Annotations 08/2015

The plaintiff, an electric power company, condemned a power line easement that bisected two tracts of the defendants (a married couple).  The easement occupied 12 acres out of 460.  The plaintiff offered the defendants $96,465 for the property taken.  On appeal, the trial court jury determined the property taken was worth $1,922,559.  The plaintiff appealed the jury award, claiming that the trial court erred by failing to exclude the defendants' expert testimony and that the trial court erred by allowing testimony as to a valuation approach that was not in accord with K.S.A. Sec. 26-513(e).  The court upheld the jury award because the defendants' first expert testimony, while not a valuation expert, laid a proper foundation for the testimony of the defendants' valuation expert.  The defendants' valuation expert approach did follow the statute and the trial court did not abuse its discretion in allowing the testimony.  The evidence was legally sufficient to support the jury's determination.  The trial court also did not err in allowing into evidence an option contract that had been entered into with a developer.  Kansas City Power & Light Company, No. 110,573, 2015 Kan. LEXIS 720 (Kan. Sup. Ct. Aug. 28, 2015).

As part of his job duties for the defendant, the plaintiff slipped while mopping up the bathroom floor of the defendant's facility and injured himself.  The defendant did not participate in the state's workers' compensation system (the state, TX, is the only state with a voluntary workers' compensation system for non-ag employment).  The premises "defect" was open and obvious to the plaintiff.  By opting out of the workers' compensation system, the defendant could not assert contributory negligence or assumption of risk as a defense.  The legal question presented was whether the defendant breached any duty of care to the plaintiff.  The U.S. Court of Appeals for the Fifth Circuit certified this question to the TX Supreme Court which determined that because there was no contention that the employee was unaware of the hazard involved and no other exception applied, the defendant was entitled to summary judgment.  However, the TX Supreme Court clarified that the premises liability claim was independent of the plaintiff's "necessary instrumentalities" claim  and that the defendant owed the plaintiff duties in addition to the premises liability duty.  Because the trial court did not consider whether the defendant provided the plaintiff with the necessary instrumentalities of his employment, the court remanded on that issue, but affirmed on the premises liability claim.  Austin v. Kroger Texas L.P., No. 12-10772, 2015 U.S. App. LEXIS 15312 (5th Cir. Aug. 28, 2015).

In this case, the petitioner sold his home and 80-acres of land on the installment basis for a gain of $657,796.  The petitioner calculated the gain by excluding $500,000 of gain attributable to the home sale exclusion of I.R.C. Sec. 121.  The buyers defaulted and the petitioner reacquired the property in full satisfaction of the debt.  The IRS claimed the petitioner had to recognize gain upon repossession to the extent of money and other property received before repossession, which would, in essence, recapture the Sec. 121 exclusion previously claimed.  The court agreed with IRS that the general rules of I.R.C. Sec. 1038 applied  and noted that the petitioner was actually in a better position than before the sale because he had received some payments for the sale before the buyer's default and recouped the property.  On appeal, the court affirmed.  The court noted that there are two types of gain involved on reacquisition of real estate in accordance with I.R.C. Sec. 1038(b)(1) - gain "returned as income" on a prior return, and gain not yet "returned as income."  Here, the court noted that the petitioner had reported $56,920 as income.  The petitioner had not reported the $500,000 of gain attributable to the house, thus it was not "returned as income" on a prior return.  Thus, by failing to resell the property within a year, the petitioner recognizes $505,000 received in cash, less the $56,920 already recognized as income.  Debough v. Comr., 142 T.C. No. 17 (2014), aff'd.,No. 14-3036, 2015 U.S. App. LEXIS 15194 (8th Cir. Aug. 28, 2015).

The plaintiff filed  a Freedom of Information Act (FOIA) request with the IRS to determine whether the Obama White House had sought private taxpayer information from the IRS after the White House had made remarks on the tax status of Koch Industries (a private company).  The IRS refused to release any information, citing Internal Revenue Code Sec. 6103 which bars the IRS from divulging tax return information and divulging requests for taxpayer information.  The plaintiff then sued and the court disagreed with the IRS position, denying IRS' motion to dismiss the case.  The court held that I.R.C. Sec. 6103 does not allow IRS to shield records that might indicate that the White House misused confidential taxpayer information or that White House officials made an improper attempt to access that information.  Cause of Action v. Internal Revenue Service, No. 13-0920, 2015 U.S. Dist. LEXIS 114203 (D. D.C. Aug. 28, 2015).

The day before the effective date of the Environmental Protection Agency’s Clean Water of the United States (WOTUS) rule (Fed. Reg. 37,054-127,), a federal judge issued a preliminary injunction to stop the EPA and the U.S. Army Corps of Engineers from enforcing it. The court determined that the plaintiffs (multiple states) were substantially likely to succeed on the merits or had at least a fair chance to succeed.  The court stated that the evidence showed that it was likely that the EPA has violated its Congressional grant of authority when it developed the rule and also failed to comply with the Administrative Procedure Act requirements.  The court noted that a broad segment of the public would benefit from the preliminary injunction because it would ensure that federal agencies do not extend their power beyond the express delegation from Congress. A balancing of the harms and analysis of the public interest revealed that the risk of harm to the States was great and the burden on the EPA was slight.  The injunction was requested by States of North Dakota, Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, Nevada, South Dakota, and Wyoming, and the New Mexico Environment Department.  The EPA immediately took the position that the injunction applies only to those states that sought the injunction. The old rule, the agency said, will be applied in those states. The new rule, however, will be applied by the EPA and the U.S. Army Corps in the remaining states beginning effective August 28, 2015.  North Dakota, et al. v. United States Environmental Protection Agency, No. 3:15-cv-59, 2015 U.S. Dist. LEXIS 113831 (D. N.D. Aug. 27, 2015).


