Monday, September 13, 2021

Gifting Assets Pre-Death (Entity Interests) – Part Two


In Part One of this series, I discussed some of the basics with respect to gifting pre-death to facilitate estate planning and/or business succession.  Also covered in Part One was a gifting technique utilizing what is known as the “Crummey demand power” as a means of moving property into trusts for minors and qualifying the gifts for the present interest annual exclusion.  In Part Two, the commentary continues with the use of the Crummey gifting technique with respect to entity interests.

Gifting interests in closely-held entities – it’s the topic of today’s article.

Using Crummey-Type Demand Powers in the Entity Context – Significant Cases

Crummey-type demand powers may also be relevant in the context of gifted interests in closely-held entities. From a present-interest gifting standpoint, the issue is whether there are substantial restrictions on the transferred interests such that the donee does not have a present beneficial interest in the gifted property. If so, the present interest annual exclusion is not available for the gifted interests.  The courts have set forth markers that provide guidance.

The Hackl case.  In Hackl v. Comr., 118 T.C. 279 (2002), the taxpayer purchased two tree farms (consisting of about 10,000 acres) worth approximately $4.5 million. He contributed the farms along with another $8 million in cash and securities to Treeco, LLC (“Treeco”), and had an investment goal of long-term growth (the trees were largely unmerchantable timber).  The actual tree farming activities were conducted via a separate entity.   The taxpayer and his wife initially owned all of Treeco’s interests, with the taxpayer serving as Treeco’s manager. Under the LLC operating agreement, the manager could serve for life (or until he resigned, was removed or became incapacitated) and could also dissolve the LLC. The operating agreement also specified that the manager controlled any financial distributions and members needed the manager’s approval to withdraw from the company or sell their shares. As for cash distributions, the operating agreement specified that the taxpayer, as manager, “may direct that the Available Cash, if any, be distributed to the members pro rata in accordance with their respective percentage interests.” No member could transfer their respective interest unless the taxpayer gave prior approval. If a member made an unauthorized transfer of shares, the transferee would only receive the economic rights associated with the shares – no membership or voting rights transferred. In addition, before dissolution, no member could withdraw their respective capital contribution, unless the taxpayer approved otherwise. It also took an 80 percent majority to amend Treeco’s articles of organization and operating agreement and dissolve Treeco after the taxpayer ceased being the manager.

Upon Treeco’s creation, the taxpayer and his wife began transferring voting and nonvoting shares of Treeco to their eight children, the spouses of their children and a trust established for their 25 minor grandchildren. Eventually, a majority of Treeco’s voting shares were held by the children and their spouses. The taxpayer and his wife elected split-gift treatment, and reported the transfers as present interest gifts covered by the annual exclusion ($10,000 per donee, per year at the time).  However, the IRS disallowed all of the annual exclusions, taking the position that the transfers involved gifts of future interests. The taxpayer claimed that the gifts were present interests because all legal rights in the gifted property were given up, but IRS viewed the gifted interests as still being subject to substantial restrictions that did not provide the donees with a substantial present economic benefit. As a result, the IRS position was that the gifts were future interests’ ineligible for the exclusion.

The Tax Court agreed with the IRS that the transfers were gifts of future interests that were not eligible for annual exclusions. The Tax Court determined that the proper standard for determining present interest gift qualification was established in Fondren, 324 U.S. 18 (1945), where the key question was whether the transferee received an immediate “substantial present economic benefit” from the gift. To answer that question, Treeco’s operating agreement became the focus of attention. On that point, the Tax Court noted that Treeco’s operating agreement required the donees to get the taxpayer’s permission before transferring their interests and gave the taxpayer the retained power to either make or not make cash distributions to the donees. In addition, the donees couldn’t withdraw their capital accounts or redeem their interests without the taxpayer’s approval, and none of them, acting alone, could dissolve Treeco.  Based on those restrictions, the Tax Court determined that the donees did not realize any present economic benefit from the gifted interests. Instead, the restrictive nature of Treeco’s operating agreement “forclosed the ability of the donees presently to access any substantial economic or financial benefit that might be represented by the units.”  Thus, the gifts, while outright, were not gifts of present interests. See also Treas. Reg. §25.2503-3. On appeal, the U.S. Court of Appeals for the Seventh Circuit agreed. Hackl v. Comr., 335 F.3d 664 (7th Cir. 2003).

The Price and Fisher cases.  In 2010, the Tax Court reached the same conclusion in a case that was factually identical to Hackl where the donees lacked the ability to “presently to access any substantial economic or financial benefit that might be represented by the ownership units.”  Price v. Comr., T.C. Memo. 2010-2.  Likewise, a federal district court reached the same result in Fisher v. United States, No. 1:08-cv-0908-LJM-TAB, 2010 U.S. Dist. LEXIS 23380 (S.D. Ind. Mar. 11, 2010).  In Fisher, the taxpayers transferred 4.762 percent membership interests in an LLC to each of their seven children (one-third total interest in the LLC). The LLC’s primary asset was undeveloped land bordering Lake Michigan. The taxpayers claimed present interest annual exclusions for the gifts, but on audit, IRS disagreed on the basis that the gifts were future interests and assessed over a $650,000 gift tax deficiency.

The Fisher court noted that the LLC’s operating agreement specified that any potential of the LLC’s capital proceeds to the taxpayers’ children was subject to numerous contingencies that were completely within the LLC general manager’s discretion. So, consistent with Hackl, the court determined that the right of the children to receive distributions of the LLC’s capital proceeds did not involve a right to a “substantial present economic benefit.” As for the taxpayers’ argument that the children had the unrestricted right to possess, use and enjoy the LLC’s primary asset, the court noted that there was nothing in the LLC’s operating agreement that indicated such rights were transferred to the children when they became owners of the LLC interests. Finally, the court rejected the taxpayers’ argument that the children could unilaterally transfer their LLC interests. The court noted that such transfers could only be made if certain conditions were satisfied – including the LLC’s right of first refusal which was designed to keep the LLC interests within the family. Even if such a transfer stayed within the family, the LLC operating agreement still subjected the transfer to substantial restrictions.  The result was that the court upheld the IRS’ determination that the gifts were not present interest gifts, just as the similarly structured transfers in Hackl and Price didn’t qualify as present interest gifts.

The Wimmer case.  In Estate of Wimmer v. Comr., T.C. Memo. 2012-157, the decedent and his wife established an FLP to invest in land and stocks. The decedent also established a trust for his grandchildren. The trust was a limited partner of the FLP and was set-up as a Crummey Trust. The trust, as a limited partner, received dividends. The decedent and his wife were limited partners and they made gifts of partial limited partner interests on an annual basis consistent with the present interest gift tax exclusion. The gifts of the limited partner interests were significantly restricted, however, under the FLP agreement.

The IRS claimed that the gifts of limited partner interests were not present interests and, as such, were not excluded from the decedent's gross estate. However, the Tax Court concluded that while the donees of limited partner interests did not receive an unrestricted right to the interests, they did receive the right to the income attributable to those interests. The Tax Court also noted that the estate had the burden of establishing that the FLP would generate income and that some portion of that income would flow to the donees on a consistent basis and that the portion could be ascertained. Importantly, the FLP held dividend-producing, publicly traded stock. Thus, the court determined that the income from the stock flowed steadily and was ascertainable. Accordingly, the limited partners received present interests and the gifted amounts were excluded from decedent's estate.  Based on Wimmer, an FLP that makes distributions on at least an annual basis should allow the use of present interest gifting. 

Planning Implications

If a partnership/LLC places sufficient restrictions on gifted interests or the general partner has unfettered discretion to make or withhold distributions, any gift of an interest in the partnership/LLC may be treated as a gift of a future interest that does not qualify for the annual gift tax exclusion.  See, e.g., Tech. Adv. Memo. 9751003 (Aug. 28, 1997).  In Hackl, Price and Fisher, there was no question that the donees had the immediate possession of the gifted interests.  However, even if such interests have vested, the Tax Court (and the appellate court in Hackl) listed numerous factors that led to the conclusion that the gifted interests were not present interests.  Unfortunately, from an estate and business planning perspective, those same factors are typically drafted into operating agreements with the express purpose of generating valuation discounts for estate and gift tax purposes.

So, there’s a trade-off between annual exclusion gifts and valuation discounts.  But, Wimmer may provide a way around the corner on that problem if the FLP generates income and it can be established that at least some of that income will consistently flow to the donees in ascertainable amounts.  Beyond that, there may be other ways to achieve both present interest status for gifts and valuation discounts for transfer tax purposes.  Clearly, from a present interest perspective, the key is to gift equity interests in an entity that give a donee the right to withdraw from the entity, have less restrictions on sale or transfer and make regular distributions to a donee.  Structuring to also take valuation discounts upon death could include drafting the entity’s operating agreement to specify that transferred interests are subject to put rights allowing the transferee the ability to force the entity or another transferee to repurchase the transferee’s interests at a particular price, after a specified date or upon the occurrence of a specified event. That seemingly provides the done with a present interest while preserving valuation discounts. 

In any event, a combined strategy of present interest gifting of entity interests with valuation discounting requires careful drafting.


Present interest gifting is possible via entity interests.  When valuation discounts upon death are also desired, the structuring and drafting becomes complex.  In Part Three, I will focus on additional income tax considerations involving income tax basis as well as income tax issues associated with gifting partnership interests.

September 13, 2021 in Business Planning, Estate Planning | Permalink | Comments (0)

Friday, September 10, 2021

Gifting Assets Pre-Death - Part One


Proposed legislation that would decrease the federal estate tax exemption and the federal gift tax exemption is raising many concerns among farm and ranch families and associated estate and business planning issues.  For farmers and ranchers desirous of keeping the family business intact for the next generation, questions about gifting assets and business interests to the next generation of owners now are commonplace. 

Gifting assets before death – Part One of a series - It’s the topic of today’s post.

Federal Estate and Gift Tax - Current Structure

The current federal estate and gift tax system is a “coupled” system.  A “unified credit” amount generates and “applicable exclusion” of $11.7 per individual for 2021.  That amount can be used to offset taxable gifts during life or offset taxable estate value at death.  It’s and “either/or” proposition.  Any unused exclusion at the time of death can be “ported” over to the surviving spouse and added to the surviving spouse’s own applicable exclusion amount at death. 

However, some gifts are not “taxable” gifts for purposes of using up the unified credit and, in turn, reducing the amount of asset value that can be excluded from federal estate tax at death.

Gifting – The Present Interest Annual Exclusion

Basics.  “Present interest” gifts are not “taxable” gifts and do not reduce the donor’s unified credit.  The present interest annual exclusion amount is a key component of the federal gift tax.  I.R.C. §2503.  The exclusion is presently $15,000 per donee, per year. That means that a donor can make gifts of up to $15,000 per year, per donee (in cash or an equivalent amount of property) without triggering any gift tax, and without any need to file Form 709 – the federal gift tax return.  

Note:   Spouses can elect split gift treatment regardless of which spouse actually owns the gifted property. With such an election, the spouses are treated as owning the property equally, thereby allowing gifts of up to $30,000 per donee. Also, under I.R.C. §2503(e), an unlimited exclusion is allowed for direct payment of certain educational and medical expenses. In effect, such transfers are not deemed to be gifts.

The exclusion “renews” each year and is not limited by the number of potential donees.  It is only limited by the amount of the donor’s funds and interest in making gifts.  Thus, the exclusion can be a key estate planning tool by facilitating the passage of significant value to others (typically family members) pre-death to aid in the succession of a family business or a reduction in the potential size of the donor’s taxable estate, or both. But, to qualify for the exclusion, the gift must be a gift of a present interest – the exclusion does not apply to future interests.

Note:   A present interest gift is one that the recipient is free to use, enjoy, and benefit from immediately.  A gift of a future interest is one where the recipient doesn't have complete use and enjoyment of it until some future point in time. “Strings” are attached to future interest gifts.

Gifts to minors.  I.R.C. §2503(c) specifies that gifts to persons under age 21 at the time of the gift are not future interests if the property and the income from the gift “may be expended by, or for the benefit of, the donee before attaining the age of 21 years, and will to the extent not so expended, pass to the donee on his attaining the age of 21 years, and in the event the donee dies before attaining…age…21…, be payable to the estate of the donee or as he may appoint under a general power of appointment…”.  This provision contemplates gifts to minors in trust with a trustee appointed to manage the gifted property on the minor’s behalf.  But, to qualify as a present interest, the gift still must be an “outright” gift with no strings attached. 

Whether gifts are present interests that qualify for the annual exclusion has been a particular issue in the context of trust gifts that benefit minors. In 1945, the U.S. Supreme Court decided two such cases. In Fondren v. Comr. 324 U.S. 18 (1945) and Comr. v. Disston, 325 U.S. 442 (1945), the donor created a trust that benefitted a minor. In Fondren, the trustee had the discretion to distribute principal and income for the minor’s support, maintenance and education and, in Disston, the trustee had to apply to the minor’s benefit such income “as may be necessary for…education, comfort, and support.” In both cases, the Court determined that the minor was not entitled to any amount of a “specific and identifiable income stream.” So, no present interest was involved. The gifts were determined to be future interests.

What if a transferee has a right to demand the trust property via a right to withdraw the gifted property from the trust? Is that the same as outright ownership such that the gifted property would qualify the donor for an annual exclusion on a per donee basis?  In 1951, the U.S. Court of Appeals for the Seventh Circuit said “yes” in a case involving an unlimited timeframe in which the withdrawal right could be exercised without any time limit for exercising the right. Kieckhefer v. Comr., 189 F.2d 118 (7th Cir. 1951).  But in 1952 the U.S. Court of Appeals for the Second Circuit said “no” because it wasn’t probable that the minor would need the funds. Stifel v. Comr., 197 F.2d 107 (2d Cir. 1952).  In Stifel, the minor’s access to the gifted property was to be evaluated in accordance with how likely it was that the minor would need the funds and whether a guardian had been appointed.

The “breakthrough” case on the issue of gifts to minors and qualification for the present interest annual exclusion came in 1968.  In that year, the U.S. Circuit Court of Appeals for the Ninth Circuit, in Crummey v. Comr., 397 F.2d 82 (9th Cir. 1968), allowed present interest annual exclusions for gifts to a trust for minors that were subject to the minor’s right to demand withdrawal for a limited timeframe without any need to determine how likely it was that a particular minor beneficiary would actually need the gifted property. Since the issuance of the Crummey decision, the “Crummey demand power” technique has become widely used to assure availability of annual exclusions while minimizing the donee’s access to the gifted property.

Gifting – The Income Tax Basis Issue

In general, property that is included in a decedent’s estate receives an income tax basis in the hands of the heir equal to the fair market value of the property as of the date of the decedent’s deathI.R.C. §1014(a)(1).  However, the rule is different for gifted property.  Generally, a donee takes the donor’s income tax basis in gifted property.  I.R.C. §1015(a).  These different rules are often a significant consideration in estate planning and business transition/succession plans. 

With the current federal estate and gift tax exemption at $11.7 million for decedent’s dying in 2021 and gifts made in 2021, gifting assets to minimize or eliminate potential federal estate tax at death is not part of an estate or succession plan for very many.  But, if a current proposal to reduce the federal estate tax exemption to $3.5 million and peg the gift tax exemption at the $1 million level would become law, then gifting to avoid estate tax would be back in “vogue.”  However, legislation currently under consideration would change the basis rule with respect to inherited property.  The proposal is to limit the fair market at death income tax basis rule to $1 million in appreciated value before death, and apply a “carry-over” basis to any excess.  An exception would apply to farms and ranches that remain in the family and continue to be used as a farm or ranch for at least 10 years following the decedent’s death.  Gifted property would retain the “carry-over” basis rule. 

Another proposal would specify death as an income tax triggering event causing tax to be paid on the appreciated value over $1 million, rather than triggering tax on appreciated value when the heir sells the appreciated property.  If any of these proposals were to become law, the planning horizon would have to be reevaluated for many individuals and small businesses, particularly farming and ranching operations. 

Still another piece of the proposed legislation would limit present interest gifts to $10,000 per donee and $20,000 per donor on an annual (it appears, although this is not entirely clear) basis. 

Note:  At this time, it remains to be seen whether these proposed changes will become law.  There is significant push-back among farm-state legislators from both aisles and small businesses in general.


Even if the rules change surrounding the exemption from federal estate tax and/or the income tax basis rule at death, and/or the timing of taxing appreciation in wealth, gifting of assets during life will still play a role in farm and ranch business/succession planning.  A big part of that planning involves taking advantage of the present interest annual exclusion to avoid reducing the available federal estate tax exemption at death. 

September 10, 2021 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Wednesday, September 8, 2021

Recent Tax Developments in the Courts


The courts continue to issue opinions involving important tax issues not only farmers and ranchers, but opinions on issues that impact a broader range of taxpayers.  In today’s post I highlight a few of the recent developments involving dependency; conservation easements; the ability to deduct NOLs; whether the “Roberts Tax” is a tax; whether losses are passive; and the deductibility of theft losses.

Recent court developments in tax law – it’s the topic of today’s post

Taxpayer Caring for Brother’s Children Entitled to Child-Related Tax Benefits

Griffin v. Comr., T.C. Sum. Op. 2021-26

During the tax year in issue, the petitioner lived with and cared for her mother at the petitioner’s home. She received compensation for caring for her mother through a state agency. For more than one-half of the tax year, the petitioner also cared for her niece and nephews because their father (her brother) was a disabled single parent. The niece and nephews stayed with her overnight from mid-May to mid-August and on weekends during school closures and on holidays. While they were with her, she paid for their food, home utility use and entertainment. On her 2015 return she claimed dependency exemption deductions for the children and child tax credits as well as the earned income tax credit. On audit and during the examination, the brother provided a signed form 8332, but the petitioner did not attach it to her return. The IRS denied the dependency exemptions, the child tax credits and the earned income tax credit. The Tax Court, rejecting the IRS position, noted that the children stayed with the petitioner for more than one-half of the tax year and that the petitioner’s testimony was credible to establish that the children were “qualifying children” for purposes of I.R.C. §152. Because none of them had reached age 17 during the tax year, the petitioner was entitled to a child tax credit for each one. Also, because I.R.C. §32 uses the same definition of “qualifying child” as does I.R.C. §152, the petitioner was entitled to the earned income tax credit. 

