Case Summaries

Minton v. Comr., 562 F.3d 730 (5th Cir. 2009)

(agreement between S corporation and its founder when founder's children obtained interests in the corporation did not create second class of stock and S election thereby not terminated; preferential payments to taxpayer-shareholder's parents did not constitute second class of stock; payments made to parents not made pursuant to a binding agreement that gave them different legal rights from other shareholders).


Sunleaf v. Comr., T.C. Memo. 2009-52

(innocent spouse relief granted; deceased spouse (Iowa lawyer) hid personal financial problems from spouse).


Menards, Inc. v. Comr., 560 F.3d 620 (7th Cir. 2009)

($13 million paid to founder of Menards was deductible under I.R.C. Sec. 162(a)(l) as reasonable compensation; reverses Tax Court which had set itself up as the "superpersonnel department for closely held corporations").


Schmuecker v. Comr., T.C. Sum. Op. 2009-32

(taxpayer did not actively participate in horse racing business, thus passive loss rules bar use of losses from offsetting other income).


Sita, et ux. v. Comr., 313 Fed. Appx. 885 (7th Cir. 2009)

(taxpayer denied business deductions and disabled access credit for investment in pay phones; purchase and service arrangements did not give couple sufficient ownership in the phones and phones not subject to Americans with Disabilities Act).


Agarwal v. Com'r., T.C. Sum. Op. 2009-29

(rental real estate losses not per se passive because taxpayer was a real estate professional; taxpayer satisfied material participation test by being a full-time real estate agent at a Century 21 brokerage; novel IRS argument that real estate agent is not in "brokerage" business rejected).


United States v. Detroit Medical Center, 557 F.3d 412 (6th Cir. 2009)

(stipends paid to medical residents are not scholarships or fellowships that are exempt from tax; but, lower court's holding that student exemption from FICA doesn't apply to residents vacated and case remanded for further proceedings regarding student exemption).


ECC 200912023 (Feb. 23, 2009)

(upon payment of federal estate tax in installments under I.R.C. Sec. 6166, the lien against the property subject to the election may not exceed the amount specified in I.R.C. Sec. 6324(b)(2), but may be less that that amount).


United States v. O'Cheskey, 310 Fed. Appx. 726 (5th Cir. 2009)

(bankruptcy distributions to a creditor bank were a nondeductible return of equity rather than damage payments; trustees may not take a deduction for unpaid state taxes until federal tax liability is assessed).


Brooker v. Madigan, et al., 902 N.E.2d 1246 (Ill. Ct. App. 2009)

(estate may not avoid its state tax obligations on a property transfer by electing not to claim a state tax credit on its federal return; Illinois estate taxes are due as the credit would have been computed and allowed under I.R.C. Sec. 2001).


IRS Chief Counsel Letter, GENIN-14-1682-08 (Feb. 17, 2009)

(taxpayers permitted to make an I.R.C. Sec. 179 election without Commissioner's consent on amended return for tax years beginning after 2007 and before 2011; follows Rev. Proc. 2008-54, 2008-38 I.R.B. 722).


Martin, et ux. v. Comr., T.C. Sum. Op. 2009-21

(married couple not liable for cancellation of indebtedness income relating to repossession of their vehicle by lender; neither lender nor IRS could substantiate validity of Form 1099-C and value of repossessed vehicle same as cancelled debt at time of repossession; once accuracy of Form 1099-C challenged, burden of proof shifted to IRS under I.R.C. §§ 7491(a)(1) and 6201(d)).


Snell v. Com’r., T.C. Memo. 2009-21

(discount for built-in-gains tax for S corporation stock was 17.4 percent (farmland and marketable securities were primary assets); discount for built-in-gains tax on stock in second corporation containing marketable securities was 23.6 percent).


Morris v. Comr., T.C. Sum. Op. 2009-15

(taxpayer not entitled to offset realized long-term capital gain by negative taxable income before offsetting such gains by long-term capital loss carryovers).


