Sunday, January 24, 2021

Recent Happenings in Ag Law and Ag Tax

Overview

The world of agricultural law and taxation is certainly pertinent in the daily lives of farmers and ranchers.  In recent days and weeks, the courts have addressed more issues that can make a difference for ag producers.  In today’s post, I examine a few of those.  Those discussed today involve individual and entity taxation as well as environmental and regulatory issues.

More recent developments in ag law and tax - it’s the topic of today’s post.

Flow-Through Entities Can Deduct State and Local Taxes

IRS Notice 2020-75, applicable to specified income tax payments made on or after November 9, 2020

In a Notice, the IRS has said that taxes that are imposed on and paid by a partnership (or an S corporation) on its income are allowed as a deduction by the partnership (or S corporation) in computing its non-separately stated taxable income or loss for the tax year of payment. They are not passed through to the partners or shareholders, where they would be subject to the $10,000 limitation on state and local tax deductions imposed by the Tax Cuts and Jobs Act effective for tax years beginning after 2017.

The IRS did not set a timetable for the issuance of proposed regulations. The IRS issued the Notice in response to some states enacting laws to allow this type of treatment for partnerships and S corporations. Thus, for a flow-through entity to be able to do this for a partnership or S corporation, state law must provide for pass-through entity level taxation. The Notice won't apply unless state law allows this. Merely allowing a pass-through entity to make withholding tax payments on behalf of the owners will not qualify because those withholding tax payments are treated as payments made by the owners and not as payments in satisfaction of the pass -through entity's tax liability. In addition, entities taking advantage of the Notice will reduce allocable taxable income which will, in turn reduce allocable qualified business income for purposes of I.R.C. §199A and, therefore, the qualified business income deduction. 

IRA Distributions Included in Income and Subject to Early Withdrawal Penalty 

Ball v. Comr., T.C. Memo. 2020-152

During 2012 and 2013 the petitioner participated in a SEP-IRA. Chase Bank (Chase) was the custodian. In 2012, he took two distributions from the account totaling over $200,000.  He had the bank deposit the distributions into a Chase business checking account that he had opened in the name of The Ball Investment Account LLC (Ball LLC), of which he was the sole owner and only member. Importantly, Ball LLC was not a retirement account. The petitioner informed Chase that the distributions were early distributions that were not exempt from tax.  The petitioner made real estate loans with the distributed funds. The first loan was repaid in April 2013 with a check payable to "the Ball SEP Account."  The funds were deposited into the SEP-IRA account. He paid off the second loan in installments in 2012 and 2013.  The payments were made with checks made payable to "the Ball SEP Account.”  Chase, as custodian, had no knowledge of or control over the use that Ball LLC made of the distributions that were deposited in the Ball LLC business checking account.  Chase also didn’t hold or control any documents related to the loans Ball LLC made. Chase issued the petitioner a Form 1099-R for the 2012 tax year reporting that the petitioner had received taxable distributions from the SEP-IRA of $209,600. While the petitioner reported the distributions on his Form 1040, he did not include them in gross income and reported no tax and no tax liability.  The IRS issued a CP2000 Notice stating that the petitioner had failed to report the distributions from Chase Bank and that he therefore owed $67,031 in tax and a substantial-understatement penalty of $13,406. The petitioner did not respond to the Notice, and the IRS then sent him a notice of deficiency that determined the deficiency, additional tax, and penalty due. The Tax Court determined that the petitioner had unfettered control over the distributions, rejecting the petitioner’s “conduit agency arrangement” argument. The Tax Court determined that Ball LLC was not acting as an agent or conduit on behalf of Chase when Ball LLC received and made use of the distributions. The Tax Court noted that Chase had no knowledge of how the distributed funds were used after they were deposited in the Ball LLC account at the petitioner’s direction and that nothing in the record showed that petitioner, who controlled Ball LLC, did not have unfettered control over the distributions. The Tax Court determined that the facts of his case were analogous to those in Vandenbosch v. Comr., T.C. Memo. 2016-29 and, as a result, Ball LLC was not a conduit for Chase. As a result, the IRS position that the distributions should be included in the petitioner’s income was upheld. In addition, the petitioner had not yet reached age 59.5 which meant that he was liable for the 10 percent early distribution penalty. The Tax Court also upheld the accuracy-related penalty. 

New ESA Definition of “Habitat” 

85 Fed. Reg. 81411 (Dec. 16, 2020), effective, Jan. 15, 2021

In response to the U.S. Supreme Court decision in Weyerhaeuser Co. v. United States Fish and Wildlife Service, 139 S. Ct. 361 (2018), the United States Fish and Wildlife Service (USFWS) has modified the definition of “habitat” for listed species under the Endangered Species Act (ESA). The modification is the first change in the definition since the Endangered Species Act’s (ESA) enactment in 1973. Under Weyerhaeuser, the U.S. Supreme Court held that an area being designated as habitat is a prerequisite for a designation as “critical habitat.”  The regulation defines “habitat” as “the abiotic and biotic setting that currently or periodically contains the resources and conditions necessary to support one or more life processes of a species.” Thus, to be “habitat” an area must already contain the conditions necessary to support the species it is intended to be habitat for. Thus, only those areas which include the environmental conditions that can provide benefits to the species at issue (one seeking either a listed or endangered species) will be eligible for critical habitat designation. 

