Case Summaries

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

The plaintiff operates an egg farm and, in accordance with state (NC) law, constructed a detention pond near a hen house for surface water control purposes.  The pond also collect small amounts of dust, feathers and manure.  The pond does not discharge directly into state or federal waters, but does periodically discharge accumulated rainfall and debris into a nearby canal which the defendant claimed requires a state-issued permit under the Clean Water Act (CWA).  The plaintiff unsuccessfully challenged the permit requirement administratively, and then filed the present action in federal court seeking an order that incidental discharge qualified as ag stormwater which is exempt from the CWA permit requirements at the state level.  The court held that it lacked jurisdiction to consider the matter.  The court noted that the only way it could possible hear the case was if state law implicated significant federal issues, but ultimately determined that if it took the case it would upset a "congressionally approved balance of federal and state judicial responsibilities."  The court determined that, under the CWA, no federal right of action was created to allow the challenge of state permitting decisions.  The court also declined to exercise declaratory-judgment jurisdiction noting that NC courts had a strong interest in reviewing state CWA permitting decisions and that hearing the case would create "unnecessary entanglement" between federal and state courts.  Rose Acre Farms, Inc. v. North Carolina Department of Environment and Natural Resources, et al., No. 5:14-CV-147-D, 2015 U.S. Dist. LEXIS 99628 (E.D. N.C. Jul. 30, 2015).   

The petitioner is a C-corp. California farming operation utilizing the cash method of accounting (and the accrual method of keeping books for purposes of lenders with the result that inventory exists for each year at issue) that deducts the cost of various fieldpacking materials (clamshells, cardboard trays and cartons, etc.) that it uses to pack raspberries, strawberries and similar fruits and vegetables.  The IRS claimed that the petitioner could not deduct the cost of the fieldpacking materials until they were actually used, rather then when the petitioner purchased them.  Both parties agreed that the petitioner was not a "farming syndicate" as defined by I.R.C. Sec. 464 which would bar the use of the cash method of accounting, and prevent the deduction for "seed, feed or fertilizer, or other similar farm supplies" in a year before they are consumed.  However, IRS argued that Treas. Reg. 1.162-3 allowed a deduction only for those fieldpacking materials only to the extent they were used or consumed during the tax year.  The court disagreed with the IRS position.  The court noted that the fieldpacking materials are not "similar" to seed, feed or fertilizer because they aren't necessary to grow agricultural crops.  The court noted that I.R.C. Sec. 464 was aimed at tax shelters, not the type of taxpayer involved in the case, and that the fieldpacking materials are not "on hand" and are subject to cash accounting rules.  Thus, the cost of the materials were deductible when purchased.  The court held that Treas. Reg. Sec. 1.162-3 does not require a cash method taxpayer to defer deductions until they are used or consumed, if the cost of such items is deducted in a prior tax year.  The court did note that a limit on deductibility could apply if the materials were not used or consumed within one year.  Agro-Jal Farming Enterprises, Inc., et al. v. Comr., 145 T.C. No. 5 (2015).


A farmer operated a farm including two registered feedlots and 4,000 acres of cropland. Each winter, the farmer would place more than 2,000 beef cattle on approximately 400 acres of its cropland. The resulting cattle density was several times higher than for a typical foraging field and, although there was at least an initial vegetative cover, the farmer provided his cattle with feed that supplied at least 90 percent of their nutritional needs. The Commissioner of the Minnesota Pollution Control Agency (MPCA) required the farmer to obtain a State Disposal System (SDS) permit for his winter cattle lands The MPCA also determined that the farmer needed a federal National Pollutant Discharge Elimination System (NPDES) permit because his operation was an animal feeding operation (AFO). The farmer challenged the administrative decisions, and the court reversed in part and affirmed in part the agency’s ruling. The court found that the farmer’s operation was not an AFO under 40 C.F.R. § 122.23(b)(1) because the farmer’s winter feeding fields sustained crops in the normal growing season. The “no vegetation” requirement in the regulation applied only to the normal growing season. The court did find, however, that the agency correctly determined that the concentration of cattle on the farmer’s winter fields was not commensurate with the statutory definition of “pasture” under  Minn. Stat. § 116.07, subd. 7d(b). The farmer’s cattle were not "allowed to forage" on the winter feeding fields and they did not qualify for the statutory pasture exemption. Accordingly, the winter feeding fields required an SDS permit.  On appeal, the state Supreme Court affirmed.  In the Matter of Reichmann Land and Cattle, LLP., No. A13-1461, 2015 Minn. LEXIS 385 (Minn. Sup. Ct. Jul. 29, 2015), aff'g., 847 N.W.2d 42 (Minn. Ct. App. 2014).