Negron, et al. v. United States, 553 F.3d 1013 (6th Cir. 2009)

(IRS properly used annuity tables under I.R.C.§ 7520 to value stream of lottery payments remaining as of time of decedent's death).


General Mills, Inc. & Subsidiaries v. United States, 554 F.3d 727 (8th Cir. 2009)

(I.R.C. Sec. 162(k)(1) bars deduction allowed by I.R.C. Sec. 404(k)(1) for corporate dividends paid in cash with respect to the corporation's securities).


In re Rickert, No. BK06-40253-TLS, 2009 Bankr. LEXIS 17 (Bankr. D. Neb. Jan. 9, 2009)

(11 U.S.C. §1222(a)(2)(A) allows debtors to treat capital gain taxes as a general unsecured claim that is not entitled to priority, and the taxes entitled to non-priority treatment are to be calculated in accordance with the proportional method proposed by IRS).


Fife, et al. v. Greene County Board of Revisions, et al., 900 N.E.2d 177 (Ohio Sup. Ct. 2008)

(defendant improperly concluded that plaintiff's property did not qualify as current agricultural-use valuation status; property met the requirements because it consisted of more than 10 contiguous acres that satisfied regulatory standards; 19-year gap between timber harvests did not defeat the plaintiff's claim because the plaintiff met the standard of showing a discernible modicum of activity designed to further growth of timber for commercial purposes through activity establishing such purpose).


Sklar v. Com’r.,549 F.3d 1252 (9th Cir. 2008)

(tuition and fees paid to Orthodox Jewish day schools not deductible).


Priv. Ltr. Rul. 200909044 (Dec. 2, 2008)

(maximum value of required property under I.R.C. § 6324A includes the amount of interest expected to become payable over first four years of deferral; if use of flat 2 percent interest rate results in amount that is less than or equal to 45 percent of underpayment interest rate, it is legally permissible).


Priv. Ltr. Rul. 200910007 (Dec. 2, 2008)

(commercial demonstration cellulosic ethanol production plant will be eligible for additional first-year bonus depreciation for qualified cellulosic ethanol plant property if requirements of I.R.C. Sec. 168(l) and (k) satisfied).


Priv. Ltr. Rul. 200912004 (Dec. 2, 2008)

(cars, light general purpose trucks, and vehicles that share characteristics of both cars and light-duty trucks are like-kind for purposes of I.R.C. Sec. 1031).


Priv. Ltr. Rul. 200909020 (Nov. 26, 2008)

(amounts paid to cooperative members are PURPIM and the cooperatives DPAD, taxable income and QPAI is computed without regard to any deduction for amounts paid to members for grain delivered to cooperative).


Hoosier Energy Rural Electric Cooperative, Inc. v. Hancock Life Insurance Company, et al., 588 F.Supp.2d 919 (S.D. Ind. 2008)

(plaintiff granted preliminary injunction against defendant to get more time to argue its case and avoid immediately paying $120 million to defendant; dispute between parties arose from sale-in- lease-out (SILO) transaction established between the parties in 2002 as a tax shelter for the defendant, but deal soured when a partner had its credit rating downgraded; court characterized transaction as a “sham” and “without economic substance”).


Wallace v. Marion County, No. TC-MD 080958B, 2008 Ore. Tax LEXIS 245 (Ore. Tax Court Nov. 25, 2008)

(defendant’s decision disqualifying 3.95 acres of plaintiff’s land from farm use special assessment for 2008-2009 tax year reversed; personal factors beyond plaintiff’s immediate control caused absence of animals from property in spring of 2008, and such factors satisfy statutory exception to active farming requirement to receive special assessment).


Priv. Ltr. Rul. 200909016 (Nov. 24, 2008)

(same as PLR 200909020).


ECC 200937028 (Nov. 18, 2008)

(property transferred to a grantor trust before death is not eligible for a basis step-up under I.R.C. Sec. 1014 unless the property is included in the decedent's gross estate for federal estate tax purposes).


Estate of Wilshire v. United States, No. 1:07-cv-00377, 2008 U.S. Dist. LEXIS 91920 (S.D. Ohio Nov. 10, 2008)

(estate granted refund on basis that written and oral communications between executor and IRS constituted valid, informal refund claim that was later perfected by formal claim).