The plaintiff sells grapevine rootstock and challenged the mandatory assessments it must pay to the California Rootstock Improvement Commission to help fund research for pest-resistant and drought-resistant rootstock.  The plaintiff challenged the mandatory assessment as an unconstitutional exercise of the state's police power that violated the plaintiff's liberty interests and due process rights under the U.S. and California constitutions.  The plaintiff had the ability to conduct its own research for it own competitive advantage and claimed it had a right to refuse to help fund research that benefits its competitors and the industry as a whole.  The trial court upheld the mandatory assessment and the appellate court agreed.  The appellate court determined that the Commission was properly created for the public benefit and that a university researcher at UC Davis did not dupe the legislature and the grape rootstock industry into creating the Commission for the researcher's benefit.  The court found that the evidence did not support the plaintiff's conspiracy claims and that the law creating the Commission and the assessment was constitutionally valid.  Duarte Nursery, Inc. v. California Grape Rootstock Improvement Commission, et al., No. C071578, 2015 Cal. App. LEXIS 735 (Cal. Ct. App. Aug. 25, 2015).

The petitioner resided in Hawaii with his common law wife.  He claimed a dependency deduction for her as she was listed as his common law wife on their return.  The IRS stipulated to an "affidavit of dependency" that she signed in which she said that during the tax year in question that she lived in the petitioner's home, had gross income of less than $3,500, and that the petitioner provided more than 50% of her support.  The court accepted the affidavit as evidence of the petitioner being entitled to the dependency deduction.  Shimanek v. Comr., T.C. Memo. 2015-165.

The petitioners, a married couple, was deemed not be in the real estate sales business with a profit intent for the years at issue based on an analysis of multiple factors.  The court also determined that the petitioners did not substantiate their expenses for their deductions claimed on Schedule C.  Pouemi v. Comr., T.C. Memo. 2015-161.

The petitioner received payments under a divorce agreement and claimed that they constituted alimony.  However, the payments were not terminated upon death as required by I.R.C. Sec. 71(b)(1)(D).  Thus, the payments did not constitute alimony.  Crabtree v. Comr., T.C. Memo. 2015-163.

The decedent made taxable gifts during life, but failed to pay the associated gift tax.  Upon death, the estate did not pay the gift tax either.  The IRS claimed that the donees of the gifts owed the gift tax and interest on the gifts.  The donees argued that the interest on the gift tax was limited to the value of the gift to any particular done under I.R.C. Sec. 6324(b).  The court agreed that the interest on the gift cannot exceed the amount of the gift.  United States v. Marshall, No. 12-20804, 2015 U.S. App. LEXIS14584 (5th Cir. Aug. 19, 2015), aff'g in part and rev'g in part, In re Marshall, 721 F.3d 1032 (9th Cir. 2013) and withdrawing 771 F.3d 854 (5th Cir. 2014).

The petitioner and wife bought an annuity in 2003 with proceeds they received from selling securities that triggered a $158,000 capital loss.  The annuity was purchased for $228,800 and additional contributions of $346,154 were made through 2006.  In 2007, the petitioner entered into an I.R.C. Sec. 1035 exchange for a different annuity with a start date of Feb. 3, 2047.  In 2010, the petitioner and wife withdrew $525,000 from the annuity to buy their current home.  At the time of the withdrawal, the cash value of the annuity was $761,256 with accrued earnings of $186,302.  The petitioner was issued a Form 1099R showing a taxable distribution of $186,302.  The petitioner did not report the taxable amount of the distribution, claiming instead that the income on the contract arose from capital gains incurred in the annuity that offset the capital loss and also because they hadn't made any money on the contract.  The court upheld the IRS position that the petitioner had "earned" $186,302 on the invested funds.  The court also imposed a 10 percent early withdrawal penalty and a 20 percent accuracy related penalty.  Tobias v. Comr., T.C. Memo. 2015-164.

The petitioner was a sole proprietor landscaper that claimed an interest expense deduction on Schedule C.  IRS denied the deduction and the court agreed.  The petitioner failed to show a business purpose for the loans at issue, and his logs were not credible because they didn't show the purpose of the travel, time spent or amount of expense.  Ocampo v. Comr., T.C. Memo. 2015-150.


I.R.C. Sec. 6035 was added to the Code by the Surface Transportation and Veterans Health Care Improvement Act of 2015 (STVHCIA).  Section 6035 specifies that a decedent's estate that is required to file Form 706 after July 31, 2015, must provide basis information to the IRS and estate beneficiaries by the earlier of 30 days after the date Form 706 was required to be filed (including extensions, if granted) or 30 days after the actual date of filing of Form 706  However, the STVHCIA allowed IRS to move the filing deadline forward and the IRS did move the date forward to February 29, 2016 for statements that would be due before that date under the 30-day rule contained in the STVHCIA.  IRS stated that executors and other persons are not to file or furnish basis information statements until the IRS issues forms or additional guidance.  Relatedly, the STVCIA modifies I.R.C. Sec. 1014(f) to require beneficiaries to limit basis claimed on inherited property to either the value of the property as finally determined for federal estate tax purposes, or the value reported to the IRS and beneficiary under I.R.C. Sec. 6035.  I.R.S. Notice 2015-57. 


In 2003, an LLC bought oil and gas properties from another corporation and asked the corporate executives to manage the wells.  The executives, which included the defendant, founded a limited partnership to manage exploration and production of the properties.  The LLC loaned made a $6 million non-recourse loan to the LP for working capital.  Ultimately, the LP wound up with a 20 percent interest in the sale revenue after the LLC recovered expenses and had a 10 percent return on investment.  the LP partners limited tied their salaries to profits such that if the LLC earned nothing the partners did not have any profit.  The LP arranged for the LLC to sell the properties with the LP's interest being approximately $20 million which it reported as ordinary income.  Two years later, the LP filed an amended return reporting the $20 million as capital gain resulting from the sale of a partnership interest.  Amended K-1s were issued to the partners, including the defendant.  IRS issued refunds, but then later changed its mind and asserted that the income ordinary in nature as compensation for services rendered.  The issue before the court was whether the LP had a profits interest for services, or whether the relationship with the LLC meant that the arrangement was compensation for services provided in arranging the sale of the oil and gas properties (i.e., a commission for sale).  The IRS claimed that a partnership did not exist for tax purposes because the entity agreement disclaimed the existence of a partnership, the LLC contributed the funds and controlled the funds, owned the assets and the LP was not at risk.  The IRS also argued that the LP was a mere contract employee.  The LP claimed that it was a partnership for tax purposes and that it had exchanged the partners time and talent for a profit share.  The court determined that the LP was a partnership for tax purposes based on the objective facts of the parties' relationship and ownership interest in the value of the oil and gas operation.  Thus, because a partnership interest is a capital asset, the resulting income from the sale is capital gain.  The IRS did not argue that the LP partners had actually received a partnership interest for services which would result in ordinary income when the interest was issued.  United States v. Stewart, et al., No. H-10-294, 2015 U.S. Dist. LEXIS 110055 (S.D. Tex. Aug. 20, 2015).         

