Annotations 02/2015

In this case, an individual (as settlor) had an attorney establish a trust for her and wanted the attorney to name himself as trustee.  The trust contained three insurance policies on the settlor's life totaling about $8.5 million.  The policies were payable on death to the trustee for the benefit of the settlor's four daughters.  The trust said that the trustee had no duty to pay the insurance premiums, had no duty to notify the beneficiaries of nonpayment of the premiums and had no liability for any nonpayment. The trustee was required by the trust language, however, to provide annual reports to the beneficiaries.  The trustee executed all three insurance policy applications with each one identifying the trust as the policy owner.  On each policy application, the trustee gave the insurer a false trust address.  After paying premiums for two years, the policies lapsed for non-payment of premiums.  Neither the settlor, trustee nor beneficiaries received notice of the lapse until two years later - the notices of nonpayment were sent to the false address.  The settlor paid over $250,000 to an insurance agent who did not forward the payment to the insurers.  The daughters sued the trustee for breach of trustee duties and damages.  The trial court dismissed the case for failure to state a claim.  On further review, the court reversed.   The court determined that under Neb. Rev. Stat. Sec. 30-3805 the trustee's duty to act in good faith trumps the effect of any exculpatory term contained in the trust.  In addition, Neb. Rev. Stat. Sec. 30-3866 is required to administer the trust in good faith with its terms and purposes and the interests of the beneficiaries, and in accordance with the Code.  The trustee, under state law, is also required to keep the beneficiaries reasonably informed of the trust assets.  The court also determined that the trustee failed to adequately explain the trust's exculpatory language to the settlor.  Rafert v. Meyer, 859 N.W.2d 332, 290 Neb. 219 (2015).

The plaintiff, a small town of 230 people, sued the defendants, a married couple, for violating a town ordinance which declared commercial farming within the town boundaries to be a nuisance. The defendants bought a 57-acre farm, six acres of which were within the town's boundaries. The tract had been a commercial nursery for trees and prairie grass. After buying the property, the defendants removed the trees, leveled the property and prepared the ground for planting corn and soybeans. Nine months after the defendant's purchase, the town enacted the ordinance at issue expanding the definition of nuisance to include engaging "in any commercial farming for the production and harvesting of any agricultural or horticultural products on any private or public property within" the town's limits. The defendant's planted a corn crop about six weeks later and the town sent them a notice to abate their nuisance. The town then filed a complaint seeking a penalty for violating the ordinance and an injunction. The matter ended up in court and the trial court acquitted the defendants based on lack of notice, but then issued an injunction barring farming on the portion of the property within the town's borders. The trial court held that the state (IL) Farm Nuisance Suit Act (Act) did not apply to block the town's ordinance from applying. On appeal, the court reversed. The court noted that the town had the authority to enact the ordinance at issue, but that the Act preempted the ordinance from applying because the Act specified that a farm would not become a nuisance because of any changed conditions in the surrounding area. The enactment of the ordinance was a changed condition that the Act applied to. The court also noted that the Act's purpose was to protect and conserve the development and improvement of agricultural land, and that the tract in issue had been used continuously for commercial agricultural purposes. A dissenting judge would have held that the Act did not apply to preempt the ordinance because the tract in issue had not been used to produce corn and soybeans for at least a year before the enactment of the ordinance, and because the defendants changed the use of the tract. The dissent also believed that there were no changed conditions in the "surrounding area" such as neighborhood surrounding the farm changing. The dissent's view would basically have given the town a year after the defendant had started raising row crops to zone the defendant's farming activity out of existence. Village of Lafayette v. Brown, No. 3-13-0445, 2015 Ill. App. LEXIS 120 (Ill. Ct. App. Feb. 25, 2015).

The plaintiff bought $98.6 million of third-party securities via an asset purchase agreement.  The securities lost value, and the third party offered to redeem them for $20 million which would have caused the transaction to have been treated as a capital loss (deductible against capital gain for five years).  The plaintiff didn't accept the offer, instead voluntarily surrendering them to the third party.  The plaintiff reported a $98.6 million loss on the surrender as an abandonment (I.R.C. Sec. 165) loss which was ordinary in nature.  The IRS maintained that the loss was a capital loss, which severely limited its deductibility.  The Tax Court, in Pilgrim's Pride Corp. v. Comr., 141 T.C. No. 17 (2013), agreed with the IRS in holding that I.R.C. Sec. 1234 caused the abandonment to trigger a capital loss even though there was no sale or exchange of the securities.  In addition, the Tax Court invalidated a portion of Rev. Rul. 93-80 where the IRS has determined that the abandonment of a partnership interest where no liability was released under I.R.C. Sec. 752 was not a sale or exchange and the result was ordinary loss treatment (i.e., full deductibility).  On appeal, the appellate court reversed.  The court determined that I.R.C. Sec. 1234A(1), by its plain terms, only applies to the termination of contractual or derivative rights and not to the abandonment of capital assets.  The court noted that the abandonment was of the securities and not a "right" or "obligation" with respect to the securities.  Pilgrim's Pride Corp. v. Comr., No. 14-60295 (5th Cir. Feb. 25, 2015).         

