Case Summaries

The decedent died in early 2014 survived by three children.  Seven months after their mother's death, a daughter filed a petition for issuance of letters of administration (for which no statute of limitations applied) claiming that her mother died intestate and the value of her estate was approximately $250,000.  A brother objected, asserting that his sister's petition was basically a claim against the estate that was barred by the 6-month nonclaim statute of limitations contained in Kan. Stat. Ann. Sec. 59-2239.  The brother also asserted that the mother's estate did not have any substantial assets because the mother's real estate had been deeded to him before death and the remaining bank accounts had passed to him via payable-on-death designations established before death, and the remaining tangible personal property had been split between the three children.  The trial court denied the daughter's petitioner largely on the basis of its finding that the estate did not have any substantial assets.  On appeal, the court reversed.  The appellate court noted that the daughter's action was one seeking authority to marshal the estate's assets, if any, which did not trigger the nonclaim statute.  Furthermore, by waiting more than six months to file her petition, the daughter eliminated the need to notify creditors as well as the chance for creditors to file a claim against the estate.  The court also noted that the brother's claims could not be verified unless an administrator was appointed.  A dissenting opinion confused the need to administer the estate to verify the brother's claims (for which no statute of limitations applies) with a claim against the estate (for which the 6-month statute would apply) and asserted that there were no substantial assets in the estate.  In re Estate of Brenner, No. 113,288, 2015 Kan. App. LEXIS 81 (Kan. Ct. App. Nov. 20, 2015). 


In these companion cases, the taxpayers sought to acquire a low-speed electric vehicle (LSEV) by the end of 2009 to be able to offset it's cost with the credit then available through 2009 under I.R.C. Sec. 30D.  The taxpayers ordered and paid for a LSEV by the end of 2009, and title passed to them in 2009.  However, neither taxpayer actually received delivery of the LSEV until mid-2010.  I.R.C. Sec. 30D required that, to get the credit, the LSEV must have been placed in service by the end of 2009.  The court held that because the actual date of production occurred after 2009 and the taxpayers didn't actually take delivery of the vehicles under after 2009, that the credit was not available because the vehicles had not been placed in service as they were not available for the taxpayers' personal use by the end of 2009.  Trout v. Comr., T.C. Sum. Op. 2015-66 and Podraza v. Comr., T.C. Sum. Op. 2015-67. 


The decedent’ died in early 2012 and shortly thereafter, the estate filed the decedent’s 2011 individual income tax return which showed a tax liability of $495,096 and total tax payments of $924,411 which resulted in an overpayment of $429,315 for 2011.  According to the return, $25,000 was to be applied to the decedent’s estimated 2012 taxes with the balance of $404,315 to be refunded to the decedent’s estate.  On Form 706, the estate did not include the value of the tax refund in the gross estate or the value of the $14,126 individual income tax refund for 2012.  The IRS claimed that the individual income tax refunds should have been included in the gross estate value based on I.R.C. Sec. 2033, and assessed a deficiency of estate tax of $146,454.  The estate claimed that under state (KY) law, the refunds were not in existence as of the date the estate tax was due and was, therefore, only a mere possibility or expectancy and that no property interest existed until the time the IRS determined entitlement to the refund.  The court agreed with the IRS on the basis that I.R.C. Sec. 6402(c) specifies that, absent an offsetting liability, the IRS “shall” refund overpaid taxes to the taxpayer.  As such, the refund was not merely an expectancy but was estate property.  Estate of Badgett v. Comr., T.C. Memo. 2015-226.  


The petitioner made advances during the year in issue totaling $808,000 to a family-owned business that the petitioner was a part owner of.  The petitioner later claimed a bad debt deduction of $808,000 upon not being repaid. The note called for 10 percent interest, but no collateral was required and the line of credit remained unsecured.  The Tax Court determined that the petitioner failed to prove that the advances were loans.  There was no proof of repayment expectation or an intent to enforce collection.  In addition, there was no documentation of the business's credit worthiness.  The petitioner's conduct was inconsistent with that of an outside third party lender.  Also, the petitioner did not prove that the advances were worthless in 2009, the year for which the deduction was claimed.   The business had not filed bankruptcy even by mid-2011.  Thus, no default occurred in 2009 and the court denied the bad debt deduction.  On appeal the court affirmed.  Shaw v. Comr., No. 13-73687, 2015 U.S. App. LEXIS 20563 (9th Cir. Nov. 18, 2015), aff'g., T.C. Memo. 2013-70. 


The plaintiff is an energy company that owns numerous oil and gas leases.  The defendant entered into a contract with the plaintiff to buy numerous of the plaintiff's leases for $35 million plus wells, pipelines and related property.  The defendant placed $3.5 million in escrow.  The plaintiff provided the defendant with a list of assets and title limitations related to the leases, and the defendant found title defects in 40 percent of the leases that they claimed lowered the value of the leases being purchased by 55 percent.  The defendant did not seek dispute resolution as specified in the contract and unilaterally terminated the contract.  The plaintiff attempted to invoke the dispute resolution process, but the defendant didn't respond.  The plaintiff sued and the trial court awarded the plaintiff the escrow funds, plus interest.  On appeal, the court affirmed noting that the parties were sophisticated and that the contract did not provide for unilateral termination based on the defendant's own determination of title defects and impact on lease value.  Broad St. Energy Co. v. Endeavor Ohio, LLC, No. 14-4278, 2015 U.S. App. LEXIS 19751 (6th Cir Nov. 13, 2015).


The parties were neighbors in a subdivision with a homeowner’s association. To live in the subdivision, the parties had to sign a waiver stating that they would not take any action to contest or interfere with any development in the community “so long as such development is consistent with the Land Use Approvals.” The plaintiff challenged a decision from the local development review board granting the defendants a permit to build a pole barn on their property. The plaintiff also filed a civil action against the defendants, contesting their building of the pole barn. The defendants filed counterclaims alleging breach of contract, abuse of process, and other torts. Specifically, the defendants argued that the plaintiff had violated the association’s waiver by challenging the construction of their pole barn. The trial court granted summary judgment in favor of the plaintiff on the counterclaims, and the appellate court affirmed. The court ruled that a waiver of a right to participate in a municipal land use permit proceeding would have to be “unmistakable,” a standard that this waiver did not meet. Plaintiff was not given full notice of its meaning. The court also found that judgment was properly entered on the abuse of process claim because there was no evidence supporting the claim. Free and uninhibited access to the courts was an important right for all citizens, and the fact that the plaintiff was an attorney did not lessen her rights. Weinstein v. Leonard, No. 15-075, 2015 VT 136, 2015 Vt. LEXIS 114 (Vt. Sup. Ct. Nov. 13, 2015).


The Environmental Protection Agency (EPA), in 2010, unconditionally approved the registration of sulfoxaflor in accordance with the Federal Insecticide, Fungicide, and Rodenticide Act which bars the sales of pesticides that haven’t been approved and registered by the EPA.  The plaintiffs, commercial bee keepers and bee keeping organizations, challenged the approval based on studies which showed that sulfoxaflor was highly toxic to bees.  The court determined that the EPA’s approval was not supported by substantial evidence and that the approval posed the potential for more environmental harm than vacating the approval.  Pollinator Stewardship Council, et al. v. United States Environmental Protection Agency, No. 13-72346, 2015 U.S. App. LEXIS 19945 (9th Cir. Nov. 12, 2015).