Federal Government Must Pay Farmers Millions For Army Corps of Engineers' Mismanagement of Missouri River. 

Ideker Farms, Inc. v. United States, No. 14-183L, 2020 U.S. Claims LEXIS 2548 (Fed. Cl. Dec. 14, 2020)

In 2014, 400 farmers along the Missouri River from Kansas to North Dakota sued the federal government claiming that the actions of the U.S. Army Corps of Engineers (COE) led to and caused repeated flooding of their farmland along the Missouri River. The farmers alleged that flooding in 2007-2008, 2010-2011, and 2013-2014 constituted a taking requiring that “just compensation” be paid to them under the Fifth Amendment. The litigation was divided into two phases – liability and just compensation. The liability phase was decided in early 2018 when the court determined that some of the 44 landowners selected as bellwether plaintiffs had established the COE’s liability. In that decision, the court held that the COE, in its attempt to balance flood control and its responsibilities under the Endangered Species Act, had released water from reservoirs “during periods of high river flows with the knowledge that flooding was taking place or likely to soon occur.” The court, in that case, noted that the COE had made other changes after 2004 to reengineer the Missouri River and reestablish more natural environments to facilitate species recovery that caused riverbank destabilization which led to flooding. Ultimately, the court, in the earlier litigation, determined that 28 of the 44 landowners had proven the elements of a takings claim – causation, foreseeability and severity. The claims of the other 16 landowners were dismissed for failure to prove causation. The court also determined that flooding in 2011 could not be tied to the COE’s actions and dismissed the claims for that year.

The present case involved a determination of the plaintiffs’ losses and whether the federal government had a viable defense against the plaintiffs’ claims. The court found that the “increased frequency, severity, and duration of flooding post MRRP [Missouri River Recovery Program] changed the character of the representative tracts of land.” The court also stated that, “ [i]t cannot be the case that land that experiences a new and ongoing pattern of increased flooding does not undergo a change in character.” The court determined that three representative plaintiffs, farming operations in northwest Missouri, southwest Iowa and northeast Kansas, were collectively owed more than $7 million for the devaluation of their land due to the establishment of a “permanent flowage easement” that the COE created which constituted a compensable taking under the Fifth Amendment.

The impact of the court’s ruling means that hundreds of landowners affected by flooding in six states are likely entitled to just compensation for the loss of property value due to the new flood patterns that the COE created as part of its MRRP. 

Conclusion

As 2021 unwinds, more issues will occur, many of which will likely involve estate and business entity planning along with income tax planning.

January 24, 2021 in Business Planning, Environmental Law, Income Tax, Regulatory Law | Permalink | Comments (0)

Wednesday, January 20, 2021

Ag Law and Taxation 2020 Bibliography

Overview

Today's post is a bibliography of my ag law and tax blog articles of 2020.  Many of you have requested that I provide something like this to make it easier to find the articles.  If possible, I will do the same for articles from prior years.  The library of content is piling up - I have written more than 500 detailed articles for the blog over the last four and one-half years.

Cataloging the 2020 ag law and tax blog articles - it's the topic of today's post.

BANKRUPTCY

Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech

https://lawprofessors.typepad.com/agriculturallaw/2020/01/ag-law-and-tax-in-the-courts-bankruptcy-debt-discharge-aerial-application-of-chemicals-start-up-expe.html

Unique, But Important Tax Issues – “Claim of Right;” Passive Loss Grouping; and Bankruptcy Taxation

https://lawprofessors.typepad.com/agriculturallaw/2020/01/unique-but-important-tax-issues-claim-of-right-passive-loss-grouping-and-bankruptcy-taxation.html

Disaster/Emergency Legislation – Summary of Provisions Related to Loan Relief; Small Business and Bankruptcy

https://lawprofessors.typepad.com/agriculturallaw/2020/04/disasteremergency-legislation-summary-of-provisions-related-to-loan-relief-small-business-and-bankruptcy.html

Retirement-Related Provisions of the CARES Act

https://lawprofessors.typepad.com/agriculturallaw/2020/04/retirement-related-provisions-of-the-cares-act.html

Farm Bankruptcy – “Stripping, “Claw-Black,” and the Tax Collecting Authorities

https://lawprofessors.typepad.com/agriculturallaw/2020/05/farm-bankruptcy-stripping-claw-back-and-the-tax-collecting-authorities.html

SBA Says Farmers in Chapter 12 Ineligible for PPP Loans

https://lawprofessors.typepad.com/agriculturallaw/2020/06/sba-says-farmers-in-chapter-12-ineligible-for-ppp-loans.html

The “Cramdown” Interest Rate in Chapter 12 Bankruptcy

https://lawprofessors.typepad.com/agriculturallaw/2020/07/the-cramdown-interest-rate-in-chapter-12-bankruptcy.html

Bankruptcy and the Preferential Payment Rule

https://lawprofessors.typepad.com/agriculturallaw/2020/12/bankruptcy-and-the-preferential-payment-rule.html

BUSINESS PLANNING

Partnership Tax Ponderings – Flow-Through and Basis

https://lawprofessors.typepad.com/agriculturallaw/2020/02/partnership-tax-ponderings-flow-through-and-basis.html