The decedent created two irrevocable charitable remainder trusts during his life, one for each of his sons.  The decedent was the income beneficiary during his life, with each son then being the beneficiary of that son's trust.  The amount paid to the decedent during life and each son after the decedent's death, was the lesser of the net trust accounting income for the tax year or 11% of the net value of the trust assets for trust one or 10% for trust two.  If trust income exceeded the fixed percentage for that trust, the trustee was directed to make additional distributions to make up for prior years when the trust income was insufficient to satisfy a distribution of the fixed percentage for that particular trust (hence, the trusts were a "net income with makeup charitable remainder unitrust" - NIMCRUT).  The payout period was the latter of 20 years from the time of creation of the trusts or the date of death of the last beneficiary to die.  The decedent died about one year after creating the trusts, and his estate reduced the taxable value of the estate by the amount it deemed to be charitable (note - the estate did not claim a charitable deduction).  The IRS denied the deduction because the trusts did not satisfy the requirement that the value of the charitable remainder interest be at least 10% of the net fair market value of the property contributed to the trust on the date of the contribution as required by I.R.C. Sec. 664(d)(2)(D).  The estate claimed that it was entitled to a charitable deduction under I.R.C. Sec. 664(e) because the distributions were to be determined according to the applicable I.R.C. Sec. 7520 rate so long as the rate is above 5%.   The court determined that I.R.C. Sec. 664(e) was ambiguous, but that the legislative history supported the IRS position that the value of a remainder interest in a NIMCRUT is to be based on the fixed percentage stated in the trust instrument.  As such, the trusts failed the 10% test.  The court also noted that the IRS regulations on the matter were not helpful.  Schaefer v. Comr., 145 T.C. No. 4 (2015).   

The decedent prepared a holographic will leaving all of his property to his wife and a dollar to his brother.  The will specified that if the decedent and his wife were to die at the same time, the decedent's property was to pass equally to two charities.  In the simultaneous death situation, all other persons were specifically disinherited.  However, the decedent's wife pre-deceased the decedent, 18 years after the decedent had executed his will.  The decedent died six years later at the age of 96 without amending his will.  The decedent did not remarry and died childless.  The children of a sister of the decedent and the charities battled over the distribution of the estate.  The court rejected its decision in a comparable 1964 case where it categorically barred extrinsic evidence concerning the decedent's intent.  The court determined that such a rule no longer conformed with "modern" probate and interpretation of wills.  The court held that such evidence is allowed if clear and convincing evidence shows that the will contains a mistake in the expression of the testator's intent at the time the will was drafted and also establishes the testator's specific intent.  The court remanded the case to the trial court for consideration of extrinsic evidence.  Estate of Duke v. Jewish National Fund, et al., No. S199435, 2015 Cal. LEXIS 5119 (Cal. Sup. Ct. Jul. 27, 2015).  

The taxpayer sold S corporation stock to an ESOP and remained involved in the S corporation business after the sale.  The taxpayer also paid for non-business expenses from the corporate account which were recorded in a ledger account.  The corporation, on behalf of the petitioner, made significant charitable contributions and IRS denied a charitable deduction because the taxpayer fully paid the ledger account balances with personal funds and was the party that bore the economic burden of the contributions.  In the latter half of the year in which the contributions were made, the taxpayer used corporate funds to pay off the ledger account balances previously incurred.  The Tax Court determined that the S corporation actually bore the economic burden of the contributions.  However, the court determined that the taxpayer did not prove the portion of contributions made in the latter half of the tax year were made with personal funds and did not establish with sufficient evidence that ledger account balances were bona fide debt of petitioner; as a result, the associated deductions were denied.  However, the taxpayer was allowed a charitable deduction for the amounts he had actually repaid the corporation.  He was not allowed to deduct the contributions where his repayments were immediately paid for by a new corporate advance.  On appeal, the appellate court affirmed.   Zavadil v. Comr., No. 14-1053, 2015 U.S. App. LEXIS 12262 (8th Cir. Jul. 16, 2015), aff'g., T.C. Memo. 2013-222).