After nearly 40 years of marriage, the wife filed a dissolution action against the husband. During the parties’ marriage, the wife’s mother had given her and the husband title to a farm. During the pendency of the divorce, the wife asked the husband to transfer ownership of the farm to her via quitclaim deed. He complied with her request, but later sought to claim a portion of the property as marital property. He argued that the wife had committed fraud by falsely promising to attend counseling in exchange for the deed. He also argued that because of their confidential relationship, she had unduly influenced him to deed the property to her. The trial court ruled that the transfer of the farm from the husband to the wife was a gift, and the appellate court affirmed. Accordingly, the court classified the farm as the wife’s separate property. The appellate court did remand the case, however, for reconsideration as to whether the husband’s contribution to the separate property during the marriage should have resulted in his receiving a larger share of the marital estate.  Draper v. Draper, No. E2014-02224-COA-R3-CV, 2015 Tenn. App. LEXIS 905 (Tenn. Ct. App. Nov. 12, 2015).


The IRS, in this case, reclassified a significant portion of the taxpayers' (a married couple) income from non-passive to passive resulting in an increase in the taxpayers' tax liability of over $120,000 for the two years at issue - 2009 and 2010.  The husband had practiced law, but then started working full-time as President of a property management company.  He was working half-time at the company during the tax years in issue.  He also was President of a company that provided telecommunications services to the properties that the property management company managed.  The couple had minority ownership interests in business entities that owned or operated the rental properties and adjoining golf courses that the property management company managed, and directly owned two rental properties, two percent of a third rental property and interests in 88 (in 2010) and 90 (in 2009) additional entities via a family trust.  They reported all of their income and losses from the various entities as non-passive, Schedule E income on the basis that the husband was a real estate professional under I.R.C. Sec. 469(c)(7) and that they had appropriately grouped their real estate and business activities.  The IRS claimed that the husband was not a 5 percent owner of the property management company, thus his services as an employee did not constitute material participation.  IRS also claimed that the husband was not a real estate professional and that the activities were not appropriately grouped.  The court agreed with the taxpayers, determining that the husband was a real estate professional on the basis that he owned at least 5 percent of the stock of the property management company.  The court determined that he had adequately substantiated his stock ownership and he performed more than 750 hours of services for the property management company - a company in the real property business.  The court also determined that the taxpayers had appropriately grouped their rental activities, rejecting the IRS argument that real estate professional couldn't group rental activities with non-rental activities to determine income and loss.  The court held that that Treas. Reg. Sec. 1.469-9(e)(3)(i) only governs grouping for purposes of determining material participation, and doesn't bar real estate professional from grouping rental activity with non-rental activity when determining income and loss (as the IRS argued).  Accordingly, the taxpayers had appropriately grouped their renal activity with the activities of the telecommunications company and the adjacent golf courses as an appropriate economic unit.  As such, the grouped non-rental activities were not substantial when compared to the aggregated rental activity.  The activities were under common control and, under Treas. Reg. Sec. 1.469-9(e)(3)(ii), the husband could count as material participation everything that he did in managing his own real estate interests - his work for the management company could count as work performed managing his real estate interests.  Note - in CCA 201427016 (Apr. 28, 2014), the IRS said that the aggregation election under Treas. Reg. Sec. 1.469-9(g) has no bearing on the issue of whether a taxpayer qualifies  as a real estate professional and the 750-hour test is not applied as to each separate activity.  This was not involved in the case.  Stanley v. United States, No. 5:14-CV-05236, 2015 U.S. Dist. LEXIS 153166 (W.D. Ark. Nov. 12, 2015). 


The plaintiff and defendant were brothers who owned adjacent family properties that had once belonged to their parents. The plaintiff owned the farm house and one acre of property. The defendant and his wife owned the surrounding farmland. In 1996, the plaintiff, with the defendant’s permission, razed a barn on the defendant’s property and replaced it with a pole shed for his own use. A water well on the defendant’s property also serviced the plaintiff’s property. After 2010, a dispute arose between the brothers when the plaintiff refused to allow the defendant to drive his large manure tanker on a blacktop driveway the plaintiff had constructed between the two properties. In response to the dispute, the plaintiff filed an action against the defendant and his wife, arguing that he was entitled to approximately one-half acre of the defendants’ property under an adverse possession theory. The trial court entered judgment for the plaintiff, but the appellate court reversed. The court ruled that the plaintiff had failed to prove by clear and convincing evidence that the common law elements of adverse possession had been established. The court ruled that because the plaintiff had used the property with the permission of his brother, his claim was defeated. Moreover, the plaintiff had not used all of the contested property for the 20-year period required by state (WI) law.   Rudnick v. Rudnick, No. 2014AP2893, 2015 Wisc. App. LEXIS 796 (Wis. Ct. App. Nov. 10, 2015).


The petitioner had an unpaid tax liability exceeding $600,000 and submitted an offer-in-compromise (OIC) at a collection due process (CDP) hearing.  The OIC was for $2,938.  The IRS rejected the OIC on the basis that the petitioner had withdrawn over $400,000 from his retirement accounts and that the reasonable collection potential exceeded over $500,000.  The court held that the IRS did not abuse its discretion in rejecting the OIC.  Chandler v. Comr., T.C. Memo. 2015-215


The petitioner claimed deductions for meals and entertainment, parking fees, tolls and transportation-related expenses, cost-of-goods sold for solar panels and a home office.  As for the solar panels, the only documentation provided was a quote for 1,000 units.  Concerning the home office, the only substantiation was the petitioner's testimony and the floor plan and area used for the office.  No business interest deduction was allowed because there was no evidence that the use of the loan proceeds was for something other than personal purposes.    The court agreed with the IRS position on the deductibility of the expenses (some were allowed, but most denied).  Smith v. Comr., T.C. Memo. 2015-214. 


The petitioner was a surgeon that had a private practice in one location and also was an “on-call” surgeon at a hospital about 25 miles away from his private practice location.  At the hospital he had to work a 24-hour period three days monthly and had to be available during emergencies.  He had various medical conditions and bought a motor home that he could park near the hospital that he could use for rest and sleep during the 24-hour shifts.  He reviewed patient charts in the motor home and referred to his medical books and other information while in the motor home.  He did maintain mileage logs that separated out the business and personal use of the motor home.  On audit, the IRS allocated the allowable depreciation (including expense method) between his business and personal use.  The petitioner claimed that he used the motor home for business purposes 85% of the time during his 24-hour work days.  The court upheld the IRS position, noting that the motor home was used only 27 days for business in 2008 and 36 days in 2009.  The petitioner’s own logs showed that his business use was approximately 20 percent for the two tax years in issue.  Cartwright v. Comr., T.C. Memo. 2016-212. 