IRS Provides Deed Language for Conservation Easement Donations

CCA 202130014 (Jun. 16, 2021)

The IRS has noted that a deed language for a donated conservation easement to a qualified charity fails to satisfy the requirements of I.R.C. §170(h) if the deed contains language that subtracts from the donee’s extinguishment proceeds the value of post-donation improvements or the post-donation increase in value of the property attributable to improvements. Such language violates Treas. Reg. §1.170A-14(g)(6)(ii) unless, as provided in Treas. Reg. §1.170A-14(g)(6). The IRS has provided sample language adhering to Treas. Reg. §1.170A-14(g)(6)(ii) that would not cause the issue from arising on audit. The language specifically states that on any subsequent sale, exchange or involuntary conversion of the property subject to the easement, the done is entitled to a portion of the proceeds at least equal to the proportionate value of the perpetual conservation restriction. 

NOL Not Available Due to Lack of Documentation

Martin v. Comr., T.C. Memo. 2021-35

The petitioners, a married couple, has NOLs from 1993-1997 (which could be carried back three years and forward 15 years) that were being used to offset income in 2009 and 2010. The petitioners provided their 1993 and 1994 tax returns, but the returns did not include a detailed schedule related to the NOLs. Based on the information provided, the Tax Court determined that the petitioners had, at most, an NOL of $782,584 in 1993 and $666,002 in 1992 or earlier. Consequently, $1,448,586 of the NOL had expired in 2008 and was not available to offset income in 2009 or 2010. Thus, the petitioners had a potential NOL of $257,125 for their 1994 return. The Tax Court pointed out that the petitioners bore the burden of substantiating NOLs by establishing their existence and the carryover amount to the years at issue. That requires a statement be include with the return establishing the amount of the NOL deduction claimed, including a detailed schedule showing how the taxpayer computed the NOL deduction. The petitioners also filed bankruptcy in 1998. The Tax Court determined that the $257,125 NOL for 1994 was zeroed-out in the bankruptcy. The petitioners provided some information from their 1997-2007 returns which seemed to show Schedule C losses for some years, but had no documentation. They claimed that the NOLs should be allowed because they had survived prior audits of their 20072008 and 2011-2012 returns. The Tax Court pointed out that each year stands on its own and the fact that the IRS didn’t challenge an item on a return in a prior year is irrelevant to the current year’s treatment. Due to the lack of documentation the Tax Court denied any NOL deduction for 2009 or 2010. 

“Roberts Tax” is Not a Tax

In re Juntoff, No. 20-13035, 2021 Bankr. LEXIS 995 (Bankr. N.D. Ohio Apr. 15, 2021)

The court held that the “shared-responsibility” payment of Obamacare is not an income tax because it is not measured based on income or gross receipts. The court determined that it also was not an excise tax because an individual’s not purchasing minimum essential coverage was not a transaction. Thus, the payment was not on a transaction. Thus, the “Roberts Tax” was not a tax entitled to priority treatment in bankruptcy under 11 U.S.C. §507(a)(8). The court noted it’s disagreement with the holding in In re Szczyporski, No. 2:20-cv-03133, 2021 U.S. Dist. LEXIS 61628 (E.D. Pa. Mar. 31, 2021) on the same issue.

Losses Not Passive and Fully Deductible 

Padda v. Comr., T.C. Memo. 2020-154

The petitioner, a married couple, worked full-time as physicians. They also owned and operated a pain management clinic. During 2008-2012, they also opened five restaurants and a brewery with a 50 percent partner in the same general location as their medical practices. Each restaurant and the brewery operated in a separate LLC. For the years 2010-2012, they deducted nonpassive losses of more than $3 million from these businesses. The IRS claimed that the losses were passive and, thus, nondeductible. The petitioners couldn’t substantiate their participation, but did have some records showing trips and time spent at the various locations. They were also able to obtain sworn statements from 12 witnesses about the petitioners’ involvement in the construction and operation on a daily basis over the years. The Tax Court found the witnesses credible. The Tax Court determined that the petitioners had satisfied the material participation requirement of Temp. Treas. Reg. §1,469-5T(a)(4) because their hours in the non-medical activities exceeded the 100 hours required for each one to be considered a significant participation activity and exceeded the 500-hour threshold. The Tax Court therefore rejected the IRS argument that the restaurants and brewery were passive activities. The claimed losses were currently deductible. 

No Theft Loss Deduction

Torres v. Comr., T.C. Memo. 2021-66

The petitioner was the president, CEO and sole shareholder of an S corporation that he cofounded with Ruzendall. From about 2010 forward, Ruzendall was no longer a shareholder but continued to manage the S corporation’s books and records. The petitioner became ill in 2016 and was unable to work and relied on others to handle the taxes for the business. Upon a bookkeeper’s advice, Ruzendall was issues a Form 1099-Misc. for 2016 reporting $166,494 in non-employee compensation. In 2018, the petitioner sued Ruzendall for misappropriation of funds, alleging a loss from embezzlement. In 2019, an amended Form 1120-S was filed. The IRS denied a deduction for embezzlement and the alternative claim as a deduction for compensation. The Court looked to the definition of embezzlement under state law. One of the requirements is an intent to defraud. The taxpayer did not offer evidence the woman intended to defraud the company and denied the deduction. The Court also noted that even if a theft loss occurred it was discovered in 2017, not 2016 and, therefore, could only be deducted in the year of discovery. The Court also denied the taxpayer's alternate argument of a deduction for compensation, but on the taxpayer's claim he did not mention the woman was entitled to compensation. The Court denied the alternative argument. 


There are so many relevant and key developments practically on a daily basis.  I’ll be posting soon on where this fall’s tax update seminars will be held at and when online updates will be occurring. 

September 8, 2021 in Income Tax | Permalink | Comments (0)

Sunday, September 5, 2021

When Does a Partnership Exist?


The Uniform Partnership Act defines a partnership as an association of two or more persons to carry on as co-owners a business for profit. Uniform Partnership Act, §6.  As an estate planning device, the partnership is generally conceded to be less complex and less costly to organize and maintain than a corporation.  A general partnership is comprised of two or more partners.  There is no such thing as a one-person partnership, but there is no maximum number of partners that can be members of any particular general partnership.

Sometimes interesting legal issues arise as to whether a particular organization is, in fact, a partnership.  If there is a written partnership agreement, that usually settles the question of whether the arrangement is a partnership.  Unfortunately, relatively few farm or ranch business relationships are based upon a written partnership agreement or, as it is expressed in some cases, a set of articles of partnership.  

When does a partnership exist – it’s the topic of today’s post. 

Informality Creates Questions

If there is no written partnership agreement, one of the questions that may arise is whether a landlord/tenant lease arrangement constitutes a partnership.  Unfortunately, the great bulk of farm partnerships are oral.  Because a partnership is an agreement between two or more individuals to carry on as co-owners a business for profit, a partnership generally exists when there is a sharing of net income and losses. See, e.g., In re Estate of Humphreys, No. E2009-00114-COA-R3-CV, 2009 Tenn. App. LEXIS 716 (Tenn. Ct. App. Oct. 28, 2009). This also tracks the U.S. Supreme Court’s definition of a partnership as the sharing of income and gains from the conduct of a business between two or more persons.  Comr. v. Culbertson, 337 U.S. 733(1949). This rule has been loosely codified in I.R.C. §761, which also includes a “joint venture” in the definition of a partnership. 

A crop-share lease shares gross income, but not net income because the tenant still has some unique deductions that are handled differently than the landlord's deductions.  For example, the landlord typically bears all of the expense for building maintenance and repair, but the tenant bears all the expense for machinery and labor.  Thus, there is not a sharing of net income, and the typical crop-share lease is, therefore, not a partnership.  Likewise, a livestock share lease is usually not a partnership because both the landlord and the tenant will have unique expenses.  But, if a livestock share lease or a crop-share lease exists for some time and the landlord and tenant start pulling out an increased amount of expenses and deducting them before dividing the remaining income, then the arrangement will move ever closer to partnership status.  When the arrangement arrives at the point where there is a sharing of net income, a partnership exists.

Conduct Counts

This means that a partnership can exist in certain situations based on the parties’ conduct rather than intent.  Does the form of property ownership constitute a partnership?  By itself, the answer is generally “no.” See, e.g., Kan. Stat. Ann. §56a-202.  Thus, forms of ownership of property (including joint ownership) do not by themselves establish a partnership “even if the co-owners share profits made by the use of the property.”  See, e.g., Kan. Stat. Ann. §56a-202(c)(1).  Also, if a share of business income is receive in payment of rent, a presumption that the parties would otherwise be in a partnership does not apply.  See, e.g., Kan. Stat. Ann. §56a-202(c)(3)(iii). 

Tax Code, Tax Court and IRS Views

The United States Tax Court, in Luna v. Comr., 42 T.C. 1067 (1964) set forth eight factors to consider in determining the existence of a partnership for tax purposes.  In Luna, the Tax Court considered whether the parties in a business relationship had informally entered into a partnership under the tax Code, allowing them to claim that a payment to one party was intended to buy a partnership interest.  To determine whether the parties formed an informal partnership for tax purposes, the Tax Court asked "whether the parties intended to, and did in fact, join together for the present conduct of an undertaking or enterprise."  The Tax Court listed non-exclusive factors to determine whether the intent necessary to establish a partnership exists. 

The eight factors set forth in Luna are:

  • The agreement of the parties and their conduct in executing its terms;
  • The contributions, if any, which each party has made to the venture;
  • The parties' control over income and capital and the right of each to make withdrawals;
  • Whether each party was a principal and co-proprietor, sharing a mutual proprietary interest in the net profits and having an obligation to share losses, or whether one party was the agent or employee of the other, receiving for his services contingent compensation in the form of a percentage of income;
  • Whether business was conducted in the joint names of the parties;
  • Whether the parties filed federal partnership returns or otherwise represented to the IRS or to persons with whom they dealt that they were joint ventures;
  • Whether separate books of account were maintained for the venture;
  • Whether the parties exercised mutual control over and assumed mutual responsibilities for the enterprise

A recent Tax Court case is instructive on the application of the Luna factors.  In White v. Comr., T.C. Memo. 2018-102, the petitioner was approached by his ex-wife, about forming a mortgage company and, along with their respective spouses, they orally agreed to work together in the real estate business in 2010 or 2011. The business was conducted informally, and no tax professionals were consulted.  In 2011, the petitioner withdrew funds from his retirement account to support the business.  The ex-wife and her new husband did not make similar financial contributions.  Each of the “partners” handled various aspects of the business.  The petitioner initially used his personal checking account for the business, until business accounts could be opened.  Some accounts listed the petitioner as “president” and his wife as treasurer, but other business accounts were designated as “sole proprietorship” with the petitioner’s name on the account.  The petitioner controlled the business funds and used business accounts to pay personal expenses and personal accounts to pay business expenses.  Records were not kept of the payments.  Business funds were also used to pay the ex-wife’s personal expenses. 

The Tax Court applied the Luna factors and concluded that the business was not a partnership for tax purposes. The Tax Court determined that all but one of the Luna factors supported a finding that a partnership did not exist. To begin with, the parties must comply with a partnership.  There was no equal division of profits; the parties withdrew varying sums from the business; the petitioner claimed personal deductions for business payments; the ex-wife and her new spouse could have received income from sources other than their share of the business income; and there was no explanation for how payments shown on the ex-wife’s return ended up being deposited into the business bank account. 

Alternatively, the court concluded that even if a partnership existed, there was no reliable evidence of the partnership's total receipts to support an allocation of income different from the amounts that the IRS had determined by its bank deposits analysis.

When applying the Luna factors to typical farming/ranching arrangements, it is relevant to ask the following:

  • Was Form 1065 filed for any of the years at issue (it is required for either a partnership or a joint venture)?
  • Did the parties commingle personal and business funds?
  • Were any partnership bank accounts established?
  • Was there and distinct treatment of income and expense between business and personal expenses?
  • How do the parties refer to themselves to the public?
  • How do the parties represent themselves to the Farm Service Agency?
  • Are the business assets co-owned?

An informal farming arrangement can also be dangerous from an income tax perspective.  Often

taxpayers attempt to prove (or disprove) the existence of a partnership in order to split income

and expense among several taxpayers in a more favorable manner or establish separate ownership of interests for estate tax purposes.  However, such a strategy is not always successful, as demonstrated in the following case.  See, e.g., Speelman v. Comr., 41 T.C.M. 1085 (1981).

Liability and other Legal Concerns

Why all of the concern about whether an informal farming arrangement could be construed legally as a partnership?  Usually, it is the fear of unlimited liability.  Partners are jointly and severally liable for the debts of the partnership that arose out of partnership business.  It is this fear of unlimited liability that causes parties that have given thought to their business relationship to have written into crop-share and livestock-share leases a provision specifying that the arrangement is not to be construed as a partnership. 

The scenarios are many in which legal issues arise over the question of whether a partnership exists and gives rise to some sort of legal issue.  For example, in Farmers Grain Co., Inc. v. Irving 401 N.W.2d 596 (Iowa Ct. App. 1986), the plaintiff extended credit to the defendant who was a tenant under an oral livestock share lease.  Upon default of the loan, the defendant filed bankruptcy and the plaintiff tried to bind the landlord to the debt under a partnership theory.  The court held that a partnership had not been formed where the landlord did not participate in the operation, no joint bank accounts were established, and gross returns were shared rather than net profits. 

In Tarnavsky v. Tarnavsky, 147 F.3d 674 (8th Cir. 1998), the court determined that a partnership did exist where the farming operation was conducted for a profit, the evidence established that the parties involved intended to be partners and business assets were co-owned.

Oral business arrangements can also create unanticipated problems if one of the parties involved in the business dies.  In In re Estate of Palmer, 218 Mont. 285, 708 P.2d 242 (1985), the court determined that a partnership existed even though title to the real estate and the farm bank account were in joint tenancy.  As such, the surviving spouse of the deceased “partner” was entitled to one-half of the farm assets instead of the land and bank account passing to the surviving joint tenant.


Formality in business relationships can go along way to avoiding legal issues and costly court proceedings when expectations don’t work out as anticipated.  Putting agreements in writing by professional legal counsel often outweighs the cost of not doing so.

September 5, 2021 in Business Planning, Income Tax | Permalink | Comments (0)

Tuesday, August 31, 2021

Is There a Constitutional Way To Protect Animal Ag Facilities?


In response to attempts by activist groups opposed to animal agriculture, legislatures in several states over the last 30 years have enacted laws designed to protect specified livestock facilities from certain types of interference.  Some of the laws have been challenged on free speech and equal protection grounds with a few courts issuing opinions that have largely found the laws constitutionally suspect.  Most recently, the statutes in Iowa and Kansas were construed by two different U.S. Circuit Courts of Appeals. 

Recent court developments involving legislative attempts to protect confinement animal agriculture – it’s the topic of today’s article.

General Statutory Construct

The basic idea of state legislatures that have attempted to provide a level of protection to livestock facilities is to bar access to an animal production facility under false pretenses.  At their core, the laws attempt to prohibit a person having the intent to harm a livestock production facility from gaining access to the facility (such as via employment) to then commit illegal acts on the premises.  See, e.g., Iowa Code §717A.3A.  Laws that bar lying and trespass coupled with the intent to do physical harm to an animal production facility likely are not constitutionally deficient.  Laws that go beyond those confines may be. 

Recent Court Opinions

2017 developments.  2017 saw several courts issue opinions on various state provisions.  In North Carolina, a challenge to the North Carolina statutory provision was dismissed for lack of standing. People for the Ethical Treatment of Animals v. Stein, 259 F. Supp. 3d 369 (M.D. N.C. 2017). The plaintiffs, numerous animal rights activist groups, brought a pre-enforcement challenge to the North Carolina Property Protection Act.  They claimed that the law unconstitutionally stifled their ability to investigate North Carolina employers for illegal or unethical conduct and restricted the flow of information those investigations provide.  As noted, the court dismissed the case for lack of standing. On appeal, however, the appellate court reversed.  PETA, Inc. v. Stein, 737 Fed. Appx. 122 (4th Cir. 2018).  The appellate court determined that the plaintiffs had standing to challenge the law through its “chilling effect” on their First Amendment rights to investigate and publicize actions on private property.  They also alleged a reasonable fear that the law would be enforced against them. 

The Utah law, however, was deemed unconstitutional. Animal Legal Defense Fund v. Herbert, 263 F. Supp. 3d 1193 (D. Utah 2017). At issue was Utah Code §76-6-112 which criminalizes the entering of a private agricultural livestock facility under false pretenses or via trespass to photograph, audiotape or videotape practices inside the facility.  While the state claimed that lying, which the statute regulates, is not protected free speech, the court determined that only lying that causes “legally cognizable harm” falls outside First Amendment protection. The state also argued that the act of recording is not speech that is protected by the First Amendment. However, the court determined that the act of recording is protectable First Amendment speech. The court also concluded that the fact that the speech occurred on a private agricultural facility did not render it outside First Amendment protection. The court determined that both the lying and the recording provisions of the Act were content-based provisions subject to strict scrutiny. To survive strict scrutiny the state had to demonstrate that the restriction furthered a compelling state interest. The court determined that “the state has provided no evidence that animal and employee safety were the actual reasons for enacting the Act, nor that animal and employee safety are endangered by those targeted by the Act, nor that the Act would actually do anything to remedy those dangers to the extent that they exist.”  For those reasons, the court determined that the Act was unconstitutional. 

A Wyoming law experienced a similar fate. Western Watersheds Project v. Michael, 869 F.3d 1189 (10th Cir. 2017), rev’g., 196 F. Supp. 3d 1231 (D. Wyo. 2016).  In 2015, two new Wyoming laws went into effect that imposed civil and criminal liability upon any person who "[c]rosses private land to access adjacent or proximate land where he collects resource data." Wyo. Stat. §§6-3-414(c); 40-27-101(c). The appellate court, reversing the trial court, determined that because of the broad definitions provided in the statutes, the phrase "collects resource data" included numerous activities on public lands (such as writing notes on habitat conditions, photographing wildlife, or taking water samples), so long as an individual also records the location from which the data was collected. Accordingly, the court held that the statutes regulated protected speech in spite of the fact that they also governed access to private property. While trespassing is not protected by the First Amendment, the court determined that the statutes targeted the “creation” of speech by penalizing the collection of resource data. 

Ninth Circuit.  In early 2018, the U.S. Circuit Court of Appeals for the Ninth Circuit issued a detailed opinion involving the Idaho statutory provision.  Animal Legal Defense Fund v. Wasden, 878 F.3d 1184 (9th Cir. 2018)The Ninth Circuit’s opinion provides a roadmap for state lawmakers to follow to provide at least a minimal level of protection to animal production facilities from those that would intend to do them economic harm.  According to the Ninth Circuit, state legislation can bar entry to a facility by force, threat or trespass.  Likewise, the acquisition of economic data by misrepresentation can be prohibited.  Similarly, criminalizing the obtaining of employment by false pretenses coupled with the intent to cause harm to the animal production facility is not constitutionally deficient.  However, provisions that criminalize audiovisual recordings are suspect. 

