Case Summaries

The plaintiff was a farming company that purchased 300 acres from an owner who had contracted with a private company to build grass waterways. The former owner received a federal subsidy from the Natural Resources Conservation Service for building the waterways. He did not, however, pay the contractor for building the waterways because he contended that there was a lip or ridge along the edge of the grass waterways that prevented proper draining. The contractor sued the former owner in state court, and the former owner filed counterclaims. The state court entered summary judgment against the former owner and denied the farming company’s motion to intervene (the farming company had by that time purchased the property). The farming company then filed its action in federal court alleging that the grass waterways were improperly designed and built and that they did not conform to federal law. All defendants moved to dismiss the suit on a variety of grounds, including lack of federal subject-matter jurisdiction. The district court concluded that the suit sounded in state tort law with no federal subject-matter jurisdiction and granted the motions dismissing the case. On appeal, the Sixth Circuit agreed, finding that the farming company could point to no statute providing an express or implied right of action for its suit. Stew Farm, Ltd. v. Natural Res. Conservation Serv., No. 13-4111, 2014 U.S. App. LEXIS 16274 (6th Cir. Ohio August 25, 2014). 

The plaintiff resided in a nursing home and loaned her daughter $98,000 in exchange for a promissory note.  The note was not assignable and could not be sold.  After making the note and promissory note, the plaintiff applied for Medicaid. The state Medicaid agency determined that the note was an available resource as a "trust-like" device.  On appeal, the state administrative agency affirmed on the basis that the note was a "trust-like" device or because it was an uncompensated transfer.  On further review, the court reversed on the basis that the note could not be converted into cash.  No transfer penalty applied because the court determined that the note was actuarially sound.  Frantz v. Lake, No. CIV-14-117-W, 2014 U.S. Dist. LEXIS 116916 (W.D. Okla. Aug. 22, 2014).

The petitioner invested in three partnerships that were created to provide investors with charitable deductions from investments in cemetery plots that were held for over one year and then contributed to charity.  The partnerships failed to hold the plots for longer than a year, but reported that the investors could claim charitable contribution deductions for more than the appraised values, as opposed to basis.  The partnerships also had no income or expense for the tax years at issue other than the charitable deductions.  The petitioner claimed a loss on his investments based on the partnership interests being worthless at year-end.  IRS denied the losses on the basis that the petitioner's investment lacked profit intent.  The court agreed with the IRS and that profit intent was clearly lacking.  The partnerships, the court noted, were not created to realize any income or make a profit.  Just because the Congress allows a deduction for a charitable contribution does not mean that a loss incurred in generating a charitable deduction should be allowed.  The charitable contributions were allowed.  McElroy v. Comr., T.C. Memo. 2014-163.

Here, the petitioner was a merchant marine that spent much time away from home and rented his home to a friend.  The rental amount was below fair market rental value, and the friend only paid for one month.  The petitioner did not attempt to collect the unpaid rent amounts.  The petitioner claimed a deduction for rental losses which IRS denied on the basis that the petitioner could not prove that he rented the home at market value and made no attempt to collect unpaid rent.  The court upheld the IRS position, noting additionally that the petitioner could not establish his time spent away from home and not at sea.  Hunter v. Comr., T.C. Memo. 2014-164

A jury awarded $500,000 in actual damages and $3.3 million in attorney fees for the defendant's underpaying employees for time spent donning and doffing protective clothing before and after work shifts.  The defendant had claimed on appeal that the plaintiffs had not established unpaid time on a class-wide basis.  However, the appellate court disagreed.  The court also upheld the award of attorney fees.  Garcia, et al. v. Tyson Foods, Inc., No. 12-3346, 2014 U.S. App. LEXIS 15917 (10th Cir. Aug. 19, 2014). 