In the facts of this ruling,  the question arose as to whether notices of a non-judicial sale could be delivered to the IRS by private delivery services such as United Parcel Service (UPS) or FedEx.  The IRS noted that under I.R.C. §7425(c), the notice of sale must be given in writing, by registered or certified mail or by personal service, not less than 25 days prior to sale.  The fact that the IRS actually received the documents does not matter.  Delivery by private delivery service such as FedEx or UPS didn’t count.  C.C.A. 201545025 (Jun. 12, 2015). 


The petitioner was a licensed real estate appraiser and director of real estate valuation at two national CPA firms, but did not own an equity interest in either businesses.  After getting married, the petitioner had three condominiums that he and his wife rented out.  He claimed that he put in more than 750 hours in managing the rental activities and that he spent most of his time on rental activities, but did not provide any log to document his time.  His wife had some notes, but nothing that carefully substantiated the time she spent on rental activities.  However, she did construct an activity log after the IRS selected their return for audit.  For the year at issue, the petitioner and spouse claimed about $40,000 in losses from the rental activity.  The IRS denied the losses due to failure to satisfy the real estate professional exception to rents being passive.  The court agreed, and noted that the petitioner's work for the CPA firms did not count toward the750-hr test because he didn't have an ownership interest in those businesses.  The evidence also did not support the argument that petitioner's wife met the 750-hr requirement.  The court upheld the imposition of an accuracy-related penalty.  Calvanico v. Comr., T.C. Sum. Op. 2015-64.


The plaintiff leased land from the defendant, a company that his father owned and operated.  A one-year lease was signed in 2003 for rice and soybean and crawfishing rights.  Another one year lease was signed for 2004.  The plaintiff claimed that he made improvements to the property in 2004 in exchange for the promise of a new five-year lease.  A five-year lease was never drafted, but one year leases were drafted for 2005, 2006 and 2007, but were never signed.  The plaintiff was evicted from the land in 2006, before the 2007 crawfish harvest.  The plaintiff sued for damages and the defendant sought damages for the plaintiff's failure to pay fees for rice storage and drying, fuel expenses, off-loading expenses and rental expenses.  The trial court dismissed the claims and the plaintiff appealed, claiming that a five-year lease began in 2004 via the oral modification and that he was entitled to the 2007 crawfish harvest.  On appeal, the court affirmed.  The court noted that there was no ambiguity in the parties' intent to create an annual lease and that the failure to agree to a lease term meant that the lease was for one year under state (LA) law.  Once the tenant was properly evicted from the property, the tenant lost any ability to claim entitlement to an unharvested crop such as the crawfish.  McCraine v. Voyellesland Farms, Inc., No. 15-396, 2015 La. App. LEXIS 2165 (La. Ct. App. Nov. 4, 2015).


The settlors created a dynasty trust in 1993 with terms authorizing the trustee to make charitable distributions out of the trust's gross income at the trustee's discretion.  The trust wholly owned a single-member LLC and in 2004, the LLC donated properties that it had purchased to three charities.  Each property had a fair market value that exceeded basis.  The LLC received the funds to buy the properties from a limited partnership's distribution to the trust in which the trust was a 99 percent limited partner.  The limited partnership owned and operated most of the Hobby-Lobby stores in the U.S.  The IRS claimed that the trust could not take a charitable deduction equal to the full fair market value, but should be limited to the trust's basis in each property.  The trust claimed a charitable deduction in excess of $20 million on Form 1041 for 2004, and later filed an amended Form 1041 increasing the claimed charitable deduction to just shy of $30 million, and seeking a tax refund of over $3 million.  The IRS denied the refund, claiming that the charitable deduction was limited to cost basis.  The trust paid the deficiency and sued for a refund.  On the trust's motion for summary judgment, the parties agreed that the donated properties were acquired by the trust with funds coming from gross income from a pre-2004 tax year.  Thus, according to the trust, I.R.C. Sec. 642(c)(1) allowed the charitable deduction to be computed based on the donated property's fair market value.  The court agreed, noting that I.R.C. Sec. 642(c)(1) allowed a deduction without limitation contrary to the basis limitation contained in I.R.C. Sec. 170, and that charitable deduction provisions are to be construed liberally in the taxpayer's favor.  The court noted that the donated properties were all acquired with distributions from the limited partnership to the trust, and each distribution was part of the LLC's gross income for the year of distribution.  Thus, the donated properties were clearly bought with funds traceable to the trust's gross income and were donated under the terms of the trust.  The court noted that the IRS admitted that there was no caselaw or other substantial authority that supported the government's position.    The court granted summary judgment for the trust.  Green v. United States, No. CIV-13-1237-D, 2015 U.S. Dist. LEXIS 151539 (W.D. Okla. Nov. 4, 2015). 


 The parties are friends and neighbors and are both farmers.  The plaintiff has raised various types of livestock, but the summer of 2012 was his first time raising sheep.  The defendant had bred sheep for over 30 years.  On occasion, the plaintiff allowed the defendant to keep livestock on the plaintiff's property.  In the summer of 2012, the parties went together to a livestock yard where the defendant bought a lamb ram to replace his existing ram.  The ram showed no vicious tendencies.  After ewes had been put in the pasture with the ram, the plaintiff was butted repeatedly by the ram as he attempted to turn on sprinklers in the pasture.  At the time of the incident, the plaintiff was 82 years old.  He suffered a concussion, five broken ribs, a broken sternum and a broken shoulder.  The plaintiff was hospitalized for 16 days.  The plaintiff sued based solely on a theory of gender based strict liability irrespective of whether or not the defendant knew the ram was abnormally dangerous.  The trial court granted summary judgment for the defendant.  On appeal, the court affirmed.  The appellate court noted that the standard of care under state (WA) law is ordinary care if the animal is not inclined to commit mischief, unless it is shown that the animal's owner knew that the animal had vicious tendencies.  In that event, strict liability is the rule.  The court noted that this approach was consistent with Restatement (Second) of Torts Secs. 509 and 518.  Under Restatement (Second) of Torts Sec. 509 comment e, rams have not historically been regarded as being inherently dangerous animals, but comment 23 of the Restatement (Third) of Torts propose a possible gender-or-breed-based modification of the general rule treating domestic animals as not excessively dangerous.  The court, however, referenced the policy reasons for not holding owners of male domestic livestock to a strict liability standard.  In addition, the court noted that the legislature could modify the law and had already done so with respect to dogs in certain situations.  Rhodes v. MacHugh, No. 32509-1-III, 2015 Wash. App. LEXIS 2687 (Wash. Ct. App. Nov. 3, 2015).  


Tax preparers must pay an annual fee to obtain a preparer tax identification number (PTIN).  Effective November 1, 2015, the annual fee for a 2016 PTIN is $50 for new applications and renewals of existing PTINS.  The $50 fee will split between the IRS and a third-party administrator with the third-party receiving $17 for administration of the online system and provision of customer support and the IRS retaining $33.  IR-2015-123.


The petitioner claimed that he was a trader in securities and had, in an earlier year, made a mark-to-market election.  To do so, a Form 3115 must be attached to the return.  However, IRS didn’t have any evidence from the petitioner that a Form 3115 had been filed and the petitioner could not prove his claim that he had filed one in an earlier year.  The court held for the IRS that a valid mark-to-market election had not been made.  Poppe v. Comr., T.C. Memo. 2015-205.