Eighth Circuit.  In 2021, the U.S. Court of Appeals for the Eighth Circuit construed the Iowa law and upheld the portion of it providing for criminal penalties for gaining access to a covered facility by false pretenses.  Animal Legal Defense Fund v. Reynolds, No. 19-1364, 2021 U.S. App. LEXIS 23643 (8th Cir. Aug. 10, 2021).  This is the first time that any federal circuit court of appeals has upheld a provision that makes illegal the gaining of access to a covered facility by lying.   

Conversely, the court held that the employment provision of the law (knowingly making a false statement to obtain employment) violated the First Amendment because the law was not limited to false claims that were made to gain an offer of employment.  Instead, the provision provided for prosecution of persons who made false statements that were incapable of influencing an offer of employment.  A prohibition on immaterial falsehoods was not necessary to protect the State’s interest – such as false exaggerations made to impress the job interviewer.  The court determined that barring only false statements that were material to a hiring decision was a less restrictive means to achieve the State’s interest. 

Note.  The day before the Eighth Circuit issued its opinion concerning the Iowa law, it determined that plaintiffs challenging a comparable Arkansas law had standing the bring the case.  Animal Legal Defense Fund v. Vaught, No. 20-1538, 2021 U.S. App. LEXIS 23502 (8th Cir. Aug. 9, 2021). 

Tenth Circuit.  In Animal Legal Defense Fund, et al. v. Kelly, No. 20-3082, 2021 U.S. App. LEXIS 24817 (10th Cir. Aug. 19, 2021), the court construed the Kansas provision that makes it a crime to take pictures or record videos at a covered facility “without the effective consent of the owner and with the intent to damage the enterprise.”  The plaintiffs claimed that the law violated their First Amendment free speech rights.  The State claimed that what was being barred was conduct rather than speech and that, therefore, the First Amendment didn’t apply.  But, the court tied conduct together with speech to find a constitutional violation – it was necessary to lie to gain access to a covered facility and consent to film activities.  As such, the law regulated protected speech (lying with intent to cause harm to a business) and was unconstitutional.  The court determined that the State failed to prove that the law narrowly tailored to a compelling state interest in suppressing the “speech” involved.  The dissent pointed out (correctly and consistently with the Eighth Circuit) that “lies uttered to obtain consent to enter the premises of an agricultural facility are not protected speech.” The First Amendment does not protect a fraudulently obtained consent to enter someone else’s property. 


There presently is a split between the Eighth and Tenth Circuits on the constitutionality of the Iowa and Kansas laws with respect to the issue of gaining access to a covered facility by lying.  That’s a key point.  If access can be barred by sifting out liars with intent to do a covered facility harm, then the video issue is largely mooted.  The issues will likely continue in the courts for the foreseeable future.

August 31, 2021 in Regulatory Law | Permalink | Comments (0)

Sunday, August 29, 2021

Checkoffs and Government Speech – The Merry-Go-Round Revolves Again


The research and promotion of numerous ag products is funded by the producers that raise the commodities via “checkoff” programs.  Sometimes producers object to the content and manner of various promotions and claim that being compelled to fund the offensive advertising is private speech that they cannot be compelled to fund.  But, is a mandatory checkoff private speech or is it constitutionally protected government speech?  Recently the U.S. Court of Appeals addressed the question again in the context of the beef checkoff. 

Checkoff programs and the Constitution – it’s the topic of today post.


Legislation has established mandatory assessments for promotion of particular agricultural products.  An assessment (or “checkoff”) is typically levied on handlers or producers of commodities with the collected funds to be used to support research promotion and information concerning the product.  Such checkoff programs have been challenged on First Amendment free-speech grounds.  For example, in United States v. United Foods, Inc., 533 U.S. 405 (2001), the U.S. Supreme Court held that mandatory assessments for mushroom promotion under the Mushroom Promotion, Research, and Consumer Identification Act violated the First Amendment.  The assessments were directed into generic advertising, and some handlers objected to the ideas being advertised.  In an earlier decision, the Court had upheld a marketing order that was part of a greater regulatory scheme with respect to California tree fruits.  Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S. 457, rev’g, 58 F. 3d 1367 (9th Cir. 1995).  In that case, producers were compelled to contribute funds for cooperative advertising and were required to market their products according to cooperative rules.  In addition, the marketing orders had received an antitrust exemption.  None of those facts was present in the United Foods case, where the producers were entirely free to make their own marketing decisions and the assessments were not tied to a marketing order. The Supreme Court did not address, however, whether the checkoffs at issue were government speech and, therefore, not subject to challenge as an unconstitutional proscription of private speech.

The Government Speech Issue

In Livestock Marketing Association v. United States Department of Agriculture, 335 F.3d 711 (8th Cir. 2003), the Eighth Circuit held unconstitutional the beef checkoff authorized under the Beef Promotion and Research Act of 1985.  The court ruled that the mandatory assessment of one dollar per-head violated the free-speech rights of those who objected to the generic advertising of beef funded by the check-off because cattle producers and sellers were not regulated nearly to the extent the California tree fruit industry was regulated in Wileman Brothers.  As such, the beef industry was similar to the mushroom industry, and United Foods controlled. The court also ruled that the beef checkoff did not constitute government speech. 

The Supreme Court agreed to hear the Livestock Marketing Association case on the narrow grounds of whether the beef checkoff was government speech.  The Court reversed the Eighth Circuit and upheld the check-off as government speech. Johanns v. Livestock Marketing Association, 544 U.S. 550 (2005).  The case involved (in the majority’s view) a narrow facial attack on whether the statutory language of the Act created an advertising program that could be classified as government speech. That was the only issue before the Court.

Elements of constitutionality.  While the government speech doctrine is relatively new and is not well-developed, prior Supreme Court opinions not involving agricultural commodity checkoffs indicated that to constitute government speech, a checkoff must clear three hurdles: (1) the government must exercise sufficient control over the content of the check-off to be deemed ultimately responsible for the message; (2) the source of the checkoff assessments must come from a large, non-discrete group; and (3) the central purpose of the checkoff must be identified as the government’s. Based on that analysis, it was believed that the beef checkoff would clear only the first and (perhaps) the third hurdle, but that the program would fail to clear the second hurdle. Indeed, the source of funding for the beef check-off comes from a discrete identifiable source (cattle producers) rather than a large, non-discrete group. The point is that if the government can compel a targeted group of individuals to fund speech with which they do not agree, greater care is required to ensure political accountability as a democratic check against the compelled speech. That is less of a concern if the funding source is the taxpaying public which has access to the ballot box as a means of neutralizing the government program at issue and/or the politicians in support of the program. While the dissent focused on this point, arguing that the Act does not establish sufficient democratic checks, Justice Scalia, writing for the majority, opined that the compelled-subsidy analysis is unaffected by whether the funds for the promotions are raised by general taxes or through a targeted assessment. That effectively eliminates the second prong of the government speech test. The Court held that the other two requirements were satisfied because the Act vests substantial control over the administration of the checkoff and the content of the ads in the USDA Secretary.

The Supreme Court, in Johanns, did not address (indeed, the issue was not before the Court) whether the advertisements, most of which are credited to “America’s Beef Producers,” give the impression that the objecting cattlemen (or their organizations) endorse the message. Because the case only involved a facial challenge to the statutory language of the Act, the majority examined only the Act’s language and concluded that neither the statute nor the accompanying Order required attribution of the ads to “America’s Beef Producers” or to anyone else. Thus, neither the statute nor the Order could be facially invalid on this theory. However, the Court noted that the record did not contain evidence from which the Court could determine whether the actual application of the checkoff program resulted in the message of the ads being associated with the plaintiffs. Indeed, Justice Thomas, in his concurring opinion, noted that the government may not associate individuals or organizations involuntarily with speech by attributing an unwanted message to them whether or not those individuals fund the speech and whether or not the message is under the government’s control. Justice Thomas specifically noted that, on remand, the plaintiffs could possibly amend their complaint to assert an attribution claim which ultimately could result in the beef checkoff being held unconstitutional. If that occurred, and the ads were found to be attributable to the complaining ranchers or their associated groups, the beef checkoff could still be held to be unconstitutional.

In the first check-off opinion rendered by a federal court after the U.S. Supreme Court’s opinion in the beef check-off case, the Federal District Court for the Central District of California issued a preliminary injunction against enforcement of the California Pistachio check-off on the basis that the plaintiffs were likely to succeed on the merits of their claim that the program was unconstitutional.  Paramount Land Co., et al. v. California Pistachio Comm’n, No. 2:05-cv-05-07156-mmm-pjw (C.D. Cal. Dec. 12, 2005). The court reasoned, based on Johanns, that the check-off was not government speech and that the industry regulation of the marketing aspects of pistachios was more like the regulatory aspects of the Mushroom industry at issue in United Foods than the regulatory aspects of the California tree fruit industry at issue in Glickman. However, on appeal, the district court’s opinion was reversed. Paramount Land Company, LP v. California Pistachio Commission, 491 F.3d 1003 (9th Cir. 2007). The appellate court determined that the First Amendment was not implicated because, consistent with Johanns, the Secretary of the California Department of Food and Agriculture retained sufficient authority to control both the activities and the message under the Pistachio Act.  The court reasoned that the fact that the Secretary had not actually played an active role in controlling pistachio advertising could not be equated with the Secretary abdicating his regulatory role. In another California case, a court held that milk producer assessments used for generic advertising to stimulate milk sales were constitutional under the Johanns rationale. Gallo Cattle Co. v. A.G. Kawamura, 159 Cal. App. 4th 948, 72 Cal. Rptr. 3d 1 (2008).

Recent Case

The government speech issue came up again in the context of the beef checkoff in Ranchers Cattlemen Action Legal Fund United Stockgrowers of America v. Vilsack, No. 20-35453, 2021 U.S. App. LEXIS 22189 (9th Cir. Jul. 27, 2021).  The plaintiff represents cattlemen that are subject to the $1 per head of cattle sold in the United States federal beef checkoff created under the Beef Promotion and Research Act of 1985.  The checkoff funds promotions to “maintain and expand domestic and foreign markets and uses for beef and beef products.”  The USDA Secretary, the defendant in the case, oversees the checkoff through the Cattlemen’s Beef Promotion and Research Board that consists of members the Secretary appoints.  A qualified state beef council typically collects the checkoff, retains half of the amount collected to fund state marketing efforts and forwards the balance to the federal program.  A cattle producer may opt out of funding their state beef council and direct the entire assessment to the federal program. 

The plaintiff’s members object to their states’ advertising campaigns, and claim in particular that the distribution of funds to the Montana Beef Council under the federal program is an unconstitutional compelled subsidy of private speech. Later, the plaintiff amended its complaint to include numerous other states where it had members.  The trial court entered a preliminary injunction preventing the use of checkoff funds for promotional campaigns absent the producers' consent.  On the merits, the trial court determined that by virtue of a memorandum of understanding that the Montana Beef Council and the other state beef councils had entered into with the defendant, the defendant had sufficient control over the promotional program to make the speech of the various state beef councils effectively government speech. 

On appeal, the appellate court affirmed.  The appellate court noted that the critical question in determining whether speech is public or private is whether the speech is “effectively controlled” by the government.  The appellate court determined that the challenged speech was.  Under the memorandums of understanding, the state beef councils had to submit for the defendant’s pre-approval “any and all promotion advertising, research, and consumer information plans and projects" and "any and all potential contracts or agreements to be entered into by state beef councils for the implementation and conduct of plans or projects funded by checkoff funds." The state beef councils also had to submit "an annual budget outlining and explaining . . . anticipated expenses and disbursements" and a "general description of the proposed promotion, research, consumer information, and industry information programs contemplated.”  Failure to comply could lead to the defendant’s de-certification of a state beef council.  The appellate court noted that this established "final approval authority over every word used in every promotional campaign,” and constituted government speech.   In addition, all private contracted third parties that were not subject to pre-approval were “effectively controlled” by the government.  The appellate court noted that the Congress expressly contemplated the participation of third parties in the beef checkoff program, designating several "established national nonprofit industry-governed organizations" with whom the Operating Committee could contract to "implement programs of promotion." 

In addition, the appellate also pointed out that the state beef councils had to give the defendant notice of all board meetings and allow the defendant or his designees to participate in any discussions about payment to third parties.  It was this ability to control speech that was the key rather than whether the defendant exercised final pre-approval authority over some third-party speech. On that point, the appellate court noted it had previously ruled similarly in 2007 in the Paramount Land Company, LP case.


If by use of a memorandum of understanding the USDA is able to create sufficient theoretical control over a checkoff to transform the program into government speech, there isn’t much of a viable path forward for claiming that a checkoff isn’t government speech.  Any future challenge, as Justice Thomas pointed out in Johanns, would have to clearly and convincingly posit that an unwanted message is being attributed to particular producers. 

August 29, 2021 in Regulatory Law | Permalink | Comments (0)

Saturday, August 28, 2021

Livestock Confinement Buildings and S.E. Tax


In addition to income tax, a tax of 15.3 percent is imposed on the self-employment income of every individual.  Clearly, if a farmer constructs a confinement building, places their own livestock in the building, provides all management and labor, and pays all expenses, the net profit from the activity will be subject to self-employment tax.  But, what if the livestock production activity conducted in the confinement building is done so under a contract with a third party?  Is the farmer’s net income from the activity subject to self-employment tax in that situation?

Livestock confinement buildings and self-employment tax – it’s the topic of today’s post.


Self-employment income is defined as “net earnings from self-employment.”  The term “net earnings from self-employment” is defined as gross income derived by an individual from a trade or business that the individual conducts.  I.R.C. §1402.  In general, income derived from real estate rents (and personal property leased with real estate) is not subject to self-employment tax unless the arrangement involves an agreement between a landowner or tenant and another party providing for the production of an agricultural commodity and the landowner or tenant materially participates. I.R.C. §§1402(a)(1) and 1402(a)(1)(A).  For rental situations not involving the production of agricultural commodities where the taxpayer materially participates, rental income is subject to self-employment tax if the operation constitutes a trade or business “carried on by such individual.”  See, e.g., Rudman v. Comr., 118 T.C. 354 (2002)Similarly, an individual rendering services is subject to self-employment tax if the activity rises to the level of a trade or business.  In general, to be subject to self-employment tax, an activity must be engaged in on a substantial basis with continuity and regularity.

Livestock Confinement Buildings and Contract Production

Does self-employment tax apply to the net income derived from livestock production activities conducted in a farmer’s confinement building pursuant to a contract with a third party?  As with many tax answers, “it depends.”

The U.S. Tax Court provided guidance on the issue in 1995.  In Gill v. Comr., T.C. Memo. 1995-328, a corporation that produced, processed and marketed chicken products bought breeder stock from primary breeders and placed them in farmer-owned buildings for 20 weeks.  The placement of the chicks with individual farmers was done in accordance with production contracts.  The petitioners (two different farmers) constructed broiler barns with the corporation’s assistance in obtaining financing and established that the petitioners had the ability to maintain their facilities.  Each contract was for 10 years and the corporation paid the petitioners a fixed monthly amount tied to the space inside each building ($.045 per month/per square foot) that was supplemented over time to reflect inflation.  The petitioners were required to perform certain maintenance items, inspections and general flock management responsibilities. 

The petitioners did not report the income received under the contracts as subject to self-employment tax.  They claimed that they did not materially participate in the production or the management of the production of the poultry in the barns that they leased to the corporation.  As such, they claimed that the payments they received were excluded from the definition of “net earnings from self-employment” as “rents from real estate.”   

The Tax Court disagreed.  The Tax Court noted that the apparent intent of the Congress was to exclude from self-employment tax only those payments for use of space and, by implication, such services as are required to maintain the space in condition for occupancy.  Thus, when a taxpayer performs additional services of a substantial nature that compensation for the additional services can be said to constitute a material part of the payment the made to the owner, the payment is income that is attributable to the performance of labor.  It’s not incidental to the realization of return from a passive investment, and the payment is included in the computation of the taxpayer’s “net earnings from self-employment.”  Applying the analysis to the facts, the Tax Court determined that the petitioners (and their children) performed each and every task necessary to raise the flocks of birds that the corporation delivered.  This constituted material participation subjecting the contract payments to self-employment tax.  The payments were not excluded from net earning from self-employment as “real estate rents.”  See also Schmidt v. Comr., T.C. Memo. 1997-41. 

Planning Considerations

Many ag production contracts like the ones at issue in Gill require the farmer/producer to perform substantial services in connection with the production of the livestock or poultry.  Therein lies the problem.  To avoid having the income subjected to self-employment tax, the farmer/building owner must not participate to a significant degree in the production activities or bear a substantial risk of loss.

So, are there any planning avenues to address the self-employment tax issue?  One option may be to split the contractual arrangement into two separate agreements.  One agreement would be strictly for the “rental” of the building with IRS Form 1099 issued for the rental income.  Given the typical high capital costs for livestock confinement buildings, a return on capital shown as “rent” should not be unreasonable.  A second agreement would be entered into providing for herd/flock management with the issuance of a separate Form 1099 for non-employee compensation or a Form W-2 for wages.  These payments would be subject to self-employment tax or FICA tax. 

Another approach was established by the Tax Court in 2017.  In Martin v. Comr., 149 T.C. 293 (2017), the petitioners, a married couple, operated a farm in Texas.  In late 1999, they built the first of eight poultry houses to raise broilers under a production contract with a large poultry integrator.  The petitioners formed an S corporation in 2004, and set up oral employment agreements with the S corporation based on an appraisal for the farm which guided them as to the cost of their labor and management services.  They also pegged their salaries at levels consistent with other growers.  The wife provided bookkeeping services and the husband provided labor and management.  In 2005, they assigned the balance of their contract to the S corporation.  Thus, the corporation became the “grower” under the contract.  In 2005, the petitioners entered into a lease agreement with the S corporation.  Under the agreement, the petitioners rented their farm to the S corporation, under which the S corporation would pay rent of $1.3 million to the petitioners over a five-year period.  The court noted that the rent amount was consistent with other growers under contract with the integrator.  The petitioners reported rental income of $259,000 and $271,000 for 2008 and 2009 respectively, and the IRS determined that the amounts were subject to self-employment tax because the petitioners were engaged in an “arrangement” that required their material participation in the production of agricultural commodities on their farm.

The Tax Court determined that the “derived under an arrangement” language in I.R.C. §1402(a)(1) meant that a nexus had to be present between the rents the petitioners received and the “arrangement” that required their material participation.  In other words, there must be a tie between the real property lease agreement and the employment agreement.  The court noted the petitioners received rent payments that were consistent with the integrator’s other growers for the use of similar premises. That fact was sufficient to establish that the rental agreement stood on its own as an appropriate measure of return on the petitioners’ investment in their facilities.  Similarly, the employment agreement was appropriately structured as a part of the petitioners’ conduct of a legitimate business.  Importantly, the Tax Court noted that the IRS failed to brief the nexus issue and simply relied on the Tax Court to broadly interpret “arrangement” to include all contracts related to the S corporation.  Accordingly, the Tax Court held that the petitioners’ rental income was not subject to self-employment tax.