This case points out that the interest of the IRS in a delinquent taxpayer's bank accounts vests immediately on issuance of a levy and the property subject to levy must be immediately surrendered.  If not, the bank is personally liable for the depositor's tax bill.  Here, the taxpayer had an AGI of $21,594 in 2008 but received a tax refund of $78,169 in 2009 attributable to the 2008 tax year.  Instead of notifying the IRS of the obvious error, the taxpayer deposited the funds with the defendant, the taxpayer's bank.  The defendant also did not inform the bank that he was not actually entitled to the funds and that the source of the funds was an obvious IRS error.  An IRS revenue officer assigned to the matter went to the taxpayer's home with a jeopardy levy in hand at 9:30 a.m. on Sept. 9, 2009, and notified the taxpayer that he owed roughly $93,000.  The revenue officer demanded payment, but the taxpayer did not pay the deficiency at that time.  The IRS revenue officer served the taxpayer with the IRS notice to levy his bank accounts.  Ten minutes later, the IRS revenue officer served the jeopardy levy on the defendant.  Less than two hours later, the taxpayer withdrew all of the funds in one of his bank accounts with the defendant, and left less than $8,000 in a different account, which was turned over to the IRS.  Two days later, the defendant froze the bank accounts.  The IRS sought the balance of the taxpayer's tax liability from the defendant.  The court noted that, for a jeopardy levy, IRS need only provide the taxpayer with notice and demand for immediate payment under I.R.C. Sec. 6331 before imposing the levy.  IRS properly followed that procedure and could then levy immediately.  The defendant claimed that it acted reasonably within two hours of receiving the IRS levy and should not be held personally liable for the withdrawn funds.  The court disagreed, noting that I.R.C. Sec. 6332 (the liability provision) does not contain any reasonability requirement.  In addition, the court noted that the government's interest vested immediately upon notifying the bank of the levy and the bank was immediately responsible for preserving the taxpayer's bank accounts for the IRS.  The court also noted that I.R.C. Sec. 6332 contained a reasonability requirement only with respect to an additional 50 percent penalty which could make the defendant liable for 150 percent of the levied property.  United States v. JPMorgan Chase Bank NA, CV 13-3291 GAF (RZx), 2014 U.S. Dist. LEXIS 113896 (C.D. Cal. Aug. 15, 2014).    

A debtor borrowed money from a lender and pledged dairy cattle as collateral.  The lender secured an interest in the cattle.  The debtor later borrowed additional money from the lender, pledging crops, farm products and livestock as collateral with lender's security interest containing a dragnet clause.  The lender secured its interest.  The debtor later entered into a "Dairy Cow Lease" with a third party to allow for expansion of the herd.  The third party lessor perfected its interest in the leased cattle.  The debtor filed bankruptcy and the bankruptcy court determined that the lease arrangement actually created a security interest rather than being a true lease.  The court noted that the "lease"  was not terminable by the debtor and the lease term was for longer than the economic life of the dairy cows.  The third party lessor also never provided any credible evidence of ownership of the cows, and the parties did not strictly adhere to the "lease" terms.  The court noted that the lender filed first and had priority as to the proceeds from dairy cows.  In addition, the bankruptcy court held that the lender's prior perfected security interest attached to all of the cows on the debtor's farm and to all milk produced post-petition and milk proceeds under 11 U.S.C. Sec. 552(b).   In a later action in the district court, a different creditor failed to comply with court’s order requiring posting of bond as a condition to stay the effect of the court’s prior ruling.  As a result, there was no stay in effect during pendency of the appeal and the lender was entitled to have the proceeds turned over to it.  A feed supplier creditor did not have standing to seek surcharge of the bank’s collateral under 11 U.S.C. Sec. 506(c).  The bankruptcy trustee did not file a motion for surcharge and court could not order the amount that the supplier paid for feed deliveries to be retained from funds turned over to the lender.  The lender's motion for abandonment and turnover of proceeds was granted.  On further review of the bankruptcy court's decision concerning the dairy cow lease, the appellate court reversed.  The appellate court determined that under applicable law (AZ) as set forth in the "lease" agreement, a fact-based analysis governed the determination of the nature of the agreement.  However, if the lease term is for longer than the economic life of the goods involved, the "lease" is a per se security agreement.  The bankruptcy court focused on the debtor's testimony that he culled about 30 percent of the cattle annually which would cause the entire herd to turnover in 40 months.  That turnover time of 40 months was less than the 50-month lease term.  Thus, according to the bankruptcy court, the lease was a security agreement.  The appellate court disagreed with this analysis, holding that the agreement required the focus to be on the life of the herd rather than individual cows in the herd because the debtor had a duty to return the same number of cattle originally leased rather than the same cattle.  Thus, the agreement was not a per se security agreement.  On the economics of the transaction, the appellate court held that the lender failed to carry its burden of establishing that the actual economics of the transaction indicated the lease was a disguised security agreement.  There was no option for the debtor to buy the cows at any price, and there was no option at all.  Sunshine Heifers, LLC v. Citizens First Bank (In re Purdy), No. 13-6412, 2014 U.S. App. LEXIS 15586 (6th Cir. Aug. 14, 2014), rev'g., 2013 Bankr. LEXIS 3813 (Bankr. W.D. Ky. Sept. 12, 2013).