The IRS has issued a news release to inform non-credentialed tax return preparers (preparers other than CPAs, attorneys or enrolled agents) of certain continuing education requirements that must be satisfied after 2015.  Specifically, the IRS noted that non-credentialed preparers must participate in the IRS' "voluntary" education program, the Annual Filing Season Program (AFSP).  Effective for tax returns and claims for refunds prepared and signed after 2015, non-credentialed preparers must complete either 15 or 18 hours of continuing education from IRS-approved continuing education providers which must be completed by December 31, 2015, to be able to receive a 2016 Annual Filing Season Program Record of Completion.  IR 2015-123.


In 2008, numerous cases of salmonellosis (an infection caused by the salmonella bacteria) were reported.  Federal agencies investigated and later the U.S. Food and Drug Administration (FDA) issued a press release that the outbreak "appeared to be linked" to the consumption of "raw red plum, red Roma, or round red tomatoes."  Additional press releases were issued with a final release announcing that fresh tomatoes in the domestic market "are not associated with the current outbreak."  The plaintiffs, tomato producers whose tomatoes were linked to the outbreak, claimed that their perishable tomatoes were destroyed due to a decrease in market demand for their tomatoes and sued for a regulatory taking.  The court denied the claim on the basis that the government action had no legal effect on any property interest of the plaintiffs.  The court (opinion by Obama-appointed judge) held that government advisory opinions are insufficient to constitute a Fifth Amendment taking even if there is a significant financial impact on the marketplace.  Dimare Fresh, Inc. v. United States, No. 2015-5006, 2015 U.S. App. LEXIS 18741 (Fed. Cir. Oct. 28, 2015). 


The defendant was an order buyer of cattle (broker) that the plaintiff bought cattle from.  The parties entered into multiple contracts for the defendant to deliver 644 head of cattle to the plaintiff.  While written contracts were not produced, the bankruptcy trustee identified two separate contracts accounting for 572 of the delivered cattle - one executed on Aug. 26, 2010 and one executed on Sept. 17, 2010.  The defendant was paid by check three days after delivery (in mid-October), which were then voided and replaced by a single wire transfer on October 20, 2010.  The plaintiff filed bankruptcy on Dec. 6, 2010, and the bankruptcy trustee sought to set aside the payment under 11 U.S.C. Sec. 547(b).  The defendant, however, claimed that the payment amounted to a contemporaneous  exchange for value and that the payment was made in the ordinary course of business - both exceptions to 11 U.S.C. Sec. 547(b) contained in 11 U.S.C. 547(c).  On the ordinary course of business exception, the court noted that the defendant had not established a pattern of behavior and that the court could not conclude that the wire transfer was made in the ordinary course of business.  On the issue of substantially contemporaneous exchange for value, the court noted that the plaintiff's checks had not been dishonored, had not been presented to a bank for payment, and that the plaintiff had changed the form of payment by replacing them with the wire transfer.  As such, the parties intended the exchange to be contemporaneous, and it was, in fact, contemporaneous.  The court granted the defendant's motion for summary judgment.  In re Eastern Livestock Co., LLC v. Krantz, No. 10-93904-BHL-11, 2015 Bankr. LEXIS 3656 (Bankr. S.D. Ind. Oct. 28, 2015). 

 


Owners of adjacent tracts, for decades, had treated an invisible line between their properties as the boundary.  A new owner of one of the adjacent tracts had a survey taken which showed that the line was six-feet onto their tract and that the swimming pool on the adjacent tract was partially on their side of the surveyed line.  An existing split-rail fence was on the line between the properties, but had not been there the statutorily required 10-years to establish a boundary by acquiescence (IA Code §650.14).  The new owner removed the fence and the plaintiffs (owners of the adjacent tract) sued to quiet title to establish the line as the boundary between the properties via acquiescence.  The trial court determined that the elements for boundary by acquiescence had been satisfied.  Testimony at trial revealed that the adjacent owners had always mowed up to the line and maintained their respective tracts up to the line.  That was sufficient evidence of a physical division between the tracts that had been recognized for at least 10 years.  Mapes v. U.S. Bank National Association, N.D., et al., No. 14-1770, 2015 Iowa App. LEXIS 993 (Iowa Ct. App. Oct. 28, 2015).    


The petitioner was in the land development business and sold land to builders for home construction.  The petitioner accounted for the income from the sales under the completed contract method which applies to home construction contracts and other real estate construction contracts if the taxpayer estimates that the contracts will be completed within two years of the contract commencement date and the taxpayer satisfies a $10 million gross receipts test under the Treasury Regulations.  Under the completed contract method, no income is reported until the contract is complete irrespective of when contract payments are actually received.  The IRS asserted that the contracts didn't qualify for the completed contract method of accounting because the contracts could not be considered long-term and were not construction contracts because the taxpayer did no construction activities.   The court determined that the custom lot and bulk sale contracts were long term contracts and were construction contracts.  However, the court determined that none of the contracts were home construction contracts because the taxpayer merely paved the road leading to a home.  Thus, gain under the contracts could not be reported under the completed contract method.  The court also determined that none of the contracts involved a general contractor or subcontractor relationship.  The Howard Hughes Company, LLC v. Comr., No. 14-60915, 2015 U.S. App. LEXIS 18726 (5th Cir. Oct. 27, 2015), aff'g., 142 T.C. No. 20 (2014).


The plaintiffs are various landowners that entered into oil and gas leases with the defendant.  Two leases at issue contained the same provision that allowed the leases to consolidate the land involved into a single development area with all royalties from wells in the area to be divided between all of the lessors proportionally based on any particular lessor's acreage in the consolidated area.  The consolidated area was comprised of 228 acres with five wells being drilled in the area from 1954 through 1980 and two more being drilled between 2007 and 2012.  The plaintiffs' acreages were where the 2007-2012 wells were drilled which was within the consolidated area.  Some lessors, however, were not included in the well permit application that the defendant submitted to the state (OH) Department of Natural Resources (DNR).  The plaintiffs claimed that, as a result, the consolidated area was abrogated and that the plaintiffs were entitled to 100 percent of the royalty amount.  The trial court disagreed, granting the defendant's motion for judgment on the pleadings, based on the unambiguous lease language, and because a well permit application cannot abrogate or modify an oil and gas lease.  The court also held that any damages resulting from the calculation and distribution of royalties were pure economic losses barred by the economic loss doctrine.  K and D Farms, Ltd., et al. v. Enervest Operating, LLC, et al., No. 2015CA00038, 2015 Ohio App. LEXIS 4364 (Ohio Ct. App. Oct. 26, 2015).


