Case Summaries

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


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

 

 


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

 


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


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


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


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


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


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


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


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


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


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


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


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

 


Marijuana is an illegal drug under federal law and I.R.C. Sec. 280E bars deductions for any amounts related to trafficking in controlled substances.  However, the taxpayer can reduce gross receipts by the cost of goods sold.  Here, IRS said that expenses that would not be included in cost of goods sold because they would normally be capitalized under I.R.C. Sec. 263A (and reduce income) cannot be capitalized when they relate to selling marijuana.  Also, IRS said that when they audit a cash-basis marijuana seller, the IRS can allow the seller to deduct its costs that would have been inventoriable had the taxpayer used the accrual method.  C.C.A. 201504011 (Dec. 10, 2014).


The parties in this case were neighboring landowners that shared a common boundary.  The plaintiff (appellant in this case) instructed his workers to cut down trees on the plaintiff's side of the property line. The plaintiff also instructed his workers to tear out the existing fence and build a new one to hold cattle on his property.  The workers, however, also tore out the defendant's (appellee in this case) fence and about 30 large trees on the defendant's property with the damage to the defendant's property occurring in and area 16 feet wide and 800 feet long.  The plaintiff admitted to the trespass, but argued that the defendant's property still had the same appraised value and, thus, the defendant was not entitled to any damages.  The court noted that the destruction of the trees caused only nominal diminution in the property's value, thus the defendant was entitled to the "intrinsic value" of the trees.  The defendant lost privacy and the previous view of their property.  The court determined that the cost to remove stumps would be $6,500 and that the defendant also lost a windbreak and shade for his horses.  An arborist's report indicated that the destroyed trees had an intrinsic value of $150,000.  The evidence was sufficient to support the jury's award of damages.  Ortega v. Cheshier, No. 11-13-00002-CV, 2015 Tex. App. LEXIS 837 (Tex Ct. App. Jan. 29, 2015). 


The decedent died in 2005 and had not filed returns for 2001-2004.  The returns were late-filed shortly before the decedent's death with the return for 2001 reporting an overpayment of nearly $50,000.  The estate sought to have the overpayment credited to the 2002 tax year.  The estate also claimed that the decedent had been diagnosed with Alzheimer's/dementia which prevented the decedent from timely filing the returns and, thus, was entitled to an extension of time to file the returns via I.R.C. Sec. 6511(h).  The IRS denied the refund claim and the estate sued.  The court denied the extension of time to file because the evidence showed that the decedent had lived alone, cared for himself, cooked his own meals, fed and clothed himself, and made a lot of money buying and selling securities and investing.  The decedent's primary care physician testified to the contrary, but had earlier written a report for the state Vehicle Administration that the decedent did not have dementia.  The court determined that the physician's earlier report was more credible and his testimony was not reliable.  Thus, I.R.C. Sec. 6511(h) did not apply and the estate could not apply the overpayment to the 2002 tax year.  Estate of Rubinstein v. United States, No. 09-291T, 2015 U.S. Claims LEXIS 41 (Fed. Cl. Jan. 29, 2015).


Two farm-related organizations, the American Farm Bureau Federation and the National Pork Producers' Council, sued the Environmental Protection Agency (EPA) under the Administrative Procedures Act to bar EPA's release of member information involving physical addresses and details concerning the members' operation of Confined Animal Feeding Operations (CAFOs).  Under the Clean Water Act (CWA), CAFO information involving location and certain operational details must be made public as a condition of obtaining a Natdional Pollution Discharge Elimination System (NPDES) permit.  An NPDES permit must be obtained to operate the CAFO. In 2012, the EPA received Freedom of Information Act (FOIA) requests from several environmental groups seeking CAFO information. In response, EPA released comprehensive data providing precise CAFO locations, animal type and number of head, and personal contact information, including names addresses, phone numbers and email addresses of CAFO owners.  Before the release of information, the Department of Homeland Security had informed EPA that the release of such personal and confidential information could constitute a domestic security risk.  Such personal business information is specifically exempted form disclosure under FOIA under enumerated exemptions No. 4 and No. 6.  The defendants (EPA and intervening activist groups) argued that the plaintiffs lacked standing to sue due to the plaintiffs having not suffered injury or facing the imminent threat of injury. The plaintiffs argued that they would be injured and that at least one member had already been physically invaded.  However, the court determined that the plaintiffs failed to establish standing because they failed to demonstrate an actual or imminent injury, framing the issue as one over "loss of control of their personal information."  The court then reasoned that the potential release concerned information that was already publicly available and was easily accessible via the Web.  The court noted that the one party that had suffered injury sustained it before the EPA responded to the FOIA request.  The court failed to address, however, the obvious question of why the activist groups filed a FOIA request for (what the court stated was) information that was already publicly and readily available. American Farm Bureau Federation, et al. v. U.S. Environmental Protection Agency, et al., No. 13-1751 ADM/TNL Civil No. 13-1751 ADM/TNL, 2015 U.S. Dist. LEXIS 9106 (D. Minn. Jan. 27, 2015).  


The plaintiffs' daughter was a 17-year old equestrian competitor and the defendant was her coach/trainer.  The parties had executed a liability release form in which the daughter agreed to release the defendant from liability except for damages caused by the defendant's "direct, willful and wanton negligence."  During a competition, the daughter's horse struck a hurdle which caused the daughter to fall with the horse then falling on the daughter resulting in the daughter's death.  The plaintiffs sued the defendant for wrongful death and negligent infliction of emotional distress as a result of witnessing the accident and the daughter's death.  The trial court granted the defendant's motion for summary judgment based on the release of liability.  On appeal, the court affirmed.  The court noted that the release provided an express assumption of risk defense as to the plaintiffs' claims of negligence and negligent infliction of emotional distress.  The court determined that the release was not ambiguous, and that the plaintiffs failed to carry their burden to prove that the defendant acted with gross negligence (because the release served as a defense to the claims arising from ordinary negligence).  Eriksson, et al. v. Nunnink, 233 Cal. App. 4th 708 (2015).