 Before death and during the applicable Medicaid look-back period, the father deeded his residential real estate to his daughter and retained a life estate in the property.  After the transfer, the father applied for Medicaid benefits, and received over $170,000 in benefits by the time of his death.  The state (Idaho) Medicaid agency filed an estate recovery claim in his estate pursuant to state law.  ID law provides that the state Medicaid agency has a claim against non-probate property that passes to a survivor via life estate and other arrangements.  The trial court determined that only the remainder interest was an asset of the estate.  That determination was upheld on appeal.  The estate appealed, asserting that the decedent didn't have any interest in the life estate at death.  On further review the ID Supreme Court held that the retained life estate was also an estate asset for Medicaid estate recovery purposes.  In re Estate of Petersen, No. 40615, 2014 Ida. LEXIS 217 (Idaho Sup. Ct. Aug. 13, 2014).

In this case, the petitioner claimed a $33 million charitable deduction of a remainder interest in the membership interests of an LLC.  The LLC was the landlord of property that was subject to a triple net lease.  At issue was the value of the remainder interest and the application of the IRS tables contained in I.R.C. Sec. 7520.  The court determined that the contribution of the remainder interest (to the University of Mich.) resulted in a deduction that far exceeded the partnership's investment.  After the contribution, the University sold the remainder interest to another entity then resold it and the last purchaser then contributed it to another charity which again triggered a charitable deduction that exceeded the entity's or the donor's investment.  The court denied summary judgment, noting that the entire scheme suggested a tax shelter.  On whether the appraisal of the remainder interest was a qualified appraisal, the court determined that the appraisal barely satisfied the requirements of I.R.C. Sec. 170.  RERI Holdings I, LLC v. Comr., 143 T.C. No. 3 (2014); Zarlengo v. Comr., T.C. Memo. 2014-161. 

In this boundary line dispute case, the trial court determined that the statutory adverse possession requirements had not been satisfied and ordered the reformation of deeds dating to 1918 so that the property description conformed to the intent of the parties who created the deeds.  That intent was that the boundary between the tracts would run down the middle of a driveway with the deeds providing easements on either side of the boundary line for each property owner.  The defendant appealed, arguing that there was no evidentiary basis for the establishment of a boundary line and the easements and that the reformed deeds shifted ownership of the disputed tract from them.  The defendants claimed the disputed area via adverse possession.  On appeal, the court affirmed on the basis that the defendant failed to establish exclusive use.  The court also noted that the trial court acted properly in reforming the deeds.  Rosenthal v. McGraw, No. 2013AP1601, 2014 Wisc. App. LEXIS 653 (Wisc. Ct. App. Aug. 7, 2014). 