The decedent's estate contained her Ohio residence, a California condominium in which her brother lived and a state teachers' retirement account.  The residuary of the decedent's left $50,000 to her brother that lived in the condominium with the balance of the residuary estate passing to charity.  The estate received a distribution from the retirement account of $243,463 and set aside $219,580 of it “permanently” for charity by placing it in an unsegregated checking account.  Under I.R.C. Sec. 642(c), an estate can claim a charitable deduction for an amount that is set aside for charity, but hasn't yet been paid if, under the terms of the governing instrument, the possibility that the amount set aside will not be devoted to the charitable purpose or use is so remote as to be negligible.  Treas. Reg. Sec. 1.642(c)-2-(d).  When the estate income tax Form 1041 was filed on July 17, 2008, the charitable gift had not been completed, but the estate claimed the charitable deduction on the estate's Form 1041.  The IRS denied the deduction.  The court noted that for the deduction to apply, the charitable distribution must come from the estate's gross income, must be made pursuant to the governing instrument, and must be set aside.  The court determined that the charitable amount did come from gross income (pension distribution which is IRD) and was made according to the decedent's will.  However, the decedent's brother refused to move out of the condominium and claimed that existence of a resulting trust.  In state court litigation, the brother prevailed, but also caused the estate's funds to deplete sufficiently such that the charitable bequest was never paid.  The court noted that the brother's legal claims were public at the time the 1041 was filed and he had refused a buy-out to move out of the condo and the charity had refused to trade the monetary bequest for a life estate/remainder arrangement in the condominium.  Apparently, the CPA in Ohio knew none of this at the time the 1041 was filed.  The estate claimed that the "unanticipated litigation costs" were unforeseeable but, based on the facts and circumstances at the time Form 1041 was filed, the court held that the "so remote as to be negligible" requirement was not satisfied and upheld the denial of the charitable deduction.  The funds had not been permanently set aside.   The charity ultimately did receive a bequest, although it was less than initially anticipated, and the estate did not get a charitable deduction.  Estate of Belmont v. Comr., 144 T.C. No. 6 (2015).

In a Chief Counsel Advice, the IRS has concluded that the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) as codified in I.R.C. Sec. 6221, et seq. don't apply to partnership employment tax or worker classification issues.  In the Advice, the IRS also noted that "small partnerships" are not subject to the TEFRA rules, but gave no indication that that they are not partnerships for non-TEFRA purposes.  The IRS also concluded that there are no special procedures that revenue agents must follow when conducting employment tax examinations of partnerships that are subject to TEFRA.  C.C.M. 20145001F (Aug. 25, 2014). 

The petitioner was an art teacher who inherited a hobby store from her father upon his death.  At the time, the petitioner was an art teacher in Nevada.  The hobby store was in Idaho, but was adjacent to a residence that she owned and lived in.  The petitioner hired a volunteer to watch over the store on a daily basis and she assisted with the business when she was in Idaho.  The store was open daily from 8-5, but incurred small net losses for each of the years in issue which the IRS denied under the hobby loss rules.  However, based on the nine factors of Treas. Reg. Sec. 1.183-2(b), the court determined that the petitioner operated the hobby business as a business with a profit intent.  She conducted the activity as a profitable business, retained the volunteer who had worked with her father, took over the business aspects after her father's death, developed the customer base, did not have substantial income from other sources and did not derive personal pleasure from the activity.  Savello v. Comr., T.C. Memo. 2015-24.

The plaintiff lived in her home unassisted until May of 2011, at which time a non-relative caregiver was hired to provide in-home care.  The hiring was done on an informal basis with no written contract.  Over the next 10 months, the plaintiff paid the caregiver approximately $19,000 via the liquidation and conversion to cash of some of the plaintiff's assets.  At the end of the 10-month period, the plaintiff entered a nursing home.  The plaintiff subsequently executed a written contract with a grandson to reimburse him $1,400 for mileage he incurred while managing the plaintiff's affairs.  Upon applying for Medicaid, the state (MI) Medicaid agency determined that the payments to the caregiver (among other transfers) were "divestments" resulting in a disqualification of Medicaid benefits for almost three months.  The plaintiff died before becoming eligible for Medicaid.  An administrative law judge upheld the agency's determination, but the trial court reversed on the basis that the regulation at issue only applied to up-front payments for services where an assessment of fair market value was not possible and because the care-giver was a non-relative.  On further review, the court reversed the trial court because the payments were not made pursuant to a written contract and were made without a doctor's recommendation as required by the regulation in order for the payment to not constitute a "divestment." Jensen v. Department of Human Services, No. 31908, 2015 Mich. App. LEXIS 315 (Mich. Ct. App. Feb. 19, 2015).   