The plaintiffs claimed that the defendant, a potato chip manufacturer, violated the Missouri Merchandising Practices Act (MMPA) by falsely labeling and maketing sixteen different varieties of potato chips as "all natural" chips that contain "no preservatives" when the chips are actually not all natural and do contain preservatives.  However, the court dismissed the suit primarily because the plaintiff failed to define "natural."  The court rejected the dictionary definition of "natural" because potato chips are a processed food product.  Likewise, an FDA advisory opinion was not binding because it did not involve the FDA's formal adoption of a definition of the term.  Also, the USDA definition was inadequate because it only applied to meat and poultry products, and the USSDA's definition of "synthetic" only applied to products in the National Organic Program.   As to the plaintiffs' claim that the use of the phrase "no preservatives" was misleading, the court noted a complete lack of evidence that "no preservatives" actually showed up on the package labels.  The court observed that the packages provided enough information for the plaintiffs to avoid products with ingredients they objected to.  An injunction would not issue, the court held, because the plaintiffs testified that they wouldn't buy the products anyway.  The putative class claims were dismissed.  Kelly, et al. v. Cape Cod Potato Chip Company, Inc., No. 14-00119-CV-W-DW, 2015 U.S. dist. LEXIS 8988 (W.D. Mo. Jan. 27, 2015). 


The plaintiffs, citizen activists opposed to confined animal feeding operations (CAFOs), sued the U.S. EPA, Ohio Dept. of Agriculture (ODA) and the Ohio EPA under the Clean Water Act (CWA) claiming that the ODA was improperly issuing National Pollution Discharge Elimination System (NPDES) for CAFOs without EPA approval via a memorandum of agreement, and that the Ohio EPA had transferred part of its authority to administer NPDES permits to the ODA without permission from the federal EPA by allowing the ODA to issue a manure management plan as a condition for obtaining an NPDES permit.  The transfer of authority was pursuant to a state law enacted in 2000 that transferred authority from the Ohio EPA to the ODA.  ODA then sought federal EPA approval to transfer NPDES permit authority for CAFOs to the ODA so that CAFO regulation would be centralized under the ODA.  The court previously denied the plaintiffs a preliminary injunction, and in this decision dismissed the plaintiffs' case.  The court noted that any manure management plan that is submitted to the Ohio EPA is reviewed by the Ohio EPA and can only be used as an NPDES permit application if it satisfies the CWA.  The court noted that the plaintiffs' assertions were "completely devoid of merit."  Askins, et al. v. Ohio Department of Agriculture, No. 3:14-cv-01699-DAK (W.D. Ohio Jan. 27, 2015).


In this case, the petitioner operated a retail business that sold home building materials and supplies.  The petitioner built two new retail stores.  As of December 31, 2008, the buildings were substantially complete and partially occupied and the petitioner had obtained certificates of completion and occupancy and customers could enter the stores.  However, the stores were not open for business as of the end of 2008.  The petitioner claimed the 50 percent GoZone depreciation allowance for 2008 on the two buildings which created a tax loss for 2008 and allowed the petitioner to carry back the losses for the 2003-2005 tax years and received a refund.  The IRS disallowed the depreciation deduction on the basis that the petitioner had not put the buildings in service and assessed a deficiency of over $2.1 million for tax years 2003-2008.  The petitioner paid the deficiency and sued for a refund.  The IRS argued that allowing the depreciation would offend the "matching principle" because the petitioner's revenue from the buildings would not match the depreciation deductions for a particular tax year.  The court held that this argument was "totally without merit."  As to the government's "placed in service" argument, the court noted that Treas. Reg. Sec. 1.167(a)-11(e)(1) says that placed in service means that the asset is in a condition of readiness and availability for its assigned function.  With respect to a building, the court noted that this meant that the building must be in a state of readiness and availability without regard to whether equipment or machinery housed in the building has been placed in service.  The court held that there was no requirement that the petitioner's business must have begun by year-end.  Cases that the IRS cited involving equipment (in one case an airplane) being placed in service were not applicable, the court determined.  The court also noted that the IRS's own Audit Technique Guide for Rehabilitation Tax Credits stated that "[A] 'Certificate of Occupancy' is one means of verifying the 'Placed in Service' date for the entire building (or part thereof)".  The court noted that the IRS had failed to cite even a single authority for the proposition that "placed in service" means "open for business,"  and that during oral arguments admitted that no authority existed.  The court granted summary judgment for the petitioner and noted that the petitioner could pursue attorney fees if desired.  Stine, LLC v. United States, No. 2:13-03224, 2015 U.S. Dist. LEXIS 9850 (W.D. La. Jan. 27, 2015). 


 The parties executed a cash rent farm lease with one-half due after wheat harvest of by July 15 and the other half due by December 15 annually.  The lease specified that it ran from May 2, 2006 to December 31, 2011.  In the spring of 2011, the surviving spouse landlord notified the tenant in writing that the lease was ending on December 31, 2011 and that no fall-seeded crop should be planted.  The written lease, however, contained language stating that the landlord gave the tenant "peaceable possession of any land upon which crops are growing in the year of termination through and including the harvest thereof...".  The tenant planted wheat in the fall of 2011 harvested the crop in June of 2012.  The landlord sued on the basis that the lease terminated at the end of 2011 and the tenant was on notice not to plant a fall crop.  Thus, the landlord argued that the landlord was entitled to the wheat crop.  The trial court agreed.  On further review, the appellate court (in an unpublished opinion) disagreed.  The court held that the lease clearly stated that the tenant had the discretion to plant whatever crops they wanted during the term of the lease ("Tenants... shall have the right to plant the leased land to any crop they determine advantages [sic]...") and be able to harvest those crops.  The evidence also was insufficient to support an extension of the lease.  Meairs v. Watson, No. 111, 114, 2015 Kan. App. Unpub. LEXIS 52 (Kan. Ct. App. Jan. 23, 2015).           