The plaintiffs financed their purchase of a part ownership of a Nebraska feedlot via a loan from the defendant.  The plaintiffs also obtained an operating loan of $2.5 million from the defendant to finance the purchase of cattle to be fed at the feedlot.  The loan terms required the plaintiffs to provide the defendant with a monthly inventory report.  The plaintiffs later sought an additional loan from the defendant to buy corn to feed cattle at the feedlot.  The plaintiffs guaranteed the loans.  The plaintiffs relied on the feedlot manager to manage sales of cattle and the cattle inventory, but later discovered that there were approximately 5,000 fewer head of cattle at the feedlot than there should have been.  The manager was fired, and the operating loan was terminated due to "insufficient assets in relation to liabilities" and the defendant demanded full payment of the loan.  Several months later the feedlot filed bankruptcy and the plaintiffs filed a proof of claim seeking to recover over $2 million from the feedlot.  The plaintiffs also sued the defendant based on an allegation that defendant's loan officer had promised to go to the feedlot monthly to count cattle.  In essence, the plaintiff blamed the defendant for the shortage of cattle at the feedlot.  The plaintiffs also claimed that they bought more feed than necessary because of the loan officer misleading them as to the amount of cattle at the feedlot.  The court granted summary judgment for the defendant on all claims.  On the negligence issue, the court noted that Kansas courts have held that lenders do not owe any duty of care to borrowers under Kansas law, and that there was no history or course of dealing that would apply to hold the defendant liable.  On the negligent/fraudulent misrepresentation issue, the court determined that the evidence showed that the plaintiffs did not justifiably rely on any representations of the defendant to their detriment.  The court also noted that the plaintiff was responsible for tracking inventory and reporting it to the defendant and that the defendant was not responsible for counting cattle at the feedlot.  Thus, there was no breach of the duty of good faith and fair dealing.  Page v. Farm Credit Services of America, PCA, No. 13-2073-RDR, 2014 U.S. Dist. LEXIS 108018 (D. Kan. Aug. 6, 2014). 

The petitioners, a married couple, bought a 40-acre tract within the Pike's Peak viewshed.  They also owned another adjacent 60 acres and sought to plat both tracts as a subdivision with a 2.5 acre size limitation per lot.  Before platting the property, the petitioners  granted a conservation easement on the 40-acre parcel with a development size restriction of one lot of 40 acres.  The pre-easement value as established by the petitioners' appraiser was $1.6 million and the post-easement value was $400,000.  The IRS originally disallowed the entire deduction due to a failure to satisfy I.R.C. Sec. 170, but later conceded that the Code requirements were satisfied and then challenged the appraised values.  The Tax Court determined that the petitioners' appraised values were closer to what the court determined were most accurate.  The result was that the petitioners were entitled to a charitable deduction of over $1.1 million and no penalties or interest.  Schmidt v. Comr., T.C. Memo. 2014-159.

Before they were married in 1997, the decedent and his wife entered into an antenuptial agreement. At the time, the decedent owned property valued at almost $1.1 million, including farmland, a residence, and farm machinery. The wife’s assets were valued at approximately $150,000. The antenuptial agreement provided, "The will executed by [decedent] shall provide that he will leave his estate to [his wife], if she survives him." It further prohibited the alteration or revocation of the parties’ wills without consent of the other party. In 2011, the decedent executed a will in which he left 25% of his property to his wife and tp each of his three sisters. The decedent died in 2012. His wife filed a claim against the estate, asserting that the decedent’s will violated the terms of the antenuptial agreement.  The trial court agreed and entered summary judgment in the wife’s favor. The sisters appealed, arguing that the antenuptial agreement was ambiguous. The court affirmed, finding that the contract as a whole was not ambiguous. An early recital in the contract stating that each party retained an unhindered right to dispose of their individual property merely made it possible for the later provision to dictate how the decedent would dispose of it. Estate of Kleinlein v. Kauffman, NO. 4-13-1086, 2014 Ill. App. Unpub. LEXIS 1698 (Ill. Ct. App. Aug. 5, 2014).