The decedent's estate held three tracts of land that were part of five contiguous parcels.  If the tracts could be combined, they could be developed.  But, without that combining, it was not economically feasible to develop the tracts.  There current zoning was for agricultural use.  The other two parcels were owned by an entity that the decedent owned 28 percent of.  The IRS took the position that the estate's land value should be its value reflecting its develop potential on the basis that it was likely that the properties could be combined such that a willing buyer would value the property at its developmental potential value.  The Tax Court determined that federal law governed the valuation issue and rejected the IRS position.  The IRS failed to show that there was a reasonable probability that the tracts could be combined in the near future, and that the presumption was with the estate that the decedent was using the land for its highest and best use at the time of death.  The court noted that the argument that the land would be worth more if the tracts were combined was not a relevant fact in determining if assembling the tracts together would occur.  The court also rejected the IRS argument that the estate's minority interest in the entity and relationships with the other owners required combination of the tracts.  There was no evidence that the decedent's estate controlled the entity.  Estate of Pulling v. Comr., T.C. Memo. 2015-134.

A car rental company claimed a casualty loss for losses sustained when rental customers purchased the company's damage waiver and then had an accident and the company decided not to repair the vehicle and return it to their fleet.  The IRS determined that the loss was not deductible as a casualty loss because the loss was not sudden, unexpected and unusual in nature.  Instead, the costs associated with accidents are an ordinary and necessary expense of the car rental business.  C.C.M. 201529008 (Feb. 4, 2015).

The taxpayer is a tax-exempt voluntary employees' beneficiary association (VEBA) insurance trust that did not have to file a federal income tax return unless it had unrelated business income.  The taxpayer obtained a membership in a mutual insurance company that later demutualized.  As a result of the demutualization, in 2004 the taxpayer received approximately $1.5 million in cash that IRS characterized as long-term capital gain with no income tax basis in accordance with Rev. Rul. 71-233.  For 2004, the taxpayer filed a Form 990T reporting the income as UBIT and paid the associated tax.  Two additional demutualization proceeds were reported similarly in 2006 and 2008. Later Fisher v. United States, 82 Fed. Cl. 780 (2008) was decided rejecting the IRS position on amounts received in demutualization.  The taxpayer filed an amended return for 2006 and 2008 based on the Fisher case.  The IRS disallowed the refund claims, but later approved the refunds based on the affirmance of the Fisher case on appeal (333 Fed. Appx. 572 (Fed. Cir. 2009).  However, the IRS Appeals Office determined that the refund claim was not timely filed with respect to the 2004 refund and the plaintiff sued for a refund on Mar. 28, 2013.  The trial court noted that the taxpayer's 2004 return was filed on Oct. 15, 2004, and that a refund claim had to be filed within three years in accordance with I.R.C. §6511.  The taxpayer argued that I.R.C. Sec. 6511 was inapplicable because the taxpayer was a non-profit entity who was not required to file a return.  The trial court noted that numerous other courts have rejected the same argument.  On the issue of whether the mitigation provisions of I.R.C. §§1311-1314 provided equitable relief from the statute of limitations, the court noted that IRS had made a final determination which established a basis (by referring to the Fisher case) which meant that, but for the statute of limitations, the taxpayer would have been entitled to a refund.  In addition, the trial court noted that IRS had taken an inconsistent position between its position taken in the final determination and the IRS's position that demutualization payments are taxable (due to the taxpayer's lack of basis in the payments).  Thus, the taxpayer satisfied the mitigation provisions of I.R.C. §§1311-1314 (the taxpayer satisfied its burden of proof that (1) IRS made a determination that barred it from correcting its erroneous filing; (2) the determination concerned a specific adjustment; and (3) the IRS had adopted a position in the final determination and maintained a position inconsistent with the erroneous inclusion or recognition of taxable gain.  The trial court granted the taxpayer's motion for summary judgment and IRS is required to make a return for the plaintiff.  However, on further review, the appellate court reversed.  The court noted that a timely refund claim was a jurisdictional prerequisite to a tax refund lawsuit, with the only exception being the mitigation provisions.  On those provisions, the court focused on I.R.C. Sec. 1312(7) which regards a determination that "determines the basis of property, and in respect of any transaction on which such basis depends, or in respect of any transaction which was erroneously treated as affecting such basis.  The appellate court determined that the denial of the 2004 claim was due to timeliness and was not a determination that "determined the basis of property."  The court held that IRS had not taken an inconsistent position and had not actively changed its longstanding position that mutual policyholders' proprietary interests have a zero basis when an insurance company demutualizes.  Instead, the court determined that the IRS had merely acquiesced in the 2009 decision of the Federal Circuit.  Thus, the taxpayer couldn't use the mitigation provisions the reopen a closed tax year based on a favorable change in or reinterpretation of the law.  Illinois Lumber and Materials Dealers Association Health Insurance Trust v. United States,  No. 14-2537, 2015 U.S. App. LEXIS 12675 (8th Cir. Jul. 23, 2015), rev'g., No. 13-CV-715 (SRN/JJK), 2014 U.S. Dist. LEXIS 59716 (D. MInn. Apr. 30, 2014).      