The plaintiff is a participant in the Tennessee walking horse industry as a buyer, seller and exhibitor of horses.  The Horse Protection Act (HPA) prohibits the practice of "soring" horses, and requires the USDA to establish regulatory requirements for the appointment by the management of any horse show, exhibition, sale or auction of persons that are qualified to detect and diagnose a horse that is sore or to otherwise inspect horses purposes of enforcing the HPA.  The USDA's Animal Plant Health Inspection Service developed regulations creating horse industry organizations (HIOs) which develop and enforce penalties for soring.  Specifically, the management of each horse show is the primary enforcer of the HPA, and the horse industry administers inspectors' training and criteria for qualifications and performance.  The horse industry imposes penalties for soring violations and sets procedures for appealing the penalties.  Penalties would vary from suspensions to disqualifications depending on the particular horse industry organization that managed a horse show.  In 2012, the USDA finalized regulations that required HIOs to adopt mandatory minimum penalties for various soring violations as a conditions certification for being a qualified inspector.  The regulations also required the HIOs to provide copies of their rulebooks to the USDA and establish uniform appeals procedures for disputes over soring.  The regulations also allowed the USDA to initiate its own investigations and prosecutions even if an HIO had already issued a penalty for soring or cleared a potential violator of soring.  The court was unimpressed with USDA's attempted regulatory takeover of the horse show industry by creating new liability provisions and noted that the USDA has arbitrarily injected itself into each layer of enforcement absent any authority in the HPA to do so.  The court held that the HPA merely allows the USDA to establish a regulatory program for managers of horse shows to hire qualified persons to detect horse soring.  The court reversed the trial court's decision, vacated (wiped off the books) the 2012 USDA regulations, and remanded the case for the trial court to enter judgment for the plaintiff.  Contender Farms, L.L.P. v. United States Department of Agriculture, No. 13-11052, 2015 U.S. App. LEXIS 2741 (5th Cir. Feb. 19, 2015).   

Under the facts of this memo, the operator of an oil and gas lease was required, via the operating agreement, to pay all of the expenses and bill co-owners their respective shares.  The operator paid the expenses up-front, but the co-owners didn't reimburse the operator for their shares.  A settlement was reached the next year for payment of the costs in year two.  The IRS determined that the unreimbursed expenses were deductible and were not barred by I.R.C. Sec. 162(f).  However, the operator could not deduct claim a business loss under I.R.C. 165 or a bad debt deduction under I.R.C. 166 for the unreimbursed amounts.  C.C.M. 20150801F (Apr. 22, 2014). 

The petitioner held a patent for a "smokeless tobacco vaporizer."  He had many years of low sales and claimed a $1 million deduction on his return for a "loss arising from theft."  He blamed the lack of success of his invention and the resulting "theft" loss on pirates stealing his intellectual property associated his patent.  The IRS disallowed the theft loss based on a complete lack of evidence of patent infringement or that the petitioner had suffered actual damages.  The petitioner claimed that Internet search engines had intentionally demoted his product, that social media had conspired to diminish his product's visibility, that the U.S. Postal Service intentionally misspelled the name of his business and that his computer had been continually hacked, among other claims.  He estimated his theft losses from $282 million to $294 million annually, but only claimed a deduction for $1 million to "prevent further victimization."  The court upheld the IRS determination, noting that the petitioner had not demonstrated that a theft had occurred as required by I.R.C. Sec. 165(e).  The court also noted that the petitioner had failed to show that he discovered the theft in the years in which the deduction was claimed rather than other years since his patent was filed.  The court upheld an accuracy-related penalty.    Sheridan v. Comr., T.C. Memo. 2015-25.