Aside from the “two-check” approach, leases should be drafted to carefully specify that the landlord is not providing any services or participating as part of the rental arrangement.  Services and labor participation should remain solely within the domain of the employment agreement.  In addition, leases where the landlord is also participating in the lessee entity must be tied to market value for comparable land leases.  See e.g., Johnson v. Comm'r, T.C. Memo. 2004-56.  If the rental amount is set too high, the IRS could argue that the lease is part of “an arrangement” that involves the landlord’s services. See, e.g., Solvie v. Comm'r, T.C. Memo. 2004-55.  If the lessor does provide services, a separate employment agreement should put in writing the duties and compensation for those services. 

Whether self-employment tax is incurred or not will likely be determined by the extent of involvement the owner retains with regard to the confinement building.  But, a word of caution.  With the ability to claim substantial depreciation and large interest expense payments (associated with financing the confinement building), a loss could be created.  Thus, classification of the arrangement as a rental activity with no self-employment tax may not be the best tax strategy.  Instead, the preference might be to offset the loss against self-employment income.  This last point raises a question.  Can a taxpayer “change horses” mid-stream when the confinement building is sufficiently paid for such that interest expense is lower and, also, depreciation deductions have dropped significantly?  Can the contract then be modified at that point so that self-employment tax is avoided? 

Interesting tax planning questions.

August 28, 2021 in Income Tax | Permalink | Comments (0)

Sunday, August 22, 2021

Planning to Avoid Elder Abuse


Many people have had or will have a family member in need of in-home or nursing home care.  Medical issues are often frequently associated with advanced age.  Those issues can result in at least part-time care or, in some cases, a full-time in-home nursing aide or even institutionalized care. 

A significant concern of family members of a loved one requiring some level of nursing care, whether by an in-home aide or in a nursing home, is the potential for abuse, particularly financial abuse, of their family member.  What steps can be taken to minimize the potential for elder abuse? 

Planning steps to take to avoid elder abuse – it’s the topic of today’s post.

Tax Court Saga

A unique place to find an example to use for discussing elder abuse is in a U.S. Tax Court opinion.  But elder abuse was certainly involved in Alhadi v. Comr., T.C. Memo. 2016-74.  The case involved Dr. Marsh.  He was born into a Montana farm family in 1915.  After World War II, he moved to California and practiced optometry.  He never married and lived a frugal life in his small second story apartment.  He invested his money prudently and grew the sum to over $3 million. 

At age 85 Dr. Marsh fell and broke his hip.  He rehabilitated, but by the time he reached age 91 he could no longer drive, couldn’t prepare his own food and couldn’t go to the doctor by himself.  He suffered from hearing and vision loss and also had a stroke.  He was eventually diagnosed with dementia and cognitive decline.  His short-term memory was diminished, and he had trouble recalling details about his personal assets and finances.  He also suffered from incontinence, atrial fibrillation, congestive heart failure, hypertension, chronic back pain, and arthritis,

Dr. Marsh eventually outlived his siblings and had no other family members, and at age 91 was hospitalized again for his numerous conditions.  His doctor determined that he could not be discharged unless in-home care was arranged for him.  A hospital employee, Ms. Alhadi learned that Dr. Marsh wouldn’t be discharged without in-home care.  Even though the hospital had a policy that employees couldn’t solicit work from patients, Ms. Alhadi slipped a note to Dr. Marsh offering her services for in-home care.  He accepted her offer and she became his primary caregiver.  Dr. Marsh initially paid her by the hour, but then switched payment to a $6,000 per month amount – more than 50 percent above the going rate.  He also paid her an additional monthly amount for groceries.  Within a few months, she used the money she received from Dr. Marsh to put a down payment on a $1 million home and began to pressure him to help her with the mortgage payments.  Over the next few months, Dr. Marsh wrote her checks totaling $400,000.  She used the money to pay off her husband's $80,000 interest in their old home and to remodel her new home. Dr. Marsh also bought $7,000 worth of furniture for her, and she paid $8.,000 for a new stone façade, $34,000 for landscaping work at the new home and $73,000 for a new pool complete with a spa and a "therapeutic turtle mosaic."

Ms. Alhadi also convinced Dr. Marsh to pay $25,000 for a cruise.  She took him along but left him alone sitting in the sun while she spent time with her own children.  Dr. Marsh later couldn’t remember paying for the cruise and was surprised when he was shown the check he had written. 

Dr. Marsh had a niece that lived in Seattle that would call him each Sunday evening, but within a year of Ms. Alhadi becoming his primary caregiver, she encountered difficulty in reaching him.  Ultimately, neither she nor any other relatives could get in touch with Dr. Marsh.  Ms. Alhadi, would tell Dr. Marsh that she loved him and suggested that they get married.  She would sit in front of him and cry about her financial struggles. 

Ms. Alhadi divorced her husband, and in the divorce action didn’t disclose any of the money that she was being paid for her in-home care job.  She hired a tax preparer to prepare her 2007 return, but again didn’t disclose the income from her in-home care work.  However, on mortgage applications for her new home, she did disclose the income received from working for Dr. Marsh. 

By the end of 2008, Dr. Marsh had written checks to her totaling almost $800,000.  She then got Dr. Marsh to write her five more checks worth $100,000 each.  Because most of Dr. Marsh’s wealth was held in Vanguard Group mutual funds, a Vanguard representative questioned why five checks were written in a short timeframe.  On Vanguard’s recorded calls with Dr. Marsh, Ms. Alhadi could be heard in the background coaching him.  Vanguard suspected fraud, dishonored the checks and suspended his accounts. Vanguard also suspected elder abuse and sent a report to the California Department of Health and Human Services.  An investigator checked into the matter and learned about what had been happening.  Ms. Alhadi also took Dr. Marsh to an estate attorney to try to have him name her his agent under a power of attorney so that she could get the Vanguard accounts unblocked.  She also wanted Dr. Marsh to have a will prepared that named her as the beneficiary. 

Finally, the state filed a petition in state court to put Dr. Marsh under a temporary guardianship.  The court granted the petition in January of 2009 on two grounds – 1) his assets were at risk; and 2) he wasn’t being provided even a bare minimum of care.  The court’s description of his living conditions in his apartment were truly disgusting.  The next month, Dr. Marsh died.  Ms. Alhadi appeared at the funeral screaming and made an attempt to get into Dr. Marsh’s casket with him. 

In 2010, Dr. Marsh’s trust settled a lawsuit it had brought against Ms. Alhadi.  The trust recovered $310,000 in cash, but the home was lost to foreclosure, and she had spent the balance of the money.  Ultimately, the IRS caught up with Ms. Alhadi and sent her a notice of deficiency for 2007 and 2008 for over $1 million.  She claimed in Tax Court that the funds she received from Dr. Marsh were either loans or nontaxable gifts.  The Tax Court agreed with the IRS that they were neither.  Rather, the amounts totaling over $900,000 in checks were taxable income subject to self-employment tax.  The Tax Court noted that Dr. Marsh never referred to the amounts provided to her as anything other than compensation and that, in any event, she never had any intent to repay the amounts.  The funds were also not gifts because any donative intent on Dr. Marsh’s part was negated by undue influence.  The Tax Court also upheld penalties, including the fraud penalty of I.R.C. §6663

Avoiding Elder Abuse

The saga of Dr. Marsh and his in-home aide is a sorrowful tale.  What steps can be taken to minimize the likelihood of elder abuse happening to a loved one of yours?  Consider the following suggestions:

  • Keep your eyes and/or ears open. Be alert for situations where a vulnerable person can be taken advantage of.  Clearly, in Dr. Marsh’s situation, his niece should have taken the time to physically visit him.  A surprise visit might be the key to spotting abuse.
  • Stay on top of the cognitive ability of the family member. Cognitive ability is not always tied to age, but it’s a good idea to have cognitive ability professionally evaluated.  Those in cognitive decline can more easily be manipulated by others with nefarious goals.
  • Make sure you know the nature and extent of the loved one’s assets before in-home or nursing home care begins. Include all assets, including household and personal assets.  It’s the small things that be taken without anyone noticing.  The only way to determine if assets or funds are missing is to know what exists at the start.  Then, commit to a periodic review of income and assets. 
  • It might be a good idea to have a family member control the loved one’s mail. Setting up direct deposit for incoming checks, etc., can also be a good idea.
  • Monitor receipts. If an aide is buying groceries and supplies, require that receipts be retained and then commit to checking them at least periodically.
  • Negotiate a contract with the aide that builds in a vacation. During the time the aide is on vacation, make sure the substitute is not related to or a colleague of the normal full-time aide.  The vacation time can tend to reveal issues if the normal full-time aide is not there for several consecutive days.    
  • Make sure valuables are kept in a safety deposit box or in a safe that the aide can’t access.
  • Make sure that appropriate legal documents are in place. This includes a power of attorney for financial and health care decisions as well as a will or a trust. 


I am sure that the list of planning steps could include additional suggestions.  But the basic point is to stay on top of the situation and not leave the family member to the complete discretion of an aide.  That can go along way toward avoiding the disastrous elder abuse situation that befell Dr. Marsh.

August 22, 2021 in Estate Planning | Permalink | Comments (0)

Thursday, August 19, 2021

The Illiquidity Problem of Farm and Ranch Estates


Concerns about the possibility of a reduction in the federal estate tax exemption is significant in agriculture.  If a significant drop in the exemption would impact the farming or ranching business, is there a plan in place to pay the resulting tax?  It’s a real problem because ag estates are typically illiquid – as you’ve probably heard it said, ag estates are often “asset rich, but cash poor.” 

The issue of illiquidity in an ag estate, and some thoughts on what can be done about it – it’s the topic of today’s post.

The Problem of Illiquidity

Farmers and ranchers engaged in the production of agricultural commodities often face the same estate and succession planning problems that confront all businesses.  But there are unique issues that face those engaged in agriculture, and the law often treats farm and ranch businesses differently than it does other business types. In numerous other posts, I have highlighted these differences.  Entity structuring can aid in taking advantage of some of those differences.  But, those differences often don’t provide any relief from a common issues for agricultural estates – that of illiquidity.  capital assets, but little cash or assets that are readily convertible into cash.  If the federal estate tax exemption falls significantly as current proposed legislation promises to do starting next year, an estate’s tax bill could pose a significant burden.  That raises a question – has the estate plan been structured in a manner that provides liquidity to pay costs associated with death?  Planning for the potential problem of illiquidity at death That means that planning for this potential problem at should be part of the farm and ranch estate plan.

What is at the heart of the liquidity (or the lack thereof) issue?  Farming and ranching often involves a substantial investment in farm capital assets (land, buildings, equipment, etc.).  It also commonly involves large borrowings that can carry significant interest charges.  This is typically coupled with fluctuating income (or loss) from year-to-year because of diverse weather and market conditions.  On the positive side, ag land values tend to rise over the long-term, but short-term shocks to the land market do occur and can present timing issues for the estate planner.  All of these factors require the use of estate planning strategies that will minimize death taxes and estate administration costs, preserve liquidity of the estate and provide for a systematic and economic disposition (or continuance) of the farm business on the death of the farm owner. In addition, it’s important that the estate plan take full advantage of the ag-tailored tax provisions designed to alleviate the tax burdens of farmers.

Illiquidity of the farm or ranch estate makes it difficult for the estate executor to find readily available cash, or assets that are readily convertible to cash, with which to pay monetary legacies (such as the buy-out of an off-farm heir), administration costs, debts, taxes and other estate obligations. Planning to improve the liquidity of the estate before death can prevent losses which might otherwise be incurred through a quick or forced sale of estate assets to meet post-death obligations.  It can also avoid the necessity of borrowing funds and can avoid post-death disputes (and possible litigation) among beneficiaries over the sale of assets.  Planning can  also help minimize the resulting income and capital gain taxes triggered by assets sold to generate funds to pay obligations associated with death. 

Pre-Death Liquidity Planning 

Where an objective of the estate plan is to preserve as much of the farm business in the hands of the farmer’s heirs, proper planning for liquidity can minimize or eliminate the sale of farm assets. Various steps can be taken during the lifetime of the farmer or rancher to improve the liquidity of the estate. Some common planning steps include deliberately building up liquid assets; buying life insurance; properly using buy-sell agreements; and utilizing other available techniques to reduce the potential estate tax liability at death. 

One approach to liquidity planning is to make a current estimate of existing monetary obligations that the estate is expected to face upon death.  Given the current uncertain status of the transfer tax system, the estimate should involve various projections based on anticipated levels of the federal estate tax exemption and applicable rates at death, with those estimates serving as a rough guide to the amount of funds needed in the estate. The plan should be reviewed periodically to account for changes in asset values.

During profitable years, post-tax investments can provide additional liquidity.  While farmers and ranchers tend to reinvest any surplus back into farm/ranch capital assets, a liquidity planning strategy might be to invest surplus funds in liquid assets such as interest-bearing bank deposits and marketable stocks and bonds. Likewise, surplus funds could be invested in other agricultural real estate with a potential for appreciation, such as from development, with an eye toward later sale.  This could be accomplished without interfering with any objective to keep the original farming operation in-tact for subsequent generations of the farm family. 

Life insurance under a policy on the life of the estate owner can provide an appropriate amount of cash for the estate.  Those funds can then be used to meet estate obligations upon death. This can substantially improve estate liquidity. But care must be exercised to minimize or eliminate estate tax on the life insurance proceeds.  This can be accomplished by properly structuring the ownership of the policy and the beneficiary designation(s). 

Where the farm is operated in partnership or corporate form, a buy-sell agreement among partners or stockholders is often a good planning tool.  A well-drafted buy-sell agreement with well-defined triggering events that is properly funded (likely with life insurance) can ensure that there will be a buyer for the decedent’s ownership interest upon death.  Likewise, a buy-sell agreement can ensure that the estate will have liquid funds from the sale of the decedent’s interest in the farming/ranching entity. 

There are also provisions included in the tax Code that can aid in providing liquidity at death.  Special use valuation allows the agricultural land in the estate to be valued at its use value for agricultural purposes rather than fair market value at death.  I.R.C. §2032A.  There are many rules that must be satisfied for the executor of the decedent’s estate to make a special use valuation election and reduce the land value in the estate by up to (for 2021) $1,190,000.  In addition, the family (knowns as “qualified heirs”) must continue to farm the elected land for 10 years (and, possibly, 12 years) after the decedent dies. 

Another Code provision allows the decedent’s estate to pay federal estate tax in installments over 15 years coupled with a special rule for interest payments.  I.R.C. §6166Normally, federal estate tax is due nine months after the date of the decedent’s death.  But, again, this is a complex provision that requires proper pre-death planning for the estate executor to utilize it. 


The possibility of a decline in the federal estate tax exemption raises real concerns about liquidity in an ag estate.  While the estate of a farmer or rancher valued at $12 million net worth at death would presently have no federal estate tax bill, for instance, that same estate would likely owe more than $2 million in federal estate tax if the exemption were to drop to $3.5 million as currently proposed.  That makes liquidity planning very important to farm and ranch families – particularly those intending on keeping the family business intact for future generations. 

August 19, 2021 in Business Planning, Estate Planning | Permalink | Comments (1)

Monday, August 16, 2021

Ag Law Summit


On Friday, September 3, I will be hosting an “Ag Law Summit” at Nebraska’s Mahoney State Park.  This one-day conference will address numerous legal and tax issues of current relevance.  The conference will also be broadcast live online.

The Ag Law Summit – it’s the topic of today’s post.

Topics and Speakers

Proposed legislation and policy implications.  The day begins with my overview of what’s happening with proposed legislation that would impact farm and ranch estate and business and income tax planning.  Many proposals are being discussed that would dramatically change the tax and transfer planning landscape.  From the proposed lowering of the federal estate tax exemption, to the change in the step-up basis rule at death, to changes in the rules governing gifts, there is plenty to discuss.  But, the list goes on.  What about income tax rates and exemptions?  What about capital gain rates?  There are huge implications if any of these changes are made, let alone all of them.  What does the road forward for ag producers look like?  What changes need to be made to keep the family farm intact?  The discussion during this session should be intense!

State ag law update.  Following my discussion of what is going on at the federal level, the discussion turns to the state level.  Jeff Jarecki, an attorney with Jarecki Lay & Sharp P.C. out of Albion and Columbus, NE will team up with Katie Weichman Zulkoski to teach this session.  Katie is a lawyer in Lincoln, NE that works in lobbying and government affairs.  They will provide a NE legislative update specific to agriculture and review significant federal developments that impact agriculture – including the current Administration’s proposed 30 by 30 plan.

Farm succession planning.  After the morning break.  Dan Waters, a partner in the Lamson, Dugan & Murray firm in Omaha will get into the details of the mechanics of transitioning a farming/ranching business to subsequent generations.  How do you deal with uncertainty in the factors that surround estate and business planning such as commodity prices, land values, taxation, and government programs?  This session will examine various case studies and the use of certain tools to address the continuity question. 

Luncheon.  During the catered lunch, the speaker is Janet Bailey.  Janet has been involved in ag and food policy issues for many years and has an understanding of rural issues.  Her presentation will be addressed to legal and tax professionals that represent rural clients.  How can you maintain a vibrant practice in a rural community?  What other value does a rural practice bring to the local area?  The session’s focus is on the importance of tax and legal professionals to small towns in the Midwest and Plains.

Special use valuation.  If the federal estate tax exemption is reduced, the ability to value the ag land in a decedent’s estate at it’s value for ag purposes rather than fair market value will increase in importance.  During this session, I will provide an overview of the key points involved in this very complex provision of the tax Code.  What steps need to be taken now to ensure that the eventual decedent’s estate qualifies to make the special use valuation election on the federal estate tax return?  How do farmland leases impact the qualification for the election and avoidance of recapture tax being imposed?  Those are just a couple of the topics that will be addressed.

Ag entrepreneur’s toolkit.  This final session for the day will cover the business and tax law feature of limited liability companies.  The session is taught by Prof. Ed Morse of the Creighton University School of Law and Colten Venteicher, an attorney with the Bacon, Vinton, Venteicher firm in Gothenburg, Nebraska.  They will address some of the practical considerations for how to properly use the LLC in the context of farm and ranch businesses. 