Farm and Ranch Estate and Business Planning in 2020 (Through 2025)

https://lawprofessors.typepad.com/agriculturallaw/2020/03/farm-and-ranch-estate-and-business-planning-in-2020-through-2025.html

Transitioning the Farm or Ranch – Stock Redemption

https://lawprofessors.typepad.com/agriculturallaw/2020/07/transitioning-the-farm-or-ranch-stock-redemption.html

Estate and Business Planning for the Farm and Ranch Family – Use of the LLC (Part 1)

https://lawprofessors.typepad.com/agriculturallaw/2020/07/estate-and-business-planning-for-the-farm-and-ranch-family-use-of-the-llc-part-1.html

Estate and Business Planning for the Farm and Ranch Family – Use of the LLC (Part 2)

https://lawprofessors.typepad.com/agriculturallaw/2020/07/estate-and-business-planning-for-the-farm-and-ranch-family-use-of-the-llc-part-two.html

The Use of the LLC for the Farm or Ranch Business – Practical Application

https://lawprofessors.typepad.com/agriculturallaw/2020/08/the-use-of-the-llc-for-the-farm-or-ranch-business-practical-application.html

CIVIL LIABILITIES

Top Ten Agricultural Law and Tax Developments from 2019 (Numbers 10 and 9)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-from-2019-numbers-10-and-9.html

Ag Law in the Courts – Feedlots; Dicamba Drift; and Inadvertent Disinheritance

https://lawprofessors.typepad.com/agriculturallaw/2020/01/ag-law-in-the-courts-feedlots-dicamba-drift-and-inadvertent-disinheritance.html

Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech

https://lawprofessors.typepad.com/agriculturallaw/2020/01/ag-law-and-tax-in-the-courts-bankruptcy-debt-discharge-aerial-application-of-chemicals-start-up-expe.html

Dicamba, Peaches and a Defective Ferrari; What’s the Connection?

https://lawprofessors.typepad.com/agriculturallaw/2020/05/dicamba-peaches-and-a-defective-ferrari-whats-the-connection.html

Liability for Injuries Associated with Horses (and Other Farm Animals)

https://lawprofessors.typepad.com/agriculturallaw/2020/06/liability-for-injuries-associated-with-horses-and-other-farm-animals.html

Issues with Noxious (and Other) Weeds and Seeds

https://lawprofessors.typepad.com/agriculturallaw/2020/09/issues-with-noxious-and-other-weeds-and-seeds.html

Of Nuisance, Overtime and Firearms – Potpourri of Ag Law Developments

https://lawprofessors.typepad.com/agriculturallaw/2020/11/of-nuisance-overtime-and-firearms-potpourri-of-ag-law-developments.html

CONTRACTS

The Statute of Frauds and Sales of Goods

https://lawprofessors.typepad.com/agriculturallaw/2020/01/the-statute-of-frauds-and-sales-of-goods.html

Disrupted Economic Activity and Force Majeure – Avoiding Contractual Obligations in Time of Pandemic

https://lawprofessors.typepad.com/agriculturallaw/2020/04/disrupted-economic-activity-and-force-majeure-avoiding-contractual-obligations-in-time-of-pandemic.html

Is it a Farm Lease or Not? – And Why it Might Matter

https://lawprofessors.typepad.com/agriculturallaw/2020/11/is-it-a-farm-lease-or-not-and-why-it-might-matter.html

COOPERATIVES

Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 2 and 1)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-of-2019-numbers-2-and-1.html

Concentrated Ag Markets – Possible Producer Response?

https://lawprofessors.typepad.com/agriculturallaw/2020/05/concentrated-ag-markets-possible-producer-response.html

CRIMINAL LIABILITIES

Is an Abandoned Farmhouse a “Dwelling”?

https://lawprofessors.typepad.com/agriculturallaw/2020/02/is-an-abandoned-farmhouse-a-dwelling.html

ENVIRONMENTAL LAW

Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 8 and 7)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-of-2019-numbers-8-and-7.html

Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 6 and 5)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-of-2019-numbers-six-and-five.html

Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 4 and 3)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-of-2019-numbers-4-and-3.html

Clean Water Act – Compliance Orders and “Normal Farming Activities”

https://lawprofessors.typepad.com/agriculturallaw/2020/03/clean-water-act-compliance-orders-and-normal-farming-activities.html

Groundwater Discharges of “Pollutants” and “Functional Equivalency”

https://lawprofessors.typepad.com/agriculturallaw/2020/04/groundwater-discharges-of-pollutants-and-functional-equivalency.html

NRCS Highly Erodible Land and Wetlands Conservation Final Rule – Clearer Guidance for Farmers or Erosion of Property Rights? – Part One

https://lawprofessors.typepad.com/agriculturallaw/2020/09/nrcs-highly-erodible-land-and-wetlands-conservation-final-rule-clearer-guidance-for-farmers-or-erosi.html

NRCS Highly Erodible Land and Wetlands Conservation Final Rule – Clearer Guidance for Farmers or Erosion of Property Rights? – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2020/09/nrcs-highly-erodible-land-and-wetlands-conservation-final-rule-clearer-guidance-for-farmers-or-loss-of-property-rights.html