The landlord entered into identical leases with different tenants for separate farms in the spring of 2011.  The leases specified that, "The term of this lease shall be five (5) years.  An annual review of rental rates and terms will be completed in January of each year.  The final year of this contract shall be 2015."  The leases set for the initial rent that was to be paid, but one of the tenants did not agree to the rental rate for 2013 that the landlord desired.  Thus, they paid the same rent as they had for 2012 and continued to farm the land.  The landlord sued, claiming that the tenants failed to negotiate in good faith the terms for 2013 and that the leases were invalid.  The trial court disagreed.  On appeal, the court affirmed, holding that the rental amount, as expressly specified in cash, was an essential contract term and, as such, the agreement to agree on it in the future was not enforceable.  The court determined that the lease language was clear in that the rental rate were to be reviewed annually.  The lease said nothing about coming to an agreement on rental rates.  Thus, the lease was for a 5-year term rather than being an annual lease, and the rental rate initially specified applied for the entire term unless the parties agreed otherwise.  The court also upheld the trial court's application of the parol evidence rule to exclude extrinsic evidence.  Gibbons Ranches, L.L.C. v. Bailey, et al., 289 Neb. 949 (2015).


The defendants, from the Bel Air, California, area, were arrested in Illinois and charged in a two count indictment with violating the Animal Enterprise Terrorism Act (18 U.S.C. Sec. 43) (Act) for terroristic acts committed upon an Illinois mink farm.  One of the charges involved using a facility of interstate and foreign commerce for the purpose of damaging and interfering with the operation of an animal enterprise under the Act.  Two cells phones were found in their car at the time of the arrest and the government searched those phones pursuant to a search warrant.  The search indicated contact with a third cell phone and the government sought an order seeking historical cell site and toll record information for the third phone.  The defendants claimed that the government had to obtain a search warrant to obtain that information because the defendant had a reasonable expectation of privacy in the information.  The court disagreed with the defendants, noting that no federal case had ever determined that obtaining such information implicated the Fourth Amendment's requirement of a search warrant.  The court held that the defendants did not have an expectation of privacy in historical cell site information.  The court also noted that the records were relevant and material to the ongoing criminal investigation of the defendants and that the third cell phone's number belonged to one of the defendants.  United States v. Lang, et al., No. 14 CR 390, 2015 U.S. Dist. LEXIS 7553 (N.D. Ill. Jan. 23, 2015). 


The petitioners (married couple) owned a condominium as a rental property and the husband managed the property.  The husband also had a full-time job that was not a real estate trade or business.  The petitioners attempted to deduct the loss associated with their rental property, but the IRS disallowed the loss on the basis that the petitioners did not satisfy the real estate professional test.  While the husband claimed that he spent 799 hours in the rental activity, he testified that some of his entries in his logs and calendars were inaccurate and some of his testimony was inconsistent.  The court also noted that the husband would have to put more hours into the rental activity than he did his full-time job.  The court upheld the IRS determination on the basis that the petitioners failed to prove that the real estate professional test had been satisfied.  Flores v. Comr., T.C. Memo. 2015-9   


The petitioner was a long-haul over-the-road truck driver who spent many weeks on the road and was compensated on a per-mile basis.  When not traveling for work, the petitioner lived in Minnesota with his family.  The petitioner claimed deductions for meals and lodging while traveling, claiming that he incurred the expenses while "away from home."  The court determined that the petitioner was never away from his "tax home" and was not entitled to business-related deductions for meals and lodging under I.R.C. Sec. 162.  The court noted that the petitioner didn't establish that he paid household expenses for the communal kibbutz in MN or used the MN address for voter registration purposes.  Jacobs v. Comr., T.C. Summ. Op. 2015-3       


The petitioner entered into contracts to produce unfertilized eggs for transfer to infertile couples.  The contracts characterized the payments as being for the petitioner's time, effort, inconvenience, pain and suffering and not in exchange for or purchase of eggs.  The petitioner underwent numerous physical exams and self-administered painful hormonal injections.  The petitioner suffered bruising and an eventual surgery to harvest the eggs.  In total, the petitioner was paid $20,000 pursuant to the contracts for the tax year at issue, received a Form 1099 for the total amount but excluded the amount from income under I.R.C. Sec. 104(a)(2) as damage payments for pain and suffering.  The IRS disallowed the deduction.  The court agreed with the IRS, construing the payments as being received for personal services.  The fact that the petitioner suffered physical pain or injury during the performance of rendering services pursuant to the contract did not change the result.  The payment was not received on account of personal injuries or sickness, but rather for services.  The court noted that the petitioner voluntarily contracted to be paid to produce eggs via a process that involved pain and suffering.  Perez v. Comr., 144 T.C. No. 4 (2015).


This case involved a 70-acre wooded tract that the owner purchased at a time when the buildings on the property were in disrepair.  After acquiring the tract, the owner built and enclosure for raising ducks, and repaired a barn for purposes of storing a tractor.  The owner also, in the fall of 2011, entered into a farm lease with a tenant authorizing the harvesting of wood and farming on the tract and also the clearing of the existing lake to determine if trout could be raised.  The county classified the property as commercial for tax purposes for the 2012 tax year, but not for 2013 and the owner appealed to the state (KS) Court of Tax Appeals (COTA).   The COTA ruled for the county, asserting that the owner failed to meet its burden to show that agricultural activity occurred on the property on or before January 1, 2012.  On appeal, the court determined that the COTA erred on the burden of proof issue, holding that the county bore the burden to prove that the proper classification of the property was commercial for the year in issue, and that the county had not provided any evidence to support commercial classification.  The court also held that the owner satisfied its burden of proof to establish that some agricultural activity occurred on the property in 2011.  The court vacated COTA’s order and remanded the case with directions for the COTA to enter an order classifying the property as agricultural.  In re Equalization Appeal of Camp Timberlake, LLC, No. 111,273, 2015 Kan. App. Unpub. LEXIS 16 (Kan. Ct. App. Jan. 9, 2015).   