The decedent married his wife in 1955, had four children together, but later divorced in 1978.  Under the marital separation agreement, the decedent agreed to leave one-half of his eventual estate equally to the children.  The decedent remarried in 1979 and later executed a will and trust.  Under the trust terms, sufficient funds were to be set aside to buy an annuity that would pay the ex-wife $3,000 monthly.  The balance of the trust assets were to pass to the children, with six percent passing to each of three daughters and 16 percent to the son and the balance to the surviving spouse.  After the decedent's death, the children waived all potential claims they might have against the estate.  As a result, each daughter received approximately $3.5 million and the son received $9.5 million.  The estate claimed a deduction of $14 million for the payments to the children under I.R.C. Sec. 2053(a)(3).  The IRS denied the deduction in full and the estate filed a Tax Court petition.  Before trial, the IRS agreed to allow 52.5 percent of the $14 million deduction and informed the Tax Court.  Some of the children then sued the estate for fraudulent procurement of their waiver.  The estate settled by paying each child at issue an additional $1.45 million.   The decedent's estate then sought to set aside the settlement agreement based on mutual mistake of fact or because the IRS knew that at least one child was going to sue the estate before the Tax Court was advised of the settlement.  The Tax Court refused to set aside the settlement agreement between the parties.  On appeal, the court held that the estate could not set aside the settlement agreement on the grounds of mutual mistake because the doctrine didn't apply.  The estate simply failed to see that any of the children would sue the estate.  Also, the court held that the allegation that the IRS didn't reveal a statement by one of the children indicating the child would sue was not a misrepresentation that would allow the estate to set aside the settlement.   The settlement established the amount of the deduction.  Billhartz v. Comr., No. 14-1216, 2015 U.S. App. LEXIS 12730 (7th Cir. Jul. 23, 2015).    

The petitioner was before the IRS appeals office arguing that the appeals officer should have considered the petitioner's health and/or age or give the petitioner additional time to file a delinquent tax return when the appeals officer denied the petitioner the ability to satisfy his unpaid tax liability via an installment agreement.  The court agreed with the IRS because the petitioner did not submit the return that the IRS requested, nor the necessary financial information or any type of evidence of health or age claims within a reasonable time.  As such, the IRS did not abuse its discretion in denying the petitioner an installment agreement.  Hartmann v. Comr., T.C. Memo. 2015-129.

As part of building a transcontinental railroad, the Congress chartered the Union Pacific Railroad Company (U.P.) and gave it large portions of federally-owned land on either side of the planned route between Nebraska and Utah.  In the late 1800s and early 1900s, the U.P. began to sell some of the land to farmers, ranchers, loggers and homesteaders via deeds that conveyed only the surface estate but retained the mineral rights to U.P.  and a right of ingress and egress to prospect for, mine and remove minerals.  When U.P. sought to exploit minerals on a particular tract, it would negotiate a "surface owners agreement" (SOA) with the owner of the surface estate and U.P. would pay the surface owner 2.5% of the value of minerals extracted.  Around year 2000, the defendant acquired U.P.'s mineral interests with respect to the land at issue in the case.  The defendant discontinued the practice of entering into an SOA with the landowners and ceased paying royalties to them as well.  The plaintiffs (1,300 surface owners) sued, claiming that the defendant's use of the surface of their land exceeded the scope of the surface reservations in the deeds and that the defendant was committing a trespass.  The plaintiffs moved for class certification.  The court certified the class on a restricted basis simply to answer the question of whether the defendant exceeded the surface owner's rights by using vertical drilling rather than directional drilling because vertical drilling requires the drilling of more wells than would directional drilling.  A-W Land Co., et al. v. Anadarko E&P Company LP, No. 09-cv-02293-MSK-MJW, 2015 U.S. Dist. LEXIS 95480 (D. Colo. Jul. 22, 2015). 