NRCS Highly Erodible Land and Wetlands Conservation Final Rule – Clearer Guidance for Farmers or Erosion of Property Rights? – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2020/09/nrcs-highly-erodible-land-and-wetlands-conservation-final-rule-clearer-guidance-for-farmers-or-loss-of-property-rights-1.html

The Prior Converted Cropland Exception – More Troubles Ahead?

https://lawprofessors.typepad.com/agriculturallaw/2020/09/the-prior-converted-cropland-exception-more-troubles-ahead.html

TMDL Requirements – The EPA’s Federalization of Agriculture

            https://lawprofessors.typepad.com/agriculturallaw/2020/10/tmdl-requirements-.html

Eminent Domain and “Seriously Misleading” Financing Statements

https://lawprofessors.typepad.com/agriculturallaw/2020/10/eminent-domain-and-seriously-misleading-financing-statements.html

 

ESTATE PLANNING

Ag Law in the Courts – Feedlots; Dicamba Drift; and Inadvertent Disinheritance

https://lawprofessors.typepad.com/agriculturallaw/2020/01/ag-law-in-the-courts-feedlots-dicamba-drift-and-inadvertent-disinheritance.html

Recent Developments Involving Estates and Trusts

https://lawprofessors.typepad.com/agriculturallaw/2020/02/recent-developments-involving-decedents-estates-and-trusts.html

What is a “Trade or Business” For Purposes of Installment Payment of Federal Estate Tax?

https://lawprofessors.typepad.com/agriculturallaw/2020/03/what-is-a-trade-or-business-for-purposes-of-installment-payment-of-federal-estate-tax.html

Alternate Valuation – Useful Estate Tax Valuation Provision

https://lawprofessors.typepad.com/agriculturallaw/2020/03/alternate-valuation-useful-estate-tax-valuation-provision.html

Farm and Ranch Estate and Business Planning in 2020 (Through 2025)

https://lawprofessors.typepad.com/agriculturallaw/2020/03/farm-and-ranch-estate-and-business-planning-in-2020-through-2025.html

Retirement-Related Provisions of the CARES Act

https://lawprofessors.typepad.com/agriculturallaw/2020/04/retirement-related-provisions-of-the-cares-act.html

Are Advances to Children Loans or Gifts?

https://lawprofessors.typepad.com/agriculturallaw/2020/06/are-advances-to-children-loans-or-gifts.html

Tax Issues Associated with Options in Wills and Trusts

https://lawprofessors.typepad.com/agriculturallaw/2020/06/tax-issues-associated-with-options-in-wills-and-trusts.html

Valuing Farm Chattels and Marketing Rights of Farmers

https://lawprofessors.typepad.com/agriculturallaw/2020/06/valuing-farm-chattels-and-marketing-rights-of-farmers.html

Is it a Gift or Not a Gift? That is the Question

https://lawprofessors.typepad.com/agriculturallaw/2020/06/is-it-a-gift-or-not-a-gift-that-is-the-question.html

Does a Discretionary Trust Remove Fiduciary Duties a Trustee Owes Beneficiaries?

https://lawprofessors.typepad.com/agriculturallaw/2020/10/does-a-discretionary-trust-remove-fiduciary-duties-a-trustee-owes-beneficiaries.html

Can I Write my Own Will? Should I?

https://lawprofessors.typepad.com/agriculturallaw/2020/10/can-i-write-my-own-will-should-i.html

Income Taxation of Trusts – New Regulations

https://lawprofessors.typepad.com/agriculturallaw/2020/10/income-taxation-of-trusts.html

Merging a Revocable Trust at Death with an Estate – Tax Consequences

https://lawprofessors.typepad.com/agriculturallaw/2020/11/merging-a-revocable-trust-at-death-with-an-estate-tax-consequences.html

When is Transferred Property Pulled Back into the Estate at Death?  Be on Your Bongard!

https://lawprofessors.typepad.com/agriculturallaw/2020/11/when-is-transferred-property-pulled-back-into-the-estate-at-death-be-on-your-bongard.html

‘Tis the Season for Giving, But When is a Transfer a Gift?

https://lawprofessors.typepad.com/agriculturallaw/2020/12/tis-the-season-for-giving-but-when-is-a-transfer-a-gift.html

 

INCOME TAX

Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 2 and 1)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-of-2019-numbers-2-and-1.html

Does the Penalty Relief for a “Small Partnership” Still Apply?

https://lawprofessors.typepad.com/agriculturallaw/2020/01/does-the-penalty-relief-for-a-small-partnership-still-apply.html

Substantiation – The Key to Tax Deductions

https://lawprofessors.typepad.com/agriculturallaw/2020/01/substantiation-the-key-to-tax-deductions.html

Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech

https://lawprofessors.typepad.com/agriculturallaw/2020/01/ag-law-and-tax-in-the-courts-bankruptcy-debt-discharge-aerial-application-of-chemicals-start-up-expe.html

Unique, But Important Tax Issues – “Claim of Right;” Passive Loss Grouping; and Bankruptcy Taxation

https://lawprofessors.typepad.com/agriculturallaw/2020/01/unique-but-important-tax-issues-claim-of-right-passive-loss-grouping-and-bankruptcy-taxation.html

Conservation Easements and the Perpetuity Requirement

https://lawprofessors.typepad.com/agriculturallaw/2020/02/conservation-easements-and-the-perpetuity-requirement.html