 The plaintiff had been a farmer for 54 years and needed a tractor with more horsepower to use in his farming operation.  The plaintiff saw the defendant's online ad for a 1994 John Deere tractor which stated that the tractor was in "excellent condition."  The defendant also told the plaintiff over the phone and in person that the tractor was "field ready."  The plaintiff inspected the tractor and was informed that the engine had been rebuilt and the tractor repainted.  The plaintiff operated the tractor down the road for a mile and informed the defendant that a hose and hydraulic plug needed replaced.  The repairs were made and the plaintiff bought the tractor for $47,000.  The day after delivery, the plaintiff discovered a major oil leak and a mechanic's inspection revealed major mechanical malfunctions and that the tractor needed numerous repairs before it could be used.  The defendants refused to take the tractor back or refund the purchase price.  The plaintiff sued for breach of express warranty and breach of implied warranty of fitness for particular purpose.  The trial court ruled for the defendant on the basis that neither an express warranty nor an implied warranty of fitness had been created.  On appeal, the court affirmed.  No express warranty became a part of the basis of the bargain because the plaintiff inspected the tractor, determined it was in need of some repairs and was familiar with tractors based on his experience.  Likewise, no implied warranty of fitness existed because the plaintiff was an experienced farmer and had inspected the tractor and demanded that repairs be made before delivery.  Thus, the plaintiff did not rely on the defendant's skill or judgment in furnishing the tractor.  Chinn v. Fecht, No. 3-14-0320, 2015 Ill. App. Unpub. LEXIS 20 (Ill. Ct. App. Jan. 9, 2015). 


This case involved contractual negotiations concerning a 190-acre tract of land near Houston, TX.  The defendant, owner of a Houston area logistics company, was the first to enter into an option contract to buy the tract.  Other options were also entered into by the owner with other parties.  That lead to litigation, and a developer with whom the defendant had previous business dealings, became interested in the property, but couldn't acquire the property with the litigation concerning the tract pending.  The developer (the plaintiff in this case), acting through its agent, offered to pay the defendant's attorney's fees in the pending litigation because, as the agent stated, the plaintiff and the defendant were going to become partners concerning the development of the property.  The defendant received $10,000 from the plaintiff for the defendant's attorney's fees.  The litigation ultimately settled and the plaintiff agreed to purchase the property when all other parties agreed to release their rights.  In exchange for the defendant's agreement to settle which would allow the plaintiff to buy the tract, the plaintiff's agent orally promised the defendant that the defendant would become a partner in the development of the tract and that the defendant would receive $1 million plus an interest in the profits from future development and sale of the property.  Upon the plaintiff's sale of 20 acres of the tract, the defendant asked for his $1 million, but the plaintiff's agent stated that the plaintiff could only pay $500,000 "right now", implying that the balance would be paid later.  Upon being presented the $500,000 check, the plaintiff's agent presented the defendant with a document that the agent said was a "receipt" and that, "It's nothing.  You don't have to worry about it."  The agent also told the defendant that he would get the balance of the $1 million when the property was further developed.  The defendant did not read the document, because he was "in a hurry" and didn't have his glasses or use his magnifying glass, which he needed to read. The document turned out to be a carefully drafted release under which the defendant gave up any and all interest in the tract and all claims against the plaintiff.  The defendant sued for breach of contract, breach of partnership fiduciary duties and fraud.  The plaintiff claimed that the oral contract was unenforceable under the statute of frauds.  The trial court jury found for the defendant on all claims but determined that the defendant did not suffer damages.  The trial court determination was affirmed on appeal that there was an oral contract that the plaintiff had breached that was supported by the plaintiff's payment of $500,000 as consideration.  The appellate court awarded costs to the defendant and remanded for a new trial on attorney's fees.

On further review, the TX Supreme Court reversed.  The Court determined that the defendant could not have justifiably relied on the agent's statements concerning the content of the "receipt" which was actually a release.  The Court noted that the document was obvious on its face that it was a release, and that reliance on the agent's misrepresentations concerning the document was not reasonable where the defendant had a reasonable chance to review the document.  Thus, there was no fraudulent inducement which would negate the validity of the release.  The Supreme Court also determined that the partial performance to the Statute of Frauds did not apply because the $500,000 payment was made to avoid performance of the oral contract under the terms of the release, rather than to perform obligations under the contract.  The Court also determined that there could be no oral agreement to form a partnership under the Statute of Frauds.  National Property Holdings, L.P., et al. v. Westergren, No. 13-0801, 2015 Tex. LEXIS 1, rev'g., in part and aff'g., in part Westergren v. National Property Holdings, L.P., 409 S.W.3d 110 (Tex. Ct. App. 2013).         


Kansas law (Kan. Stat. Ann. Sec. 55-179(b)) says that one of the parties responsible for plugging an abandoned oil or gas well is the original operator who abandoned the well.  Here, the plaintiff operated 44 wells on a 160-acre tract in southeast Kansas beginning in 1939.  Production ceased in 1989 and the plaintiff did not plug the wells.  In 2008, the plaintiff assigned it's lease to another party (lessor) who entered into an agreement with the Kansas Corporation Commission (KCC) to either plug or being production from at least two wells monthly until all the wells were either producing or were plugged.  The lessor entered into new leases with the mineral owners in 2009 and then assigned the leases to a third party in 2010.  The KCC informed the third party that it would be required to plug the wells or start production.  In 2011, the KCC issued a show-cause order to the plaintiff, the lessor and the third party requiring them to demonstrate why they shouldn't be responsible for plugging the wells (44 in total) that KCC had determined had been abandoned.  The KCC subsequently ordered the plaintiff, along with the other parties, to plug the wells.  The plaintiff argued that it had no responsibility to plug the wells because it had assigned the leases to another party.  The KCC determined that that lessor was responsible for plugging the three wells that they had produced from and that the plaintiff was responsible for plugging the other wells because they had abandoned the wells in 1989 and the wells should have been plugged at that time.  The court agreed with the KCC, rejecting the plaintiff's argument that only one party can be held liable for plugging a well under K.S.A. Sec. 55-179(b).  The court noted that the statute was clear that more than one party can be held responsible for plugging wells.  The court noted that the case did not involve the issue of whether the plaintiff could be entitled to reimbursement from the other parties.  John M. Denman Oil Co., Inc. v. Bridwell, et al., No. 110,861, 2015 Kan. App. LEXIS 3 (Kan. Ct. App. Jan. 9, 2015).  