The plaintiff was renovating it hog facility and contracted with the defendant to install infrastructure needed to provide the building with liquid propane gas.  Another defendant was contracted with to install gas lines from exterior walls throughout the interior of the building to connect heaters and other devices.  An employee of one of the contractors connected the external gas lines to the building.  Later, the new ventilation fans were turned on and within two hours the building caught fire.  The plaintiff sued the contractors for negligence and also sought a jury instruction on res ipsa loquitur.  The trial court refused to issue the instruction and the jury ruled for the contractors.  On appeal, the court affirmed.  The court noted that the plaintiff failed to prove that the cause of the fire was under the defendants' exclusive control.  However, the court mistakenly stated that where "as here, the cause or instrumentality giving rise to the injury is unknown, the doctrine of res ipsa loquitur is simply inapplicable."  In fact, it's precisely the opposite.  However, the court managed to stumble into the right result.  The pleading of negligence precludes the ability to also plead res ipsa loquitur.  The presence of the evidence of negligence bars a res ipsa claim.  TAMCO Pork II, LLC v. Heartland Cooperative, No. 14-0412, 2015 Iowa App. LEXIS 629 (Iowa Ct. App. Jul. 22, 2015). 

The defendant, the Federal Energy Regulatory Commission (FERC), issued a certificate of public convenience and necessity to a company authorizing the company to extend a natural gas pipeline.  The plaintiff sued seeking a review of FERC's issuance of the certificate on behalf of its members who "work, live, and recreate" along a nearby river and were concerned about the exercise of eminent domain conveyed to the company under Section 7 of the Natural Gas Act (NGA) to secure rights-of-way.  The defendant claimed that the plaintiff lacked standing and the court agreed.  The court held that the plaintiff's desire to protect its members property due to the defendant's alleged non-compliance with the National Environmental Policy Act (NEPA) and the Clean Water Act (CWA) was not within the "zone of interests that the NGA, NEPA or CWA protected.  The plaintiff did not claim that its members would suffer any environmental harm (thus, the NEPA claim failed) and the CWA claim failed because the plaintiff did not involve any allegation of pollution to navigable waters of the U.S.  The court also determined that an eminent domain claim was not a basis for a CWA claim.  Gunpowder Riverkeeper v. Federal Energy Regulatory Commission, No. 14-1062, 2015 U.S. App. LEXIS 12532 (D.C. Cir. Jul. 21, 2015). 

The plaintiff operates a chicken processing facility.  Upon receiving an anonymous complaint, the defendant inspected a nearby creek and discovered sludge that appeared "visually similar" to the plaintiff's wastewater lagoon.  Without any direct or physical evidence, the defendant assessed a $75,000 penalty against the plaintiff.  The $75,000 penalty was comprised of a $25,000 penalty for violating a state (NC) statute barring discharges into state waters that violate state water quality standards, and $50,000 in penalties for two separate violations of state water quality standards (dissolved oxygen standard and settleable solids and sludge standards).  An administrative law judge (ALJ) viewed the $50,000 in penalties as improper.  The Environmental Management Commission upheld the $25,000 penalty for the discharge violation and one $25,000 penalty for the other violations.  On further review, the trial court affirmed the ALJ's decision.  On appeal, the court affirmed.  The appellate court held that a violation of water quality standards could not occur without a discharge violation.  Thus, the plaintiff had impermissibly been penalized multiple times for the same violation.  House of Raeford Farms, Inc. v. North Carolina Department of Environment and Natural Resources, No. COA15-47, 2015 N.C. App. LEXIS 631 (N.C. Ct. App. Jul. 21, 2015). 