The debtor appealed the bankruptcy court’s determination that she was ineligible to be a Chapter 12 debtor.  The debtor had filed a Chapter 7 "no-asset" bankruptcy in 2010 and was granted a discharge. The current action was filed four months after the debtor received a discharge in the Chapter 7 case.  The total amount of debt on the debtor's ranch and other property exceeded the Chapter 12 debt limits by more than $4 million.  The debtor argued that only the secured portion of the debt should be counted because her personal liability had been discharged in a Chapter 7 filing.  The appellate court bankruptcy panel reviewed only whether the Chapter 12 debt limit counts secured debt only up to the value of collateral.  The appellate court held that obligations that are enforceable against the debtor’s property but for which there is no personal liability are still “claims” and “debts” within bankruptcy.  Thus, the debtor was not eligible to file Chapter 12 bankruptcy.  In re Davis, No. 12-60069, 2015 U.S. App. LEXIS 2381 (9th Cir. Feb. 17, 2015), aff'g., In re Davis, No. CC-11-1692-MkDKi, 2012 Bankr. LEXIS 3631 (Bankr. 9th Cir. Aug. 3, 2012).

In this case, the court held that the majority owners of a corporation were personally liable for the unpaid employment taxes of the corporation.  The court noted that under state (CA) the corporate veil is pierced if the creditor establishes the existence of unity of interest and ownership between the owners and the corporation such that the separate personalities of the corporation and the individual no longer exist, and that if the corporate acts are treated as those of the corporation alone, an inequitable result would follow.  The Court, upholding a trial court decision, noted that the majority shareholders exercised substantial control over the corporation's operations, and regularly drew on corporate funds to finance personal expenses.  The majority shareholder also borrowed corporate funds without proper documentation.  In addition, the majority shareholders facilitated the transfer of funds between the corporation and another corporation where there was a unity of interest and ownership.   As such, the majority shareholders were the corporation's alter egos and the corporate veil was pierced resulting in the shareholders being personally liable for the corporation's unpaid employment tax.  Politte v. United States, No. 12-55927, 2015 U.S. App. LEXIS 2380 (9th Cir. Feb. 17, 2015).   

The debtor bought an individual retirement annuity in 2009 for $267,319.48 which he funded with a rollover from another one of his retirement accounts.  The terms of the annuity specified that the debtor would receive eight annual payments of $40,497.95 beginning on April 12, 2010.  The annuity contained a liquidity feature allowing the debtor to take a single, lump-sum withdrawal of up to 75 percent of the present value of the remaining payments.  The debtor file bankruptcy on June 6, 2012, listing the annuity at a value of $263,370.23, but claiming it as an exempt asset.  The trustee argued that the annuity was not exempt.  The bankruptcy court held that the annuity was exempt, as did the Bankruptcy Appellate Panel.  The trustee argued that the annuity had fixed premiums and did not require annual premiums that were under the limit for IRAs for the year, in violation of I.R.C. Sec. 408(b)(2).  The court disagreed.  Even though the contract barred any additional premiums after purchase, the purchase price was not fixed.  On the IRA limit issue, the court held that I.R.C. Sec. 408(b)(2) did not require annual premiums, but if annual premiums were required, the contributions could not exceed the applicable IRA contribution limits.  The court noted that rollover contributions are not subject to premium limitations.  Thus, the annuity was exempt under 11 U.S.C. Sec. 522(b)(3)(C).  In re Miller, No. 13-3682, 2015 U.S. App. LEXIS 2275 (8th Cir. Feb. 13, 2015), aff'g., 500 B.R. 578 (B.A.P. 8th Cir. 2013).

The defendant, a pipeline company, sought to construct a carbon dioxide pipeline across the plaintiff's cattle ranch and rice farm.  The plaintiff barred the defendant from surveying the property and the defendant received a temporary injunction against the plaintiff.  The trial court determined that the defendant was a "common carrier" which carried with it the power of eminent domain.  Accordingly, the trial court permanently enjoined the plaintiff from interfering or attempting to interfere with the defendant's right to enter and survey the plaintiff's property.  On appeal, the appellate court affirmed.  On further review the TX Supreme Court reversed, establishing a new test for determining common carrier status.  On remand, the trial court determined that the defendant was a common carrier that had the right of eminent domain.  On appeal, the court determined that before the defendant can obtain common carrier status, the affected property owners can demand that the party seeking common carrier status be established at a jury trial.  In the prior Supreme Court case, the Court held that the designation of common carrier by the Texas Railroad Commission was inadequate and that it was up to the pipeline company to establish common carrier status as part of a condemnation case.  Under the Supreme Court test, a pipeline company must establish a "reasonable probability" that the pipeline will, at some point after the pipeline is constructed, serve the public "by transporting gas for one or more customers who will either retain ownership of their gas or sell the gas to parties other than the carrier."  This must be shown, the court held, at the time the company intends to build the pipeline.  Thus, the "reasonable probability" question is a fact issue to be determined by a jury.  Texas Rice Land Partners, Ltd., et al. v. Denbury Green Pipeline-Texas, LLC, No. 09-14-00176-CV, 2015 Tex. App. LEXIS 1377 (Tex. Ct. App. Feb. 12, 2015). 