Nine years after the purchase, the plaintiffs claimed that they purchased defective windows.  The plaintiffs tried to recover the replacement cost of the windows.  The plaintiffs claimed that the defendant breached an implied warranty of merchantability and the warranty of fitness for a particular purpose.  The plaintiff also sued the supplier for breach of an express limited warranty.  The trial court dismissed the claim against the supplier as time-barred.  On appeal, the plaintiffs claimed that the statute of limitations was not triggered until the problem with the windows was discovered.  However, the court pointed out that Iowa Code Sec. 554.2725(2) applies the "discovery rule" only to a warranty that explicitly extends to future performance of the goods.  Here, the court noted that the allegation was that the supplier only provided implied warranties.  As such, the statute of limitations was tolled at the time of delivery.  The court affirmed the trial court decision.  Kopp v. American Builders & Contractors Supply Co., Inc., No. 14-1868, 2015 Iowa App. LEXIS 770 (Iowa Ct. App. Aug. 19, 2015). 

The plaintiff owns mineral rights on 3,250 acres, the surface of which is owned by a third party.  The defendant is the lessee on minerals under property adjacent to the 3,250-acre tract.  Because the defendant's lease bars the defendant from accessing the minerals without consent, the defendant accesses the minerals from off-site drilling locations via horizontal drilling.  The defendant entered into an agreement with the surface owner of the 3,250 acres to drill wells on the surface of the tract to produce oil from the minerals it had an interest in under the adjacent tract.  The plaintiff sued to bar the drilling through the subsurface of the 3,250 acres to reach their mineral interest by claiming that the defendant was trespassing and had interfered with the plaintiff's business relations.  The defendant claimed that no trespass occurred because it had received the surface owner's permission to horizontal drill.  The trial court agreed with the defendant.  On appeal, the court affirmed on the basis that the surface owner controls the earth beneath the surface estate.  The court noted that the mineral owner is entitled to a fair chance to recover the oil and gas in or under the surface estate, but does not control the "mass that undergirds the surface of the conveyed land" absent an agreement to the contrary.  Lightning Oil Co. v. Anadarko E&P Onshore LLC, No. 04-14-00903-CV, 2015 Tex. App. LEXIS 8673 (Tex. Ct. App. Aug. 19, 2015).

The plaintiff sold a six acre tract of land to the defendant.  After obtaining possession, the defendant obtained a commercial disposal permit for the tract and drilled a commercial disposal well.  The plaintiff claimed that the defendant had orally represented before the sale that the defendant would use the property as an equipment yard to store pipe and other oilfield equipment, and that the property would not have been sold had the plaintiff known that a commercial disposal well was going to be drilled on the property.  The plaintiff claimed damages as a result of the alleged fraud.  The court refused to rescind the contract, finding that the plaintiff failed to establish a material misrepresentation and that the negotiation was at arm's-length and the defendant was not notified of any objection the plaintiff might have concerning particular uses of the property.  The court noted that the plaintiff could have protected its interests by including a use restriction in the contract for deed and the deed, but failed to do so.  Stinson Farm and Ranch, L.L.C. v. Overflow Energy, L.L.C., No. CIV-14-1400-R, 2015 U.S. Dist. LEXIS 108661 (W.D. Okla. Aug. 18, 2015).

The defendant has been a lifelong farmer and farms land within the borders of the plaintiff town.  The defendant's farmland is near a federal wildlife refuge beset with large numbers of blackbirds that feed on his crops until they migrate for winter.  Consequently, the defendant's father utilized scare guns on the property beginning in 1962, and the defendant continued their use.  The defendant did not receive any complaints until a neighbor complained in 2011.  In 2013, the plaintiff enacted an ordinance requiring permits for the operation of scare guns and specifying that such guns can only be operated between 6 a.m. and 8 p.m. and only between July 1 and October 1 of any given year.  In addition, the ordinance specified that scare guns cannot be operated within 300 feet of any residence not owned or occupied by the permittee absent written consent, and all scare guns must be pointed at least 45 degrees away from neighboring property lines.  The defendant applied for a permit and received one, but was later cited for violating the ordinance by operating a scare gun at an angle of less than 45 degrees from a neighboring property line.  The defendant pled not guilty and also argued that the ordinance was invalid for violating a vested right to use scare guns on his property, and also because the ordinance violated the state Right-To-Farm law and because it was enacted without the approval of the county board.  The court denied the defendant's motion to dismiss, and determined that while the defendant had a vested right to farm his property, the defendant had no vested right to utilize a particular farming practice, such as scare guns.  The court also determined that the ordinance did not constitute a regulatory taking because the ordinance did not deprive the defendant of all or substantially all of the beneficial use of his property.  A reduction of yield, even if substantial, does not meet that standard.  The permit required is also not a land use permit and, as such, did not conflict with the county's comprehensive zoning ordinance.  The state right-to-farm law did not preempt the ordinance as that law only applies to nuisance actions and does not bar local regulation of agricultural activity.  The court also determined that the ordinance was not arbitrary.  Town of Trempealeau v. Klein, No. 2014AP2719, 2015 Wisc. App. LEXIS 608 (Wisc. Ct. App. Aug. 18, 2015). 