On July 18, 1929, a mineral deed conveyed a one-half interest to a buyer.  The deed was filed in the appropriate county office (county Register of Deeds office) on Nov. 4, 1929.    Under Kan. Stat. Ann. Sec. 79-420, a mineral deed is to be filed within 90 days of its execution.  The defendant obtained the one-half interest via a mineral deed conveyed on Aug. 31, 1944, which was recorded on Sept. 16, 1944.  In 2013, the plaintiff sued to quiet title against the defendant claiming that the plaintiff owned the surface and mineral rights to the property and that the defendant's claimed interest was invalid because the 1929 mineral deed was not recorded within 90 days of its execution.  The plaintiff claimed that the defendant's interest clouds the plaintiff's title.  The defendant sought summary judgment, on the basis that because the deed was filed by March 1 of the year after its execution it was valid.  The plaintiff responded that the failure to record within 90 days  was not fatal if the defendant met the "listing for taxation" portion of Kan. Stat.  Ann. Sec. 79-420, but that the defendant had not met its burden on that point.  The trial court granted the defendant's motion on the basis that because the deed was filed before March 1 of the following year which satisfied the "listing for taxation" requirement.  On appeal, the court affirmed, on the basis that, to be held void, the deed must fail to be recorded within 90 days of execution and be failed to be listed for taxation.  By filing the deed by March 1 of the year following execution, the minerals in the deed were available to list for taxation.  The minerals need not actually be taxed the year after the year of severance, only be listed for taxation which is accomplished by registering the deed with the register of deeds by March 1 of the year following execution.  Hess v. Cleroy, Inc., et al., No. 112,579, 2015 Kan. App. Unpub. LEXIS 867 (Kan. Ct. App. Oct. 23, 2015).      


The decedent worked with his father and brother in a family business operated in the corporate form that was created in 1959.  When the corporation was formed, the father contributed more capital that the others, but each of them were listed as registered owners of one-third of the corporate stock.  A family dispute arose and the decedent sought to cash-out his stock interest.  However, his father refused noting the disproportionate contributions and claiming that a portion of the decedent’s stock was being held in an oral trust for the benefit of the decedent’s children.  The dispute ended up in litigation ultimately resulting in a family settlement agreement in 1972 under which the decedent transferred one-third of his stock interest to a trust for his children with the balance being redeemed for $5 million.  No gift tax return was filed at the time on the belief that the transfer of shares to the trust was not a gift.  The IRS claimed otherwise, asserting that the transfer to the trust was a gift that was not entered into in the normal course of business for full and adequate consideration because the decedent’s children paid nothing for it.  The Tax Court, in a full T.C. opinion, disagreed with the IRS.  The court noted that the transfer did occur in the ordinary course of business for full and adequate consideration in money or money’s worth required by Treas. Reg. §25.2512-8.  The consideration, the court determined, was the recognition of the other shareholders that the decedent owned outright the other two-thirds of the stock interest being disputed.  Thus, the decedent did not make a taxable gift, and the estate was not liable for a gift tax deficiency of $737,625 plus $368,813 for fraud, $36,881 for negligence and $184,406 for failure to timely file a gift tax return.  Redstone v. Comr., 145 T.C. No. 11 (2015).


The defendants were harvesting wheat approximately two miles downwind from the plaintiff’s farm when the field caught fire and wind quickly spread the fire such that it burned approximately 1,200 acres including the plaintiffs’ property.  The origin of the fire was not established with certainty although its likely source was from a grain cart being pulled by a tractor that was headed to unload a combine.  The plaintiff sued on a res ipsa loquitor theory and the defendants motioned for summary judgment.  The trial court granted the motion on the basis that field fires that occur during harvesting are not uncommon and cannot be said to occur in every situation due to negligence.  On appeal, the court affirmed.  The court noted that no Nebraska cases could be found involving field fires and res ipsa loquitur, but that other states had considered the situation and determined that field fires were not that uncommon and could occur without any negligence.  Thus, the element of res ipsa loquitur, that the occurrence be one that would not, in the absence of negligence, was not satisfied.  The other two elements of res ipsa – that the instrument that caused the event was under the exclusive control and management of the defendant, and that the defendant couldn’t explain how the event occurred, were not at issue.  Lamprecht v. Schluntz, 25 Neb. App. 335 (2015).    


The petitioner, a family operated business that employed family members, rented a beach house for a week for the enjoyment of the family and employees of a customer.  The business claimed deductions for the rental expense and entertainment as “advertising” on the basis that the week-long retreat was for the business purpose of building customer relationships.  The IRS disallowed the expenses and the court agreed.  The petitioner had scant documentation and no proof that the expenses claimed were paid for what the petitioner claimed they were paid for.  Accordingly, the deduction failed for lack of substantiation.  The petitioner also claimed expense method depreciation for two vehicles, but again did not have records that could substantiate the deduction.  Karras v. Comr., T.C. Memo. 2015-204. 


The petitioner invested $285,000 into a scrap metal business (C corporation) operated by his brother.  The business filed bankruptcy.  The petitioner operated a profitable landscaping business.  On this joint return, the petitioner included a Schedule C for the landscaping business and another Schedule C showing a loss from the scrap metal business claiming a $359,000 loss for 2008.  The loss was reported as “other expenses” on line 27 of the Schedule C.  All other lines of the second Schedule C were blank.  The loss more than offset the gain from the Schedule C landscaping business.  The IRS disallowed the loss and the court agreed.  The loss was not a bad debt, a worthless security or a capital loss.  The loss did not become worthless in the year at issue, and his brother kept the scrap metal business operational after the tax year in issue.  The petitioner’s short-term capital loss was also disallowed that he was initially allowed upon the IRS initially believing that the petitioner had a bad debt.  The negligence penalty was not applied.  Espaillat v. Comr., T.C. Memo. 2015-202.


The petitioner submitted what he thought was a joint income tax return, but IRS sent it back for lack of the spouse's signature.  On audit for the tax year involved, the petitioner claimed that IRS could not review the return because the three-year statute of limitations had expired.  However, the IRS claimed the statute was not tolled because a legitimate return for the year was not filed.  The court agreed with the IRS because the return did not substantially comply with the rules for a properly filed joint return, and there was no tacit consent by the other spouse to filing the joint return, and the petitioner did not sign the spouse's name on the return nor try to fix the problem when the IRS sent the return back to the petitioner.  Reifler v. Comr., T.C. Memo. 2015-199.


The petitioner was in the construction business and also rented out two floors of a four-floor multi-family house.  The petitioner claimed approximately $70,000 in losses associated with the rental activity for 2010 and 2011 combined which the IRS denied for failure to satisfy passive loss rules of I.R.C. Sec. 469.  However, the petitioner's construction business counted as a real property trade or business for purposes of the 50% test and the 750-hour test of I.R.C. Sec. 469(c)(7)(B)(i).  Based on the petitioner's records, the court was able to discern that the petitioner materially participated in the rental activity by putting in more than 500 hours into the rental activity during the tax years at issue.  Simmons-Brown v. Comr., T.C. Sum. Op. 2015-62.   