The petitioner operated a sole proprietorship and incurred a net operating loss (NOL) of $81,957 in 2007 and an NOL of $91,812 in 2008.  He claimed that the NOL carryover relating to 2007 could offset his 2008 net self-employment earnings.  The IRS disagreed and the court agreed with the IRS.  The court noted that I.R.C. Sec. 1402(a)(4) specifically provides that when determining self-employment earnings, the deduction for an NOL is not allowed.  The court also applied the I.R.C. Sec. 6651(a)(1) penalty for failure to timely file a return.  Stebbins v. Comr., T.C. Sum. Op. 2015-10.

While a landlord who is not a possessor is not liable for injuries sustained by the tenant or third parties on the property, there are exceptions.  Those exceptions include the landlord's retention over part of the leased premises and injury occurs on that part, and agreeing to keep the premises in good repair and failing to do so and injury results from that failure.  Here, a portion of a former supermarket was leased to a tenant under an "as is" lease.  However, the landlord, under the terms of the lease, agreed to keep the ceiling, floors, lighting and other fixtures, in good repair.  The ceiling and fixtures were not in good condition when the tenant took possession and the tenant did not ask the landlord to make repairs.  The plaintiff, an employee of the tenant, was injured when light fixtures fell on her.  The trial court granted summary judgment for the landlord (defendant), but the appellate court reversed on the basis that the defendant had agreed to keep light fixtures in "good repair" but had failed to do so.  The court reversed the trial court and remanded for trial.  Benson v. 13 Associates, LLC, No. 14-0132, 2015 Iowa App. LEXIS 102 (Iowa Ct. App. Feb. 11, 2015).

The defendant, an Iowa farmer who sustained debt-related financial problems in the 1980s, failed to pay his property taxes in 2007.  A third party bought the tract in question at a tax sale auction, paid the delinquent taxes and received a tax sale certificate.  The defendant did not redeem the property during the statutorily-required 21 month period.  The third party then served notice on the defendant of the expiration of the right to redeem.  The third party then filed an affidavit of service of notice with the county treasurer.  The affidavit contained an incorrect date, referring to "2011" instead of "2012".  The defendant did not redeem the property during the additional redemption period of 90 days.  After the expiration of the 90-day period, the third party assigned its interest in the tax sale certificate to the plaintiff who then recorded it.  Two months later, the plaintiff filed a quiet title action against the defendant.  The second paragraph of the pleadings contained an incorrect legal description, but the correct legal description was contained in attachments to the petition, which included the tax deed, tax sale certificate and the previously served notice of right to redeem.  The defendant, even though knowing full well which tract was at issue, moved to dismiss the quiet title action, and the plaintiff moved to amend the petition to correct the legal description in the pleadings.  The trial court saw through the defendant's deception and allowed the plaintiff to amend the pleading.  The trial court stated, "the defendants cannot seriously argue they were prejudiced or unfairly surprised  by Plaintiff's proposed amendment.  Attached to the petition were the Tax Deed and the Notice of Expiration of Right of Redemption contained the correct legal description.  Additionally, the Certificate of Purchase from the Washington County tax sale contained a correct abbreviated legal description, the VIN number of the property, and a parcel number particular to the property at issue."  The defendant also made no claim of surprise, but came to trial fully prepared to dispute the plaintiff's claim to the actual parcel at issue.  On appeal, the court reversed on the basis that the notice did not comply with Iowa Code Sec. 649.3 which requires the notice in a quiet title action to adequately describe the property.  Incredibly, the court said the legislative intent behind the provision was to "require ample notice to a defendant facing a quiet title action," but then ignored that legislative intent to determine that ample notice had not been give because the pleadings contained an incorrect legal description but the attachment contained multiple references to the correct parcel, and the defendant was not, in fact, deceived in any manner - thus, comporting with the legislative intent.  Also, incredibly, the court determined that the reference to the wrong year in the notary jurat of the affidavit of service was not a defect which would invalidate the tax deed.  The court held that the trial court abused its discretion in allowing an amendment of the pleadings.  The case was remanded with instructions to grant the defendant's motion to dismiss without prejudice.  Adair Holdings, L.L.C. v. Escher, No. 14-0477, 2015 Iowa App. LEXIS 106 (Iowa Ct. App. Feb. 11, 2015).