The debtors, a married couple, operate a photography business that sells digitally manipulated landscape photographs to the public.  The husband was also employed at a separate photo business.  The wife handled all of the accounting, some promotional work and most purchasing decisions for the couple's business.  The debtors filed a joint case, and sought to exempt their digital images and website as a tool-of-the-trade under Kan. Stat. Ann. Sec. 60-2304(e).  The trustee objected on the basis that the images and website were not tangible property as contemplated by the statute.  The court disagreed with the trustee, noting many books, documents and "tools" in today's electronic era are digital and that only the specifically listed items in the statute need be tangible property.  In addition, the court noted that the debtor's wife could exempt the digital images and website herself as tools of the trade of her primary occupation.  The wife had a sufficient ownership interest in the couple's business.  In re Macmillan, No. 14-40965, 2015 Bankr. LEXIS 61 (Bankr. D. Kan. Jan. 9, 2015). 


The USDA developed two table grape varieties, secured patents on them, and licensed them to the defendant who then sub-licensed the varieties to nurseries as authorized distributors.  The grape varieties were released to a grower in 2002 and the patents were secured in early 2006.  However, before the official release, a couple of growers began growing grapes from the patented varieties, but did not sell any grapes commercially or give away any mature fruit.  The growers knew that were not authorized to have the grape varieties and took steps to conceal their possession of the varieties.  The plaintiffs challenged the patents as invalid due to a public use more than a year before the date of the patent application.  The trial court upheld the patents as valid because the growers' use and cultivation of the subject varieties was limited in scope and private, and because the vines were "hiding in plain sight."  Also, the trial court determined that the defendant had no reason to believe that the growers had unauthorized possession of the grapes.  On further review, the appellate court affirmed.  The court determined that the grapes in issue had not been generally circulated before the patents were applied for.  Thus the patents were valid  because the "invention" was not "accessible to the public" or "commercially exploited" for more than one year before patent protection was sought.     Delano Farms Company, et al. v. The California Table Grape Commission, et al., No. 2014-1030, 2015 U.S. App. Lexis 346 (Fed. Cir. Jan. 9, 2015), aff'g., No. 1:07-CV-0`6`0-SEH-JLT, 2013 U.S. Dist. LEXIS 130729 (E.D. Cal. Sept. 12, 2013).


The decedent died in 2001 with a gross estate of  approximately $1.7 million and an estate tax return was filed reporting a net estate tax liability of $275,000.  The estate paid $123,000 and made an additional payment of $4,200 in 2009.  In 2008, the IRS entered into a settlement agreement with the estate for the outstanding estate tax liability whereby the estate tax would be paid in installments.  Ultimately, approximately $84,000 of estate tax, interest and penalties remained unpaid.  The IRS did not assess the failure to pay penalty of approximately $35,000 until early 2013 and the estate claimed that the penalty was time-barred via I.R.C. Sec. 6501(a) or 6502(a)(1).  The court determined that neither of those provisions applied and the assessment of the failure-to-pay penalty was not time barred.  The estate also claimed that the interest assessment was incorrectly calculated, but the court disagreed.  The court also determined that the beneficiaries of the estate were liable for the unpaid estate tax and rejected their arguments that the government should be equitably estopped from enforcing the judgment or that the government had violated their due process rights.  United States v. Estate of Hurd, No. CV12-7889-JGB (VBKx), 2015 U.S. Dist. LEXIS 3350 (C.D. Cal. Jan. 8, 2015).


In a prior opinion, Mitchell v. Comr., T.C. Memo. 138 T.C. No. 16 (2012), the Tax Court disallowed the petitioner's charitable deduction for a permanent conservation easement donation due to the failure to satisfy the mortgage subordination requirement of Treas. Reg. Sec. 1.170A-14(g)(2).  In the prior case, the petitioner argued that the conservation purpose of easement was protected in perpetuity even without a subordination agreement because the probability of default on the mortgage was negligible.  However, the court rejected that argument on the basis that the Treasury Regulations require a subordination agreement.  In a subsequent Tax Court case, the petitioner argued that Kaufman v. Comr., 687 F.3d 21 (1st Cir. 2012) required the Tax Court to reconsider its prior decision.  The Tax Court disagreed, noting that Kaufman was not binding on the Tax Court because it addressed different legal issues.  Kaufman involved the "proceeds" regulation governing entitlement to proceeds upon judicial extinguishment of an easement, while the present case involved the mortgage subordination regulation.  The court also noted that the subordination regulation is specific and there is no "functional" subordination contemplated by the regulation.  The court also rejected the petitioner's argument that Carpenter v. Comr., T.C. Memo. 2012-1 created a safe harbor and that the regulation should be read as a safe harbor.  Instead, the court noted that Treas. Reg. Sec. 1.170A-14(g) is specific, mandatory and cannot be ignored.  The petitioner argued that the court should create a general rule with respect to the perpetuity requirement of I.R.C. Sec. 170(h)(5)(A) based on Kaufman.  However, the court rejected that argument on the basis that Kaufman did not create a general rule that protecting proceeds from extinguishment of a conservation easement would satisfy the perpetuity requirement of Treas. Reg. Sec. 1.170A-14(g)).  Mitchell v. Comr., T.C. Memo. 2013-204.  On further review, the Tenth Circuit affirmed.  The appellate court specifically noted that Treas. Reg. Sec. 1.170A-14(g)(3) does not relieve a donor from having to meet the subordination requirement when the probability of default on the mortgage is negligible.  Mitchell v. Comr., No. 13-9003, 2015 U.S. App. LEXIS 116 (10th Cir. Jan. 6, 2015). 


The petitioner operated a facility that generated electricity from biogas produced by the anaerobic digestion of livestock manure.  The manure came from the petitioner's dairy operation and the electricity generated is used to operate the petitioner's dairy operation and is sold to the electrical grid.  The petitioner claimed that the facility was exempt from state income tax because it is a "manure storage and handling" facility.  The court disagreed on the basis that the statute at issue contemplated a facility that is used to store and handle manure only.  The tax exemption statute has no application to an anaerobic digester or electrical generator.  An amendment to the statute did not apply because it did not have retroactive application.  In re Synergy, LLC v. Kibler, No. 1171 CA 14-00173, 2015 N.Y. App. Div. LEXIS 44 (N.Y. Sup. Ct. Jan. 2, 2015).  