Online Broadcast

The Summit will be broadcast online for those unable to attend in-person.  Washburn Law is an NASBA CPE provider. The program will qualify in the taxes area for the minutes noted next to each presentation for both the online and in-person attendees.  The goal of the Summit is tto continue providing good legal and tax educational information for practitioners with a rural client base.  That will aid in the provision of excellent legal and tax services for those rural clients and will, in turn, benefit the associated rural communities.

We hope that you will join us either in-person or online for the Summit on September 3.  For more information and to register, click here:

August 16, 2021 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (2)

Saturday, August 14, 2021

Farm Valuation Issues


It is not uncommon for farmers to encounter the need to have their farm assets valued.  Lenders, for instance, have a keen interest in understanding the value of assets utilized in the farming operation.  Also, valuation is an issue when estate, business and succession planning is engaged in.  What are the valuation issues that are associated with estate and business planning for farmers and ranchers? 

Valuing farm and ranch assets – it’s the topic of today’s post

Real Estate Valuation

Number of acres.  Farmland is typically the asset of largest value in a farmer’s estate.  That makes it important to arrive at an accurate measure of market value.  The starting point is to correctly denote the number acres.  What are the total acres?  What are the taxable acres?  What are the tillable acres?  Often “total acres” defines the total area within a legal description and makes no reference to quality or any restrictions on title, such as easements.  “Taxable acres” is tied to assessed acres, and “tillable acres” are those that are used in crop production.  Recent developments in technology have made it easier to more accurately determine tillable acres, and certifications to the USDA can also determine tillable acres.  But, “tillable acres” does not include areas that can’t be farmed – waterways, fence rows, timber land, creeks etc.  Make sure that the valuation is accurately measuring the type of land at issue and breaks it out properly. 

Legal descriptions.  Make sure that legal descriptions are accurate.  Local government offices such as the County Recorder and County Auditor can be helpful on this.  They can review a legal description and should be able to determine if any part of the legal description has been transferred.  They can also help to determine how the land at issue is owned – individually, in some form of entity, in fee simple, in life estate, etc. 

Zoning.  For farmland, zoning issues are usually not much of an issue.  But, if an airport is nearby there could be issues that come into play that would restrict the height of structures on the property.  That could impact the ability to erect a cell tower, aerogenerator, or even impact the use of drones on the property. 

Some rural counties do have zoning rules that separate farm uses from non-farm rural homeowners.  When those rules apply, they can impact large-scale confinement operations.  However, each state has a right-to-farm law and in some states, counties do not have the authority to zone “agriculture.”  Of course, the key to that issue is what constitutes “agriculture.”  That’s an issue that either state law defines, or the courts have determined the parameters of in judicial opinions. 

Appraisal.  Getting some type of formal valuation of farmland is critical to gaining a proper understanding of the land’s worth for planning purposes.  One approach is to use a certified appraisal, while another approach is to use an estimate of selling price based on comparable sales.  In any event, some attempt needs to be made to get an accurate view of the land’s fair market value.  Land markets are tricky, and appraisals have their drawbacks and may need to be supplemented with additional data that might not be incorporated into the appraisal, such as local buyer strength, distance to local markets and similar features.  There can also be some unique situations that provide inaccurate data about land values.  Discount the reliability of data involving individual sales and look at larger pool of sale data from your area or region.  The state land-grant university ag land sale/survey data is a good place to start.  That data is typically broken down by region of the state and by land type and whether the land is irrigated or not.  The USDA/ERS (Economic Research Service) also provides survey data of land values on its website.  


Valuing livestock is usually not as difficult as valuing land.  Daily market prices exist for just about all types of livestock.  The key is to make sure to understand and properly note differences in livestock with respect to gender, and whether the livestock are to be used for breeding, dairy or meat production purposes.  So, if you know your categories and weight ranges in those categories you will get an accurate picture of value.  Also, livestock can be affected by health issues and catastrophes that can wipe out value very quickly. 


It is easy to come up with an accurate value for most agricultural crops.  They are valued in a similar manner to that of livestock.  There is a daily market price that is readily accessible.  But, factors that can influence the bottom line regardless of the daily market price include quality and the cost to deliver the commodity to market. 

Valuing fruits and vegetable can be a bit trickier.  Most of those types of agricultural crops do not have any reliable daily market price, and there may not be any type of reasonable guarantee that the fruit or vegetable can be sold at its highest valued use.  Many of these crops are sold via production contract, so that can determine value, but there are risks associated with production contracts that can affect value, such as the contracting processor terminating the contract. 

Also, valuation issues can arise when growing crops need to be valued, perhaps because of the death of the farmer.  Some states, such as Iowa, have specific regulations that apply to establish the value of growing crops.  The IRS also has regulations that provide guidance in this area.  Relatedly, predicting harvest yields is highly speculative.  But it might be possible to use the amount of the potential harvest that is insured as a basis for determining a yield when valuing a growing crop.


Under the Obama/Biden Administration, the Treasury Department issued proposed regulations that that would have denied minority discounts in family-controlled entities.  Thankfully, the Trump Administration directed the Treasury to repeal those regulations.  But, there is a much greater likelihood now that those regulations will come back.  If they do, that will be problematic for many farming and ranching operations – particularly so if the exemption from the federal estate tax is reduced significantly as is currently proposed.

In recent decades, discounts for minority interest and lack of marketability have been recognized by the courts as a necessary element in arriving at the true fair market value of a gifted or inherited interest in a family business.  But, if the valuation regulations return they would foreclose many, if not all, of those planning opportunities.  Those regulations represent the Treasury’s attempt to redefine value in just about any manner it desires, and is a movement away from the time-tested (and judicially validated) willing-buyer/willing-seller test.  If the Treasury does resurrect those rules and finalize them in the form they had previously been in, you can expect court challenges that will take years to arrive at a final determination on their validity.


Valuation issues arise often in agriculture. Land is the big item to determine value accurately to the best of one’s ability.  Crops and livestock are usually fairly easy to get an accurate valuation, at least for Midwest type agricultural crops.  But, as always, good valuation numbers will help for financial, tax, and estate, business and succession planning purposes.  Valuation issues will become a bigger issue if the federal transfer tax rules change significantly. 

August 14, 2021 in Business Planning, Estate Planning, Real Property | Permalink | Comments (0)

Monday, August 9, 2021

California’s Regulation of U.S. Agriculture


In a huge blow to pork producers (and consumers of pork products) nationwide, the U.S. Court of Appeals for the Ninth Circuit has upheld California’s Proposition 12.  Proposition 12 requires any pork sold in California to be raised in accordance with California’s housing requirements for hogs.  This means that any U.S. hog producer, by January 1, 2022, will need to upgrade existing facilities to satisfy California’s requirements if desiring to market pork products in California. 

Each state sets its own rules concerning the regulation of agricultural production activities.  So, how can one state override other states’ rules?  Involved is a judicially-created doctrine known as the dormant Commerce Clause.

California Proposition 12, the dormant Commerce Clause and the ability of a state to dictate ag practices in other states – it’s the topic of today’s post.


The Commerce Clause.  Article I Section 8 of the U.S. Constitution provides in part, “the Congress shall have Power...To regulate Commerce with foreign Nations and among the several states, and with the Indian Tribes.”  The Commerce Clause, on its face, does not impose any restrictions on states in the absence of congressional action.  However, the U.S. Supreme Court has interpreted the Commerce Clause as implicitly preempting state laws that regulate commerce in a manner that disrupts the national economy.  This is the judicially-created doctrine known as the “dormant” Commerce Clause. 

The “dormant” Commerce Clause.  The dormant Commerce Clause is a constitutional law doctrine that says Congress's power to "regulate Commerce ... among the several States" implicitly restricts state power over the same area.  In general, the Commerce Clause places two main restrictions on state power – (1) Congress can preempt state law merely by exercising its Commerce Clause power by means of the Supremacy Clause of Article VI, Clause 2 of the Constitution; and (2) the Commerce Clause itself--absent action by Congress--restricts state power.  In other words, the grant of federal power implies a corresponding restriction of state power.  This second limitation has come to be known as the "dormant" Commerce Clause because it restricts state power even though Congress's commerce power lies dormant. Willson v. Black Bird Creek Marsh Co., 27 U.S. 245 (1829).  The label of “dormant Commerce Clause” is really not accurate – the doctrine applies when the Congress is dormant, not the Commerce Clause itself.

Rationale.  The rationale behind the Commerce Clause is to protect the national economic market from opportunistic behavior by the states - to identify protectionist actions by state governments that are hostile to other states.  Generally, the dormant Commerce Clause doctrine prohibits states from unduly interfering with interstate commerce.  State regulations cannot discriminate against interstate commerce.  If they do, the regulations are per se invalid.  See, e.g., City of Philadelphia v. New Jersey, 437 U.S. 617 (1978).  Also, state regulations cannot impose undue burdens on interstate commerce.  See, e.g., Kassel v. Consolidated Freightways Corp., 450 U.S. 662 (1981).  Under the “undue burden” test, state laws that regulate evenhandedly to effectuate a local public interest are upheld unless the burden imposed on commerce is clearly excessive in relation to the local benefits.     

The Court has never held that discrimination between in-state and out-of-state commerce, without more, violates the dormant Commerce Clause.  Instead, the Court has explained that the dormant Commerce Clause is concerned with state laws that both discriminate between in-state and out-of-state actors that compete with one another, and harm the welfare of the national economy.  Thus, a discriminatory state law that harms the national economy is permissible if in-state and out-of-state commerce do not compete.  See, e.g., General Motors Corp. v. Tracy, 117 S. Ct. 811, 824-26 (1997).  Conversely, a state law that discriminates between in-state and out-of-state competitors is permissible if it does not harm the national economy. H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525 (1949). 

California Proposition 12 Litigation

In 2018, California voters passed Proposition 12.  Proposition 12 bans the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California’s regulatory standards.  Proposition 12 established minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and calves raised for veal. Specifically, the law requires that covered animals be housed in confinement systems that comply with specific standards for freedom of movement, cage-free design and minimum floor space. The law identifies covered animals to include veal calves, breeding pigs and egg-laying hens. The implementing regulations prohibit a farm owner or operator from knowingly causing any covered animal to be confined in a cruel manner, as specified, and prohibits a business owner or operator from knowingly engaging in the sale within the state of shell eggs, liquid eggs, whole pork meat or whole veal meat, as defined, from animals housed in a “cruel manner.”  In addition to general requirements that prohibit animals from being confined in a manner that prevents lying down, standing up, fully extending limbs or turning around freely, the measure added detailed confinement space standards for farms subject to the law. The alleged reason for the law was to protect the health and safety of California consumers and decrease the risk of foodborne illness and the negative fiscal impact on California. 

In late 2019, several national farm organizations challenged Proposition 12 and sought a declaratory judgment that the law was unconstitutional under the dormant Commerce Clause.  The plaintiffs also sought a permanent injunction preventing Proposition 12 from taking effect.  The plaintiffs claimed that Proposition 12 impermissibly regulated out-of-state conduct by compelling non-California producers to change their operations to meet California’s standards.  The plaintiffs also alleged that Proposition 12 imposed excessive burdens on interstate commerce without advancing any legitimate local interest by significantly increasing operation costs without any connection to human health or foodborne illness.  The trial court dismissed the plaintiffs’ complaint.  National Pork Producers Council, et al. v. Ross, No. 3:19-cv-02324-W-AHG (S.D. Cal. Apr. 27, 2020). 

On appeal, the plaintiffs focused their argument on the allegation that Proposition 12 has an impermissible extraterritorial effect of regulating prices in other states and, as such, is per se unconstitutional.  This was a tactical mistake for the plaintiffs.  The appellate court noted that existing Supreme Court precedent on the extraterritorial principle applied only to state laws that are “price control or price affirmation statutes.”  National Pork Producers Council, et al. v. Ross, No. 20-55631, 2021 U.S. App. LEXIS 22337 (9th Cir. Jul. 28, 2021).  Thus, the extraterritorial principle does not apply to a state law that does not dictate the price of a product and does not tie the price of its in-state products to out-of-state prices.  Because Proposition 12 was neither a price control nor a price-affirmation statute (it didn’t dictate the price of pork products or tie the price of pork products sold in California to out-of-state prices) the law didn’t have the extraterritorial effect of regulating prices in other states. 

The appellate court likewise rejected the plaintiffs’ claim that Proposition 12 has an impermissible indirect “practical effect” on how pork is produced and sold outside California.  Id.  Upstream effects (e.g., higher production costs in other states) the appellate court concluded, do not violate the dormant Commerce Clause.   The appellate court pointed out that a state law is not impermissibly extraterritorial unless it regulates conduct that is wholly out of state.  Id.  Because Proposition 12 applied to California and non-California pork production the higher cost of production was not an impermissible effect on interstate commerce.

The appellate court also concluded that inconsistent regulation from state-to-state was permissible because the plaintiffs had failed to show a compelling need for national uniformity in regulation at the state level.  Id.  In addition, the appellate court noted that the plaintiffs had not alleged that Proposition 12 had a discriminatory effect on interstate commerce. 

Simply put, the appellate court rejected the plaintiffs’ challenge to Proposition 12 because a law that increases compliance costs (projected at a 9.2 percent increase in production costs that would e passed on to consumers) is not a substantial burden on interstate commerce in violation of the dormant Commerce Clause. 

On to the Supreme Court?

Earlier this summer, the U.S. Supreme Court declined to review Proposition 12.  North American Meat Institute v. Bonta, No. 20-1215, 2021 U.S. LEXIS 3405 (S. Ct. Jun. 28, 2021).  Will the Court now take up the decision of the Ninth Circuit if requested?  That remains to be seen.  Unfortunately, the Supreme Court has been careless in applying the anti-discrimination test, and in many cases, neither of the two requirements--interstate competition or harm to the national economy--is ever mentioned.  See, e.g., Hughes v. Oklahoma, 441 U.S. 322 (1979). The reason interstate competition goes unstated is obvious – in most cases the in-state and out-of-state actors compete in the same market.  But, the reason that the second requirement, harm to the national economy, goes unstated is because the Court simply assumes the issue away.


The dormant Commerce Clause is something to watch for in court opinions involving agriculture.  As states enact legislation designed to protect the economic interests of agricultural producers in their states, those opposed to such laws could challenge them on dormant Commerce Clause grounds.  But, such cases must be plead carefully to show an impermissible regulation of extraterritorial conduct. 

In the present case, practically doubling the cost of creating hog barns to comply with the California standards was not enough, nor was the interconnected nature of the pork industry.  California gets to call the shots concerning the manner of U.S. pork production for pork marketed in the state.  This, in spite of overarching federal food, health and safety regulations that address California’s purported rationale for Proposition 12.

The dormant commerce clause is one of those legal theories “floating” around out there that can have a real impact in the lives of farmers, ranchers and consumers, and how economic activity is conducted.  

August 9, 2021 in Regulatory Law | Permalink | Comments (0)

Thursday, August 5, 2021

Weather-Related Sales of Livestock


I just returned from a speaking trip that took me through several states in the West.  While many parts of Kansas have had plentiful rainfall this Spring and Summer, many parts of the West have not.  Much of the West is struggling with drought and fire this summer and a smoky haze lingers over many areas. 

Sometimes drought and other weather conditions can cause livestock owners to sell more livestock than normally would be sold in a particular year.  When that happens, special tax rules can apply to address the additional income triggered by the excess sales. 

Weather-related sales of livestock – it’s the topic of today’s post

Two Provisions

There are two statutory deferral strategies available to defer the income from excess livestock sold over normal business practice if the sale was on account of a weather-related condition.

Involuntary conversion.  If a farmer sells livestock (other than poultry) held for draft, dairy or breeding purposes in excess of the number that would normally be sold during the time period, the sale or exchange of the excess number may be treated as a nontaxable involuntary conversion if the sale occurs because of drought, flood, fire or other weather-related condition.  I.R.C. §1033(e).

The livestock sold or exchanged must be replaced within two years after the year in which proceeds were received with livestock similar or related in service or use (in other words, dairy cows for dairy cows, for example), and be held for the same purpose that the animals given were held. Treas. Reg. §1.1033(e)-1(d). This is why, for example, dairy cows can be replaced with dairy cows, but they can’t be replaced with breeding animals.  But, if the taxpayer can prove that it is not feasible to reinvest the proceeds in property similar or related in use, the proceeds can be reinvested in other property used for farming purposes (except real estate).  Similarly, if it is not feasible to reinvest the proceeds from involuntarily converted livestock into other like-kind livestock due to soil or other environmental contamination, the proceeds can be invested into property that is not like-kind or real estate used for farming purposes.  I.R.C. §1033(f). 

The tax on the sale is triggered when the replacement animals are sold.

The two-year replacement period is extended to four years in areas designated as eligible for assistance by the federal government (i.e., by the President or any agency or department of the federal government). I.R.C. §1033(e)(2)(A)For example, if a farmer sells excess livestock in 2021, the replacement period begins in 2022 and runs through 2025.

Presumably, any livestock sales that occur before the designation of an area as eligible for federal assistance would also qualify for the extended replacement period if the drought, flood, or other weather-related conditions that caused the sale also caused the area to be so designated.  The replacement property must be livestock that is similar or related in service or use to the animals disposed of.  Also, the Treasury Secretary has the authority to extend, on a regional basis, the period for replacement if the weather-related conditions continue for more than three years.  I.R.C. §1033(e)(2)(B). 

Note:  Notice 2006-82, I.R.B. 2006-39, 529, IRS specified that the replacement period will be extended until the end of the taxpayer’s first taxable year ending after the first “drought-free year” for the applicable region. “Drought-free year” means the first 12-month period that (1) ends on August 31; (2) ends in or after the last year of the taxpayer’s four-year replacement period; and (3) does not include any weekly period for which exceptional, extreme or severe drought is reported for any location in the applicable region. “Applicable region” is defined as the county that experienced drought conditions on account of which the livestock was sold or exchanged and all contiguous counties. “Exceptional, extreme or severe drought is to be determined by reference to U.S. drought monitor maps which are accessible at IRS also publishes, by the end of September every year, a list of counties for which extreme or severe drought was reported during the preceding 12 months. For 2020, the IRS issued Notice 2020-74, 2020-41 IRB on September 22, 2020, providing guidance on the replacement period under IRC §1033(e).

The election to defer the gain is made by attaching a statement to the return providing evidence of the weather-related condition that caused the early sale, the computation of the gain realized, the number and kind of livestock sold and the number and kind of livestock that would have been sold under normal business practices.  The election can be made at any time within the normal statute of limitations for the period in which the gain is recognized, assuming that it is before the expiration of the period within which the converted property must be replaced.  Treas. Reg. §1.1033(e)-1(e).  If the election is filed and eligible replacement property is not acquired within the applicable replacement period (usually four years), an amended return for the year in which the gain was originally realized must be filed to report the gain.  But, if the animals are replaced, for the tax year in which the livestock are replaced, the taxpayer should include information with the return that shows the purchase date of the replacement livestock, the cost of the replacement livestock and the number and kind of the replacement livestock. The election must be made on the return for the first tax year in which any part of the gain from the sale is realized.  It’s also very important for a taxpayer to maintain sufficient records to support the nonrecognition of gain. 