The defendant was in charge of an elaborate scheme to gather investments in a non-existent “wind farm” in South Dakota.  The defendant was the sole signatory over invested funds solicited from others and could withdraw the funds for the other members of the conspiracy.  The defendant set up money drop boxes, ran the “boiler room” where sales people worked, came up with sales pitches, told an investor that a wind turbine had been purchased with the $250,000 that the investor paid when it hadn’t been, oversaw the placement of signage in a field indicating that a “wind farm” was under construction when it wasn’t, and claimed he was merely a consultant paid $125,000 annually even though he transferred over $7000,000 of invested funds to his account over a period of two and one-half years.  The defendant plead guilty to conspiracy to commit money laundering, as well as wire and mail fraud and was sentenced to over 12 years in prison plus three years of supervised release and ordered to pay restitution.  The defendant appealed his sentence on the basis that the scheme had not resulted in any criminal securities violations as of the start of his prosecution and, thus, the court lacked subject matter jurisdiction because the government didn’t first obtain a referral from the Securities and Exchange Commission.  The court rejected the argument and upheld the sentence enhancements.  Shumaker v. Reed, No. 13-8073, 2015 U.S. App. LEXIS 2188 (10th Cir. Feb. 11, 2015).


The parties in this case were married for 35 years before divorcing.  The ex-husband was required to pay his ex-wife, under the marital separation agreement, $500 per month alimony until her remarriage or co-habitation with a male or death of either party.  Over six years later the ex-husband petitioned to terminate the alimony on the grounds that the ex-wife was cohabiting with a male.  At trial, the ex-wife conceded that a male had been living with her in her townhouse which consisted of two bedrooms and two and one-half baths.  The live-in paid the ex-wife $400 monthly rent.  The live-in had a separate mailbox from the ex-wife, and the rent amounts were deposited in the ex-wife's account.  The trial court determined that the live-in was cohabitating with the ex-wife and ordered that the alimony payments be terminated.  On appeal, the court reversed.  Even though the ex-wife loaned the live-in $15,000 to buy a car, went on a cruise with him,  and used the monthly rent checks to pay her expenses, the court determined that no supportive relationship existed between the ex-wife and the live-in.  The court determined that the live-in was merely a tenant or a "lodger" and not a cohabiter.  Atkinson v. Atkinson, No. 2D13-5815, 2015 Fla. App. LEXIS 1776 (Fla. Ct. App. Feb. 11, 2015). 

The petitioner was a limited liability company that acquired real estate properties via tax deeds that they purchased at public auctions.  The petitioner then sold the properties under contracts for deed and reported the sales on the installment method as capital gain.  The IRS denied the installment method and capital gain treatment.  The court determined that while the deeds were acquired with the primary intent to profit from their redemption, the continuous property sales of the forfeited properties demonstrated that the petitioner did not intend to hold onto the properties with an expectation in appreciation in value, but to sell the properties in quick fashion for profit.  As such, when combined with the fact that the petitioner employed persons to act on the petitioner's behalf in acquiring the tax deeds, preparing the acquired tracts for sale and maintaining business records, the court determined that the sales were in the ordinary course of the petitioner's business as a dealer in real estate.  Thus, the income from the sales was capital gain in nature and also subject to self-employment tax and could not be reported on the installment method.  SI Boo, LLC v. Comr., T.C. Memo. 2015-19.

The petitioner, a bankruptcy lawyer whose wife was a college professor, was held to have engaged in his horse activity without a profit intent.  As a result, the losses from the activity were largely non-deductible.  The court noted that the petitioner had no prior experience in horse activities.  While he did spend significant time in the activity, he had no expectation that asset values would increase.  There was also no evidence that the petitioner had any past success in related activities.  The petitioner incurred a lengthy period of substantial losses and only occasional profits, and there were elements of personal pleasure present.  Bronson v. Comr., No. 12-72342, 2015 U.S. App. LEXIS 1745, aff'g., T.C. Memo. 2012-17.

The plaintiff, a food safety activist group, sued the USDA challenging the USDA's National Poultry Inspection System rules finalized in 2014 and to be codified at 9 C.F.R. parts 381 and 500. The USDA's Food Safety and Inspection Service adopted the rules as part of an effort to modernize the federal poultry inspection process.  The rules all employees of poultry-processing establishments to take a more active role in the inspection process, thereby requiring fewer federal inspectors to be stationed along slaughter lines since the employees can conduct a preliminary screening of the carcasses before presenting the poultry to a federal inspector for a visual-only inspection.  The plaintiffs sought a preliminary and permanent injunction barring implementation of the rules on the grounds that the rules were inconsistent with the Poultry Products Inspection Act (PPIA) and will result in the production of unsafe poultry products.  The court rejected the plaintiff's claim for lack of subject matter jurisdiction and dismissed the case.  The court held that the plaintiff had failed to demonstrate and injury-in-fact that is traceable to the defendant's conduct and, therefore, lacked standing to challenge the rules.  The court also noted that the plaintiff's "fox guarding the henhouse" assertions of increased risk were "unsupported and overblown."  The court noted that the USDA-FSIS anticipated less food-borne illnesses as a result of the rules.  Food and Water Watch, Inc., et al. v. Vilsack, No. 14-cv-1547 (KBJ), 2015 U.S. Dist. LEXIS 14883 (D. D.C. Feb. 9, 2015).     