At the time of the decedent's death, he was the sole owner of a satellite uplink company that provided satellite access to a religious non-profit company operated by the decedent's son.  In the year of the decedent's death, his company had $16 million in revenue. The decedent's estate was valued at $9.3 million, but IRS valued it at nearly three times that amount. The court determined that the key to the success of the decedent's corporation was his son and the son's goodwill which had not been transferred to the decedent's corporation.  The Tax Court accepted the $9.3 million valuation.  Estate of Adell v. Comr., T.C. Memo. 2014-155

The petitioner lived in NYC and worked for a business that was headquartered in L.A.  The petitioner worked from her apartment at the employer's request, and divided her studio apartment into thirds with one-third used for business.  During 2009, the tax year at issue, the petitioner paid for a cleaning service, cable, telephone and internet access, clothing for the employer, and a cell phone for business use.  The IRS disallowed all of the associated deductions that were claimed as unreimbursed employee business expenses.  However, the Tax Court allowed a deduction for one-third of the petitioner's apartment rent and cleaning service charges.  The Tax Court also deductions for telephone and 70 percent of the internet cost.  As for electricity charges, the petitioner's records were insufficient to allow a deduction for any amount.  Cell phone charges were not deductible due to lack of substantiation required (cell phones were listed property in 2009 and subject to strict substantiation rules which were removed by the SMJA of 2010).  The Tax Court did not allow any deduction for clothing expenses because the petitioner admitted that the purchased clothing were also suitable for personal wear.  Miller v. Comr., T.C. Sum. Op. 2014-74.

A drive-in movie theater sued an adjoining farm, alleging that the light emanating from the farm constituted a private nuisance damaging the theater. A jury awarded the theater $830,000 in damages to construct a fence to block the light, but the trial court granted the farm’s motion for judgment notwithstanding the verdict. The trial court found that there was insufficient evidence for the jury to find a private nuisance. On appeal the court affirmed, ruling that the standard commercial lights employed by the farm were very typical and ordinary lights used by a business. They could not, as a matter of law, have constituted an unreasonable and substantial interference with the theater’s property rights. A private nuisance action could not be maintained based upon a plaintiff’s special sensitivities. Rather, the inconvenience would have to be one that is “objectively unreasonable” to the ordinary plaintiff. Blue Ink v. Two Farms, Inc., No. 01487, 2014 Md. App. LEXIS 73 (Md. Ct. Spec. App. Jul. 30, 2014).

A decedent’s will named three equal beneficiaries: her son, her stepdaughter, and her step-granddaughter. The step-granddaughter was the attorney-in-fact for the decedent during her lifetime. She was also listed (with the son) as a 50% beneficiary of a POD bank account owned by the decedent. Shortly before the decedent’s death, the step-granddaughter, acting as her attorney-in-fact, sold the decedent’s home, acreage, and household contents at an auction. She deposited the net proceeds, which totaled $80,240, into the POD account. When the decedent died, the stepdaughter split the POD bank account proceeds with the son, and, acting as the executor of the decedent’s estate, filed a small-estate affidavit stating that the value of the decedent’s estate totaled only $9,800, thereby not requiring the granting of letters testamentary. The stepdaughter petitioned the court to direct the application for letters testamentary, arguing that the value of the estate was in excess of $40,000. The trial court concluded that the step-granddaughter exceeded her authority as attorney in fact in depositing the proceeds from the auction into the POD account. On appeal, the court affirmed, ruling that the step-granddaughter was not authorized to make a gift to herself absent express authorization by the decedent. The power of attorney form authorized the step-granddaughter to make gifts to herself only if she respected the intentions of the will. The step-granddaughter was required to turn over the auction proceeds to the estate.   In re Estate of Qualls, No. WD76962, 2014 Mo. App. LEXIS 815 (Mo. Ct. App. Jul. 29, 2014).