Note:   For livestock that are partnership property and are sold by the partnership, the election is the responsibility of the partnership.  The partners do not individually make the election to defer recognizing the gain.  Rosefsky v. Comm’r, 599 F.2d 515 (2d Cir. 1979).

If insurance proceeds are received that exceed the tax basis of the involuntarily converted animals, the excess is taxable gain that is also deferrable if an election is made to defer the gain and the livestock are replaced within the applicable timeframe.  In that instance, the deferred amount is taxed at the time the replacement animals are sold.

Note:   However, it may be advantageous from a tax standpoint for the rancher to report the gain on the animals in order to claim ordinary depreciation on the replacement animals.

Under I.R.C. §1033(a)(2)(C), the statutory period for the IRS to assess any deficiency for any tax year where part of the gain under the involuntary conversion rules is realized doesn’t expire before three years from the date the taxpayer notifies the IRS of the replacement of the converted property or of an intention not to replace.  If there is a deficiency, the IRS may assess the deficiency for up to three years from the notification.  This means that the general three-year statute of limitations is extended.  The effect of this is that if a livestock owner doesn’t intend to replace the excess livestock when they are sold, the gain should be reported.  This will avoid having to file an amended return in the future.  Alternatively, the second provision – the one-year deferral provision could be utilized.

One-year deferral.  Under the second provision, if farm and ranch taxpayers on the cash method of accounting are forced because of drought or other weather-related condition to dispose of livestock (raised or purchased animals that are held either for resale or for productive use) in excess of the number that would have been sold under usual business practices, they may be able to defer reporting the gain associated with the excess until the following taxable year.  I.R.C. §451(g).   In addition, the taxpayer's principal business must be farming in order to take advantage of this provision.  In 1989, the IRS issued a very favorable ruling concerning what constitutes a farming business. Priv. Ltr. Rul. 8928050, April 18, 1989. In this ruling, a rancher had $121,000 a year gross income from ranching, and made $65,000 a year off the farm and it was determined that his principal business was farming where he devoted 750 to 1,000 hours per year to the ranch and his wife contributed about 300 hours. This ruling is a strong indication that taxpayers need not have all of their time on the farm in order to take advantage of this rule. 

Deferral of income is limited to sales in excess of “usual business practices.” Also, an election for one-year deferral is valid if made during the application replacement period for the livestock under I.R.C. § 1033(e).

Note:  The gain to be postponed is equal to the total income realized from the sale of all livestock divided by the total head sold, with that result multiplied by the excess number of head sold because of the weather-related condition.  The excess is determined by comparing the actual number of head sold to those that would have been sold under usual business practices in the absence of the weather condition.  It is common to use the taxpayer’s most recent three-year average in determining the number of livestock that would be sold under normal business practices.  However, that is not the actual rule.  Under Treas. Reg. §1.451-7(b) it is a facts circumstances test.  

At the time the tax return is due for the year of the casualty, the livestock owner may not be sure of which election is the best one to make.  In that event, a “protective” election can be made under I.R.C. §1033 for that tax year.  If the livestock can be replaced within the applicable replacement period, the involuntary election can be revoked and the return for the casualty year can be amended to make the election to defer the gain for one year.  In that instance, the return for the year after the casualty would also have to be amended to report the deferred gain. 

Relatedly, a taxpayer can make an election under I.R.C. §451(g) until the four-year period for reinvestment of the property under I.R.C. §1033 expires. That means that if a livestock owner elects involuntary conversion treatment and fails to acquire the replacement livestock within the four-year period, the I.R.C. §451(g) election to defer the gain for one year can still be made.  If that happens the livestock owner will have to file an amended return for the casualty year to make the I.R.C. §451(g) election and revoke the I.R.C. §1033(e) election, and the next year to report the gain deferred to that year. 


These rules can be helpful for livestock owners dealing with drought and other weather-related conditions that have excess livestock sales.  The two rules differ in terms of the type of livestock covered; the period within which to make the election; how the postponement works; the cause of the sale; whether a disaster need be declared; whether a repurchase of livestock is required; whether there is a carryover basis rule; and whether there is a replacement period. 

Use the rule that works best for you.

August 5, 2021 in Income Tax | Permalink | Comments (0)

Wednesday, August 4, 2021

Tax Potpourri


Tax developments continue to occur in the courts, state agencies and the IRS.  Today’s post addresses some of the developments that are relevant to rural landowners in addition to recurring issues that impact all taxpayers.

A potpourri of tax developments – it’s the topic of today’s post.

Assignment of Income Doctrine At Issue 

Berry v. Comr., T.C. Memo. 2021-52

The petitioner and spouse owned 50 percent of an S corporation engaged in construction projects. They were also involved in drag racing. They reported the income and expenses of the racing operation on the S corporation’s books. The IRS took the position that the taxpayers merely assigned the income of the racing operation to the S corporation while in fact they were separate operations. The Tax Court upheld the IRS position that the income had to be reported on the taxpayers' personal return as other income. The S corporation also claimed an I.R.C. §179 deduction for the cost of a utility trailer and an excavator. The IRS also disallowed this deduction. The Tax Court determined that the petitioner failed to show that the trailer was used for business purposes. Instead, it was used to transport race cars. The I.R.C. §179 expense for the excavator was disallowed because all the S corporation could show with respect to the purchase was an undated bill of sale. The petitioner established that he made a cash withdrawal and purchased a money order for the purchase of the excavator, but failed to prove that the cash withdrawal was connected to the purchase. 

Travel Expenses Not Deductible

West v. Comr., T.C. Memo. 2021-21

The petitioner lived in Georgia, but worked in Louisville, Kentucky as a nurse. She deducted over $30,000 in travel-related expenses traveling between Kentucky and Georgia. The IRS denied the deductions and the Tax Court agreed. The Tax Court determined that the petitioner’s tax home was Kentucky. She had no business ties in Georgia and her job in Kentucky was not temporary. The petitioner also rented an apartment in Kentucky, filled prescriptions there and registered her car in Kentucky. The Tax Court noted that those facts further indicated that Kentucky was the petitioner’s tax home. 

Payment For Water Right is Business Expense. 

Priv. Ltr. Rul. 202129001 (Apr. 21, 2021)

The IRS, in a private ruling, determined that a contractually obligated payment for part of the cost of acquiring a water right was an ordinary expense. The right, IRS determined, was used to mitigate environmental damage from a tract of real estate, not improve it. Also, because the water right was used to combat groundwater draw down was a business expense, the taxpayer was eligible to deduct the payment for tax purposes. 

Study Hours Don’t Count Toward 750-Hour test

Johnson v. United States, No. 20-16927, 2021 U.S. App. LEXIS 18847 (9th Cir. Jun. 24, 2021)

The petitioners, a married couple, sustained losses on rental properties from 2008-2010 and deducted them as non-passive losses on the basis that the wife was a real estate professional in accordance with I.R.C. §469(c)(7). As such, she had to put more than 50 percent of the personal services that she performed for any given year into real property trades or businesses in which she materially participated, and perform more than 750 hours of services during the tax year in real property trades or businesses in which she materially participated. The trial court determined that the wife did not satisfy the 750-hour test because it was not permissible to count her hours spent during 2008-2009 studying for her real estate license. The appellate court affirmed on this point, and also affirmed the trial court’s finding that the wife failed to meet the 750-hour test in 2010 because the time spent working on the couple’s personal properties could not count toward the required 750 hours to be spent on real property trades or businesses.

Alimony Deduction Tied To Former Spouse

Berger v. Comr., T.C. Memo. 2021-89

The petitioners, a married couple paid their former son-in-law to visit their grandchildren and deducted the amounts as “alimony.” The IRS denied the deduction and the Tax Court affirmed on the basis that the deduction belongs exclusively to the former spouse, the petitioners’ daughter. The Tax Court noted that alimony obliges the former spouse, not anyone else that makes payments on behalf of an ex-spouse. The Tax Court also held that the petitioners could not deduct amounts allegedly as business expenses as rent for a greenhouse related to a cannabis business due to a lack of evidence that the amounts were spent on a business. 

Solar Power Generation Taxed Assessed as “Farmland”

2021, A5434, eff. Jul. 9, 2021

New Jersey law now provides that land on which a dual-use solar energy project is constructed and approved is eligible for farmland assessment, subject to certain conditions. To receive farmland assessment, a dual-use solar energy project must: (1) be located on unpreserved farmland that is in operation as a farm in the tax year for which farmland assessment is applied for; (2) in the tax year preceding the construction, installation, and operation of the project, the acreage used for the dual-use solar energy project must have been valued, assessed, and taxed as land in agricultural or horticultural use; (3) be located on land that continues to be actively devoted to agricultural and horticultural use, and meets the income requirements set forth in state law for farmland assessment; and (4) have been approved by the state Department of Agriculture. In addition, no generated energy from a dual-use solar energy project is considered an agricultural or horticultural product, and no income from any power sold from the dual-use solar energy project is considered income for the purposes of eligibility for farmland assessment. To be eligible, the owner of the unpreserved farmland must obtain the approval of the Department of Agriculture, in addition to any other approvals that may be required pursuant to federal, state or local law, rule, regulation, or ordinance, before the construction of the dual-use solar energy project. 

Corporate Payment of Personal Expenses Not Deductible 

Blossom Day Care Centers, Inc. v. Comr., 2021 T.C. Memo. 86

The petitioner paid for personal expenses of its officers and their family members via credit cards issued in the petitioner’s name. The cards were also used to pay officers (and family members) personal credit card, and family members continued to make personal purchases on the petitioners’ cards even during periods when they were not employees of the petitioner. The IRS disallowed the deductions, and the Tax Court agreed. The petitioner also recorded the personal expenditures as a “Note Receivable from Officers” in multiple entries on the corporate books and maintained a running balance, indicating the personal nature of the expenses. The Tax Court also disallowed the petitioner’s I.R.C. §45A tax credit (Indian tax credit) because the petitioner was owned 51 percent by an Indian. 

Hoop Buildings are Farm Machinery and Equipment in Missouri 

MDOR Priv. Ltr. Rul. No. LR 8152 (Jun. 29, 2021)

A taxpayer sold hoop buildings that are designed and used for livestock production. The buildings are of a permanent nature and can be used in multiple livestock production cycles. The Missouri Department of Revenue (MDOR) determined that is a buyer used a hoop building exclusively, solely, and directly for raising livestock for ultimate sale at retail, the hoop building constitutes "farm machinery and equipment" exempt from sales and use tax under Mo. Rev. Stat. §144.030(2)(22). In addition, the MDOR concluded that the mere fact that the purchaser ultimately attaches the system to a wood or concrete foundation does not make the hoop building subject to sales and use tax. But, MDOR determined that the taxpayer's sales of hoop buildings would not be exempt from sales and use tax as farm machinery and equipment if they are used for purposes such as grain, hay, and other commodity storage, feed rations storage, sand, salt and gravel storage, and storage of equipment and machinery. The MDOR reasoned that hoop buildings used for grain storage are not used in the production of crops. Grain storage is not an agricultural purpose under Mo. Rev. Stat. §144.030.2(22). Neither is the storage of machinery and equipment. 


These are some recent state and federal developments touching upon legal issues that farmers, rancher and rural landowners face.  Some of the developments have also been more general in nature.  Today’s post has been a “heads-up” on just a few.

August 4, 2021 in Income Tax | Permalink | Comments (0)

Saturday, July 31, 2021

Recovering Costs in Tax Litigation


An issue that is problematic for many taxpayers that find themselves under audit with the IRS are the potential litigation and administrative costs if the matter were to end up in court.  The IRS knows this and, as a result, sometimes asserts a tenuous position in situations where the amount in controversy is not enough to make it worth the taxpayer challenging the IRS position. 

When can a taxpayer recover litigation costs against the IRS – it’s the topic of today’s post.

Tax Code Requirements

Under I.R.C. §7430, a taxpayer can receive an award of litigation costs in cases against the United States that involve the determination of any tax, interest or penalty.  To be eligible to recover litigation costs, a taxpayer must satisfy four requirements:  1) be the “prevailing party”; 2) have exhausted available administrative remedies within the IRS; 3) not have unreasonably protracted the proceeding; and 4) make a claim for “reasonable” costs.  The taxpayer must satisfy all four requirements.  See, e.g., Minahan v. Comr., 88 T.C. 492 (1987).  The decision to award fees is within the discretion of the Tax Court.  That means any decision denying attorney fees to a prevailing taxpayer is reviewed under an abuse of discretion standard.    

Note.  Under the Tax Court’s rules, a party seeking to recover reasonable litigation costs must file a timely motion in the proper manner.  U.S. Tax Court Rules, Title XXIII, Rule 231(a).

Exhaustion.  Litigation costs will not be awarded unless the court determines that the prevailing party has exhausted available administrative remedies within the IRS.  I.R.C. § 7430(b)(1).  For example, when a conference with the IRS Office of Appeals is available to resolve disputes, a party is deemed to have exhausted administrative remedies only by participating in the conference before filing a Tax Court petition or requesting a conference (even if it isn’t granted) before the IRS issues a statutory notice of deficiency.  See, e.g, Veal-Hill v. Comr., 812 Fed. Appx. 387 (7th Cir. 2020). 

Unreasonable protraction.  To be rewarded litigation costs, the taxpayer must not unreasonably protract the proceeding.  I.R.C. §7430(b)(3).  In Estate of Lippitz, et al. v. Comr., T.C. Memo. 2007-293, the petitioner sought innocent spouse relief and the IRS conceded the case.  The petitioner sought to recover litigation costs and the IRS objected.  The Tax Court largely rejected as meritless an IRS argument that the petitioner was otherwise disqualified from recovery due to her unreasonable protraction of proceedings.  The dispute involved tax deficiencies from 1980-1985 stemming from the now-deceased spouse’s assignment of income to various trusts.   The IRS based its argument on the taxpayer's failure to comply with an almost 20-year old summons that the taxpayer had no reason to know about concerning the couple’s joint liability until the IRS later “resurrected” it in 2003. 

Prevailing party.   Perhaps the requirement that is the most complex and generates the most litigation is that the taxpayer must be the “prevailing party.”  A taxpayer can be a “prevailing party” only if the taxpayer satisfies certain net worth requirements or “substantially prevails” with respect to the amount in controversy on “the most significant issue or set of issues presented.  I.R.C. §7430(c)(4)(A).  An application to recover an award for fees and other expenses must be filed with the court within 30 days of the final judgment in the case. 28 U.S.C. §2412(d)(1)(B). 

The net worth requirement is incorporated into the “prevailing party” requirement and specifies that a taxpayer’s net worth must not exceed $2 million.   I.R.C. §7430(c)(4)(A)(ii).  For this purpose, “net worth” is determined on the basis of the cost of acquisition of assets under generally accepted accounting principles (GAAP) rather than the fair market value of assets. See, e.g, Swanson v. Commissioner, 106 T.C. 76 (1996); see also H.R. Rept. No. 96-1418, 96th Cong., 2d Sess. 15 (1980).  Depreciation is taken into account.  Also, notes receivable are taken into account under GAAP.  The acquisition cost of a note exchanged for cash is the amount of cash received in exchange for the note. If the interest on the note is unstated, it is recorded in the books as having value in an amount that reasonably approximates the fair value of the note.

A taxpayer cannot meet the prevailing party requirement, however, if the IRS takes a position with respect to the taxpayer’s return that is “substantially justified.”  In other words, a taxpayer can’t “substantially prevail” if the IRS position is substantially justified.    

For the IRS, a substantially justified position is one that has a reasonable basis in fact – one that is supported by sufficient relevant evidence that a reasonable mind might accept as adequate to support a conclusion.  See Pierce v. Underwood, 487 U.S. 552 (1988).  Reasonableness is based on the facts of the case and legal precedent.  Maggie Management Co. v. Comr., 108 T.C. 430 (1997)The IRS position must also have a reasonable basis in law – the legal precedent must substantially support the IRS position based on the facts of the case.  The courts have interpreted this standard as requiring sufficient relevant evidence that a reasonable mind might accept as adequate to support a conclusion.  See, e.g., Pierce v. Underwood, 487 U.S. 552 (1988).   Thus, the IRS could take a position that is substantially justified even if it is incorrect if a reasonable person could believe it to be correct.  See, e.g., Maggie Management Co. v. Comr., 108 T.C. 430 (1997).  Likewise, the IRS position could be substantially justified where only factual issues are in question.  See, e.g., Bale Chevrolet Co. v. United States, 620 F.3d 868 (8th Cir. 2010).  Also, the IRS concession of a case or an issue doesn’t mean that its position was unreasonable.  It’s merely a factor for consideration. 

What the IRS does at the administrative level have no bearing on whether its litigating position is substantially justified.  The administrative process and the court process are two separate matters.  I.R.C. §7430 distinguishes between administrative and judicial proceedings.  See, e.g., Pacific Fisheries, Inc. v. United States, 484 F.3d 1103 (9th Cir. 2007).   IRS conduct occurring after the petition is filed is all that matters.  This means that the IRS can create a multitude of problems for a taxpayer, justified or not, at the administrative level and fees cannot be recovered because the conduct occurred pre-petition.  That is the case even if the IRS conduct during the administrative process caused the litigation.  See, e.g., Friends of the Benedictines in the Holy Land, Inc. v. Comr., 150 T.C. 107 (2018). 

All of this means that the bar is set rather low for the IRS to establish a litigating position that is substantially justified.  Conversely, the bar is set high for a taxpayer to be a “prevailing party” to be able to recover litigation costs. 

Note.  An exception exists for a “qualified offer.”  A qualified offer is one that is made pre-trial.  If the taxpayer makes such an offer and the IRS rejects it and the taxpayer goes on to win at the Tax Court, the taxpayer can be compensated for litigation fees that are incurred after the offer was made.  I.R.C. §§7430(c)(4)(B)(i); 7430(c)(4)(E)(i). 

Recent Case

The Tax Court recently issued an opinion in a case involving the issue of whether the petitioner was entitled to litigation fees.  In Jacobs v. Comr., T.C. Memo. 2021-51, the petitioner had been a trial lawyer with the U.S. Department of Justice before becoming a full-time professor at a university in Washington, D.C.  During this time, he was also an adjunct professor at another university in Washington, D.C., and a “Visiting Scholar” at yet another university for three months on the West Coast.  He ultimately became a professor at a second West Coast university.  On his tax returns for these years (2014 and 2015), he claimed $54,000 Schedule C deductions related to payments for meals and lodging for his Visiting Scholar position, the business use of his home, bar association dues and other professional fees, and travel expenses.  The IRS audited the returns and denied the deductions. 