This case involves a dispute between adjoining landowners concerning a boundary line.  After a survey, the parties still continued to dispute the matter resulting in police action and criminal charges being filed as a result of one party "mooning" the other party and public urination on the neighbor's lawn.  A court order resulted in the boundary line being that as established by a surveyor and that each party could erect and maintain a lawful fence.  At 5:30 a.m. a few days after the court order and stipulation, the plaintiffs' contractor began building a wooden stockade fence on the boundary that was 6 feet tall and was flush with the ground.  The fence contained wording on the side facing the defendants and also backed-up drainage on the plaintiffs' property.  The plaintiffs also planted trees on their property that obstructed the defendants' view of a mountain.  The defendants filed a post-judgment motion claiming that the stockade fence was an unlawful spite fence and sought an injunction for its removal.  The defendants also sought damages.  The plaintiffs filed motions for contempt and damages for trespass and poisoning of trees and littering the plaintiffs' property.  The trial court determined that the fence was a spite fence based on the facts and ordered a reduction in its height with space to be left at the bottom.  As for damages, the court assessed damages against both parties with the overall result that the plaintiffs could recover $396 from the defendants.  The plaintiffs appealed, but the court determined that the fence was a spite fence under either the "dominant purpose" test or the "sole purpose test," but the court announced that it was following the "dominant-purpose test for determining the existence of a spite fence which subjects the owner to a $100 fine. The court rejected the balance of the plaintiffs' claims.  Obolensky v. Trombley, No. 13-418, 2015 Vt. LEXIS 14 (Vt. Sup. Ct. Feb. 6, 2014).

In a recently released Revenue Procedure, the IRS has announced the user fee for obtaining a private letter ruling - a taxpayer request for guidance concerning an uncertain area of tax law.  The basic fee is $28,300 per request, but is $2,200 for taxpayers having gross income less than $250,000.  The user fee is $6,500 for taxpayers with gross income of less than $1 million but more than $250,000.  Rev. Proc. 2015-1

The plaintiff, a rice farm, sued the defendant, the operator of a wastewater disposal facility that was adjacent to the plaintiff's property, for trespass. The basis of the trespass claim was that subsurface wastewater injected into a rock formation more than 1.5 miles below the surface of the defendant's property had migrated into the deep subsurface of the plaintiff's property possibly contaminating briny groundwater beneath the surface.  The trial court charged the jury with determining whether the plaintiff trespassed on the defendant's property with trespass defined as a non-consensual entry where the party claiming trespass bore the burden of establishing the lack of consent to the entry.  The jury determined that the plaintiff had not committed a trespass.  On appeal, the court reversed, determining that consent is an affirmative defense to trespass for which the plaintiff, as the alleged trespasser, bore the burden of proof.  The appellate court also determined that the defendant was not entitled to a directed verdict because there was some evidence that the defendant had impliedly consented to the plaintiff's subsurface entry.  On further review, the Texas Supreme Court reversed the appellate court and reinstated the trial court's judgment holding consent is not an affirmative defense to a trespass action.  Instead, the Supreme Court noted, lack of consent of authorization is an element of a trespass cause of action that the party alleging trespass must prove.  The court noted that the Texas Court of Appeals had never delivered a well-reasoned decision in which it allocated the burden of proving consent in trespass cases, while it is well-established in Texas that a trespass action is an unauthorized entry onto the land of another.  Environmental Processing Systems, L.C. v. FPL Farming Ltd., No. 12-0905 (Tex. Sup. Ct. Feb. 6, 2015).

