Case Summaries

Congressional Budget Office, The Budget and Economic Outlook: An Update (Sept. 7, 2010)

(relative to size of the economy, the August 2010 federal budget deficit (at 9.1 percent of GDP) is second largest deficit since WWII; largest deficit was in August of 2009 - at 9.9 percent of GDP; outlays for interest on debt were 13 percent higher than same period in 2009).

Seeley v. Comr., No. 8093, 2010 Minn. Tax LEXIS 23 (Minn. Tax. Ct. Sept. 2, 2010)

(non-residents of Minnesota cannot offset Minnesota-based capital gain income (derived from sale of MN farmland) with loss carryover from sale of out-of-state (non-Minnesota) properties; carryover did not relate to property taxed in Minnesota; gambling losses disallowed). 

Priv. Ltr. Rul. 201049007 (Sept. 1, 2010)

(another ruling in a line of rulings over the past couple of years noting that payments that a cooperative makes to farmers for grain deliveries constitute PURPIMs; cooperative's DPAD to be computed without taking into account any deduction for such payments).

Ocean Pines Association, Inc. v. Comr., 135 T.C. 276 (2010)

(operation of beach club and parking lots by tax-exempt homeowner association subject to unrelated business income tax; income not rent from real estate as defined by I.R.C. Sec. 512(b)(3) and didn't substantially promote community welfare). 

Fessey v. Comr., T.C. Memo. 2010-191

(petitioner not entitled to certain business-related deductions and charitable deduction due to lack of substantiation). 

Stenslet, et ux. v. Comr., T.C. Sum. Op. 2010-127

(farm-related expenses not trade or business expenses; on expectation of inheriting portion of farmland, petitioners (married couple) moved mobile home to property, made portion suitable for building, bought 20 chickens, 2 emus, goat and horse and sold eggs for $1/dozen along with emu feathers; goat soon sold because it was "scary"; electric fencing installed; no books maintained; nearly $20,000 "farming" loss disallowed; husband's primary job was as pilot; no accuracy-related penalty imposed because returns prepared by professional tax preparer). 

Gaffney v. Comr., T.C. Sum. Op. 2010-128

(CODI reported to petitioner on 1099-C related to charged-off loan from mid-1990s of which petitioner had no notice and involved different taxpayer with same address and social security number as petitioner; court holds that IRS needs more than 1099-C to assess tax; taxpayer was insolvent in year tax actually discharged, thus no CODI). 

Russell v. Comr., 619 F.3d 908 (8th Cir. 2010)

(court affirms Tax Court decision that petitioner had taxable gain in accordance with Treas. Reg. Sec. 1.1502-13(g)(4); loans to S corporation did not amount to indebtedness and did not establish a basis against which losses could be taken). 

Williams v. Comr., T.C. Sum. Op. 2010-125

(petitioner not entitled to deduct payments made to ex-spouse because the payments were not made in accordance with a divorce decree or separation agreement and, as a result, did not qualify as alimony under I.R.C. Sec. 71).

Deltoro, et ux. v. Comr., T.C. Sum. Op. 2010-123

(petitioner, a pipefitter, had indefinite employment rather than temporary employment and, as such, was not away from his home as required by I.R.C. Sec. 162(a)(2) with the result that no deduction was allowed for his work-related commuting expenses). 

Britton, et al. v. Comr., No. 09-1994, 2010 U.S. App. LEXIS 19925 (1st Cir. Aug. 24, 2010), aff'g., 132 T.C. 125 (2009)

(sole member of limited liability company liable for company's unpaid employment taxes; check-the box regulations upheld; opinion follows other circuit court opinions on the issue).

CCA 201052003 (Aug. 24, 2010)

(the "timely mailed/timely filed" rule inapplicable to amended returns that show increase in tax due; I.R.C. Sec. 7402 only applicable to returns "required to be filed"; submissions of amended returns that are timely when mailed, but beyond statute of limitations for assessment of tax when received, cannot be assessed tax for increased tax shown on return; "timely filed/timely mailed" rule does apply to amended returns which include claim for refund). 

MacGregor v. Comr., T.C. Memo. 2010-187

(court determined that petitioner had unreported income based on bank deposit analysis deriving from capital gain triggered by sale of partnership interest; business expense deductions denied due to lack of substantiation). 