The Environmental Protection Agency (EPA) developed a new "Clean Water Rule" detailing the EPA's jurisdiction under the Clean Water Act (CWA) with an effective date of August 28, 2015.  The CWA governs discharges into "navigable waters of the United States" and the rule was EPA's attempt to define it's jurisdiction over such waters.  However, the rule became subject to numerous legal challenges and legislative attempts to block or eliminate it based on the rule expanding the EPA's jurisdiction over navigable waters and other waters associated with navigable waters, including "tributaries" and "adjacent waters" which are now jurisdictional if there is a "significant nexus" to a water of the United States.  Under the rule, there is no "hydrologic connection" necessary to establish a significant nexus.  Any water with a bed and bank and an "ordinary high water mark" that contributes flow directly or indirectly to a navigable water may have the required nexus.  Due to confusion surrounding the rule's requirements and various legal challenges to it, the court issued a nationwide injunction staying the rule immediately.  The court determined that the 18 states challenging the rule had a substantial likelihood of success on the merits that the rule violated established Supreme Court precedent on the issue of EPA jurisdiction, and that the rule's promulgation likely violated the Administrative Procedure Act.  Briefing continues on the issue of whether the court has jurisdiction to consider the merits of the challenge to the rule.  State of Ohio, et al. v. United States Army Corps of Engineers, et al., Nos. 15-3799/3822/3853/3887, 2015 U.S. App. LEXIS 17642 (6th Cir. Oct. 9, 2015).  In a related action, a federal Joint Panel on Multidistrict Litigation (MDL) established for the purpose of coordinating discovery and pre-trial procedure in the litigation filed in numerous courts, denied the EPA's request to consolidate the nine district court cases in the District of Columbia.  The court noted that little discovery was required and that the cases were procedurally postured differently.  In re Clean Water Rule:  Definition of "Waters of the United States," MDL No. 2663, 2015 U.S. Dist. LEXIS 140117 (Oct. 13, 2015).    


The South Dakota Department of Revenue (SDDOR) has updated its guidance on the sales tax implications of selling farm machinery.  The guidance notes that all sales of farm machinery, attachment units and irrigation equipment that are exclusively used for agricultural purposes in South Dakota are subject to a four percent excise tax.  For purposes of the tax, "agricultural purposes" means the "producing, raising, growing, or harvesting of food or fiber upon agricultural land," and "agricultural land" is defined under S.D.C.L. Sec. 10-6-31.3.  The services of custom harvesters, chemical applicators, fertilizer spreaders and cultivators are considered to be agricultural purposes.  Repair parts, repair services, maintenance supplies and services to farm machinery and attachment units that are used exclusively for ag purposes are exempt from the excise tax as well as sales and use tax.  That is the case for repair parts if the repair parts replace a part that the manufacturer assigned a specific or generic part number.  The SDDOR states that the buyers have the responsibility to pay the excise tax directly to the SDDOR if the retail seller does not collect the tax and report it as a use tax on the state sale tax return.  South Dakota Tax Facts No. Oct. 1, 2015 (Farm Machinery Attachment Units and Irrigation Equipment).


The petitioners, a married couple, failed to fully report their income on their joint return.  The wife worked for an attorney promoter of fraudulent tax schemes, and she put her paychecks into a bank account from which she paid personal living expenses without reporting the wage income.  The husband was aware that her income was not being reported and he didn't report his income for one year at issue.  The husband sought innocent spouse relief and the court, based on the factors set forth in Rev. Proc. 2013-34, determined that the husband knew of the unpaid tax liability, and denied innocent spouse relief.  Williams v. Comr., T.C. Memo. 2015-198.  


In this case, the president of a corporation impeded an IRS audit of the corporation by creating and backdating promissory notes, issuing false Forms 1099, among other things.  From 2004 to 2008 the corporations earned over $100 million but didn't file any tax corporate tax returns.  The IRS claimed that the corporation owed $120 million in taxes, interest and penalties.  The petitioner was a minority shareholder that had received bonuses and dividends during the years that the corporation was not paying taxes.  The IRS sought to recover $5 million from the two minority shareholders.  The petitioner received over $3.5 million in dividends during the years at issue while the company was insolvent and another minority shareholder received about $.5 million.  Under state (FL) law, the IRS did not have to pursue all reasonable collection efforts against the corporation, but could go directly after the minority shareholders to the extent of dividends received during the years at issue.  Kardash v. Comr., T.C. Memo. 2015-51.  On reconsideration, the court determined that the corporation was solvent in 2005, but determined that the transfers were constructively fraudulent as a part of a series of transactions that led to the corporation's insolvency.  Consequently, the post-2004 transfers were fraudulent because they were for less than fair market value and resulted in the corporation's insolvency.  Kardash v. Comr., T.C. Memo. 2015-197. 


The plaintiff bought a property at a non-judicial sale.  The IRS had an I.R.C. Sec. 6321 lien against the property that had been filed more than 30 days before the sale.  The IRS was not given notice of the sale at least 25 days before the sale.  The IRS lien had been filed with the county.  The plaintiff claimed that the lien was not valid, but the court determined otherwise.  The IRS, the court held, did not get effective notice of the sale of the property.  Thus, the IRS could foreclose the lien and had priority position against other creditors as to the proceeds of sale.  Mendoza v. Cisneros, et al., No. 14-cv-3324-WJM-KMT, 2015 U.S. Dist. LEXIS 141416 (D. Colo.  Oct. 14, 2015).

 


The defendant raised hogs that he received from the plaintiff via a hog production contract.  The plaintiff paid for the feed, transportation and veterinary services for the hogs and the defendant cared for the hogs until they reached market weight.  The plaintiff paid the defendant a monthly fee for his services, but retained ownership of the hogs.  The defendant accounted for the hogs and unaccounted-for hogs would be charged against the defendant's next monthly payment.  The defendant could only keep the plaintiff's hogs at the facility where they were raised.  The plaintiff was alerted by a third party that inventory counts did not match and some hogs might be missing.  The defendant claimed that some hogs were put in a "slush pen"  rather than being marketed because of slow weight gain, and that no inventory was kept of them.  The following year, the defendant filed bankruptcy and the plaintiff contacted the hog buyer and over 3,000 hogs could not be accounted for based on what had been supplied and what had been marketed.  The defendant claimed the difference was attributable to the defendant also marketing his own hogs at the same time to the buyer.  The plaintiff sued for conversion, and the trial court awarded $290,000 to the plaintiff for the hogs plus interest and $50,000 in punitive damages and court costs.  On appeal, the court affirmed.  The court noted that the defendant's personal income tax returns showed no income from the sale of livestock and no other documentation that would have supported the notion that the defendant was raising his own hogs.  On financial statements provided to his bank, the defendant reported that he had no "market livestock or poultry" and no "breeding stock."  The court also determined that the trial court properly admitted the weekly calendar and farm book that the plaintiff maintained and the summary exhibits that relied on those exhibits.  Pruisner v. Ballhagen, No. 14-1431, 2015 Iowa App. LEXIS 912 (Iowa Ct. App. Oct. 14, 2015). 