Tax Treatment Upon Death of Livestock

https://lawprofessors.typepad.com/agriculturallaw/2020/02/tax-treatment-upon-death-of-livestock.html

What is a “Trade or Business” For Purposes of I.R.C. §199A?

https://lawprofessors.typepad.com/agriculturallaw/2020/02/what-is-a-trade-or-business-for-purposes-of-irc-199a.html

Tax Treatment of Meals and Entertainment

https://lawprofessors.typepad.com/agriculturallaw/2020/03/tax-treatment-of-meals-and-entertainment.html

Farm NOLs Post-2017

            https://lawprofessors.typepad.com/agriculturallaw/2020/03/farm-nols-post-2017.html

Disaster/Emergency Legislation – Summary of Provisions Related to Loan Relief; Small Business and Bankruptcy

https://lawprofessors.typepad.com/agriculturallaw/2020/04/disasteremergency-legislation-summary-of-provisions-related-to-loan-relief-small-business-and-bankruptcy.html

Retirement-Related Provisions of the CARES Act

https://lawprofessors.typepad.com/agriculturallaw/2020/04/retirement-related-provisions-of-the-cares-act.html

Income Tax-Related Provisions of Emergency Relief Legislation

https://lawprofessors.typepad.com/agriculturallaw/2020/04/income-tax-related-provisions-of-emergency-relief-legislation.html

The Paycheck Protection Program – Still in Need of Clarity

https://lawprofessors.typepad.com/agriculturallaw/2020/05/the-paycheck-protection-program-still-in-need-of-clarity.html

Solar “Farms” and The Associated Tax Credit

https://lawprofessors.typepad.com/agriculturallaw/2020/05/solar-farms-and-the-associated-tax-credit.html

Obtaining Deferral for Non-Deferred Aspects of an I.R.C. §1031 Exchange

https://lawprofessors.typepad.com/agriculturallaw/2020/05/obtaining-deferral-for-non-deferred-aspects-of-an-irc-1031-exchange-.html

Conservation Easements – The Perpetuity Requirement and Extinguishment

https://lawprofessors.typepad.com/agriculturallaw/2020/05/conservation-easements-the-perpetuity-requirement-and-extinguishment.html

PPP and PATC Developments

https://lawprofessors.typepad.com/agriculturallaw/2020/06/ppp-and-patc-developments.html

How Many Audit “Bites” of the Same Apple Does IRS Get?

https://lawprofessors.typepad.com/agriculturallaw/2020/07/how-many-audit-bites-of-the-same-apple-does-irs-get.html

More Developments Concerning Conservation Easements

https://lawprofessors.typepad.com/agriculturallaw/2020/07/more-developments-concerning-conservation-easements.html

Imputation – When Can an Agent’s Activity Count?

https://lawprofessors.typepad.com/agriculturallaw/2020/07/imputation-when-can-an-agents-activity-count.html

Exotic Game Activities and the Tax Code

https://lawprofessors.typepad.com/agriculturallaw/2020/08/exotic-game-activities-and-the-tax-code.html

Demolishing Farm Buildings and Structures – Any Tax Benefit?

         https://lawprofessors.typepad.com/agriculturallaw/2020/08/demolishing-farm-buildings-and-structures-any-tax-benefit.html

Tax Incentives for Exported Ag Products

https://lawprofessors.typepad.com/agriculturallaw/2020/08/tax-incentives-for-exported-ag-products.html

Deducting Business Interest

https://lawprofessors.typepad.com/agriculturallaw/2020/09/deducting-business-interest.html

Recent Tax Court Opinions Make Key Point on S Corporations and Meals/Entertainment Deductions

https://lawprofessors.typepad.com/agriculturallaw/2020/09/recent-tax-court-opinions-make-key-points-on-s-corporations-and-mealsentertainment-deductions.html

Income Taxation of Trusts – New Regulations

https://lawprofessors.typepad.com/agriculturallaw/2020/10/income-taxation-of-trusts.html

Accrual Accounting – When Can a Deduction Be Claimed?

https://lawprofessors.typepad.com/agriculturallaw/2020/11/accrual-accounting-when-can-a-deduction-be-claimed.html

Farmland Lease Income – Proper Tax Reporting

https://lawprofessors.typepad.com/agriculturallaw/2020/11/farmland-lease-income-proper-tax-reporting.html

Merging a Revocable Trust at Death with an Estate – Tax Consequences

https://lawprofessors.typepad.com/agriculturallaw/2020/11/merging-a-revocable-trust-at-death-with-an-estate-tax-consequences.html

The Use of Deferred Payment Contracts – Specifics Matter

https://lawprofessors.typepad.com/agriculturallaw/2020/11/the-use-of-deferred-payment-contracts-specific-matters.html

Is Real Estate Held in Trust Eligible for I.R.C. §1031 Exchange Treatment?

https://lawprofessors.typepad.com/agriculturallaw/2020/11/is-real-estate-held-in-trust-eligible-for-irc-1031-exchange-treatment.html

 

INSURANCE

Recent Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2020/07/recent-court-developments-of-interest.html

PUBLICATIONS

Principles of Agricultural Law

https://lawprofessors.typepad.com/agriculturallaw/2020/01/principles-of-agricultural-law.html

