’s predecessor in interest had forfeited part of right due to non-use and/or abandonment; trial court ruled for defendant because plaintiffs precluded from claiming partial abandonment/forfeiture due to application of statutory exception to forfeiture triggered by defendant not receiving full allocation of water flow annually and state (UT) law did not recognize partial forfeiture of water right before 2002; on review by state Supreme Court, Court noted that partial forfeiture available before 2002 under common law and was inherent in state’s beneficial use statute; Court noted that abandonment and forfeiture different concepts with forfeiture being statutory and abandonment grounded in common law and tied to intent rather than a nonuse timeframe; Court also noted that forfeiture analysis focused on volume of water rather than acres irrigated or volume limitations and that number of acres irrigated may not necessarily match acres listed on proposed determination or final decree (which finding conflicts with current state water policies); court noted water right maintained only to extent used efficiently and for proper purpose; trial court decision reversed and case remanded (which finding conflicts with state water policies).Annotation

(two months before death, decedent executed will revoking prior will and giving entire estate to new executor rather than executor under prior will; decedent never married and had no children and not close to extended family; prior executor filed petition to contest and invalidate will on grounds of undue influence and tortious interference with testamentary expectancy; trial court granted motion to dismiss and prior executor later given leave to file amended petition; executor worked for prior executor as farmhand and prior executor claimed that executor made false statements about prior executor’s character to decedent; prior executor also claimed that executor sought advice from others concerning how to convince a person to change their will; court took allegation as true for purposes of motion to dismiss, and allegation led to inference that decedent influenced by executor’s misrepresentations; sufficient facts alleged to state claim of undue influence; appellate court reversed grant of motion to dismiss).

(plaintiff operates tomato farm and sued defendant for monetary damages arising from harm to tomato plants caused by alleged defective fertilizer; trial court granted summary judgment to defendant due to lack of evidence on causal connection; appellate court affirmed)

(defendant operated mine and had an Wisconsin pollution discharge elimination system permit (WPDES); pursuant to WI state law, WI DNR had authority to regulate defendant; plaintiff, environmental activist group, sued defendant for what plaintiff claimed were illegal pollution discharges of copper into waters of the United States; trial court ruled for plaintiff, but did note that plaintiff’s lawsuit ridiculous because defendant’s operation deserved commendation for its environmental protection efforts rather than penalties; on appeal, court reversed; 33 U.S.C. Sec. 1342(k) provides “permit shield” which validates permit when permitting authority issues facially valid NPDES permit and holder has not notice that permit potentially invalid; plaintiff not entitled to attorney fees because no violation of CWA found).

(petitioner was a software designer with a six-figure income who also lost large sums in music endeavors; IRS denied deduction for substantial losses attributable to music activities under hobby loss rules; court disagreed on basis that factors favored petitioner; music activity was regular and continuous, petitioner had training in music, organized jazz festival, music industry has undergone change and petitioner attempted to change his music activity to become profitable; history of losses less persuasive in “art” field than in other fields and more time needed to achieve success in music than in other fields; court stated that petitioner’s six-figure income as software designer “modest”; elements of personal pleasure petitioner enjoyed in music activities did not negate profit motive). 

(a grain cooperative challenged a trial court order dismissing its application to compel arbitration in a dispute arising under a contract for the sale of 100,000 bushels of corn by a farming company to the cooperative; the farming company alleged that the contract was unenforceable under the statute of frauds because the contract was unsigned and the farming company had received no written confirmation; in reversing the trial court’s holding that there was no enforceable contract under the statute of frauds, 810 ILCS 5/2-201(2), the court found that a question of fact existed as to whether the farming company received a written confirmation of the oral contract from the cooperative; the case was remanded for further proceedings). 