After a tortured appeals process involving the Taxpayer Advocate Service, the U.S. Treasury Inspector General for Tax Administration, and four IRS Appeals offices, the IRS offered the petitioner a settlement proposal allowing most of the claimed deductions.  The petitioner confirmed receipt of the settlement offer, but didn’t respond further.  Five months later, the IRS Appeals Office turned the matter over to the IRS Chief Counsel’s Office to prepare the case for trial.  At a Tax Court status conference a few days later, the IRS Chief Counsel conceded the case in its entirety and filed a stipulation of settled issues a couple of weeks later. 

The petitioner then filed a motion for $32,000 of litigation costs.  Those costs included fees for expert witnesses and lawyers.  The IRS objected to the motion on the basis that its position in the Tax Court proceedings at the time the answer was filed (that the petitioner was not entitled to the deductions) was substantially justified. 

The Tax Court noted that the petitioner bore the burden to establish that his expenses were deductible as ordinary and necessary business expenses under I.R.C. §162 and were not associated with the taxpayer’s activities as an employee.  See, e.g., Weber v. Comr., 103 T.C. 378 (1994), aff’d., 60 F.3d 1104 (4th Cir. 1995).  The Tax Court determined that a reasonable person could have concluded that a reasonable person could have concluded that the petitioner had not satisfied this burden by the time the IRS filed its answer.  Accordingly, the Tax Court denied the petitioner’s motion for litigation costs. 


The Jacobs case, although a negative result for the petitioner, is instructive on how difficult it is for a taxpayer to recover litigation costs from the IRS.  It’s also an example of how the IRS can create an administrative “nightmare” for the taxpayer causing the taxpayer to ring up thousands of dollars of fees and costs with no hope of recovering those expenses.  Litigation fees are only awarded for “litigation” – matters that happen after the IRS files its answer to the taxpayer’s Tax Court petition. 

Many taxpayers would conclude that the system is “rigged.”  Indeed, the present statutory construct allows the IRS to continue to assert positions with little basis in law when the amount in controversy is less than the anticipated attorney fees without much risk of being challenged in court. 

July 31, 2021 in Income Tax | Permalink | Comments (0)

Thursday, July 22, 2021

Navigable Waters Protection Rule – What’s Going on with WOTUS?


The scope of the federal government’s regulatory authority via the Clean Water Act (CWA) over “Waters of the United States” (WOTUS) has been controversial for many years.  What’s the current status of the law on this issue?  It’s an important issue for farmers, ranchers and rural landowners.

Status update of the regulatory definition of a WOTUS – it’s the topic of today’s post.


The scope of the federal government’s CWA regulatory authority over wet areas on private land, streams and rivers has been controversial for more than 40 years. Many court opinions have been filed attempting to define the scope of the government’s jurisdiction.  On two occasions, the U.S. Supreme Court attempted to clarify matters, but in the process of rejecting the regulatory definitions of a WOTUS proffered by the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE) didn’t provide clear direction for the lower courts.  See Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers, 531 U.S. 159 (2001); Rapanos v. United States, 547 U.S. 175 (2006). 

Particularly with its Rapanos decision, the Court failed to clarify the meaning of the CWA phrase “waters of the United States” and the scope of federal regulation of isolated wetlands. The Court did not render a majority opinion in Rapanos, instead issuing a total of five separate opinions. The plurality opinion, written by Justice Scalia and joined by Justices Thomas, Alito and Chief Justice Roberts, would have construed the phrase “waters of the United States” to include only those relatively permanent, standing or continuously flowing bodies of water that are ordinarily described as “streams,” “oceans,” and “lakes.”  In addition, the plurality opinion also held that a wetland may not be considered “adjacent to” remote “waters of the United States” based merely on a hydrological connection. Thus, in the plurality’s view, only those wetlands with a continuous surface connection to bodies that are “waters of the United States” in their own right, so that there is no clear demarcation between the two, are “adjacent” to such waters and covered by permit requirement of Section 404 of the CWA.

Justice Kennedy authored a concurring opinion, but on much narrower grounds.  In Justice Kennedy’s view, the lower court correctly recognized that a water or wetland constitutes “navigable waters” under the CWA if it possesses a significant nexus to waters that are navigable in fact or that could reasonably be so made. But, in Justice Kennedy’s view, the lower court failed to consider all of the factors necessary to determine that the lands in question had, or did not have, the requisite nexus. Without more specific regulations comporting with the Court’s 2001 SWANCC opinion, Justice Kennedy stated that the COE needed to establish a significant nexus on a case-by-case basis when seeking to regulate wetlands based on adjacency to non-navigable tributaries, in order to avoid unreasonable application of the CWA. In Justice Kennedy’s view, the record in the cases contained evidence pointing to a possible significant nexus, but neither the COE nor the lower court established a significant nexus. As a result, Justice Kennedy concurred that the lower court opinions should be vacated, and the cases remanded for further proceedings.

Justice Kennedy’s opinion was neither a clear victory for the landowners in the cases or the COE. While he rejected the plurality’s narrow reading of the phrase “waters of the United States,” he also rejected the government’s broad interpretation of the phrase. While the “significant nexus” test of the Court’s 2001 SWANCC opinion required regulated parcels to be “inseparably bound up with the ‘waters’ of the United States,” Justice Kennedy would require the nexus to “be assessed in terms of the statute’s goals and purposes” in accordance with the Court’s 1985 opinion in United States v. Riverside Bayview Homes. 474 U.S. 121 (1985). 

The “WOTUS Rule”

The Obama Administration attempted take advantage of the lack of clear guidance on the scope of federally jurisdictional wetland by dramatically expanding the federal government’s reach by issuing an expansive WOTUS rule.  The EPA/COE regulation was deeply opposed by the farming/ranching and rural landowning communities, and triggered many legal challenges.   The courts were, in general, highly critical of the regulation and it became a primary target of the Trump Administration.

The “NWPR Rule”

The Trump Administration essentially rescinded the Obama-era rule with its own rule – the “Navigable Waters Protection Rule” (NWPR). 85 Fed. Reg. 22, 250 (Apr. 21, 2020).  The NWPR redefined the Obama-era WOTUS rule to include only: “traditional navigable waters; perennial and intermittent tributaries that contribute surface water flow to such waters; certain lakes, ponds, and impoundments of jurisdictional waters; and wetlands adjacent to other jurisdictional waters.  In short, the NWPR narrowed the definition of the statutory phrase “waters of the United States” to comport with Justice Scalia’s approach in Rapanos.  Thus, the NWPR excludes from CWA jurisdiction wetlands that have no “continuous surface connection” to jurisdictional waters.  The rule much more closely followed the Supreme Court’s guidance issued in 2001 and 2006 that did the Obama-era rule, but it was challenged by environmental groups.  Indeed, the NWPR has been challenged in 15 cases filed in 11 federal district courts.   

In early 2020, the U.S. Court of Appeals for the Tenth Circuit reversed a Colorado trial court that had entered a preliminary injunction barring the NWPR from taking effect in Colorado as applied to the discharge permit requirement of Section 404 of the CWA.  The result of the appellate court’s decision is that the NWPR is effective in every state.  Colorado v. United States Environmental Protection Agency, 989 F.3d 874 (10th Cir. 2021)

A primary aspect of the litigation involving the NWPR is whether it should apply retroactively or whether it is limited in its application on a prospective basis.  For example, in United States v. Lucero, No. 10074, 2021 U.S. App. LEXIS 6307 and 6327 (9th Cir. Mar. 4, 2021), the defendant, in 2014, operated a business that charged construction companies for the dumping of soil and debris on dry lands near San Francisco Bay. The Environmental Protection Agency (EPA) later claimed that the dry land was a “wetland” subject to the dredge and fill permit requirements of Section 404 of the Clean Water Act (CWA). As a result, the defendant was charged with (and later convicted of) violating the CWA without any evidence in the record that the defendant knew or had reason to know that the dry land was a wetland subject to the CWA. On further review, the appellate court noted that the CWA prohibits the “knowing” discharge of a pollutant into covered waters without a permit. At trial, the jury instructions did not state that the defendant had to make a “knowing” violation of the CWA to be found guilty of a discharge violation. Accordingly, the appellate court reversed on this point. However, the appellate court ruled against the defendant on his claim that the regulation defining “waters of the United States” was unconstitutionally vague, and that the 2020 Navigable Waters Protection Rule should apply retroactively to his case. 

The NWPR was also held to apply prospectively only in United States v. Acquest Transit, LLC, No. 09-cv-555, 2021 U.S. Dist. LEXIS 40143 (W.D. N.Y. Mar. 3, 2021) and United States v. Mashni, No. 2:18-cv-2288-DCN, 2021 U.S. Dist. LEXIS 123345 (S.D. S.C. Jul. 1, 2021). 

Current Challenge

Most recently, a federal district court in South Carolina remanded the NWPR to the EPA. South Carolina Coastal Conservation League, et al. v. Regan, No. 2:20-cv-016787-BHH (D. S.C. Jul. 15, 2021).  The NWPR was being challenged on the scope issue.  Even though the NWPR was remanded, the court left the rule intact.  That fit with the strategy of the present Administration.  If the court had invalidated the NWPR, then the Administration would have had to defend the indefensible Obama-era rule in court.  That wouldn’t have turned out well for the Administration.  Last week’s opinion not vacating the NWPR allows the Administration to proceed in trying to write a new rule without bothering to defend the Obama-era rule in court.


The litigation involving WOTUS will continue, as will the rule-writing.  Ultimately, the issue on the scope of the federal government’s regulatory control over wet areas on private property as well as streams and lakes may be back before the Supreme Court.

July 22, 2021 in Environmental Law | Permalink | Comments (0)

Saturday, July 17, 2021

Tax Developments in the Courts – The “Tax Home”; Sale of the Home; and Gambling Deductions


Three recent court cases touch on issues that often face clients.  One involves the tricky issue of what is a taxpayer’s “tax home.” Another case involves the issue of unforeseen circumstances as an exception to the two-year ownership and usage requirement for the principal residence gain exclusion provision.  The final case for discussion today involves the deduction for gambling losses, and a rather unique set of facts.

Recent tax decisions in the courts – it’s the topic of today’s blog post.

Tax “Home” At Issue

Geiman v. Comr., T.C. Memo. 2021-80

An individual’s “tax home” is the geographical area where the person earns the majority of their income.  The location of the permanent residence doesn’t matter for this purpose.  The tax home is what the IRS uses to determine whether travel expenses for business are deductible.  It’s the taxpayer’s regular place of business – the general area where business or work is located. 

This distinction between a taxpayer’s personal residence and their tax home often comes into play for those that have an indefinite work assignment(s) that last more than a year.  In that situation, the place of the assignment becomes the taxpayer’s tax home.  That means that the taxpayer can’t deduct any business-related travel expenses.  This points out another key distinction – the costs of traveling back and forth from the tax home for business are deductible, but commuting expenses associated from home to work are not. 

That brings us to Mr. Geiman, the petitioner in this case.  He was a licensed union journeyman electrician who owned a trailer home and a rental property in Colorado. His membership in his local union near his home gave him priority status for jobs in and around that area. When work dried up in the area near his home, he traveled to jobs he could obtain through other local unions. As a result, he spent most of 2013 working jobs in Wyoming and elsewhere in Colorado. On his 2013 return, he claimed a $39,392 deduction for unreimbursed employee business expenses – meals; lodging; vehicle expenses (mileage); and union dues. He also claimed a deduction of $6,025 for “other” expenses such as a laptop computer, tools, printer and hard drive. The petitioner claimed a home mortgage interest deduction on the 2013 return for the Colorado home. He voted in Colorado, his vehicles were registered there, and he received his mail at his Colorado home. The IRS disallowed the deductions.

The Tax Court noted that a taxpayer can deduct all reasonable and necessary travel expenses “while away from home in pursuit of a trade or business” under I.R.C. §162(a)(2). As noted above, a taxpayer’s “tax home” for this purpose means the vicinity of the taxpayer’s principal place of business rather than personal residence. In addition, when it differs from the vicinity of the taxpayer’s principal place of employment, a taxpayer’s residence may be treated (as noted above) as the taxpayer’s tax home if the taxpayer’s principal place of business is temporary rather than indefinite. If a taxpayer cannot show the existence of both a permanent and temporary abode for business purposes during the tax year, no deductions are allowed.

The Tax Court cited three factors, based on Rev. Rul. 73-529, 1973-2 C.B. 37, for consideration in determining whether a taxpayer has a tax home – (1) whether the taxpayer incurred duplicative living expenses while traveling and maintaining the home; (2) whether the taxpayer has personal and historical connections to the home; and 3) whether the taxpayer has a business justification for maintaining the home. Upon application of the factors, the Tax Court held that the petitioner’s tax home was his Colorado home for 2013. His work consisted of a series of temporary jobs, each of which lasted no more than a few months. That meant that he did not have a principal place of business in 2013. He paid a mortgage on the Colorado home, and had significant personal and historical ties to the area of his Colorado home where he had been a resident since at least 2007. Also, his relationship with the local union near his Colorado home gave him a business justification for making his home where he did in Colorado. Thus, the Tax Court concluded that the petitioner was away from home for purposes of I.R.C. §162(a)(2), allowing him to deduct business-related travel expenses.

But, Geiman had a problem.  He didn’t keep good records of his expenses.  Ultimately, the Tax Court said what he had substantiated could be deducted.  Thus, the Tax Court allowed substantiated meal expenses which were tied to a business purpose to be deducted. The Tax Court also allowed lodging expenses to be deducted to the extent they were substantiated by time, place and business purpose for the expense. The Tax Court also allowed a deduction for business mileage at the IRS rate where it was substantiated by starting and ending point – simply using Google maps was insufficient on this point.  The Tax Court also allowed the petitioner’s claimed deductions for union and professional dues, but not “other expenses” for lack of proof that they were incurred as an ordinary and necessary business expense. The end-result was that the Tax Court allowed deductions totaling approximately $7,500. 

Unforeseen Circumstances Exception to Two-Rule Home Ownership Rule At Issue

United States v. Forte, No. 2-:18-cv-00200-DBB, 2021 U.S. Dist. LEXIS (D. Utah Jun. 21, 2021)

Upon the sale of the principal residence, a taxpayer can exclude up to $500,000 of the gain from tax.  That’s the limit for a taxpayer filing as married filing jointly (MFJ).  For a single filer, the limit is $250,000.  I.R.C. §121(b)(1-2).  To qualify for the exclusion, the taxpayer must own the home and use it as the taxpayer’s principal residence for at least two years before the sale.  I.R.C. §121(a).  If the two-year requirement can’t be met, a partial exclusion is possible and there are some exceptions that can, perhaps, apply.  For example, if the taxpayer’s job changed that required the taxpayer to move to a new location, or health problems required the sale, those are recognized exceptions to the two-year rule.  There’s also another exception – an exception for “unforeseen” circumstances.  I.R.C. §121(b)(5)(C)(ii)(III).  The unforeseen circumstances exception was at issue in a recent case.

In this case, the defendants, a married couple, bought a home in 2000 and lived there until 2005 when they sold it. They put about $150,000 worth of furniture in the home. In 2003, they bought a lot with the intent to build a home. They took out a loan an began construction on the home. They also did not get paid the full contract amount for the 2005 home sale and couldn’t collect fully on the seller finance notes. They experienced financial trouble in 2005, but moved into the new home in December of 2005 and purchased an adjacent lot for $435,000 with the intent to retain a scenic view from their new home.

After moving into their new home, the defendants sought to refinance the loan to a lower interest rate, but were unable to do so due to bad credit. Thus, a friend helped them refinance by allowing them to borrow in his name. They then executed a deed conveying title to the friend. A trust deed named the friend as Trustor for the defendants as beneficiaries. The friend obtained a $1.4 million loan, kept $20,000 of the proceeds and used the balance to pay off the defendants’ loans. The defendants made the mortgage payments on the new loan. In 2006, they also executed a deed for the adjacent lot in the friend’s favor. In 2007, the friend signed a quitclaim deed conveying the home’s title to the defendants. The loan on the home went into default, and the defendants then transferred title to an LLC that they owned. They then sold the home and the adjacent lot for $2.7 million later in September of 2007 and moved out.

An IRS agent filed a report allowing a basis increase in the initial home for the furniture that was sold with that home, and determined that the defendants could exclude $458,333 of gain on the 2007 sale of the new home even though they had not lived there for two years before the sale. Both the IRS and the defendants challenged the agent’s positions and motioned for summary judgment. The defendants claimed that they suffered unexpected financial problems requiring the sale before the end of the two-year period for exclusion of gain under I.R.C. §121. As such, the defendants claimed that they were entitled to a partial exclusion of gain for the period that they did own and use the home.

The court noted that the defendants’ motion for summary judgment required them to show that there was no genuine issue of material fact that the home sale was not by reason of unforeseen circumstances. The court denied the motion. A reasonable jury, the court determined, could either agree or disagree with the agent’s report. While the defendants were experiencing financial problems in 2005 before moving into the new home, the facts were disputed as to when they realized that they would not be able to collect the remaining $695,000 of holdbacks from the buyers of the first home. The court also denied the defendants’ motion that they were entitled to a basis increase for the cost of the furniture placed in the initial home. The defendants failed to cite any authority for such a basis increase. 

Drug-Induced Gambling Losses Disallowed

Mancini v. Comr., No. 19-73302, 2021 U.S. App. LEXIS 19362 (9th Cir. Jun. 29, 2021), aff’g., T.C. Memo. 2019-16

All gambling winnings are taxable income.  Unless a taxpayer is in the trade or business of gambling, and most aren’t, it’s not correct to subtract losses from winnings and only report the difference.  But, a taxpayer that’s not in the trade or business of gambling can list annual gambling losses as an itemized deduction on Schedule A up to the amount of winnings.  But, to get around the limitations, can a gambling loss be characterized as casualty loss?  This last point was at issue in this case.

The petitioner was diagnosed with Parkinson’s disease in 2004 and began taking prescription medicine to help him control his movements. Over time, the medication dosage was increased. The petitioner had been a recreational gambler, but in 2008 he began gambling compulsively.  By the end of 2010 he had drained all of his bank accounts and almost all of his retirement savings. In 2009, he started selling real estate holdings for less than fair market value and used the proceeds to pay his accumulated gambling debt. In 2010, his doctor took him off his medication and his compulsive gambling ceased along with his compulsive cleanliness, and suicidal thoughts. The medication he had been on was known to lead to impulse control disorders, including compulsive gambling.