Ecosure Pest Control Inc. v. Eclipse Marketing Inc., et al., No. 2:09-CV-001108, 2010 U.S. Dist. LEXIS 86614 (D. Utah Aug. 23, 2010)

(plaintiff lacks standing to bring tortious interference with business relations claim against defendant couched in tax violations; parties provide pest control services in same market and plaintiff classifies workers as employees while defendant classifies similar workers as independent contractors; plaintiff claims defendant's classification violates federal and state employment tax laws; defendant's classification allows defendant to avoid payment of employment tax and other taxes which allows them to pay higher wages to workers and gives them a competitive advantage in the market; court notes that neither federal or state tax law provide a private cause of action for their enforcement). 

Paquin v. Comr., T.C. Sum. Op. 2010-120

(motocross racing activity not engaged in for profit; expenses deductible only to extent of income from the activity).

Iowa Dept. of Rev. Policy Ltr. No. 10201028 (Aug. 18, 2010)

(concerns application of IA capital gain exclusion to sale of farming business; gain attributable to sale of land qualifies for capital gain exclusion if both ten-year ownership and ten-year material participation test satisfied; gain triggered on tangible personal property and services qualifies for gain exclusion if 90 percent or more of tangible personal property or services sold and ten year requirements satisfied; goodwill qualifies for capital gain exclusion, but gain attributable to equipment and grain bins is ordinary income that does not qualify for capital gain exclusion). 

Bayse v. Comr., T.C. Sum. Op. 2010-118

(firefighter injured on duty received payments for injuries from collective bargaining agreement are includible in firefighter's income because they were not paid under a worker's compensation act as required for excludability by I.R.C. Sec. 104(a)(1)). 

Bahas, et ux. v. Comr., T.C. Sum. Op. 2010-115

(taxpayer who was employed as office manager for real estate broker owned and managed rental properties with spouse claimed that rental property activity was non-passive under I.R.C. Sec. 469(c)(7); court disagreed, noting that activities as employee not taken into account - taxpayer must own at least 5% of the business that comprises work of at least 750 hours in a "real property trade or business" - so taxpayer had to meet 750-hour test via only the rental properties; test not satisfied and no grouping election made). 

Estate of Stangeland, et al. v. Comr., T.C. Memo. 2010-185

(consulting activity not trade or business and not merged with other businesses; expenses not deductible business expenses; losses from partnership's plane leasing activity not passive in one year, but instead were passive for two years; accuracy-related penalty applied). 

Estate of Davenport v. United States, 736 F.Supp.2d 1087 (E.D. Mich. 2010)

(refund suit filed by estate dismissed due to lack of jurisdiction; estate had litigated issue in Tax Court which involved same tax liability and estate is precluded by res judicata from re-litigating issue in District Court). 

Murfam Farms, LLC, et al. v. United States, 94 Fed. Cl. 235 (Fed. Cl. 2010)

(plaintiff's acquisition by defendant via basis-shifting tax shelter offered by Ernst & Young which sheltered $100 million taxable gain resulted in disallowed losses and 40 percent gross valuation misstatement penalty; reliance on CPA firm's advice not reasonable - it was the same firm that sold them the COBRA tax shelter for $2.5 million). 

IRS Info. 2010-0207 (Aug. 16, 2010)

(taxpayer cannot change NOL carryback period once an election has been made; thus, once election is made to carryback NOL to 3, 4 or 5 years, election is irrevocable and can't be changed once the election is made). 

Mass. Dept. of Rev. Letter Rul. 10-4 (Aug. 13, 2010)

(anaerobic digestion systems that are purchased for use on dairy farms are exempt from sales and use tax; such property constitutes equipment that is used directly and exclusively in agricultural production activities). 

Office of Management and Budget, “Mid-Session Review: Budget of the U.S. Government, Fiscal year 2011 (Aug. 13, 2010)

(Administration proposes allowing all of the 2001 and 2003 tax cuts applicable to taxpayers with annual incomes above $200,000 ($250,000 MFJ) to expire, which is estimated as a $629 billion tax increase between 2011 and 2020; proposal also includes limiting tax rate applicable for itemized deductions for the same taxpayers, which would increase taxes by an additional $292 billion). 

Priv. Ltr. Rul. 201046008 (Aug. 13, 2010)

(cash surrender value of stock in life insurance company's flexible premium variable universal life insurance contract is contract's cash value, and additional rider has no impact on calculation of net single premium under I.R.C. Sec. 7702).

Physicians Committee for Responsible Medicine v. McDonald's Corporation, et al., 187 Cal. App. 4th 554 (Cal. Ct. App. 2010)

(plaintiff, food activist group, appeals from trial court's grant of summary judgment for defendant on basis that federal law pre-empted California Proposition 65 warnings that grilled chicken contains known carcinogens; trial court decision reversed).