I.R.C. Sec. 409(p) limits tax benefits of an Employee Stock Ownership Plan (ESOP) by limiting the ability to defer tax for the highly compensated employees.  More specifically, I.R.C. Sec. 409(p) limits the tax benefits of an ESOP that owns S-corporate stock unless the ESOP provides meaningful benefits to employees.  If I.R.C. Sec. 409(p) is violated, an excise tax of 50 percent of prohibited allocations applies and the ESOP no longer qualifies as an ESOP.  Tax deferral is lost if any portion of the plan assets that are attributable to the employer securities accrue to the benefit of a "disqualified person" during a nonallocation year.  A nonallocation year is any ESOP plan year during which the plan holds employer securities consisting of S corporation stock and the disqualified persons own at least half of the number of S corporate shares.  A disqualified person is a taxpayer that owns at least 10 percent of the deemed owned shares in the S corporation.  This case involved an S corporation with an ESOP as a shareholder and another non-ESOP shareholder who was the petitioner's only employee and sole participant.  Thus, the  ESOP owner held 100 percent of shares, triggering I.R.C. Sec. 409(p).  The court noted  that while the corporation had two classes of stock which would disqualify it for S corporate status and, therefore, would not result in I.R.C. Sec. 409(p) violation, the statute of limitations had run on IRS from adjusting petitioner's tax liability based on status.  Thus, the petitioner was treated as an S corporation and was liable for additional $161,200 in taxes and penalties of approximately $76,000. Ries Enterprises, Inc. v. Comr., No. 14-2094, 2014 U.S. App. LEXIS 24623 (8th Cir. Dec. 31, 2014), aff'g., T.C. Memo. 2014-14.


The plaintiffs’ predecessor owned a tract of farmland and in 1994 sought an NRCS wetland determination for the tract because he was considering converting it to crop production.  The NRCS concluded that the tract contained approximately 38 acres of wetlands the conversion of which would make the owner ineligible for USDA farm program subsidies.  The owner did not appeal the NRCS decision, but did seek another wetland determination for the tract in 2004.  This time, the NRCS determined that the tract contained at least 28 acres of wetlands.  The NRCS notice of its decision to the owner didn’t inform the owner of his appeal rights as required by regulations.  The owner died and the tract passed to the plaintiffs.  The NRCS notified the U.S. Army Corps of Engineers (Corps) of its wetland determination.  The plaintiffs hired a private company to do wetland mapping for the tract, and the company concluded that the tract did not contain wetlands.  But, the NRCS argued that the private mapping did not meet government regulations, and the Corps determined that part of the tract had federal jurisdictional wetlands for purposes of the permit requirements of the Clean Water Act (CWA).  The plaintiffs converted the tract to crop production use and their acreage determination request triggered another NRCS investigation.  This time, NRCS determined that the tract contained “at least 13.5” acres of wetlands that had been converted.  The NRCS also determined that the plaintiffs were not eligible for a minimal effects exemption.  As a result, the plaintiffs were disqualified for farm program subsidies.  The USDA National Appeals Division (NAD) affirmed, and barred the plaintiffs from presenting evidence that no wetland existed on the tract before conversion to crop production via a regulation that provides that any appeal of a final determination is limited to a determination that the wetland was converted.  On judicial review, the trial court affirmed the NAD on the question involving the scope of judicial review and determined that it lacked jurisdiction over the minimal effects issue because the plaintiffs didn’t raise the issue during the administrative process.  On appeal, the appellate court affirmed.  The 2004 wetland determination did not displace the 1994 determination, which was not appealed and the 2004 request was not one for review of the 1994 determination.  The appellate court also determined that issue exhaustion applied to the minimal effects issue and upheld the trial court on that issue.  Bass v. Vilsack, No. 14-1017, 2014 U.S. App. LEXIS 24633 (4th Cir. Dec. 31, 2014).   


The plaintiff was hired by an oil and gas company as a “landman” to secure properties for oil and gas leasing.  He had an “employee incentive agreement” with his employer that would pay him bonuses equal to a percentage of the net income from oil and gas properties that the employer acquired through the plaintiff’s efforts.  For the tax years in issue, the plaintiff initially treated such payments as ordinary income, but then filed amended returns treating as capital gain the income from the sale of properties that the employer purchased via the plaintiff’s efforts, and also claiming a depletion deduction associated with the income from the proceeds of producing properties.  The IRS disallowed capital gain treatment and disallowed a depletion deduction for the tax years at issue.  The plaintiff paid the additional tax of over $500,000 and sued for a refund.  The court upheld the IRS position noting that a depletion deduction is only available to an owner of an “economic interest” in the mineral deposits.  The court noted that the plaintiff had not acquired an interest in the minerals through a capital investment and that, therefore, the plaintiff’s return on investment was not realized solely from mineral extraction.  The plaintiff’s argument that his time, skill and experience in locating properties for his employer constituted a capital investment providing him with an economic interest in the minerals was rejected as a matter of law.  The court noted that the plaintiff’s compensation agreement with his employer did not separately pay him for his “landman” duties, but that his regular job duties would include work as a “landman” and that the bonus payments were to incentivize his good work and continued employment.   In addition, the agreement also specified that bonus payments were also tied to sales of the properties that the plaintiff helped the employer acquire.  The plaintiff also failed to establish that he had acquired a “net profits interest” in any minerals, and whether such an interest would constitute an economic interest in the minerals.  The court granted the government’s motion for summary judgment.  Gaudreau v. United States, No. 13-1180-JWL, 2014 U.S. Dist. LEXIS 177522 (D. Kan. Dec. 29, 2014).   