Plaintiffs sued their neighbor for compensation after the neighbor was convicted of intentionally killing the plaintiffs’ dog. The trial court limited damages to the market value of the dog. On appeal, the court affirmed, finding that dogs were classified as personal property by an Ohio statute. As such, the court had to abide by the market-value limitation on damages derived from common law. While the court appreciated the subjective value of the dog to the plaintiffs and their emotional attachment to him, the court found that the law simply did not consider sentimentality as a “proper element in the determination of damages caused to animals.” The plaintiffs had not identified a particularized and identifiable pecuniary loss. Davison v. Parker, No. 2013-L-098,  2014 Ohio App. LEXIS 3201 (Ohio Ct. App. Jul. 28, 2014).

A railroad company proposed the closure of several private railroad crossings and closed one of them.  The plaintiffs are owners or lessees of farmland adjacent to the crossings. The plaintiffs contended that their access to their farm property would be restricted if the railroad were allowed to close the crossings. In 2008, the Louisiana legislature passed a statute, La. Rev. Stat. Ann. § 48:394, (the Act) prohibiting railroads from closing or removing any private crossing unless the railroad gave 180 days’ notice and convinced the Louisiana Public Safety Commission (LPSC) that the action was necessary for safety and in the best interest of the public. In 2010, the court ruled that federal law prohibited state regulation of private crossings that unreasonably burdened or interfered with rail transportation. The Louisiana legislature amended the Act to state that a railroad company was prohibited from closing a private crossing unless the railroad company could convince the LPSC that the specific crossing unreasonably burdened or substantially interfered with rail transportation. In 2007, the plaintiffs sued the railroad company in state court seeking a declaration of their rights to use the crossings and seeking injunctions preventing the railroad company from closing or removing the crossings. After removal to federal court, the railroad company sought a declaration that it was entitled to remove the crossings. After the Act’s passage, the railroad company also alleged that the Act would effect an unconstitutional taking of the railroad company’s property without a public purpose in violation of Article I, Section 4 of the Louisiana Constitution. The court certified the question to the Louisiana Supreme Court, finding that the state’s highest court should consider the question of the relationship between a state statute and the state constitution in the first instance.   Faulk v. Union Pac. R.R. Co., No. 13-30669, 2014 U.S. App. LEXIS 14286 (5th Cir. Jul. 25, 2014).

The sellers had purchased their home for $450,000 from the estate of a couple who died in a murder/suicide. The murder/suicide was highly publicized. One year later, after investing in many renovations, the sellers listed their house for sale, informing their realtor and consulting with an attorney and the Pennsylvania Real Estate Commission regarding the tragic history of the home. The sellers relied on the advice of counsel and the Commission and did not disclose the murder/suicide as a material defect on their Seller’s Property Disclosure Statement. A California resident purchased the home from the sellers for $610,000. She did not learn of the murder/suicide until after she had moved into the home. She filed an action against the sellers and their realtor, asserting that she never would have purchased the home had she known its history. The trial court granted summary judgment for the defendants, ruling that murder/suicide was not a material defect subject to disclosure. An en banc panel of the Superior Court affirmed, finding that psychological damage to a property cannot be considered a material defect. On appeal, the Pennsylvania Supreme Court agreed. The court ruled that the murder/suicide events were not defects in the “structure” of the house. The sellers’ disclosure duties were designed to address structural defects, not tragic events. The court reasoned that a requirement that such events be disclosed would be impossible to apply with consistency and would place an unmanageable burden on sellers.  Milliken v. Jacono, No. 48 MAP 2013, 2014 Pa. LEXIS 1770 (Pa. Jul. 21, 2014).