The defendants (married couple) wanted to establish a small cattle feedlot on 27 acres.  The proposed feedlot was subject to various land-use ordinances and they needed to obtain a conditional use permit (CUP) from the city zoning administrator in the nearby town who would then forward the application to the joint planning board which would make a recommendation to the county board who would then make a final decision.  The plaintiffs filed an application for a CUP and the joint planning board recommended approval with various conditions.  A public hearing was held and numerous neighbors objected to the CUP being granted.  The CUP was approved with the conditions, and various nearby landowners appealed on the basis that the application was incomplete, the board failed to consider public opposition, and because existing regulations barred a new feedlot in the area.  The court disagreed, holding that oral discussions concerning the missing information on the application were sufficient such that the board did not act unreasonably or arbitrarily in granting the permit.  The court also determined that other land-use restrictions did not apply.  Loncorich, et al. v. McLeod County Board of Commissioners, et al., No. A14-1734, 2015 Minn. App. Unpub. LEXIS 820 (Minn. Ct. App. Aug. 17, 2015).

The plaintiff bought a 20-acre rural tract that was zoned for agricultural use.  The plaintiff built a fenced-in arena on the tract for horseback-mounted shooting events and began holding trainings and competitions.  Upon receiving complaints, the zoning department investigated and determined the property usage was a nonconforming use.  The plaintiff applied for a conditional use permit (CUP), and the planning commission recommended a conditional CUP.  However, the township board denied the CUP due to negative impact and noise.  The planning commission sought public comment at a public hearing, and the zoning department filed a report recommending a CUP with conditions.  Neighbors provided negative testimony at the hearing.  The county board denied the CUP and the plaintiff sought judicial relief.  The court upheld the board's denial based on the impact the plaintiff's activities would have on the neighborhood and criteria listed in the county zoning ordinances.  The court determined there was sufficient factual basis to deny the CUP and that the effect of noise could be considered even though it did not exceed noise standards.  The court also held that the board was authorized to rely on observations of individual neighbors.  August v. Chisago County Board of Supervisors, No. A14-1475, 2015 Minn. App. LEXIS 63 (Minn. Ct. App. Aug. 17, 2015).

The IRS declined to determine whether the subsidiary of a taxpayer was an eligible agricultural business in the trade or business of distributing specified agricultural chemicals under I.R.C.  Sec. 450(e)(2).  The IRS determined that the issue was inherently factual.  Tech. Adv. Memo. 201532034 (May 13, 2015).

I.R.C. Secs. 6426(a) and (c) allow a taxpayer that blends biodiesel to claim a $1/gallon credit under I.R.C. Sec. 4081.  Also, I.R.C. Sec. 6426(e) provides for a $.50/gallon credit for a taxpayer that blends alternative fuel.  The credits expired for sales and uses after 2013, but TIPRA of 2014 extended them through 2014.  In this Notice, the IRS specified that taxpayers claiming the credits submit all claims for 2014 biodiesel and alternative fuel credits on a single Form 8849.  To the extent the credits reduce the claimant's fuel tax liability, the credits produce an income tax addback by reducing the excise tax deduction that the taxpayer can claim as part of its cost of goods sold or any other relevant tax income tax deduction.  That addback is to be done on a quarterly basis in accordance with the biodiesel or alternative fuel mixture sold or used during the quarter.  The credits are treated for 2014 as if they had never expired.  IRS Notice 2015-56, IRB 2015-35.

The plaintiff was criminally charged with violating the defendant's municipal ordinance banning horses from residential property.  An initial complaint against the plaintiff was triggered by neighbors complaining of excessive manure from a horse and other animals on the plaintiff's property.  Ultimately, the plaintiff removed all of the farm animals from her property except one miniature horse which she kept as a service animal for her disabled minor daughter.  In early 2013, the defendant passed an ordinance which amended the defendant's municipal code to "prohibit the keeping of farm animals at residences within the city."  The ordinance specifically applied to horses except where authorized by federal, state or local law.  The plaintiff, after a complaint was made anonymously, was asked to remove her horse from the property.  The plaintiff complied, but the horse later reappeared at the plaintiff's property.  The plaintiff was cited for the ordinance violation and fined.  The plaintiff was tried on both citations and defended herself on the basis that the Americans with Disabilities Act (ADA) and the Fair Housing Amendments Act (FHAA) allowed her to keep the horse for her daughter's therapy as a service animal.  The plaintiff moved to dismiss the citations, which the Municipal court denied and found the plaintiff guilty on both citations.  The Municipal court did not impose a fine for either conviction and the plaintiff did not appeal.  The plaintiff then later sued the defendant for alleged violation of her rights under the ADA and the FHAA, and that the 2013 ordinance was enacted with animus against her daughter in violation of the ADA and the FHAA.  The defendant moved for summary judgment, and the trial court granted the motion on the grounds that the plaintiff's claims were barred by claim and issue preclusion based on her Municipal Court convictions.  On appeal, the court reversed.  The appellate court said the Municipal court proceedings had no preclusive effect.  While the court held that there was no evidence that the defendant's actions were motivated by discriminatory intent against the plaintiff's daughter, there remained significant factual disputes regarding whether the ADA or FHAA allowed the defendant to keep the miniature horse.  Anderson v. City of Blue Ash, No. 14-3754, 2015 U.S. App. LEXIS 14293 (6th Cir. Aug. 14, 2015).   