The plaintiff sued the defendant for damages arising from alleged negligent cattle inspections.  State (WA) law allows the defendant to conduct mandatory cattle inspections to determine ownership of cattle, and cattle must be inspected before they are moved from WA to another state.  In this case, a third party leased cattle from the plaintiff and the plaintiff obtained a security interest in all cattle that the third party owned or leased from others.  The third party defaulted on the lease and transported cattle to Oregon for sale at a public livestock market without the plaintiff's knowledge or consent.  The defendant inspected the cattle at the Oregon market before they were sold.  The third party claimed that it owned all of the cattle, even though some of them had the plaintiff's brand.  The defendant allowed the cattle to be sold without impounding the cattle or holding the sale proceeds.  The public market sold the cattle and distributed the proceeds to the third party.  The plaintiff sued the defendant for negligence in inspecting the cattle.  The court held that the defendant's inspection involved a governmental function for which it could not be held liable in negligence.  Inspections, the court determined, were for the common good.  Sunshine Heifers, L.L.C. v. Washington Department of Agriculture, No. 46322-9-II, 2015 Wash. App. LEXIS 1599 (Wash. Ct. App. Jul. 21, 2015). 

The petitioner, a real estate agent, claimed a home office deduction for a dwelling unit that she claimed to use for business purposes.  The petitioner supported her claim with "aerial view" photos from Google coupled with handwritten notes.  The petitioner provided no other documents, canceled checks or receipts to bolster the claimed rental arrangement she had with her sister concerning the dwelling unit.  The court agreed with the IRS and denied any deduction for a home office because the petitioner couldn't show that any part of the dwelling unit was used regularly and exclusively for business purposes.  The court also disallowed expense deductions for telephone and internet, again for lack of substantiation.  The court also upheld the IRS assessment for failure to file based on receipt of a Form 1099 showing over $17,000 of income before the expenses at issue were claimed.  Grossnickle v. Comr., T.C. Memo. 2015-127. 


Under the Clean Air Act, the Environmental Protection Agency (EPA) regulates vehicle emissions.  Accordingly, the EPA developed regulations requiring vehicle manufacturers to test emissions of new vehicles using a "test fuel" that is "commercially available."  The plaintiffs, a coalition comprised largely of ethanol producers, challenged the test fuel regulation as arbitrary and capricious because their fuel, which contains 30 percent ethanol, could not be a test fuel because it is not yet commercially available.  They claimed that a fuel need not be commercially available in order to be approved as a test fuel.  The court, in short order, dismissed the plaintiffs' arguments in that the regulation was solidly rooted in the statute requiring vehicles to be tested under circumstances that reflect actual current driving conditions.  The court made no mention that fuel containing ethanol does not actually improve environmental quality as reported in the Proceedings of the National Academy of Sciences published in December of 2014 which reported that "the combined climate and air quality impacts [of corn-ethanol-fueled vehicles] are greater than those from gasoline vehicles."  Energy Future Coalition, et al. v. Environmental Protection Agency, et al., No. 14-1123, 2015 U.S. App. LEXIS 12078 (D.C. Cir. Jul. 14, 2015).

The debtor filed Chapter 12 in October of 2014 and creditors immediately motioned for relief from the automatic stay largely on the point that the debtor could not successfully reorganize.  At an evidentiary hearing two months later the court took the matter under advisement, and the debtor filed a reorganization plan in early 2015.  The debtor had been involved in a cattle sale scam and also was subsequently pled guilty to two counts of livestock neglect.  His attorney filed a motion to withdraw, which was approved.  The plan confirmation hearing was scheduled and the debtor was informed that he needed legal counsel or had to file necessary documents himself.  The debtor failed to appear at a status conference and the court later dismissed the case.  The debtor retained new counsel and then filed another Chapter 12 petition.  The trustee moved for dismissal based on 11 U.S.C. Sec. 109(g)(1) which bars re-filing  within 180 days of the previous case if the previous case was dismissed for willful failure to follow a court order or otherwise prosecute a case.  The court determined that 11 U.S.C. Sec. 109(g)(1) applied to bar the re-filing based on the debtor's willful failure to follow a court order and willful failure to appear before the court.  In re Bryngelson, No. 15-00704, 2015 Bankr. LEXIS 2240 (Bankr. N.D. Iowa Jul. 8, 2015).