Alabama Department of Revenue v. The National Peanut Festival Association, Inc., 11 So. 3d 821 (Ala. Ct. Civ. App. 2008)

(because defendant's festival was a "state fair," receipts from the sale of admission tickets were exempt from tax, but subject to license tax for privilege of conducting non-agricultural exhibits, displays and shows).


Internal Revenue Service v. Ealy, 396 B.R. 20 (B.A.P. 8th Cir. 2008)

(IRS not entitled to relief from automatic stay to offset an overpayment and economic stimulus payment against debtor's tax debt because IRS had already made the payments to the debtor and, as such, lost the right to offset).


In re Bilski, 545 F.3d 943 (Fed. Cir. 2008)

(business concepts falling outside “machine-or-transformation” test for patentability are not patentable; but precise contours of machine implementation or when recitation of a computer suffices to tie a process claim to a particular machine left unresolved (i.e., tax strategy patents)).


Whitehouse Hotel Limited Partnership v. Comr., 131 T.C. 112 (2008)

(IRS appraisal valuation of facade easement upheld; penalty applied for gross valuation misstatement).


Fadeley v. Comr., T.C. Memo. 2008-235

(deductions denied for various business and personal expenses due to lack of substantiation, and expenses for which taxpayer’s wife could have received reimbursement from her employer are not deductible; use of portion of residence both for personal and business purposes does not meet exclusive use test; alleged farming activity did not constitute trade or business).


Keating, et al. v. Comr., 544 F.3d 900 (8th Cir. 2008)

(Arabian horse breeding activity not engaged in for profit, thus losses not fully deductible; taxpayer had no experience in caring for and riding horses and no experience in the buying, selling or showing of horses and presented no evidence that she had consulted anyone regarding the economic or business aspects of breeding, training or showing horses; taxpayer paid both personal and horse activity expenses from same two or three personal checking accounts; no written business plan created; no financial projections maintained; no expectation of future increase in value of assets; taxpayer had high income as a physician and received a great deal of personal pleasure from the activity).


H.R. 2851, P.L. No. 110-381, signed into law on Oct. 9, 2008, by President Bush

(creates new I.R.C. §9813, effective Oct. 9, 2009; requires health insurers to maintain coverage of dependent college students for up to one year after they begin a medically necessary leave of absence). 


Jefferson v. United States, 546 F.3d 477 (7th Cir. 2008)

(plaintiff (member of state legislature), unpaid president of board of directors of day-care center, found to be personally responsible for day- care’s unpaid payroll tax liability; plaintiff had significant involvement in day-care’s financial affairs and “willfully” failed to pay taxes; court imposed penalty for willful failure to pay tax).


Peno Trucking, Inc. v. Comr., 296 Fed. Appx. 499 (6th Cir. 2008), rev'g, T.C. Memo. 2007-66

(trucking company not liable for employment taxes for its drivers; no employer-employee relationship; company qualified for Section 530 relief because company did not treat drivers as employees).


Miller v. Comr., T.C. Memo. 2008-224

(petitioner conducted horse breeding activity in business-like manner as determined in accordance with nine-factor test; losses at issue incurred during start-up phase and due, in part, to unforeseen circumstances; losses fully deductible).


Palahnuk, et ux. v. Comr., 544 F.3d 471 (2nd Cir. 2008)

(court affirms Tax Court decision which sustained IRS determination of plaintiffs' deficiency and disallowed an adjustment to AMTI; rules for calculating NOLs for regular income apply to AMT NOLs and plaintiffs improperly calculated their alternative tax NOL).


IRS Legal Advice 20084301F (Sept. 25, 2008)

(taxpayer’s payment to three states in settlement of antitrust suit under federal and state law is a non-deductible fine or penalty under I.R.C. §162(f)).


University of Chicago Hospitals v. United States, 545 F.3d 564 (7th Cir. 2008)

(government's position that medical residents are categorically not "students" under I.R.C. § 3121(b)(10) and, therefore, not exempt from FICA tax as a matter of law rejected; case-by-case analysis required to determine whether medical residents qualify for statutory exemption from FICA tax).