The plaintiffs, a hog farmer and two activist groups with hog farmers as members claimed that the National Pork Board (NPB) misappropriated funds raised via the Pork Checkoff (assessed at the rate of $.40 per $100 value of pigs sold or when pigs or pork products are imported into the U.S.).   The NPB is a quasi-governmental entity  that administers the "Pork Order" which implements the Pork Act (7 U.S.C. Sec. 4801-19) which is designed to promote pork in the marketplace.  The NPB conducts, among other things, consumer information campaigns designed to stimulate pork product sales.  In 2006, the NPB bought four trademarks associated with the slogan "Pork:  The Other White Meat" from the National Pork Producers Council for $60 million, to be paid in annual installments of $3 million for 20 years.  The NPB can terminate the payments at any time with a year's notice with the ownership of the phrase then reverting to the NPPC.  In 2011, the NPB replaced the slogan with a new motto, "Pork:  Be Inspired."  The NPB retained the initial slogan as a "heritage brand" but does not feature it in its advertising.  The plaintiffs claimed that the NPB bought the slogan with the purpose of funding the NPPC to keep it in business and support the NPPC's lobbying efforts in violation of the Pork Act, that the NPB overpaid for the slogan and that the new slogan makes the initial one worthless.  The plaintiffs sued the USDA under the Administrative Procedure Act (APA) seeking to enjoin the NPB from making further payments to the NPPC and directing the USDA to "claw back" any payments possible from the deal.  The trial court dismissed the case for lack of standing.  The court determined that the hog farmer plaintiff could not show any injury in fact, and that the activist organizations could not sue in their own right or on behalf of their hog-producer members.  On appeal, the court reversed.  The court reasoned that the hog farmer had standing because he formulated a "concrete and particularized" injury via his return on investment being diminished by the annual $3 million payments and that he alleged facts that plausibly showed that the mark was worth less than $60 million, and that the NPB's purchase of the slogan was not negotiated at arm's length and that the NPPC and the NPB are intertwined with the NPPC lobbying for passage of the Pork Act and proposing the text that serves as the foundation for the Pork Order.  In addition, the NPPC was instrumental in developing the initial slogan.  A 1999 report USDA Inspector General Audit concluded that the NPB had put the NPPC in a position to exert undue influence over NPB budgets and grant proposals.  In addition, the hog farmer plaintiff also alleged facts that plausibly showed that the initial slogan is no longer worth $3 million annually.  The court did not rule on whether the other plaintiffs had standing.  The court also refused to uphold dismissal of the case for failure to exhaust administrative remedies because the plaintiffs merely wanted to make the USDA Secretary comply with the Pork Act and Order.  The court remanded the case.  Humane Society of the United States, et al. v. Vilsack, No. 13-5293, 2015 U.S. App. LEXIS 14271 (D.C. Cir. Aug. 14, 2015).   

The debtor filed Chapter 12 bankruptcy and a bank, as a creditor, held security interests in the debtor’s livestock, crops and equipment.  The bank sought relief from the automatic stay, which was granted.  The debtor, with the bank’s permission, sold the livestock and equipment to a third party with the sale proceeds paying off the secured debt.  A similar arrangement was engaged in by another creditor with the sale being to the same buyer.  The bankruptcy court did not grant prior approval of the sales.  The debtor sought to avoid the sales under 11 U.S.C. Sec. 549, and the buyer motioned for summary judgment on the basis that the debtor lacked standing to sue for lack of injury insomuch as the debtor benefitted from the sales.  The court allowed the debtor’s case to proceed on the basis that the buyer had not completely showed that the sales didn’t injure the debtor or the debtor’s bankruptcy estate.  In re Johnsman Limited Partnership, No. 12-33368, 2015 Bankr. LEXIS 2702 (Bankr. N.D. Ohio Aug. 13, 2015).

A partnership can consent to allow the IRS to extend the statute of limitations by signing Form 872-P.  Normally, the Form would have to be signed by a designated tax matters partner.  However, in this case, the signer was no the designated tax matters partner.  The court held that the signature was effective to allow the statute of limitations to be extended because the signer had apparent authority and the IRS was reasonable in believing that the signer had the authority to act on the partnership's behalf.  The signed had also signed the partnership's tax return and was a managing member.  Summit Vineyard Holdings, LLC, et al. v. Comr., T.C. Memo. 2015-140.

The petitioner, a lawyer who practiced tax law, donated a permanent conservation easement on 80 percent of a 74-acre parcel to a qualified land trust.  The land was subject to a mortgage at the time of the donation and the mortgage was not subordinated until two years after the petitioner received a statutory notice of deficiency from the  IRS.  The petitioner argued that the state (ID) Uniform Conservation Easement Act protected the charitable use of the property, but the Tax Court noted that the Act would have only protected whatever interest remained after the lender was satisfied.  The Tax Court noted that the subordination agreement had to be in place at the time of the grant of the conservation easement.  The Tax Court upheld the imposition of a negligence penalty.  The appellate court affirmed.  The court held that Treas. Reg. Sec. 1.170A-14(g)(2) clearly required the subordination agreement to be in place at the time of the easement grant for the donor to claim a tax deduction for the value of the contributed easement.  The court noted that an easement cannot be deemed to be "in perpetuity" if it is subject to extinguishment at essentially any time by a mortgage holder who was not party to or aware of the agreement between the taxpayer and the donee.  Minnick, et al. v. Comr., No. 13-73234, 2015 U.S. App. LEXIS 14097 (9th Cir. Aug. 12, 2015), affn'g., T.C. Memo. 2012-345.     

In response to increased identity fraud instances, the IRS has announced that it is shortening the time period for extending certain information returns by eliminating the automatic 30-day extension option that is available for Form W-2s.  IRS will adopt a single non-automatic extension.  The IRS has removed Treas. Reg. Sec. 1.6081-8 and is adding Temp. Treas. Reg. Sec. 1.6081-8T.  The IRS has also published proposed regulations that would make permanent the changed contained in Temp. Treas. Reg. Sec. 1.6081-8T.  The new rule will also apply in the future to other information returns.  The new rule is effective for Forms W-2 due after 2016, and other information returns due on or after January 1 of the year the regulations are adopted as final, or if later, those due on or after January 1, 2018.  T.D. 9780.

The petitioner operated a medical marijuana dispensary in West Hollywood, CA.  Federal Drug Enforcement Agency agents raided the dispensary and seized $600,000 worth of marijuana.  The petitioner, for the year at issue, reported $1,700,000 of gross sales and $1,429,614 in cost of goods sold.  The petitioner is entitled to deduct the cost of goods sold, but cannot deduct any other operating costs.  The petitioner claimed to have included the $600,000 amount in both gross sales and cost of goods sold.  However, the petitioner could not substantiate any of the income or deduction items and was not entitled to reduce his reported sales amount by the $600,000 he included in cost of goods sold.  In addition, the petitioner could not claim an I.R.C. Sec. 165 loss for the seized marijuana because I.R.C. Sec. 280A bars a deduction for any amount incurred in connection with trafficking in a controlled substance.  The court upheld the imposition of an accuracy-related penalty.  Beck v. Comr., T.C. Memo. 2015-149.