The plaintiff, an S corporation coal mining company, overpaid excise taxes on coal sales which triggered refunds, plus interest for tax years 1990 through 1996.  The refund payments were made in 2009, but the plaintiff claimed that more interest should have been applied - to the tune of $6 million.  The plaintiff claimed that it was due the statutory rate of interest applicable to a non-corporate taxpayer - the federal short-term rate plus three percentage points.  The IRS claimed that the corporate rate applied - the federal short-term rate plus two percentage points.  However, a reduced rate of interest applies to overpayment refunds exceeding $10,000.  In that event, the interest rate is the federal short-term rate plus .5 percentage points.  The court agreed with the IRS that I.R.C. Sec. 6621(a)(1) treats an S corporation as a "corporation" for purposes of determining the applicable interest rate.  The court refused to follow a U.S. Tax Court decision that reached the opposite conclusion, and refused to give much weight to an Internal Revenue Manual provision that somewhat supported the plaintiff's argument.  The court did note, however that I.R.C. Sec. 6621(c) treats S and C corporations differently for purposes of determining underpayment interest.  Eaglehawk Carbon, Inc., et al. v. United States, No. 13-1021T, 2015 U.S. Claims LEXIS 862 (Fed. Cl. Jul. 16, 2015). 

The petitioner owned land that included the habitat of the golden-cheeked warbler, and endangered bird species.  The petitioner granted a conservation easement over the property to the North American Land Trust (NALT), claiming a multi-million dollar charitable deduction for the easement donation.  The easement deed allowed the petitioner and NALT to change the location of the easement restriction, and the petitioners retained the right to raise livestock on the property as well as hunt the property, cut down trees, construct buildings and recreational facilities, skeet shooting stations, deer hunting stands, wildlife viewing towers, fences, ponds, roads and wells.  The petitioners also sold partnership interests to unrelated parties who received homesites on adjacent land.  The appraisal at issue was untimely and inaccurately described the property subject to the easement, and a NALT executive failed to clarify the inconsistencies.  The court denied the charitable deduction and also imposed the additional 40 percent penalty for overvaluation (the easement was actually worth nothing).  Bosque Canyon Ranch, L.P., et al. v. Comr., T.C. Memo. 2015-130.   

The petitioner divorced her husband.  Later the ex-couple agreed to modify their divorce settlement whereby the petitioner transferred property to her ex-husband in satisfaction of the petitioner's alimony obligation.  The petitioner claimed a deductible loss on the transfer.  The IRS disallowed the loss and the court agreed.  The loss wasn't deductible because the transfer was incident to a divorce, and the transfer was not deductible as alimony because it was not in the form of cash or its equivalent.  Mehriary v. Comr., T.C. Memo. 2015-126.

The petitioner had no permanent home and lived in casino hotels and gambled at the associated casinos.  He lost money gambling and attempted to fully deduct his losses on the basis that he was a professional gambler.  The IRS disagreed and the court agreed with the IRS.  The court noted that the factors under I.R.C. section 183 are relevant in determining whether the gambling activity is engaged in with the requisite profit intent and that the petitioner could not satisfy the tests.  The court noted that the petitioner did not maintain complete and accurate books and records, did not adjust his system of gambling or try to improve "profitability" by changing methods, did not have and did not develop any level of expertise, had no history of success in any business, had substantial income from non-gambling sources which funded his gambling addiction, and enjoyed gambling.  As such, the petitioner's gambling losses were deductible only to the extent of his gambling winnings as a miscellaneous itemized deduction.  Boneparte v. Comr., T.C. Memo. 2015-128.

The defendants owned mineral rights which they leased in 2004.  The plaintiff subsequently acquired the lease.  With respect to oil production, the lease provided for a 25 percent royalty for the "market value at the well of all oil and hydrocarbons." As for gas production, the lease provided for a 25 percent royalty "of the price actually received by Lessee" from gas produced under the lease that was marketed.  The plaintiff owned the wells, but then sold oil and gas production from the wells to a third party that owned the gathering lines and transported the production through pipelines for ultimate sale to customers.  The plaintiff was paid based on a weighted average selling prices received by the third party buyer.  Downstream production costs were factored in when computing the amount that the plaintiff received.  The plaintiff based its royalty computation for purposes of determining the amount paid to the defendants by taking into account those downstream production costs.  Such calculation made sense because the plaintiff and, in turn, the defendants would benefit from the higher value of the market-ready oil and gas.  The defendants claimed that they amount of royalty paid to them shouldn't bear any post-production (post-extraction) costs (except for their portion of production taxes).  An overriding royalty clause granted the plaintiff production from wells bottomed on neighboring properties that were reached by horizontal wells drilled on the defendants' properties.  The defendants were granted a 5 percent royalty on this production.  The defendants also argued for no reduction for post-production costs on this royalty because it referred to a "perpetual cost-free...overriding royalty of 5 percent (5%) of gross production obtained."  The court held that the oil royalty clause language ("market value at the well") meant that the defendants shared in post-production expenses, but that the gas royalty clause language ("of the price actually received by Lessee") meant that the plaintiff solely bore the post-production expenses.  The overriding royalty language ("perpetual cost-free...overriding royalty), the court held, could reasonably be interpreted to bar the deduction for post-production expenses when computing the defendants' royalty.  Four justices dissented on the construction of the overriding royalty clause.  Chesapeake Exploration, L.L.C., et al. v. Hyder, et al., No. 14-0302, 2015 Tex. LEXIS 554 (Tex. Sup. Ct. Jun. 12, 2015).   