The IRS has issued a non-acquiescence with four Tax Court cases from 2004 involving discharge of debt under I.R.C. Sec. 108(a)(1) - the exclusion from gross income of any amount derived from the discharge of debt of the taxpayer if the discharge occurs in bankruptcy if the taxpayer is under the bankruptcy court's jurisdiction.  For partnerships, the discharge provision is applied at the partner level.  In the four cases, the taxpayer in each case was a general partner of a partnership who had personally guaranteed partnership debt.  When each partnership filed Chapter 11, each of the respective general partners agreed to make payments to the particular bankruptcy estate in exchange for the release of creditor claims against them personally.  The bankruptcy court order approving the agreement indicated that every one of the general partners was under the court's jurisdiction.  Each partner excluded the discharged debt from income and IRS disagreed with that characterization, assessing several hundred thousand of dollars of additional tax.  The Tax Court, in each case, held that the IRS was wrong because the partnership debt was discharged in bankruptcy in accordance with Sec. 108(d)(2) and that the discharge released the partners from liability in a bankruptcy matter and that the partners were subject to the court's jurisdiction.  The court determined in each case that it was immaterial that none of the partners was in bankruptcy in their individual capacities.  IRS Action on Decision, 2015-001 (Feb. 9, 2015).  The cases are Gracia v. Comr., T.C. Memo. 2004-147; Mirarchi v. Comr., T.C. Memo. 2004-148; Price v. Comr., T.C. Memo. 2004-149; and Estate of Martinez v. Comr., T.C. Memo. 2004-150.

The taxpayers, a married couple, made excess contributions in 2007 to their IRAs.  They withdrew the excess contribution and earnings on the excess on March 23, 2010.  In addition, their returns for 2008 and 2009 were not timely filed.  The taxpayers sought a waiver of the 6 percent excise tax on the excess contribution, but IRS refused and levied the excise tax plus penalties for late filing plus interest and penalties for late payment.  After paying the alleged deficiency, the taxpayers sought refunds on the basis that IRS had improperly determined the date of payment because the IRS calculated interest based on the date the payment was received rather than on when the taxpayer mailed the payment.  In addition, the taxpayers argued that they were owed a refund for 2009 taxes because they had removed the IRA funds before April 15, 2010.  The court determined that IRS had improperly calculated interest because the "postmark rule" applies, and that because the excess IRA funds were withdrawn before April 15, 2010, the penalty for 2009 did not apply.  Wu v. United States, No. 14-cv-3925, 2015 U.S. Dist. LEXIS 12991 (N.D. Ill. Feb. 3, 2015).   

The parties owned farmland next to each other and were also stockholders in an irrigation company that provided water to the stockholders via an irrigation canal.  Water was provided via headgates located at various points along the canal.  When multiple landowners receive water via a headgate, they must determine on their own how to receive the water.  At issue was a headgate located on the edge of the defendant's property with a lateral across the defendant's property to the plaintiff's property.  The defendant claimed that the plaintiffs had not been property maintaining the lateral which cased it to overflow onto the defendant's property.  Ultimately, the defendants shut down the headgate and the plaintiffs did not receive any additional water for their crops for the balance of the year.  The plaintiff sued seeking the imposition of a prescriptive easement over the defendant's property and an order barring the defendant's from interfering with the easement.  The plaintiffs also sought damages.  The trial court determined that the plaintiffs had established the elements necessary for a prescriptive easement.  On appeal, the court affirmed.  The court noted that the plaintiff's use of the lateral had been continuous and uninterrupted, was not via permission, and had been utilized since at least 1959.  The court also ordered that culverts installed by the defendants that restricted the flow of water to the plaintiff be removed.  Fyfe v. Tabor Turnpost, L.L.C., 22 Neb. App. 711 (2015).   

The petitioner's return was under audit and IRS sought the petitioner's signature on Form 872 to extend the normal three-year statute of limitations for assessment of additional tax to allow IRS more time to complete the audit.  However, Form 872 contained the wrong tax year and the petitioner argued that the statute of limitations had not been extended and, thus, IRS couldn't assess additional tax because the statute of limitations had run.  The court disagreed, noting that both the petitioner and the IRS believed that the Form 872 actually applied to the tax year being audited.  Thus, the parties had made a mutual mistake and the court allowed the Form 872 to be reformed such that it was applicable to the tax year under audit.  Hartland Management Services, Inc. v. Comr., T.C. Memo. 2015-8. 

The defendant was convicted of burglary in the third degree (as a habitual offender) after a farmer caught him stealing tools and other items from a remote farm building. He alleged upon discovery that the building hadn’t been entered for three to five years and that he was just “picking.” On appeal, the defendant argued that an aiding and abetting jury instruction was inappropriate and that he received ineffective assistance of counsel. The court affirmed the judgment, finding that the woman in his car when he was caught in the act could have been participating in the theft. As such, the aiding and abetting instruction was not error. The court also found that defendant’s counsel was not ineffective for failing to raise the issue of insufficiency of the evidence. The State’s case against defendant was strong. Defendant’s allegations of no evidence of specific intent had no merit, and he suffered no prejudice. State v. Braden, No. 13-2014, 2015 Iowa App. LEXIS 42 (Iowa Ct. App. Jan. 28, 2015).