A horse farrier of 45 years was trimming the hooves of the defendant’s horses when the horses knocked the farrier down, causing him to strike his head on a rock. The farrier died from his injuries. His widow sued the defendant for premises liability and wrongful death, alleging that the defendant had negligently allowed his corral to remain rocky, thereby contributing to her husband’s death. The trial court granted summary judgment for the defendant, finding that the horses, not the rock terrain, caused the fall. The court found that the defendant owed no legal duty to the farrier because of the “occupational assumption  of risk doctrine.” On appeal, the court affirmed, ruling that a no-duty rule (often called the “veterinarian’s rule”) applied where a person confronted unpredictable animals as an inherent part of his job. The court found that the job of a farrier was an inherently dangerous occupation as much (or more so) as that of a veterinarian. As such, the assumption of the risk doctrine applied to bar the widow’s claims. The defendant owed no duty to the farrier since the farrier assumed the risks of his inherently dangerous occupation and all of its associated risks. Barrett v. Leech, No. D063991, 2014 Cal. App. Unpub. LEXIS 5185 (Cal. App. Ct. July 24, 2014).

The petitioner bought an existing home in January of 2009 that needed substantial repairs to make it habitable.  The petitioner began using the house in May of 2009 after making over $10,000 of repairs.  The petitioner claimed the First Time Homebuyer Tax Credit (FTHBTC) based on the purchase price plus the repair cost.  IRS disallowed the part of the credit attributable to the repairs (note - the house was a low-cost home substantially less than the maximum credit allowed).  While I.R.C. Sec. 36(c)(4) bases the credit on the "purchase price" of the home and defines that phrase as the "adjusted basis of the principal residence on the date the residence is purchased", the court determined that "purchase date" is normally the date when the taxpayer takes legal or equitable title with respect to existing housing.  But, the phrase is the date occupancy is established for a constructed residence based on Woods v. Comr., 137 T.C. 159 (2011).  Here, the court determined that the petitioner did not "construct" the house and that, therefore, the credit was to be computed with respect to the purchase price when he took title to the property and the IRS determination was upheld.  Leslie v. Comr., T.C. Sum. Op. 2014-65.

In consolidated interlocutory appeals, defendants (financial companies and accountants) challenged the district court's certification of a class of investors in four funds created and managed by the Fairfield Greenwich Group, which sustained billions of dollars in lost value following the collapse of the Madoff Ponzi scheme. In vacating the district court’s order, the court ruled that the order did not indicate how common evidence could show (1) the existence of a duty of care applicable to the class or (2) reliance by the class on alleged misrepresentations. Both were required to show that individual issues did not predominate and that the class should be certified under Fed. R. Civ. P. 23(b)(3). The court noted that Rule 23 did not set forth a pleading standard, but that the "party seeking class certification must affirmatively demonstrate compliance with the Rule.” A district court could only certify a class if it was “satisfied, after a rigorous analysis,'" that the requirements of Rule 23 were met.  Stephen's Sch. v. PricewaterhouseCoopers Accountants N.V., Nos. 13-2340-cv(L), 13-2345-cv(Con), 2014 U.S. App. LEXIS 11515 (2d Cir. N.Y. Jun. 19, 2014).

The petitioner did consulting and tax prep work out of her home.  She filed a Schedule C on which she claimed deduction for home office expenses.  She said that the percentage of the home used for businesses was 33 percent on Form 8829.  She also paid small amounts of "wages" to three children for work in her business activities that were actually paid to them in the form of credit card purchases for meals and tutoring.  On the percentage issue, the court noted that the petitioner simply took the basement as one of the three levels of her home and took 33 percent as the business use percentage.  The court agreed with IRS and disallowed expenses associated with the home office due to lack of evidence on which the court could base an estimate of the space actually used for business use.  On the deduction for wages, the court noted that two of the children were required to file (their income exceeded the standard deduction) had they not been minors, but that they were compensated for services that were actually household chores.  Thus, no deduction for wages as business expenses was allowed.  Ross v. Comr., T.C. Sum. Op. 2014-68.