On his 2008-2010 returns he reported gambling winnings and also deducted gambling losses to the extent of his winnings. He later filed amended returns characterizing the gambling losses as casualty losses. While the Tax Court determined that the compulsive gambling was a likely side effect of the medication, the Tax Court agreed with the IRS that the gambling losses were not deductible under I.R.C. §165. Also, the gambling losses over a three-year period failed the “suddenness” test to be a deductible casualty loss. In addition, the Tax Court found that the petitioner had failed to adequately substantiate the losses. On appeal, the appellate court affirmed. 


Tax Court cases with good discussion of issues of relevance to many never cease to keep rolling in.  

July 17, 2021 in Income Tax | Permalink | Comments (0)

Thursday, July 15, 2021

Montana Conference and Ag Law Summit (Nebraska)


The second of the two national conferences on Farm/Ranch Income Tax and Farm/Ranch Estate and Business Planning is coming up on August 2 and 3 in Missoula, Montana.  A month later, on September 3, I will be conducting an “Ag Law Summit” at Mahoney State Park located between Omaha and Lincoln, NE.

Upcoming conferences on agricultural taxation, estate and business planning, and agricultural law – it’s the topic of today’s post.


The second of my two 2021 summer conferences on agricultural taxation and estate/business planning will be held in beautiful Missoula, Montana.  Day 1 on August 2 is devoted to farm income taxation, with sessions involving an update of farm income tax developments; lingering PPP and ERC issues (as well as an issue that has recently arisen with respect to EIDLs); NOLs (including the most recent IRS Rev. Proc. and its implications); timber farming; oil and gas taxation; handling business interest; QBID/DPAD planning; FSA tax and planning issues; and the prospects for tax legislation and implications.  There will also be a presentation on Day 1 by IRS Criminal Investigation Division on how tax practitioners can protect against cyber criminals and other theft schemes. 

On Day 2, the focus turns to estate and business planning with an update of relevant court and IRS developments; a presentation on the farm economy and what it means for ag clients and their businesses; special use valuation; corporate reorganizations; the use of entities in farm succession planning; property law issues associated with transferring the farm/ranch to the next generation; and an ethics session focusing on end-of life decisions.

If you have ag clients that you do tax or estate/business planning work for, this is a “must attend” conference – either in-person or online.

For more information about the Montana conference and how to register, click here:


On September 3, I will be holding an “Ag Law Summit” at Mahoney St. Park, near Ashland, NE.  The Park is about mid-way between Omaha and Lincoln, NE on the adjacent to the Platte River and just north of I-80.  The Summit will be at the Lodge at the Park.  On-site attendance is limited to 100.  However, the conference will also be broadcast live over the web for those that would prefer to or need to attend online.

I will be joined at the Summit by Prof. Ed Morse of Creighton Law School who, along with Colten Venteicher of the Bacon, Vinton, et al., firm in Gothenburg, NE, will open up their “Ag Entreprenuer’s Toolkit” to discuss the common business and tax issues associated with LLCs.  Also on the program will be Dan Waters of the Lamson, et al. firm in Omaha.  Dan will address how to successfully transition the farming business to the next generation of owners in the family. 

Katie Zulkoski and Jeffrey Jarecki will provide a survey of state laws impacting agriculture in Nebraska and key federal legislation (such as the “30 x 30” matter being discussed).  The I will address special use valuation – a technique that will increase in popularity if the federal estate tax exemption declines from its present level.  I will also provide an update on tax legislation (income and transfer taxes) and what it could mean for clients. 

The luncheon speaker for the day is Janet Bailey.  Janet has been deeply involved in Kansas agriculture for many years and will discuss how to create and maintain a vibrant rural practice. 

If you have a rural practice, I encourage you to attend.  It will be worth your time. 

For more information about the conference, click here:


The Montana and Nebraska conferences are great opportunities to glean some valuable information for your practices.  As noted, both conferences will also be broadcast live over the web if you can’t attend in person.   

July 15, 2021 in Bankruptcy, Business Planning, Environmental Law, Estate Planning, Income Tax, Real Property, Regulatory Law, Water Law | Permalink | Comments (0)

Sunday, July 11, 2021

Mailboxes and Farm Equipment


Farmers use the public roadways to move farm machinery and equipment.  Sometimes, mailboxes present issues.  What are the rules for placement of mailboxes along rural roads?  What if a mailbox is hit?  The resolution of the matter will be fact based.  Was the mailbox intentionally damaged or destroyed?  Was the mailbox located in the proper place?  Was the mailbox at the proper height and of the correct size?  Was the farm machinery and equipment operating on the public roadway within applicable size and weight limitations?  These are all relevant questions.

Moving farm machinery and equipment along a public roadway and the potential hazard presented by mailboxes- it’s the topic of today’s post.

Postal Service Rules

If a mailbox is struck with farm equipment, one issue to check is whether the mailbox was in the proper location and was of the proper height and size.  The United States Postal Service (USPS) has rules for the placement of mailboxes.  But, the matter is also a mixture of state law.  Generally, a mailbox must be 41-45 inches above the road surface and 6-8 inches from the edge of the road. See, e.g., Mailbox Installation, USPS.COM; Section 632, USPS Postal Operations Manual.  The meaning of “edge of the road” depends on state law – “shoulder” is defined differently from state-to-state.  For rural postal routes, all mailboxes are to be on the right side of the road in the carrier’s direction of travel and be placed in conformity with state laws and highway regulations.  If state law is more restrictive than the USPS Operations Manual, state law controls.    

The posts for a mailbox are to be made from wood no larger than 4” x 4,” but can also be made out of steel or aluminum no larger than 2” in diameter.  However, the posts should be designed to easily bend or fall away in the event of a collision.  USPS Operations Manual.  The mailbox cannot be constructed in a manner that it is a fixed object that won’t break away when it is struck. 

The USPS also has specific mailbox size limitations.  All dimensions and designs must be in accordance with USPS rules before a mailbox can be sold to the public at retail.  For those that wish to build their own, the mailbox must be approved by the local postmaster.  This can be a key point when it comes to large farm equipment utilizing rural roads. 

A mailbox that is not in compliance with USPS rules could be creating a “traffic” hazard.  The hazard issue not only involves size and height restrictions but can also instruct the issue of where a mailbox is placed.  Each state has its own set of regulations on this issue.  In some states, a mailbox cannot be placed within a certain distance of an intersection.  The distance requirement might expand if the daily traffic is of a particular volume.

If farm equipment accidentally strikes a mailbox that is out of compliance with either federal or state requirements, that fact could absolve the farmer from responsibility for replacing the mailbox.

Roadway Size and Weight Limitations

On the other side of the coin, each state also has regulations governing the weight and size of farm equipment that can travel public roads. A farmer utilizing the public roadways with equipment and machinery exceeding applicable size and/or weight limitations that strikes a mailbox has little defense.  The size and weight limitations have come into greater relevance in recent years as farm machinery and equipment have enlarged (in size and weight) along with the size of farming operations.  Public roads have not correspondingly widened.  Weight limitations are often tied to the number of axles and the distance between the axles.  See, e.g., Kan. Stat. Ann. §8-1908.  Vehicles exceeding the limitations are not to be driven on public roads.  But, in states where the agricultural industry predominates, agricultural equipment and machinery is often exempted.  See., e.g., Kan. Stat. Ann. §8-1908.  Civil damages to the road are possible for violations.  See, e.g., Kan. Stat. Ann. §8-1913.      

As for size limitations, the maximum width permitted is generally eight and one-half feet under federal law.  But, that limit is inapplicable to “special mobile equipment” including farm equipment or instruments of husbandry.  See Federal Size Regulations for Commercial Motor Vehicles, U.S. Department of Transportation:  Federal Highway Administration (Oct. 9, 2019); Kan. Stat. Ann. §8-1902(b).  However, a state may require a permit for “over-width” farm equipment to be operated on a public roadway in the state, and may adopt additional requirements for width and height than the federal rules.  Common rules apply to the transporting of hay loads and combine headers.  See, e.g., Kan. Stat. Ann. §§8-1902(d)(2)-(3); 8-1902(e).

Sometimes, existing size and weight limitations are lifted for farm equipment (including farm trucks) during planting and harvesting seasons, and other unique exemptions might apply in certain situations.  It’s important to pay attention to a particular state’s rules as well as administrative notices concerning any modification (whether permanent or temporary) to existing rules.

If the operator of farm equipment on a public road is not in compliance with those regulations and strikes a non-compliant mailbox, sorting out the legal liability gets murkier.    

Colliding With A Mailbox

A mailbox is federal property.  Under federal law, it is unlawful to intentionally destroy a mailbox.  Doing so could result in a substantial fine and/or imprisonment of up to three years.  18 U.S.C. §1705.  Unintentional damage or destruction to a mailbox will typically require the notification of the property owner and the local police.  In addition, local regulations may impose other requirements. 

But, for those operating farm equipment and machinery on public roads within the applicable rules that happen to strike a mailbox, being required to pay for the damage caused is probably the worst that will happen.


Farmers often must use the public roads to move farm equipment from field-to-field, to get harvested crops to a local elevator, or for other reasons.  The increased size of farm equipment and natural limitations to the width of roads (particularly in the eastern third of the U.S.) present challenges to avoiding mailboxes.  It’s good to know the rules that can apply in such situations. 

July 11, 2021 in Civil Liabilities, Regulatory Law | Permalink | Comments (0)

Friday, July 9, 2021

IRS Guidance On Farm NOLs


The IRS has finally issued guidance on how farm taxpayers are to handle carryback elections related to farm net operating losses (NOLs) in light of all of the legislative rule changes in recent years. 

Handling farm NOLs – it’s the topic of today’s post


The Tax Cuts and Jobs Act (TCJA) limited the deductibility of an NOL arising in a tax year beginning after 2017 to 80 percent of taxable income (computed without the NOL deduction).  Under the TCJA, no NOL carryback was allowed unless the NOL related to the taxpayer’s farming business.  A farming NOL could be carried back two years, but a taxpayer could make an irrevocable election to waive the carryback. The 80 percent provision also applied to farm NOLs that were carried back for NOLs generated in years beginning after 2017.   Under the TCJA, post-2017 NOLs do not expire. 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) suspended the 80 percent limitation for NOLs through the 2020 tax year.  The suspension applies to all NOLs, farm or non-farm, arising in tax years beginning in 2018-2020. The CARES Act also removed the two-year carryback option for farm NOLs and replaced it with a five-year carryback for all NOLs arising in a tax year beginning after 2017 and before 2021.  Under the carryback provision, an NOL could be carried back to each of the five tax years preceding the tax year of the loss (unless the taxpayer elected to waive the carryback).  That created an issue – some farmers had already carried back an NOL for the two-year period that the TCJA allowed. 

The COVID-Related Tax Relief Act (CTRA) of 2020 amended the CARES Act to allow taxpayers to elect to disregard the CARES Act provisions for farming NOLs.  This is commonly referred to as the “CTRA election.”  Under the CTRA election, farmers that had elected the two-year carryback under the TCJA can elect to retain that carryback (limited to 80 percent of the pre-NOL taxable income of the carryback year) rather than claim the five-year carryback under the CARES Act.  In addition, farmers that previously waived an election to carryback an NOL can revoke the waiver. 

The CTRA also specifies that if a taxpayer with a farm NOL filed a federal income tax return before December 27, 2020, that disregards the CARES Act amendments to the TCJA, the taxpayer is treated as having made a “deemed election” unless the taxpayer amended the return to reflect the CARES Act amendments by the due date (including extensions of time) for filing the return for the first tax year ending after December 27, 2020.  This means that the taxpayer is deemed to have elected to utilize the two-year carryback provision of the TCJA. 

IRS Guidance 

On June 30, 2021, the IRS issued Rev. Proc. 2021-14, 2021-29 I.R.B. to provide guidance for taxpayers with an NOL for a tax year beginning in 2018-2020, all or a portion of which consists of a farming loss.  The guidance details how the taxpayer can elect to not apply certain NOL rules of the CARES Act, and how the CTRA election can be revoked.  Rev. Proc. 2021-14 is effective June 30, 2021.

Affirmative election.  The Rev. Proc. specifies that a taxpayer with a farming NOL, other than a taxpayer making a deemed election, may make an “affirmative CTRA election” to disregard the CARES Act NOL amendments if the farming NOL arose in any tax year beginning in 2018-2020.  An affirmative election allows the farm taxpayer to carryback a 2018-2020 farm NOL two years instead of five years.  To make an affirmative election, the taxpayer must satisfy all of the following conditions: 

  • The taxpayer must make the election on a statement by the due date, including extensions of time, for filing the taxpayer’s Federal income tax return for the taxpayer’s first tax year ending after December 27, 2020. This means that for calendar year individuals and C corporations, the date is October 15, 2021.
  • The top of the statement must state: "The taxpayer elects under § 2303(e)(1) of the CARES Act and Revenue Procedure 2021-14 to disregard the amendments made by § 2303(a) of the CARES Act for taxable years beginning in 2018, 2019, and 2020, and the amendments made by § 2303(b) of the CARES Act that would otherwise apply to any net operating loss arising in any taxable year beginning in 2018, 2019, or 2020. The taxpayer incurred a Farming Loss NOL, as defined in section 1.01 of Rev. Proc. 2021-14 in [list each applicable taxable year beginning in 2018, 2019, or 2020]."

Note.  The election is all-or-nothing.  The taxpayer must choose either the two-year farm NOL carryback provision for all loss years within 2018-2020, or not. 

  • The taxpayer attaches a copy of the statement to any original or amended federal income tax return or application for tentative refund on which the taxpayer claims a deduction attributable to a two-year NOL carryback pursuant to the affirmative election.

For taxpayers that follow the Rev. Proc. and make an affirmative election, the Rev. Proc. specifies that the 80 percent limitation on NOLs will apply to determine the amount of an NOL deduction for tax years beginning in 2018-2020, to the extent the deduction is attributable to NOLs arising in tax years beginning after 2017.  In addition, the CARES Act carryback provisions will not apply for NOLs arising in tax years beginning in 2018-2020. 

Deemed election procedure.  In §3.02 of the Rev. Proc., the IRS sets forth the procedure for a taxpayer to follow to not be treated as having made a deemed election.  For taxpayers that made a deemed election under the CARES Act, the election applies unless the taxpayer amends the return the deemed election applies to reflecting the CARES Act amendments by due date specified in the Rev. Proc.  Also, for taxpayers that made a deemed election under the CARES Act and IRS rejected the two-year carryback claims, Rev. Proc. 2021-014 establishes the steps the taxpayer may take to pursue those claims.  Those steps require the taxpayer to submit complete copies of the rejected applications or claims, together with income tax returns for the loss year(s).  The top margin of the first page of a complete copy of each application or claim should include, “Deemed Election under Section 3.02(2) of Rev. Proc. 2021-14.”  The Rev. Proc. states that resubmission of previously rejected claims should be sent by the Rev. Proc. due date.

Note.  The taxpayer is not treated as having made a deemed election if the taxpayer subsequently files an amended return or an application for tentative refund by the due date of the Rev. Proc. 

For a taxpayer that elected not to have the two-year carryback period apply to a farming NOL incurred in a tax year beginning in 2018 or 2019, the Rev. Proc. specifies that the taxpayer may revoke the election if the taxpayer made the election before December 27, 2020, and makes the revocation on an amended return by the date that is three years after the due date, including extensions of time, for filing the return for the tax year the farming NOL was incurred.  If the NOL is not fully absorbed in the five-year earlier carryback year, the balance carries forward to the fourth year back and subsequent years in the carryback period until it is fully absorbed.  The taxpayer may also amend the returns for the years in the five-year carryback period, if needed, to utilize the benefits of I.R.C. §1301 (farm income averaging). 

Note.  A statement must be attached to the return to revoke the prior election to waive the carryback period.  The statement must read as follows: “Pursuant to section 4.01 of Rev. Proc. 2021-14 the taxpayer is revoking a prior I.R.C. §172(b)(1)(B)(iv) or I.R.C. §172(b)(3) election to not have the two-year carryback period provided by I.R.C. §172(b)(1)(B)(i) apply to the farm NOL, as defined in section 1.01 of Rev. Proc. 2021-14, incurred in the taxable year.”

Area of uncertainty.  What remains unclear after the issuance of Rev. Proc. 2021-14 is whether the affirmative CTRA election can be made to use the two-year carryback if a farmer had previously waived the five-year carryback.  The Rev. Proc. is not clear on this point.

Example.  Hamilton Beech is a calendar year farmer.  He sustained a farming NOL in 2019.  2017, however, was a good year financially and Hamilton wanted to use the TCJA two-year carryback provision so that he could use the 2019 NOL to offset the impact of the higher tax brackets on his taxable income for 2017.  Unfortunately, the CARES Act (enacted into law on March 27, 2020) eliminated the two-year carryback provision leaving Hamilton with the choice of either carrying the 2019 NOL to 2014 or forgoing the five-year carryback.  2014 was a low-income year for Hamilton.  Thus, Hamilton elected to waive the five-year NOL carryback provision on his 2019 return that he filed after March 27, 2020 (but before December 27, 2020) and the attached statement made reference to I.R.C. §172(b)(3) and not I.R.C. §172(b)(1)(B)(iv).

Because Hamilton filed his 2019 return after March 27, 2020, and before December 27, 2020, uncertainty exists concerning his ability to make an affirmative election under the Rev. Proc. to disregard the CARES Act five-year NOL carryback provision.  If he can, he would be able to use the two-year carryback rule to offset his higher income in 2017.  One approach for Hamilton would be for him to amend his 2019 return, citing Rev. Proc. 2021-14, Section 3.01 and state that he has met the conditions of Section 3.01(2).

Note.  The taxpayer must also attach a statement to an amended return for the loss year, that states at its top: “Pursuant to section 4.01 of Rev. Proc. 2021-14, the taxpayer is revoking a prior I.R.C. §172(b)(1)(B)(iv) or I.R.C. §172(b)(3) election not to have the two-year carryback period provided by I.R.C. §172(b)(1)(B)(i) apply to the Farming Loss NOL, as defined in section 1.01 of Rev. Proc. 2021-14, incurred in the taxable year.”

Mixed NOLs.  If a taxpayer has an NOL that is a mixture of farm and non-farm activities, the portion of the NOL that is attributable to the farming activity may be carried back either two or five years consistent with the guidance of the Rev. Proc.  The non-farm portion of the NOL may not be carried back two years.  Also, the election to waive the carryback period is all-or-nothing.  It is not possible to separately waive a farm NOL carryback from a non-farm NOL.


The Congress has made tax planning with farm NOLs difficult in recent years with numerous rule changes.  The recent guidance from the IRS, though issued late, is helpful on several points.

July 9, 2021 in Income Tax | Permalink | Comments (0)