H.R. 4830 (U.S. Manufacturing Enhancement Act of 2010) signed into law on August 11, 2010

(increases corporate estimated tax payment in third quarter of 2015 for large corporations).

T.D. 9498 - Temporary Regulations issued for I.R.C. Sec. 108(i) (Aug. 11, 2010)

(clarifies events that trigger acceleration of COD income deferral and what "issued in connection with a trade or business" means).

Whitehouse Hotel Limited Partnership, et al. v. Comr., 615 F.3d 321 (5th Cir. 2010)

(Tax Court's valuation of plaintiff's charitable contribution for donation of historic preservation facade easement and imposition of accuracy-related penalty vacated; no dispute that contribution qualified for a charitable deduction, but controversy surrounded the valuation of the donated easement; Tax Court erred in relying solely on comparable-sales method of IRS expert to value the easement; Tax Court to consider that method along with methods used by plaintiff's expert; Tax Court failed to rule on the highest and best use of the property in determining property's fair market value - here whether the highest and best use is as a luxury hotel or a non-luxury hotel; Tax Court should have determined whether easement had any effect on contiguous building that plaintiff also owned since plaintiff had plans to combine the buildings into single property; penalty to be reconsidered in light of revaluation on remand).

IRS ECC 201034018 (Apr. 10, 2010)

(taxpayer failed to properly identify transactions involving inventory as hedges; hedge treatment denied; documentation only showed that taxpayer engaged in transactions for economic purposes rather than accounting or tax purposes). 

Priv. Ltr.201027015 (Apr. 10, 2010)

(credit card cash rewards paid to card holder do not constitute income in accordance with I.R.C. Sec. 61; cash rewards directed to be paid to charity eligible for charitable deduction when charity receives cash; written acknowledgement provided to card holder does not satisfy record keeping requirement because date amount paid to charity not included). 

H.R. 1586 - Education Jobs and Medicaid Assistance Act signed into law

(passed largely along partisan lines, bill increases taxes by $9.6 billion (without provisions being subject to committee hearing) on U.S.-based multinational corporations by barring the splitting of creditable foreign taxes from associated foreign income, preventing businesses from claiming tax benefits when engaging in covered asset acquisitions (i.e., Sec. 338(g) transactions), limiting use of Sec. 956,  subjecting earnings of foreign subsidiaries of U.S. companies to withholding tax when earnings are repatriated to a foreign parent corporation as a dividend; and repealing the 80/20 withholding rules for dividends; bill also eliminates the advance earned income tax credit and phases out increase in food stamp payments implemented in 2009 spending bill (approximately a $59/month cut in food stamps for family of four) and cuts $1.5 billion in funding for DOE's renewable energy loan program; increases spending by estimated $26 billion for hiring of teachers in government schools and contains provision forcing governors to accept the funds allocated to their respective states by giving Education Secretary discretion to allocate funds in lieu of application by governor for funds).

Priv. Ltr. Rul. 201031009 (Aug. 6, 2010)

(married taxpayers filing jointly were engaged in real property business as defined by I.R.C. Sec. 469 and were qualified to elect to treat all interests in rental real estate as single rental real estate activity, but inadvertently filed joint return without required statement; taxpayers granted 60-day extension of time to make election to treat all rental real estate activities as single rental real estate activity). 

CCA 20103101F (Aug. 6, 2010)

(taxpayer cannot claim patronage dividend deductions for amount paid to members out of earnings not attributable to corn purchases made in accordance with Uniform Agreements entered into with members).

Priv. Ltr. Rul. 201046001 (Aug. 6, 2010)

(payments cooperative made to members and other patrons for grain are per-unit retains paid in money (PURPIMs) and cooperative's DPAD to be computed without taking into account any deduction for such payments (one of numerous rulings on the issue)). 

IRS Info. 2010-0206 (Aug. 5, 2010)

(ag conservation easement contributed in bargain-sale transaction deductible to extent I.R.C. Sec. 170 satisfied). 

Holdner, et al. v. Comr., T.C. Memo. 2010-175

(father-son farming operation determined to be partnership for tax purposes and not a joint venture between two individual proprietorships; no formal written partnership agreement; while parties shared farm income equally, most expenses allocated to father resulting in net losses on father's personal return even though father had high non-farm income from CPA practice; no partnership return filed; farm bank account created; insurance policy purchased for farming operation; farming operation registered with state as a partnership; accuracy-related penalty upheld against father). 