The defendant made a declaration of ownership over 89 miles of the Rogue River in accordance with the process established by state law.  In making such declaration, the defendant must get a court to find that the watercourse at issue is navigable or the defendant must make such a declaration.  Here, the defendant made such a declaration after following the state-prescribed procedures, including public notice of the watercourse at issue.  The trial court held that the defendant failed to provide sufficient evidence to establish navigability, and noted that the defendant's procedure would have exchanged dry river channel for flowing river channel with the result that some plaintiff's homes on dry land would be located where the river once flowed and would be within the defendant's ownership determination.  On appeal, the court reversed, in part, and remanded the case.  The court noted that the defendant's determination of navigability was based on a public notice that didn't provide enough specificity to allow interested persons to discover what land the defendant was actually claiming.  However, the court held that evidence of log drives at the time Oregon was admitted to the Union along with post-statehood recreational use that did not differ materially from the type of use at the time of statehood permitted a conclusion that the portion of the river at issue was susceptible to being used as a highway for commerce - the test for navigability.  Hardy, et al. v. State Land Board, 274 Ore. App. 262 (2015). 


The parties, brother and sister, owned two parcels of farmland with each of them owning an undivided one-half interest in each tract.  They received complete ownership in the tracts upon the last of their parents to die.  Tract A contained 315 acres with 157 of those acres tillable, and had been the parents homestead.  The brother had farmed Tract A for over 40 years and a portion of it continued to be leased to the brother.  Tract A contained 5 grain bins, three of which the brother put up.  The bins were valued at $59,000 and one expert appraiser valued Tract A at $929,000 and the other expert appraiser valued Tract A at $778,000.  Tract B contained 163 acres, 110 of which were tillable and had some developmental potential.  The expert appraisers valued the tracts at $1,200,000 and $620,000 respectively.  The brother sought a partition and sale of the tracts and the sister sought a partition in-kind, seeking to retain ownership of Tract A and having her brother own Tract B with an equalization payment.  The trial court determined that the sister had not established that a partition in-kind would be equitable and practical and that such a partition would involve "too much guesswork" and dismissed the sister's proposal that she retain Tract A coupled with an equalization payment to her brother of $75,000.  The trial court held that the Tracts should be partitioned by sale via public auction unless the parties agreed otherwise.  The sister appealed, and the appellate court reversed.  The court noted that any sale of Tract A would trigger approximately $150,000 of capital gain tax if it were to be sold, but Tract B would not trigger capital gain tax due to its high basis.  The court determined that it would not be equitable to divide Tract A due to the need to construct fencing and because livestock would not have a water source.  Thus, the court held that the sister had met her burden to establish that an in-kind partition would be equitable if she retained Tract A, her brother retained Tract B and she paid him a $75,000 "equalization payment believing that this resulted in each party retaining one-half of the farmland value.  A dissenting judge pointed out that the two properties, according to the expert appraisers, had a difference in value of $580,000 and that a $75,000 equalization payment was nowhere close to evening out value.  Accordingly, the dissent would have affirmed the trial court that a sale and split of the proceeds was the only equitable result for the parties.  Newhall v. Roll, No. 14-1622, 2015 Iowa App. LEXIS 920 (Iowa Ct. App. Oct. 14, 2015). 


The plaintiff retired in 2004 from being an airline pilot.  The airline had filed bankruptcy in 2002.  The plaintiff's non-qualified deferred compensation plan benefits vested upon his retirement, and the airline computed the present value of the benefits to be paid in accordance with I.R.C. Sec. 3121(v)(2) and withheld Medicare taxes.  The value of the benefits exceeded the FICA limit in 2004, and the computation of the present value of the benefits was computed without regard to the possibility that the benefits might not actually be paid because based on the definition of  "amount deferred" in terms of "present value" in Treas. Reg. Sec. 31.3121(v)(2)-(c)(2)(ii).  Based on that value, the airline withheld over $4,000 of payroll tax.  The deferred compensation liability of the airline, however, was largely discharged in bankruptcy such that the plaintiff received just over $60,000 of the approximately $300,000 of benefits owed to him - even though he paid payroll tax on the full amount.  The plaintiff challenged the regulations as invalid, but the IRS maintained that the regulations were appropriate and required payroll tax on the full benefit.  The court upheld the regulation as rational and a reasonable interpretation of I.R.C. Sec. 3121 and there was nothing in the statute requiring the IRS to refund the payroll taxes on account of the airline's bankruptcy.  The statute provided no exception when there was a risk of nonpayment.  Balestra v. United States, No. 2014-5127, 2015 U.S. App. LEXIS 17756 (Fed. Cir. Oct. 13, 2015), aff'g., 119 F. Cl. 109 (2014). 


The debtors defaulted on two loans secured by mortgages on their 144-acre farm.  The farm was divided by a public road, with bare farmland on one side of the road and the other side containing the residence and farm buildings.  Ultimately, the debtors filed Chapter 12 to stave off the sale of the farm at auction.  The debtors filed multiple amended plans so that the farmland could be sold to partially satisfy a secured loan and obtain plan confirmation.  The bankruptcy court approved a plan allowing the private sale of the farmland or the entire farm, but there was no provision that allowed the trustee (or debtor) to divide the farm into multiple tracts.  While the debtor did find a buyer for the farmland, the sale didn’t close before the auction which resulted in a sale to the highest buyer at over $12,000/acre (total selling price of $1.75 million).  However, the debtors claimed that their appraisers valued the property at twice that amount.  The bankruptcy court did not allow for a plan modification that would have given the debtors more time before the sale because there was insufficient time before the scheduled sale remaining when the petition for an amended plan was filed.  On appeal, the court affirmed.  The court determined that bankruptcy rule 90006(c) barred plan modifications without at least 21 days’ notice.  The court also determined that the debtor did not establish that the trustee had a duty to divide the farm into multiple tracts.  Thus, the debtor had the duty to take the necessary steps to get the property divided before the auction.  The court also held that it was not error for the bankruptcy court to conclude that any error that the auctioneer made by indicating that the property could not subdivided except for one or two homes did not drive away prospective buyers.  It was up to prospective buyers, the court held, to undertake their own due diligence as to how the land could be utilized.    The deed to the farm will not be transferred to the buyer because the debtors filed an appeal with the U.S. Court of Appeals for the Third Circuit.  In re Thorpe, No. 15-5239, 2015 U.S. Dist. LEXIS 137997 (E.D. Pa. Oct. 9, 2015).


The plaintiff was injured while using a hydraulic cattle chute that he bought from the defendant.  At the time of the injury the plaintiff was using the chute to pregnancy check cattle.  The chute had been purchased just a few weeks before the incident at issue, and the plaintiff had operated it without incident.  The operator’s manual for the chute provided a warning that the chute should only be operated with its own power source and that the use of a different power source would void the warranty.  The purpose of the restriction was to ensure that there would be a constant flow of hydraulic fluid without any excess or reverse flow.  At the time of the plaintiff’s injury, the chute was using the hydraulic system of a tractor rather than the chute’s own power source.  Hydraulic fluid shot from a control valve and struck the plaintiff in the cheek, leaving an injection wound.  The plaintiff sued for his injuries.  A post-event analysis revealed that an o-ring failed and the chute operated properly after the o-ring was replaced.  The plaintiff’s suit was based in strict liability for defective design, defective manufacture, failure to warn or inspect or test.  The jury was instructed that “a product is in defective condition if [it] has defects in design, manufacturing, instructions, warnings, and such defects existed at the time the product left the manufacturer’s and/or seller’s hands.”  At the instructions conference, the plaintiff wanted additional jury instruction language noting that “A product may also be defective without any ascertainable defect in the product and although the product was precisely what it was intended to be, if the manufacturer fails to give adequate and timely warnings as to the dangers or hazards which may result from a foreseeable use or misuse of the product.”  The trial court judge rejected the additional language and the jury returned a verdict for the defendant.  On appeal, the court upheld the trial court’s jury instruction.  The verdict was not contrary to the evidence and the jury instruction that was not used would not have resulted in a different outcome insomuch as the cause of the accident was not known and there was evidence that the plaintiff had not followed the manual in other respects concerning the operation of the chute.  Feight v. Moly Manufacturing, Inc., No. 111,899, 2015 Kan. App. LEXIS 839 (Kan. Ct. App. Oct. 9, 2015).