The petitioner listed his business on his tax return as "World Travel Guide" and showed a net business loss of $39,138.  As he traveled, the petitioner blogged about his travels and hoped to profit from income generated via affiliate sales from the blog.  When that didn't pan out, the petitioner shifted to writing books about his travels.  The IRS disallowed the loss under the hobby loss rules of I.R.C. Sec. 183.  The court agreed with the IRS, noting that the petitioner did not maintain books or records, had no written business plan, no estimate as to when his website would be operational or when he would begin to earn money from the activity.  Pingel v. Comr., T.C. Sum. Op. 2015-48.

The petitioner, a schoolteacher, also owned and managed various real estate rental properties on which he lost money in 2005-2007.  The petitioner claimed the losses were fully deductible because he satisfied the tests to be a real estate professional contained in I.R.C. Sec. 469(c)(7)(B) - more than fifty percent of his personal services for the years in question were spent in real property trades or business and he spent more than 750 hours each year in rental activities.  While the petitioner's logs showed that he satisfied both tests, the court found the logs to not be credible.  The petitioner did not include any "off-site" time as his teacher hours, and exaggerated his time on rental activities, including work for certain days on rental activities exceeding 24 hours.  Escalante v. Comr., T.C. Sum. Op. 2015-47.

The petitioner was an accountant that provided tax return preparation services to clients.  In addition to an office in town, the petitioner also met with clients at their businesses or homes and then did accounting work for them out of her residences.  For the years in issue, the petitioner rented out one residence to a friend and also occasionally stayed there overnight.  The petitioner claimed business-related deductions for both of her homes which the IRS denied.  The court upheld the IRS position on the basis that the taxpayer did not satisfy the principal place of business test and also because the petitioner did not use the home as a place to meet clients or customers and did not have a separate structure or part of the home set aside for business use.  Instead, the taxpayer had an office in town - another fixed location where she could perform substantial administrative or management activities.  The court also disallowed deduction for alleged business autos on the grounds that the petitioner could not show that she either owned or leased the vehicles in question.  Sheri Flying Hawk v. Comr., T.C. Memo. 2015-139.

In late 2013, the Obama Administration, as requested by the wind energy industry, announced that it would allow certain wind energy companies to kill or injure bald and golden eagles for up to 30 years without penalty.  The Department of the Interior developed a rule modifying the existing 5-year "eagle-take" rule with a 30-year rule allowing wind energy companies to obtain 30-year permits to kills golden and bald eagles without prosecution by the federal government.  The court invalidated the rule, citing a lack of compliance with the National Environmental Policy Act.  The court determined that the U.S. Fish and Wildlife Service (FWS) had failed to show an adequate basis in the record for deciding not to prepare an environmental impact statement (as required by NEPA) or an environmental assessment before adopting the 30-year rule.  The court invalidated the rule and remanded to the FWS "for further consideration."  Shearwater, et al. v. Ashe, et al., No. 14CV02830LHK, 2015 U.S. Dist. LEXIS 106277 (N.D. Cal. Aug. 11, 2015).

A father and his son operated a farm.  The son's daughter had a 12-year birthday (sleepover) party at the farm and invited her friends to attend.  The day after the sleepover, a 10-year friend of the daughter and the daughter took turns riding the farm's ATV on the farm over several hours.  The girls did not ask permission and were never told they could operate the ATV.  The father and son both saw the girls operating the ATV and did not stop them from doing so, but the grandfather told his granddaughter that both of the girls needed to slow down.  While both girls were on the ATV, the ATV struck a tree and the 10-year-old friend was killed.  The father and son were sued for wrongful death and the father and son sought coverage under their policy with the plaintiff which provided $300,000 in coverage.  The insurance company reserved its right to dispute coverage and filed a declaratory judgment action claiming that the policy did not provide coverage for the little girl's death.  The wrongful death action settled for $462,500.  The trial court held that the exclusionary clause in the policy that excluded coverage for "any person operating [an ATV] with 'your' express permission" did not apply because the girls did not receive express permission.  The policy did not define the term "express permission" and the court gave it its plain and ordinary meaning, and noted that the facts clearly indicated that the girls were operating the ATV only with tacit or implied permission.  The trial court granted summary judgment for the insureds.  Not satisfied with that result, the plaintiff appealed.  However, the appellate court affirmed.  The court noted that the policy did not define "express permission" and that the trial court was correct in applying the plain and ordinary meaning to the phrase.  The appellate court harshly scolded the plaintiff when it stated, "Grinnell's arguments suggesting the district court erred 'are the complaints of a poor draftsman, and we are as unsympathetic as we expect the [Minnesota courts] would be....It's not our role to rescue an insurer from its own drafting decisions."'  Grinnell Mutual Reinsurance Co. v. Villanueva, No. 14-2933, 2015 U.S. App. LEXIS 14017 (8th Cir. Aug. 11, 2015), aff'g., 37 F. Supp. 3d 1043 (D. Minn. 2014).   

The taxpayer paid the state (WA) excise tax on marijuana and questioned how to account for it for tax purposes.  The IRS noted that marijuana is a Schedule I controlled substance, but that the last sentence of I.R.C. Sec. 164(a) allows state-level taxes that are incurred in a trade or business or in an income-producing activity and that are connected with the acquisition or disposition of property to be capitalized.  As such, the state excise tax on marijuana could treat the payment for the tax as a reduction in the amount realized on the sale of property instead of as either a part of the inventoriable cost of the property or a deduction from gross income.  C.C.A. 201531016 (Jun. 9, 2015).