(petitioners, married couple, attempted to deduct losses from rental real estate activities; during years at issue, husband was real estate appraiser and wife had full time job at technology company; petitioners owned multiple real estate properties in various states and made grouping election via I.R.C. Sec. 469(c)(7)(A); real estate losses exceeded gross income on joint returns; IRS disallowed losses and court agreed; neither spouse satisfied real estate professional test due to lack of records and inconsistent testimony; active participation exception unavailable due to petitioners’ adjusted gross income exceeding $150,000; accuracy-related penalties imposed). 

(charitable deductions denied due to lack of substantiation; case involved tag-team of IRS employees attempting to defraud church and falsifying documents in order to claim deductions for non-existent contributions to church; accuracy-related penalty imposed). 

(petitioner was a 40 percent shareholder in an S corporation who received a Form K-1 for $215,000 of S corporation ordinary business income and $2,000 of interest; petitioner did not receive cash distribution and, after an accounting sold his stock to the S corporation in a complete redemption of his interest; petitioner did not report the K-1 income on the basis that he was not beneficial owner of his shares during year in question because he was frozen out as a shareholder; no agreement existed allowing other shareholder to take beneficial ownership away from petitioner and petitioner still had economic benefit of shares; petitioner liable for tax on share of S corporation income). 

(IRS modifies rule for deferring income on pre-paid gift cards; IRS clarifies what happens when gift card redeemable by entity whose financial results are not included in taxpayer's applicable financial statement (AFS); for such taxpayers, payment recognized in income to extent gift card is redeemed; for taxpayer without an AFS, the taxpayer will recognize the payment in income when it is earned, which is when the gift card is redeemed; any payment received by the taxpayer that is not recognized in income in the year of receipt, must be recognized in the subsequent year).

(solely-owned S corporation where petitioner was sole owner and real estate broker of S corporation’s real estate business; petitioner was also president, secretary, treasurer, sole director and most productive salesman of S corporation; petitioner also manager operations of S corporation; petitioner’s salary set at $24,000 annually, but was never paid; for tax year at issue, no wages paid or withheld, but shareholder received $240,000 in distributions; shareholder, for tax year at issue, reported share of S corporation’s income and loss on Schedule E - $231,454; court agreed with IRS that compensation level not reasonable; IRS utilized same “engineer” as in Eighth Circuit Watson case, and determined that $100,000 was reasonable compensation; court did not completely accept IRS salary computation, but determined reasonable compensation was $83,200 and payroll tax due on such amount; case represents first time where S corporation salary not paid any salary and court did not reclassify 100 percent of distributions as compensation). 

(adverse possession case involving land between two adjacent farms; survey established boundary that resulted in smaller tract for plaintiff; plaintiff thus claimed title to land in dispute by adverse possession; both parties produced witnesses that testified about usage of tract in issue and jury returned verdict in favor of defendant, the legal title holder; plaintiff's sought judgment notwithstanding the verdict (JNOV) and trial court granted motion; on appeal, court reversed on basis that reasonable minds could have disagreed and jury verdict should have been upheld).

(taxpayer proposed that joint and survivor life insurance policy on married couple would be purchased by newly created irrevocable trust (second trust) from previously existing trust; both trusts were grantor trusts and on death of surviving spouse assets of initial trust to be distributed outright to couple's children; after creation of initial trust, one child diagnosed with disability impacting ability to manage property; taxpayer proposed to create second trust with children as beneficiaries, but that disabled child's property held in special needs trust; second trust t0 buy policy from initial trust at value as determined by interpolated terminal reserve plus last gross premium payment before sale date; IRS determined that proposed purchase would not constitute transfer for value with the result that no portion of insurance proceeds ordinary income to beneficiaries; both trusts grantor trusts, and husband treated as owner of second trust; thus computation of gain or loss with respect to second trust same as with first trust and transaction within exception to transfer for value rule under I.R.C. Sec. 101(a)(2)(B) to extent policy insures husband's life; to extent policy insures wife's life, that portion of policy transferred to husband as partner of insured under I.R.C. Sec. 101(a)(2)(B) under partnership theory).