In this advice, the IRS concluded that an employer can exclude from an employee's gross income amounts paid for health insurance coverage that is provided through the group health plan of the spouse of the employee to the extent that the spouse paid for all or part of the coverage on an after-tax basis and not through a salary-reduction under an I.R.C. Sec. 125 cafeteria plan.  The payment can also include the after-tax amounts paid for both spouses by the employee's spouse.  Thus, an employer would be able to reimburse the payments tax free for the portion that represents the employee's cost and the portion that represents the cost of the employee's spouse.  While not addressed, it would appear that because the amounts in issue are tied to the spouse's employer's group health plan, the Obamacare restrictions would not come into play because the reimbursement plan is integrated with the group health plan.  However, Obamacare bars an insured plan from discriminating under the same rules as those that apply to reimbursement plans once regulations are promulgated that put the discrimination rules in place (See Notice 2011-1).  C.C.A. 201547006 (Oct. 7, 2015).


The plaintiffs bought a home on an acre and leased the mineral rights to the defendant's predecessor in exchange for a lease bonus and royalty interest.  The lease authorized the defendant to use the surface for oil and gas operations and drill horizontal wells.  The lease was pooled with other leases to create a larger drilling unit.  A year after the first well was drilled (not on the plaintiffs' property), the plaintiffs sued claiming that the defendant's negligent oilfield operations subjected them to toxic chemicals and noxious odors that made their existing health problems worse and damaged their property by creating sinkholes and damaging the home's pier and beam foundation.  The defendant moved for summary judgment and moved to strike most of the plaintiffs' evidence as inadmissible hearsay, unqualified lay opinions, and unreliable, speculative and conclusory expert opinions.  The trial court agreed and granted both a no-evidence summary judgment motion (directed verdict before trial) and a summary judgment motion.  On appeal, the court affirmed.  The court determined that the plaintiffs did not present more than a scintilla of probative expert evidence to create a material fact as to causation because none of their expert witnesses presented any evidence that differentiated between the plaintiffs' preexisting physical conditions and the new problems they claimed resulted from the oilfield operations.  The plaintiffs' nuisance claim also failed because lay witness testimony failed to show that the defendant's activities were the proximate cause of the complained-of substantial interference with the plaintiffs' use and enjoyment of their property.  Cerny v. Marathon Oil Corporation, No. 04-14-00650-CV, 2015 Tex. App. LEXIS 10364 (Tex. Ct. App. Oct. 7, 2015). 


The petitioner was 76 and dying of cancer.  For his business, he had taken out a $50,000 line of credit with his bank in 2008.  He couldn't pay off the credit line and the bank agreed to accept $15,628 as full payment on the loan in 2009.  The petitioner also couldn't pay other debts totaling over $68,000 and that amount was also canceled in 2009.  The petitioner received Form 1099-C from the bank with box 5 checked, indicating that that the petitioner was not liable for repaying the debt balance.  However, the petitioner did not report his canceled debt in income on the 2009 return.  He attached a statement to the return that the local IRS office had told him that "it would likely come under the hardship rules for approval."  While the petitioner believed that he was not liable for reporting the cancellation of debt income (CODI), the IRS and the court disagreed.  The court noted that there is no exception under I.R.C. Sec. 108 for "hardship."  In addition, the court noted that administrative guidance from the IRS is not binding on the court and it cannot change the plain meaning of tax statutes.  While the court agreed that the petitioner had suffered from hardships, such hardships did not absolve him from reporting the CODI.  The petitioner was neither insolvent or in bankruptcy.  Dunnigan v. Comr., T.C. Memo. 2015-190.


The petitioner occasionally made loans to friends, acquaintances and business associates, doing so 12 times over a six-year period without the normal formalities associated with a lending business.  He did not hold himself out as in the business of lending money and did not keep business records that were close to adequate, and did not perform "due diligence" with respect to any loans that he made.  He made a loan to a construction company which failed to pay its $925,000 loan upon it becoming due in 2007.  The company filed for reorganization bankruptcy in 2008 showing assets of over $62 million and liabilities of over $34 million.  The petitioner did not file a claim in the bankruptcy.  Ultimately, the case was converted to Chapter 7 from Chapter 11.  The petitioner filed an amended return claiming a business bad debt deduction (ordinary loss deductible on debt that becomes partially worthless) on the 2008 return.  The petitioner argued that if the loss wasn't deductible in 2008, it was in 2009.  The court held that the loan would not qualify as a business bad debt, but that any bad debt would be a non-business bad debt (deductible as a short-term capital loss  in the year in which the debt becomes wholly worthless).  The court determined that the plaintiff had failed to show that the debt was completely worthless in either 2008 or 2009.  Instead, the court pointed out that the petitioner first acted as if the debt was worthless in 2010 when he filed his amended 2008 return.  The company's filing of bankruptcy that year was insufficient to show that the debt was worthless in 2008 because it was not clear at that time that the company was insolvent.  Cooper v. Comr., T.C. Memo. 2015-191.     


The regular percentage depletion rate for independent producers and royalty owners remains at 15 percent for calendar year 2015.  The regular percentage depletion rate for independent producers and royalty owners is 15 percent. For qualifying marginal production (less than 15 daily barrels of oil equivalent per day) the 15 percent rate is increased by one percentage point for each dollar the price of crude oil is less than $20 per barrel.   With the barrel price exceeding $20 per barrel, there is no increase to the 15 percent rate.  Percentage depletion for oil and gas production is 15 percent of gross revenue limited to 100 percent of a property’s net income.  IRS Notice 2015-65, 2015-40 IRB 466.


The petitioner, 47 years old, withdrew funds from her IRA to pay her son’s medical expenses.  Her son was not claimed as a dependent on her return.  She did not pay the additional 10 percent penalty on the withdrawal required under I.R.C. Sec. 72(t).  The IRS assessed the additional penalty and the court upheld the IRS position.  The court noted that the petitioner did not claim her son as a dependent on her return for the tax year in issue and that he did not otherwise qualify as a dependent under I.R.C. Sec. 152, which would have avoided the penalty on the withdrawn amount to the extent of what the taxpayer could have claimed as a deduction for qualified medical expenses under I.R.C. Sec. 213.  Unlike a health savings account, where the withdrawn amounts used to pay for the son’s medical expenses would have also been tax-free if the son had been a dependent, the withdrawn amounts from the IRA are taxable.  Ireland v. Comr., T.C. Sum. Op. 2015-60.  


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