The defendants, the current surface owners of the real estate at issue, entered into an oil and gas lease with a production company in 2012 and the memorandum of lease was recorded at that time.  The plaintiffs are the heirs of a prior owner of the property.  That prior owner reserved a one-half mineral interest in the tract via a deed recorded March 22, 1950.  After the defendants filed the memorandum of lease, the plaintiffs filed a "Notice of Claim to Preserve  Mineral Interest" with the county recorder in early 2013, and then sued the defendants claiming that they had not abandoned their mineral interest and that the 1989 Ohio Dormant Mineral Act (DMA) was unconstitutional.  The trail court rejected the plaintiffs' claims, holding that the defendants were the rightful owners of the minerals and that the DMA was constitutional.  As such, the DMA required the plaintiffs to create a "savings event" within three years of the DMA's enactment (by Mar. 22, 1992) and that the plaintiffs had failed to do so.  On appeal, the court affirmed.  While the DMA was amended in 2006 to eliminate the automatic abandonment provisions of the 1989 version of the DMA, by requiring a surface owner to provide notice to the mineral interest holder of an intent to have the minerals declared abandoned, the 2006 version had no application to mineral rights that had become fully vested in the surface owner by 1992.  There was no language in the 2006 amendment that indicated that it should apply retroactively, and the 1989 DMA was constitutional.  Thompson, et al. v. Custer, et al., No. 2014-T-0052, 2014 Ohio App. LEXIS 5530 (Ohio Ct. App. Dec. 29, 2014).   


The petitioner's step-daughter graduated high school in 2010 and enrolled in college later that fall.  For the 2011 spring semester, the college billed the step-daughter $2,113.16 for tuition and $253.14 for various fees.  The petitioner paid $2,150.85 of the amount on behalf of his step-daughter on December 28, 2010, by taking a distribution from his I.R.C. Sec. 529 account plan and remitting the payments to the college via a debit/credit card.  The petitioner and his spouse filed a joint return for 2011 on which they claimed an American Opportunity Tax Credit (AOTC) of $2,107 for the step-daughter's college expenses.  The IRS disallowed all but $157 of the AOTC (the $157 amount was actually paid in 2011).  The Tax Court upheld the IRS disallowance of the AOTC.  While the petitioner paid AOTC-eligible expenses and was not subject to the AOTC income phase-out limitations, the court noted that the statute at issue (I.R.C. Sec. 25A) only allows the credit to be claimed when payment is made in the same year that the academic period begins.  Here, the petitioner paid the expenses in 2010 for an academic period that began in 2011.  Thus, the AOTC could not be claimed on the 2011 return.  While I.R.C. 25A(g)(4) allows for prepayment of tuition in the immediate prior tax year for an academic semester that begins in the first quarter of the next year, that statute only allowed the petitioner to claim the AOTC in 2010 and not 2011.  The court also determined that the petitioner was not eligible for an AOTC for the amounts paid in 2011 because they failed to establish that those amounts were necessary for enrollment or attendance at the college or that the payments were applied solely to qualified tuition and related expenses, requirements to claim the AOTC.  Ferm v. Comr., T.C. Sum. Op. 2014-115. 


The petitioner is a dermatologist in Fresno, CA, who operates his business as an S corporation in which the petitioner is the sole shareholder.  For 2010, he claimed that he mailed Form 7004 to the IRS to request an extension of time to file the S corporation return (which is required via I.R.C. Sec. 6037), but IRS never received it.  The S corporation return (Form 1120S) was received on Jan. 31, 2012, for the 2010 tax year.  IRS assessed a late filing penalty of $2,145 ($195 per month for the 11 months the return was late) pursuant to I.R.C. Sec. 6699(a).  IRS appeals suggested a partial abatement of the penalty, but the petitioner refused, and claimed that he was not properly informed of the penalty and was unaware of the statutory basis for the penalty.  The court rejected the petitioner's argument and determined that the petitioner did not have reasonable cause for late filing so as to avoid the penalty.  The court also noted that the petitioner was a chronic late filer, and that the IRS had followed all appropriate administrative procedures.  Babak Roshdieh, M.D., Corp. v. Comr., T.C. Sum. Op. 2014-113.


The plaintiff was injured in a dog attack while visiting a friend at a home/property that was owned, but not occupied, by the friend's father.  The friend lived in the home rent-free and her father knew that his daughter had dogs and had even disciplined them on a prior occasion.  The father could have told his daughter to not have dogs on the premises.  The trial court held that the father was strictly liable for the plaintiff's injuries because he was the statutory "owner" of the dogs as a "harborer" of the dogs under Wis. Stat. Sec. 174.001(5) which subjects an owner of a dog to strict liability and defines an "owner" as "any person who owns, harbors, or keeps a dog."  On appeal, the father asserted that he was not an "owner" because he did not have custody over or care for the dogs and did not personally reside in the home or on the property where the dogs resided.  However, the appellate court affirmed on basis that "harbor" in the statute meant to give lodging or to give shelter or refuge to a dog, and that the statute lacked the proprietary aspect of keeping a dog.  Because the father provided shelter and lodging for dogs as the owner of the property he had, therefore, "harbored" the dogs.  On further review, the state Supreme Court reversed.  The court held that simply being an owner of property where dogs reside does not make the property owner a n "owner" of the dogs under the statute.  Instead, the totality of the circumstances determines whether the property owner has exercised sufficient control over the property to be considered a "harborer" and, therefore, an owner of the dogs under the statute.  As such, the court's decision squares with the longstanding WI law that landlords are not liable for the actions of their tenant's dogs.  A dissenting judge believed that because the father financially subsidized his daughter, the father was a "harborer" of the dogs. The dissenting judge also pointed to the fact that the daughter was essentially "judgment proof" because of her lack of finances.  Augsberger v. Homestead Mutual Insurance Company, et al., No. 2012AP641, 2014 Wisc. LEXIS 953 (Wisc. Sup. Ct. Dec. 26, 2014), rev'g., 340 Wis. 2d 486, 838 N.W.2d 88 (2013).   