 

REAL PROPERTY

Signing and Delivery

https://lawprofessors.typepad.com/agriculturallaw/2020/02/deed-effectiveness-signing-and-delivery.html

Abandoned Railways and Issues for Adjacent Landowners

https://lawprofessors.typepad.com/agriculturallaw/2020/04/abandoned-railways-and-issues-for-adjacent-landowners.html

Obtaining Deferral for Non-Deferred Aspects of an I.R.C. §1031 Exchange

https://lawprofessors.typepad.com/agriculturallaw/2020/05/obtaining-deferral-for-non-deferred-aspects-of-an-irc-1031-exchange-.html

Are Dinosaur Fossils Minerals?

https://lawprofessors.typepad.com/agriculturallaw/2020/06/are-dinosaur-fossils-minerals.html

Real Estate Concepts Involved in Recent Cases

https://lawprofessors.typepad.com/agriculturallaw/2020/10/real-estate-concepts-involved-in-recent-cases.html

Is it a Farm Lease or Not? – And Why it Might Matter

https://lawprofessors.typepad.com/agriculturallaw/2020/11/is-it-a-farm-lease-or-not-and-why-it-might-matter.html

 

REGULATORY LAW

Top Ten Agricultural Law and Tax Developments from 2019 (Numbers 10 and 9)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-from-2019-numbers-10-and-9.html

Top Ten Agricultural Law and Tax Developments from 2019 (Number 8 and 7)

https://lawprofessors.typepad.com/agriculturallaw/2020/01/top-ten-agricultural-law-and-tax-developments-of-2019-numbers-8-and-7.html

Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech

https://lawprofessors.typepad.com/agriculturallaw/2020/01/ag-law-and-tax-in-the-courts-bankruptcy-debt-discharge-aerial-application-of-chemicals-start-up-expe.html

Hemp Production – Regulation and Economics

https://lawprofessors.typepad.com/agriculturallaw/2020/04/hemp-production-regulation-and-economics.html

DOJ to Investigate Meatpackers – What’s it All About?

https://lawprofessors.typepad.com/agriculturallaw/2020/05/doj-to-investigate-meatpackers-whats-it-all-about.html

Dicamba Registrations Cancelled – Or Are They?

https://lawprofessors.typepad.com/agriculturallaw/2020/06/dicamba-registrations-cancelled-or-are-they.html

What Does a County Commissioner (Supervisor) Need to Know?

https://lawprofessors.typepad.com/agriculturallaw/2020/06/what-does-a-county-commissioner-supervisor-need-to-know.html

The Supreme Court’s DACA Opinion and the Impact on Agriculture

https://lawprofessors.typepad.com/agriculturallaw/2020/07/the-supreme-courts-daca-opinion-and-the-impact-on-agriculture.html

Right-to-Farm Law Headed to the SCOTUS?

https://lawprofessors.typepad.com/agriculturallaw/2020/08/right-to-farm-law-headed-to-the-scotus.html

The Public Trust Doctrine – A Camel’s Nose Under Agriculture’s Tent?

https://lawprofessors.typepad.com/agriculturallaw/2020/10/the-public-trust-doctrine-a-camels-nose-under-agricultures-tent.html

Roadkill – It’s What’s for Dinner (Reprise)

https://lawprofessors.typepad.com/agriculturallaw/2020/10/roadkill-its-whats-for-dinner-reprise.html

Beef May be for Dinner, but Where’s It From?

https://lawprofessors.typepad.com/agriculturallaw/2020/11/beef-may-be-for-dinner-but-wheres-it-from.html

Of Nuisance, Overtime and Firearms – Potpourri of Ag Law Developments

https://lawprofessors.typepad.com/agriculturallaw/2020/11/of-nuisance-overtime-and-firearms-potpourri-of-ag-law-developments.html

What Farm Records and Information Are Protected from a FOIA Request?

https://lawprofessors.typepad.com/agriculturallaw/2020/12/what-farm-records-and-information-are-protected-from-a-foia-request.html

Can One State Dictate Agricultural Practices in Other States?

https://lawprofessors.typepad.com/agriculturallaw/2020/12/can-one-state-dictate-agricultural-practices-in-other-states.html

SECURED TRANSACTIONS

Family Farming Arrangements and Liens; And, What’s a Name Worth?

https://lawprofessors.typepad.com/agriculturallaw/2020/02/family-farming-arrangements-and-liens-and-whats-a-name-worth.html

Conflicting Interests in Stored Grain

https://lawprofessors.typepad.com/agriculturallaw/2020/03/conflicting-interests-in-stored-grain.html

Eminent Domain and “Seriously Misleading” Financing Statement

https://lawprofessors.typepad.com/agriculturallaw/2020/10/eminent-domain-and-seriously-misleading-financing-statements.html

 

SEMINARS AND CONFERENCES

Summer 2020 Farm Income Tax/Estate and Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2020/02/summer-2020-farm-income-taxestate-and-business-planning-conference.html

Registration Open for Summer Ag Income Tax/Estate and Business Planning Seminar

https://lawprofessors.typepad.com/agriculturallaw/2020/03/registration-open-for-summer-ag-income-taxestate-and-business-planning-seminar.html

 