Priv. Ltr. Rul. 201043008 (Aug. 4, 2010)

(grain payments that farmers' cooperative made to members are PURPIMs with the result that cooperative's DPAD computation to be made without any regard to any deduction for such grain payments (resulting in higher DPAD that cooperative can pass through to members)).

In re Southwest Exchange, Inc. IRS Section 1031 Tax Deferred Exchange Litigation, No. 07-cv-10394, 2008 U.S. Dist. LEXIS 118509 (D. Nev. Aug. 3, 2010)

(parties entered into settlement agreement resolving class action case involving customers who suffered losses or damages from failed businesses that acted as qualified intermediaries for like-kind exchanges; case dismissed).

DeNaples, et ux. v. Comr., T.C. Memo. 2010-171

(taxpayers cannot exclude from gross income amounts attributable to interest received on account of taking of property via eminent domain power; taxpayers failed to show that the interest exceeded the amount legally required; interest also not paid in connection with government's borrowing authority). 

In re Southwest Exchange, Inc. IRS Section 1031 Tax Deferred Exchange Litigation, No. 07-cv-10394, 2008 U.S. Dist. LEXIS 118509 (D. Nev. Aug. 3, 2010)

(parties entered into settlement agreement resolving class action case involving customers who suffered losses or damages from failed businesses that acted as qualified intermediaries for like-kind exchanges; case dismissed).

Commonwealth of Virginia, et al. v. Sebelius, 702 F.Supp.2d 598 (E.D. Va. 2010)

(court denies federal government's motion to dismiss plaintiff's constitutional challenge to the individual mandate provision in Patient Protection and Affordable Care Act; court finds that no court has ever determined whether federal government's power to tax can regulate an individual's decision to not participate in commerce). 

Consolidation Coal Company, et al. v. United States, 615 F.3d 1378 (Fed. Cir. 2010)

(Office of Surface Mining can charge reclamation fee on coal sales insomuch as fee constitutes delayed tax on extracted coal; time of collection does not convert constitutional tax or fee to unconstitutional tax; liability for tax is incurred at time of extraction and OSM merely collects fee at time of sale). 

Congressional Budget Office Report on the 2009 Spending Bill (a.k.a. the stimulus bill - P.L. 111-5) (Aug. 1, 2010)

(Act will increase federal budget deficit by $814 billion between 2009 and 2019). 

Xiang and Partovi v. Comr., T.C. Sum. Op. 2010-105

(transactions reported on petitioners' tax returns which resulted in claims for I.R.C. Sec. 45K tax credit (credit for production of fuel from nonconventional sources) were fictitious; petitioners allegedly had no ownership interests in any landfill; promoters of scheme had no ownership interest in any landfill that produced alternative fuels; petitioners determined to be victims of fraudulent scheme). 

H.R. 847, the James Zadroga 9/11 Health and Compensation Act of 2010

(U.S. House, on 7/29/10, failed to pass bill by required two-thirds majority; bill would have limited tax treaty benefits for multinational firms with parent company based in countries not having tax treaty with U.S., and would have provided financial assistance to 9/11 first responders; two-thirds majority required (rather than simple majority) because bill procedurally structured as suspension bill that could not be amended so as to avoid vote on immigration amendment). 

PPL Corporation & Subsidiaries v. Comr., 135 T.C. 176 (2010)

(petitioner is an electric utility  that provides various lighting services for public and private entities and disputes centers on appropriate depreciation recovery period for petitioner's street light assets; court holds that such assets are neither assets used in the distribution of electricity nor land improvements and are property without a class life that default to classification as seven-year property with a recovery period of seven years).

Moore, et ux. v. Comr., T.C. Sum. Op. 2010-102

(auto expenses denied for lack of substantiation - mileage logs not properly kept in accordance with substantiation requirements of I.R.C. Sec. 274(d); commuting miles claimed on holidays and personal miles mixed in with business miles and descriptions and business purposes too vague). 

S. 3664 - Family Farm Estate Tax Deferral Act of 2010, introduced on Jul. 28, 2010)

(would exclude farmland from estate tax so long as it remains in farming use by creating new I.R.C. Sec. 2033A and apply to a decedent's estate that makes an election under I.R.C. Sec. 2032A(d)(2); unlimited recapture period). 

Betts v. Comr., T.C. Memo. 2010-164

(petitioner did not engage in horse activities with profit motive - deductions from activity limited to gross income from activity; under nine-factor test, five favor IRS, two are neutral and two favor petitioner).