The parties to a farm lease that was entered into in 2004 for a 10-year term.  For several months before the end of the termination date of the lease, the tenant had failed to pay the specified rent.  After the termination date, the tenant held over in possession, and was served a notice of termination.  The tenant claimed he had tried to pay the rent, but it was refused because of a discrepancy in the legal description contained in the lease and the owners of the property.  The tenant was given instructions as to how to correctly pay the rent, but did not follow those instructions.  While there was a mutual mistake as to the legal description of the leased premises, the court noted that the tenant drafted the lease and could not use that mistake as an excuse for non-payment of rent or to holdover after the lease terminated.  The court determined that the trial court had given the tenant a full opportunity to present evidence, rebut evidence and be heard.  The court upheld the trial court's ruling that the tenant be evicted from the leased premises and that the landlord be granted damages for unpaid rent.  Dobbs v. Trost, No. 2014AP2816, 2015 Wisc. App. LEXIS 500 (Wisc. Ct. App. Jul. 9, 2015). 

The plaintiff, a peat moss mining company, sought the approval of the Corps of Engineer (COE) to harvest a swamp (wetland) for peat moss to use in landscaping projects.  The COE issued a jurisdictional determination that the swamp was a wetland subject to the permit requirements of the Clean Water Act (CWA).  The plaintiff sought to challenge the COE determination, but the trial court, in a highly disingenuous opinion in light of the unanimous U.S. Supreme Court opinion in Sackett v. Environmental Protection Agency, 132 S. Ct. 1367 (2012), ruled for the COE, holding that the plaintiff had three options:  (1) abandon the project; (2) seek a federal permit costing over $270,000; or (3) proceed with the project and risk fines of up to $75,000 daily and/or criminal sanctions including imprisonment.  On appeal, the court unanimously reversed, strongly criticizing the trial court's opinion.  Based on Sackett, the court held that COE Jurisdictional Determinations constitute final agency actions that are immediately appealable in court.  The court noted that to hold elsewise would allow the COE to effectively kill the project without any determination of whether it's position as to jurisdiction over the wetland at issue was correct in light of Rapanos v. United States, 547 U.S. 715 (U.S. 2006).  The court noted that the COE had deliberately left vague the "definitions used to make jurisdictional determinations" so as to expand its regulatory reach.  While the COE claimed that the jurisdictional determination was merely advisory and that the plaintiff had adequate ways to contest the determination, the court determined that such alternatives were cost prohibitive and futile.  The court stated that the COE's assertion that the jurisdictional determination (and the trial court's opinion) was merely advisory ignored reality and had a powerful coercive effect.  The court held that the Fifth Circuit, which reached the opposition conclusion with respect to a COE Jurisdictional Determination in Belle Co., LLC v. United States Army Corps. of Engineers, 761 F.3d 383 (5th cir. 2014), cert. den., 83 U.S.L.W. 3291 (U.S. Mar. 23, 2015), misapplied the Supreme Court's decision in SackettHawkes Co., Inc., et al. v. United States Army Corps of Engineers, No. 13-3067, 2015 U.S. App. LEXIS 5810 (8th Cir. Apr. 10, 2015), rev'g., 963 F. Supp. 2d 868 (D. Minn. 2013).  In a later decision, the court denied a petition to rehear the case en banc and by the panel.  Hawkes Co., Inc., et al. v. United States Army Corps of Engineers, No. 13-3067, 2015 U.S. App. LEXIS 11697 (8th Cir. Jul. 7, 2015).