Summer 2020 – National Farm Income Tax/Estate and Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2020/04/summer-2020-national-farm-income-taxestate-and-business-planning-conference.html

Year-End CPE/CLE – Six More to Go

https://lawprofessors.typepad.com/agriculturallaw/2020/12/year-end-cpecle-six-more-to-go.html

2021 Summer National Farm and Ranch Income Tax/Estate and Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2020/12/2021-summer-national-farm-income-taxestate-business-planning-conference.html

WATER LAW

Principles of Agricultural Law

https://lawprofessors.typepad.com/agriculturallaw/2020/01/principles-of-agricultural-law.html

MISCELLANEOUS

More “Happenings” in Ag Law and Tax

https://lawprofessors.typepad.com/agriculturallaw/2020/02/more-happenings-in-ag-law-and-tax.html

Recent Cases of Interest

            https://lawprofessors.typepad.com/agriculturallaw/2020/03/recent-cases-of-interest.html

More Selected Caselaw Developments of Relevance to Ag Producers

https://lawprofessors.typepad.com/agriculturallaw/2020/03/more-selected-caselaw-developments-of-relevance-to-ag-producers.html

Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2020/04/court-developments-of-interest.html

Ag Law and Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2020/05/ag-law-and-tax-developments.html

Recent Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2020/07/recent-court-developments-of-interest.html

Court Developments in Agricultural Law and Taxation

https://lawprofessors.typepad.com/agriculturallaw/2020/08/court-developments-in-agricultural-law-and-taxation.html

Ag Law and Tax in the Courtroom

https://lawprofessors.typepad.com/agriculturallaw/2020/09/ag-law-and-tax-in-the-courtroom.html

Recent Tax Cases of Interest

https://lawprofessors.typepad.com/agriculturallaw/2020/09/recent-tax-cases-of-interest.html

Ag and Tax in the Courts

 https://lawprofessors.typepad.com/agriculturallaw/2020/11/ag-and-tax-in-the-courts.html

Of Nuisance, Overtime and Firearms – Potpourri of Ag Law Developments

https://lawprofessors.typepad.com/agriculturallaw/2020/11/of-nuisance-overtime-and-firearms-potpourri-of-ag-law-developments.html

Bankruptcy Happenings

            https://lawprofessors.typepad.com/agriculturallaw/2020/12/bankruptcy-happenings.html

January 20, 2021 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Sunday, January 17, 2021

Agricultural Law Online!

Overview

For the Spring 2021 academic semester, Kansas State University will be offering my Agricultural Law and Economics course online. No matter where you are located, you can enroll in the course and participate in it as if you were present with the students in the on-campus classroom.

Details of this spring semester’s online Ag Law course – that’s the topic of today’s post.

Course Coverage

The course provides a broad overview of many of the issues that a farmer, rancher, rural landowner, ag lender or other agribusiness will encounter on a daily basis. As a result, the course looks at contract issues for the purchase and sale of agricultural goods; the peril of oral contracts; the distinction between a lease and a contract (and why the distinction matters); and the key components of a farm lease, hunting lease, wind energy lease, oil and gas lease, and other types of common agricultural contractual matters. What are the rules surrounding ag goods purchased at auction?

Ag financing situations are also covered – what it takes to provide security to a lender when financing the purchase of personal property to be used in the farming business. In addition, the unique rules surrounding farm bankruptcy is covered, including the unique tax treatment provided to a farmer in Chapter 12 bankruptcy.

Of course, farm income tax is an important part of the course. Tax planning is perhaps the most important aspect of the farming business that every-day decisions have an impact on and are influenced by. As readers of this blog know well, farm tax issues are numerous and special rules apply in many instances. The new tax law impacts many areas of farm income tax.

Real property legal issues are also prevalent and are addressed in the course. The key elements of an installment land contract are covered, as well as legal issues associated with farm leases. Various types of interests in real estate are explained – easements; licenses; profits, fee simples, remainders, etc. Like-kind exchange rules are also covered as are the special tax rules (at the state level) that apply to farm real estate.

A big issue for some farmers and ranchers concerns abandoned railways, and those issues are covered in the course. What if an existing fence is not on the property line?

Farm estate and business planning is also a significant emphasis of the course. What’s the appropriate estate plan for a farm and ranch family? How should the farming business be structured? Should multiple entities be used? Why does it matter? These questions, and more, are addressed.

Agricultural cooperatives are important for the marketing of agricultural commodities. How a cooperative is structured and works and the special rules that apply are also discussed.

Because much agricultural property is out in the open, that means that personal liability rules come into play with respect to people that come onto the property or use farm property in the scope of their employment. What are the rules that apply in those situations? What about liability rules associated with genetically modified products? Ag chemicals also pose potential liability issues, as do improperly maintained fences? What about defective ag seed or purchased livestock that turns out to not live up to representations? These issues, and more, are covered in the scope of discussing civil liabilities.

Sometimes farmers and ranchers find themselves in violation of criminal laws. What are those common situations? What are the rules that apply? We will get into those issue too.

Water law is a very big issue, especially in the western two-thirds of the United States. We will survey the rules surrounding the allocation of surface water and ground water to agricultural operations.

Ag seems to always be in the midst of many environmental laws – the “Clean Water Rule” is just one of those that has been high-profile in recent years. We will talk about the environmental rules governing air, land, and water quality as they apply to farmers, ranchers and rural landowners.