The petitioner was a third-generation auto dealer with successful dealerships, and his family has been involved in horse-related activities since the 1960s.  The petitioner started his own horse activity in 1993.  For various reasons, the horse activity lost money for the years in issue, but the petitioner argued that the auto dealerships and the horse activity constituted a single activity for purposes of I.R.C. Sec. 183.  The court held, however, that the activities were separate.  Based on the evidence, the court noted that the activities were not conducted in the same locations and there was no relationship between the customers of the horse activity and the customers of the auto dealerships.  In addition, there was minimal cross-advertising between the activities and there was no leasing of assets between the two activities.  The court also noted that the activities were not similar in nature.  Price v. Comr., T.C. Memo. 2014-253.


In this Advice from the Chief Counsel's Office, the IRS discussed three sets of facts involving claiming the home mortgage interest deduction when there is more than a single owner of the mortgage home that is paying on the mortgage.  The first scenario involved a married couple that are jointly and severally liable on a mortgage.  One spouse died during the tax year and the bank issued a Form 1098 under the decedent's Social Security number.  The surviving spouse filed a separate return and payments on the account were made either from a joint account or from separate funds of the couple.  The IRS determined that if the decedent paid on the mortgage before death, the decedent's return should reflect one-half of the interest paid from the joint account before death.  After death, the surviving spouse can claim the deduction for interest.  The second scenario involved an unmarried couple that were jointly and severally liable on the mortgage.  The bank issues a Form 1098 under either one Social Security number or under both numbers.  One or both of the owners claims the mortgage interest deduction on their individual returns.  The IRS determined that both parties are entitled to the mortgage interest deduction to the extent of the interest that each taxpayer pays.  If the mortgage interest is paid from separate funds, each taxpayer can claim the mortgage interest deduction paid from each taxpayer's separate funds.  If the interest is paid from a joint account in which each party has a equal interest IRS presumes that each owner has paid an equal amount unless there is evidence to the contrary.  In the third situation, related persons co-owned a house and were liable on a mortgage.  The bank may issue a Form 1098 either under one or both of the parties names, and payment on the mortgage might be made from a joint account or from separate funds of the owners.  Again, IRS stated that each owner is entitled to a mortgage interest deduction attributable to the amount that owner actually pays.  Of course, IRS reiterated that that overall limitations on deducting mortgage interest under I.R.C. Sec. 163(h) apply in all of the scenarios.  C.C.A. 201451027 (Oct. 1, 2014).


The petitioner received $883,250 as an up-front bonus payment to allow  an oil and gas company to lock-up his property for an eventual lease.  The petitioner treated the amount as capital gain and argued that the agreement under which he was paid the bonus constituted a sale rather than being a lease.  The IRS claimed that the amount was ordinary income and assessed additional tax of $147,397 and imposed an accuracy-related penalty of $29,479.  The Tax Court agreed with the IRS and also disallowed a percentage depletion deduction because no production had occurred.  No well had been drilled on the property at the time the payment was received and a permanent easement was not involved.  On appeal, the court affirmed.  The appellate court noted that the agreement was for five years and could be automatically extended as long as thereafter as either oil or gas was being produced from the property.  There was also a "shut-in" clause.  Under the agreement, the petitioner was entitled to royalty payments equal to 16 percent of the net profits of extracted oil and gas.  The court determined that the royalty interest was an economic interest that made the transaction a lease.  There also was not determinable quantity of oil and gas for a determined price, which would have been evidence of a sale.  Dudek v. Comr., No. 14-1517, 2014 U.S. App. LEXIS 24428 (3d Cir. Dec. 24, 2014), aff'g., T.C. Memo. 2013-2.


The parties in this case were married in 1980.  In 1979, the husband purchased 98 acres on contract for approximately $1,400 per acre.  The tract contained the marital home and was paid off during the marriage.  The wife started a milking operation on the tract and generally conducted the farming operations along with the three children of the marriage.  The wife filed for divorce in 2011, and the trial court dissolved the marriage with the wife getting all of the farm real estate with making an "equalization payment" of $1,548,287 to the husband.  The husband appealed on the basis that the property distribution was inequitable to him arguing that he should either be a joint owner on the real estate or that is should be sold and the proceeds split, and claiming that there were valuation errors.  On appeal, the court affirmed.  The court noted the public policy of preserving family farming operations in the hands of the farming spouse.  Importantly, the Iowa Court of Appeals, contrary to a prior opinion of the Iowa Supreme Court, said that tax considerations surrounding the sale of the land were to be factored even if there was no order to sell the land.  In re Marriage of McDermott, 827 N.W.2d 671 (Iowa 2013).  The court also noted that it would not further the policy of preserving the farming operation if the husband were to be a joint owner of the land given his past history and relationship with the children and wife.  On the valuation issue, the court held that the husband did not properly preserve the issue.  The court also upheld the trial court's award of $10,000 of attorney fees.  In re Marriage of Simon, No. 14-0735, 2014 Iowa App. LEXIS 1256 (Iowa Ct. App. Dec. 24, 2014).         


The defendant installed fencing on the plaintiff's farm in the 1995 and the plaintiff paid cash for the work.  Based on the defendant's recommendation, the plaintiff had the defendant install a certain type of posts.  in the first year after installation, the posts began to rot and the manufacturer of the posts went bankrupt and out of business.  The parties discussed the problem and the plaintiff told the defendant that the defendant needed to replace the rotten posts upon the plaintiff notifying the defendant of posts that had become rotten.  Initially, the defendant replaced the posts on notice, but after 15 years, the defendant stopped replacing the posts.  The plaintiff sued, claiming that the defendant breached an oral contract to replace the rotten posts upon notice.   The trial court granted a directed verdict for the defendant on the basis that there was no evidence of an oral agreement between the parties.  On appeal, the court affirmed.  The court held that no enforceable oral contract was formed between the parties because the terms of any contract were not "sufficiently definite" such that the defendant's duty could be determined and the required conditions of his performance.  The court determined that there was not "meeting of the minds" as to the essential contract terms that the defendant would continue to replace posts at no charge indefinitely.  Lenz v. Heiar Fencing & Supply, Inc., No. 13-2026, 2014 Iowa App. LEXIS 1235 (Iowa Ct. App. Dec. 24, 2014).


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