Shelton v. United States, No. 02-1042T (Fed. Cl. Sept. 23, 2008)

(partnership losses suspended under I.R.C. Sec. 465 by virtue of language in closing agreement remain subject to I.R.C. § 469 limit on passive activity losses against income from non-passive activity because closing agreement did not indicate that I.R.C. Sec. 469 would not apply to the suspended losses).


Acar v. Comm'r., 545 F.3d 727 (9th Cir. 2008)

(plaintiff not entitled to refund for 1999 tax year on basis of purported retroactive election of the mark-to-market method of accounting under I.R.C. §475(f) because election was untimely under Rev. Proc. 99-17 and petitioner was not entitled to an extension of time).


Ralston Purina Co. v. Comm’r., 131 T.C. 29 (2008)

(I.R.C. §162(k) precludes a deduction for petitioner’s payment to its ESOP in redemption of its preferred stock, where the proceeds were distributed to employees terminating their participation in the plan; court’s decision contrary to Boise Cascade Corp. v. United States, 329 F.3d 751 (9th Cir. 2003), but is consistent with Conopco, Inc. v. United States, No. 2:2004cv06025, 2008 U.S. Dist. LEXIS 52306 (D. N.J. Jul. 17, 2007); and General Mills, Inc. v. United States, No. 06-3547, 2008 U.S. Dist. LEXIS 3196 (D. Minn. Jan. 14, 2008)).


Dean v. Internal Revenue Service, 319 Fed. Appx. 455 (9th Cir. 2008)

(taxpayer's refund claim denied based on a loss carryback because taxpayer failed to establish that he worked at least 500 hours and "materially participated" in his family-run stock trading business (which would have exempted him from the passive loss limitations of I.R.C. § 469).


Estate of Martin, T.C. Memo. 2008-208

(arbitration award of $616,600 as a result of USDA discrimination includable in gross income in year received and startup costs not deductible against amount of award due to lack of substantiation; Schedule F farming deductions also disallowed for lack of substantiation; rental real estate losses limited to $25,000 under I.R.C. §469(i); accuracy-related penalties imposed).


Ventas Finance LLC v. Franchise Tax Board, 165 Cal. App. 4th 1207 (2008)

(state-imposed LLC fee is unconstitutional tax because not fairly apportioned, placed greater burden on interstate commerce than on intrastate commerce, and was based on LLC’s total income wherever earned; refund limited to difference between amount of levy actually paid and amount that could have been constitutionally assessed). 


Center for Family Medicine et al. v. United States, No. 05-4049-KES, 2008 U.S. Dist. LEXIS 59816 (D. S.D. Aug. 6, 2008)

(two medical facilities entitled to a refund of FICA taxes paid on medical residents' stipends because they qualify for the student exclusion from FICA taxation but not on taxes paid for head residents who elected to stay after completing their residency programs to help administer the program). 


United States v. Porter, 569 F.Supp.2d 862 (S.D. Iowa 2008)

(defendant, maker and seller of nutritional products for swine, dairy and beef cattle, classified salesmen as “independent contractors”, but plaintiff asserted salesmen were “employees” such that defendant was responsible for withholding and remitting employment and unemployment taxes on such persons; additional taxes and interest which defendant failed to pay; as such, plaintiff filed a federal tax lien on defendant’s real property and later moved to foreclose the lien; government’s classification of salesmen as employees upheld, but issues of material fact existed as to whether defendant entitled to Section 530 safe harbor; whether or not innocent spouse relief granted immaterial to issue in case; no fact issues present as to statute of limitations question; defendant’s motion to dismiss denied as is defendant’s motion for jury trial; government’s liens upheld).


Darnall Ranch Inc. v. Banner County Bd. of Equalization, 753 N.W.2d 819 (Neb. Sup. Ct. 2008)

(residential homes near animal feedlot entitled to depreciation adjustment for property tax purposes for external (locational) factor).


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