The petitioner chartered boats and entered into a management agreement with another organization that was responsible for marketing boats, setting charter prices, booking charters, maintaining records, collecting money and cleaning and maintaining the boats.  The petitioner was paid "net charter revenue," and the petitioner paid the organization a "turnaround fee" for each charter.  The petitioner also had the use of each of his two boats for two, two-week periods annually, paying for various expenses.  The activity encountered a loss, and the issue was whether the petitioner could satisfy the material participation test of Treas. Reg. Sec. 1.469-5T(a)(3)(the "more than others" test - more than 100 hours with more participation in the activity than anyone else).  The petitioner (and spouse) reconstructed their time to show 470 hours for one year and 732.5 hours in the activity for another year.  While the 470 was less than the 500 hours required by Treas. Reg. Sec. 1.469-5T(a)(1), but did meet the 100 hour test.  The petitioner was able to establish that their hours exceeded the hours of any other person in the activity.  Kline v. Comr., T.C. Memo. 2015-144.      

In 2009, the EPA began developing various rules that would negatively impact U.S. coal production.  One of those rules, the Cross-State Air Pollution rule, imposed a cap-and-trade style program that expanded limitations on sulfur dioxide and nitrogen oxide emissions from coal-fired power plants in 28 "upwind" states.  EPA claimed to have authority to cap emissions that supposedly traveled across state lines.  However, in 2012, the D.C. Circuit Court of Appeals invalidated the rule on the basis that, while the Clean Air Act (CAA) grants the EPA authority to require upwind states to reduce their own significant contributions to a downwind state's non-attainment, the rule could impermissibly require upwind states to reduce emissions by more than their own significant contributions to a downwind state's non-attainment.  The court also held that the EPA failed to allow states the initial chance (as required by statute) to implement any required reductions to in-state sources by quantifying a state's obligations and establishing federal implementation plans.  Indeed, the EPA admitted that the rule would cost the private sector $2.7 billion and force numerous coal-fired power plants to shut down.  However, on further review, the U.S. Supreme Court reversed in a 6-2 decision (Alito not participating).  The Court held that the CAA did not require the states to be given a second opportunity to file a state implementation plan after the EPA has quantified a state's interstate pollution obligations.  The Court also determined that the EPA had properly developed a "cost-effective" allocation of emission reductions among upwind states.  The dissent pointed out that the statute precisely specified the responsibility of upwind states - to eliminate the amount of pollutants that it contributes to downwind problem areas rather than achieve reductions on the basis of how cost-effectively each state can decrease emissions.  However, the Court agreed with the Circuit Court that certain "as-applied" challenges to the emissions reductions that EPA imposed on upwind states were legitimate and remanded on that issue.  The dissent also pointed out that the Court's decision allows unelected bureaucrats to develop plans to implement air-quality standards before a state could have satisfied the benchmarks established in the plans on their own.  On remand, the D.C. Circuit granted several challenges, thereby invalidating the 2014 CO2 emissions budgets imposed on AL, GA, SC and TX, and the 2014 ozone-season NOx budgets for FL, MD, NJ, NY, NC, OH, PA, SC TX, VA and WV.  The court rejected other challenges to the EPA rule.  EME Homer City Generation, L.P. v. Environmental Protection Agency, et al., No. 11-1302, 2015 U.S. App. LEXIS 13039, on pet. for review from 134 S. Ct. 1584 (2014). 


The petitioners, homosexual domestic partners, had $2.7 million in mortgage debt attributable to two homes that they jointly owned.  More than $2 million of the mortgage debt was associated with an 8,554 square foot home in Beverly Hills that they purchased for $3.2 million in 2002.  One petitioner claimed $194,599 in mortgage interest deduction for the two years at issue which IRS limited to $79,701, and limited the other petitioner to a deduction of $66,558 out of the $162,597 he had paid during the two years.  The IRS approach was to take the mortgage interest debt limit of $1.1 million contained in I.R.C. Sec. 163()(3) and apportion it between the two unmarried owners (based on the average outstanding mortgage balance).  The Tax Court agreed with the IRS, holding that the I.R.C. §163(h)(3) limitations on mortgage interest deductibility are to be applied on a per-mortgage basis rather than on per-individual basis.  As a result, unmarried co-owners, collectively, are limited to an interest deduction of $1.1 million ($1million of acquisition indebtedness and $100,000 of home equity indebtedness).  This is the same result that would apply to married taxpayers that co-own a residence.  On appeal, however, the appellate court reversed.  The court determined that the limitations are to be applied on a per-taxpayer basis (for a total of $2.2 million of mortgage debt).  A dissenting judge pointed out the absurdity of the majority opinion and noted that IRS was reasonable in limiting unmarried taxpayers to deducting the same amount as married taxpayers that file jointly.  Voss v. Comr., No. 12-73257, 2015 U.S. App. LEXIS 13827 (9th Cir. Aug. 7, 2015), rev'g., and remanding sub. nom., Sophy v. Comr., 138 T.C. 204 (2002).

The IRS determined that Treas. Reg. Sec. 301.6231(a)(1)-1 means that any corporation, including those created under state law, that is not an S corporation is deemed to be a C corporation solely for the purpose of applying the small partnership exception to TEFRA.  The TEFRA exception applies to a partnership with 10 or fewer partners, all of whom are individuals or C corporations, absent an affirmative election to be subject to TEFRA.  C.C.A. 201530019 (Jun. 17, 2015).

The plaintiff farmed until 2007 when he leased his property to the defendant under a written cash lease.  In the early fall of the next year, the defendant paid a "bonus" of over $60,000 to the plaintiff with a detailed accounting of how the bonus was calculated.  The bonus was paid to help ensure that the plaintiff would continue to lease the ground to the defendant.  A new written lease was signed later that fall with nearly identical provisions, but higher per acre rent.  Again, a bonus payment was paid to the plaintiff under an alleged oral agreement that the parties had that the defendant would share profits with the plaintiff.  Another new lease was signed for the next year, but no bonus was paid that year because the crop did not generate a profit.  The defendant continued to farm the property for two more years under an oral arrangement.  In August of 2011, the plaintiff gave notice of lease termination to the tenant effective March 1, 2012.  In the fall of 2011, the defendant did an accounting for the 2010 crop year and offered to pay a bonus of $19,218.  The plaintiff refused.  In November of 2011, the plaintiff gave written notice to the defendant not to market the plaintiff's grain without permission, and filed a financing statement perfecting a landlord's lien.  The plaintiff also chopped and chiseled corn stalks.  The defendant paid all remaining cash rent obligations and paid for crop storage.  The checks were returned with the plaintiff claiming that the parties were farming on a 50/50 crop share basis with a minimum of $200/acre.  The plaintiff sued for a declaratory judgment and accounting, claiming that the written lease was not the full agreement between the parties and that the defendant owed rent under the 50/50 crop share lease.  The defendant denied the existence of an oral agreement and sought damages for lost value of the unharvested corn stover.  The trial court ruled for the plaintiff, determining that an oral crop share agreement supplemented the written lease, and entered judgment of $204,072.08 for the plaintiff.  On appeal, the court reversed.  The court held that the additional payments were simply discretionary bonus payments and that the defendant was entitled to the corn stover.  Also, the court noted that the written lease provided for full payment of some expenses by the defendant which contradicted the existence of a profit-sharing agreement.  In addition, a crop-share lease would have violated FSA rules.  The plaintiff's net judgment was reduced to $80,548.70.  Peck v. Four-Acre Farms, Inc., No. 14-1482, 2015 Iowa App. LEXIS 696 (Iowa Ct. App. Aug. 5, 2015).       

The debtor filed a Chapter 12 plan and three amended plans. Two large creditors and the trustee objected to each plan, and none of the plans were confirmed. Finally, the creditors sought dismissal of the case, alleging unreasonable delay prejudicial to the creditors and the lack of a reasonable likelihood of rehabilitation. The debtor sought confirmation or, in the alternative, leave to amend to file a fifth plan.  The court denied confirmation of the plan and leave to amend. Instead, the court dismissed the case,  finding that a reorganization was objectively futile. The debtor could not afford to make his payments in the proposed plan, even though the terms were not commercially reasonable at the proposed interest rate. Any adjustment to the interest rate would make the payments even higher and the debtor even less able to make them. The proposed plan failed to meet the requirements of 11 U.S.C. §1225(a)(5) and (6).  On appeal, the court affirmed.  The appellate court upheld the denial of the debtor's third amended plan for failure the prove asset values and errors in financial projections and the statement of current conditions.  The court also determined that the debtor should not be allowed to file a fourth amended plan for lack of support of current financial condition.  The case was properly dismissed because a confirmable plan was not produced within a year of the petition.  In re Keith's Tree Farms, No. 13-71316, 2014 Bankr. LEXIS 4243 (Bankr. W.D. Va. Oct. 3, 2014), aff'd. sub. nom., Keith's Tree Farms v. Grayson National Bank, et al., 535 B.r. 647 (W.D. Va. 2015).

The plaintiff was an employee of an oil pumping company, and was working on the defendant's oil well pump jack when his hand was pulled into moving belts resulting in the severance of the thumb on his right hand.  The pump jack was not shielded by safety guards, but was an open and obvious danger.  The plaintiff recovered workers' compensation benefits from his employer, but sued the defendant for intentional negligence for failure to install safety guards and for failure to maintain a reasonably safe premises as an exception under state (OK) law to the exclusive remedy rule.  The trial court dismissed both claims.  On appeal, the court affirmed the dismissal of the intentional tort claim, but remanded the premises liability issue for reconsideration on the basis that OK law recognizes an exception to the open and obvious doctrine where the landowner should have reasonably foreseen the harm.  Martinez v. Angel Exploration, LLC, No. 14-6086, 2015 U.S. App. LEXIS 13613 (10th Cir. Aug. 4, 2015).

The defendants, a married couple, had a homeowners' insurance policy on their residence with one plaintiff and a dwelling policy with another plaintiff on a second property that they owned.  They kept cattle on a third tract (owned by the husband with his father) which included 150 acres and two barns.  The defendants purchased a bull to breed cows so that they could have calves suitable for team roping purposes.  Other calves were sold.  The husband team roped with friends once a month.  Cattle were sold annually with the sales reported on Schedule F and expenses claimed as deductions.  In 2011 and 2012, the defendants reported a loss on the cattle activity.  The defendants were sued by the estate of a third party that allegedly died from injuries sustained by the bull when it escaped its enclosure.  The plaintiffs sought a declaration that they have no duty to defend or indemnify the defendants.  Both policies contained an identical "business pursuits of the insured" exclusionary clause which excluded coverage for bodily injury "[a]rising out of or in connection with a 'business' engage in by an insured."  The court determined that the exclusionary language applied because, under state (OK) law, all that is necessary to make an activity a business is a profit motive.  Whether an actual profit is made is immaterial.  The evidence showed that profit did, at least in part, motivate the cattle operation.  A tax benefit was realized, Schedule F was filed indicating material participation in the activity, detailed financial records were maintained, and other persons were hired to assist with the activity.  Accordingly, the court determined that the plaintiffs did not owe a duty to defend or indemnify the defendants at to the third estate's claims against them.  Hanover American Insurance Co., et al. v. White, No. CIV-14-0726-HE, 2015 U.S. Dist. LEXIS 100766 (W.D. Okla. Aug. 3, 2015).

Idaho law criminalizes (Idaho Code Sec. 18-7042(1)(d)) "interference with agricultural production" when a person knowingly enters an ag production facility without permission or without a court order or without otherwise having the right to do so by statute (in other words, the person is on the premises illegally), and makes a video or audio recording of how the ag operation is conducted.  The court held that the law was unconstitutional because it violates the free speech rights of those wanting to take the illegal videos, and that the law was unconstitutional on equal protection grounds because it singled out persons who sought to take illegal videos.  The court believed that the state had no legitimate interest to provide special protections to certain agricultural enterprises from those groups (such as the plaintiffs) that are devoted to ensuring that they don't exist and have used terroristic tactics in other cases to achieve their goals that have involved charges of ag terrorism under federal law.  Animal Legal Defense Fund, et al. v. Otter, No. 1:14-cv-00104-BLW, 2015 U.S. Dist. LEXIS 10264 (D. Idaho Aug. 3, 2015).