Finally, we will address the federal (and state) administrative state and its rules that apply to farming operations. Not only will federal farm programs be addressed, but we will also look at other major federal regulations that apply to farmers and ranchers.

Further Information and How to Register

Information about the course and how to register is available here:  https://www.enrole.com/ksu/jsp/session.jsp?sessionId=442107&courseId=AGLAW&categoryId=ROOT

You can also find information about the text for the course at the following link:  https://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html

If you are an undergraduate student at an institution other than Kansas State, you should be able to enroll in this course and have it count as credit towards your degree at your institution.  Consult with your academic advisor to see how Ag Law and Economics will transfer and align with your degree completion goals.

If you have questions, you can contact me directly, or submit your questions to the KSU Global Campus staff at the link provided above.

I hope to see you in class beginning on January 26!

January 17, 2021 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Friday, January 15, 2021

Final Ag/Horticultural Cooperative QBI Regulations Issued

Overview

After many months of delay, the IRS has finally issued final regulations providing guidance to agricultural/horticultural cooperatives and patrons on the I.R.C. §199A(a) and I.R.C. §199A(g) deduction for qualified business income (QBI).  The final regulations make several changes to the Proposed Regulations, and are important to patrons of ag cooperatives and return preparers.

The QBI Final Regulations applicable to agricultural/horticultural cooperatives – it’s the topic of today’s post.

Background

The Consolidated Appropriations Act of 2018, H.R. 1625 (Act) became law.  The Act contained a provision modifying I.R.C. §199A that was included in the Tax Cuts and Jobs Act (TCJA) enacted in late 2017.   I.R.C. §199A created a 20 percent QBI deduction for sole proprietorships and pass-through businesses.  However, the provision created a tax advantage for sellers of agricultural products sold to agricultural cooperatives.  Before the technical correction, those sales generated a tax deduction from gross sales for the seller.  But if those same ag goods were sold to a company that was not an agricultural cooperative, the deduction could only be taken from net business income.  That tax advantage for sales to cooperatives was deemed to be a drafting error and has now been technically corrected.

The modified provision removes the TCJA’s QBI deduction provision for ag cooperatives and replaced it with the former (pre-2018) domestic production activities deduction (DPAD) of I.R.C. §199 for cooperatives.  In addition, the TCJA provision creating a 20 percent deduction for patronage dividends also was eliminated.  Also, the modified language limits the deduction to 20 percent of farmers’ net income, excluding capital gains.

The Modification: New I.R.C. §199A(g)

The provision in the Act removes the QBI deduction for agricultural or horticultural cooperatives.  In its place, the former DPAD provision (in all practical essence) is restored for such cooperatives.  Thus, an ag cooperative can claim a deduction from taxable income that is equal to nine percent of the lesser of the cooperative’s qualified production activities income or taxable income (determined without regard to the cooperative’s I.R.C. § 199A(g) deduction and any deduction allowable under section 1382(b) and (c) (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions)) for the taxable year. The amount of the deduction for a taxable year is limited to 50 percent of the W-2 wages paid by the cooperative during the calendar year that ends in such taxable year. For this purpose, W-2 wages are determined in the same manner as under the other provisions of section 199A (which is not repealed as applied to non-cooperatives), except that “wages” do not include any amount that is not properly allocable to domestic production gross receipts.  A cooperative’s DPAD is reduced by any amount passed through to patrons.

Under the technical correction, the definition of a “specified agricultural or horticultural cooperative” is limited to organizations to which part I of subchapter T applies that either manufacture, produce, grow, or extract in whole or significant part any agricultural or horticultural product; or market any agricultural or horticultural product that their patrons have manufactured, produced, grown, or extracted in whole or significant part. The technical correction notes that Treas Reg. §1.199-6(f) is to apply such that agricultural or horticultural products also include fertilizer, diesel fuel, and other supplies used in agricultural or horticultural production that are manufactured, produced, grown, or extracted by the cooperative.

Note:  As modified, a “specified agricultural or horticultural cooperative” does not include a cooperative solely engaged in the provision of supplies, equipment, or services to farmers or other specified agricultural or horticultural cooperatives.

Impact on patrons.  Under the new language, an eligible patron that receives a qualified payment from a specified agricultural or horticultural cooperative can claim a deduction in the tax year of receipt in an amount equal to the portion of the cooperative’s deduction for qualified production activities income that is: 1) allowed with respect to the portion of the qualified production activities income to which such payment is attributable; and 2) identified by the cooperative in a written notice mailed to the patron during the payment period described in I.R.C. §1382(d).

Note:  The cooperative’s I.R.C. §199A(g) deduction is allocated among its patrons on the basis of the quantity or value of business done with or for the patron by the cooperative.

The patron’s deduction may not exceed the patron’s taxable income for the taxable year (determined without regard to the deduction, but after accounting for the patron’s other deductions under I.R.C. §199A(a)).

What is a qualified payment?  It’s any amount that meets three tests:  

1) the payment must be either a patronage dividend or a per-unit retain allocations;

2) the payment, must be received by an eligible patron from a qualified agricultural or horticultural cooperative; and

3) the payment must be attributable to qualified production activities income with respect to which a deduction is allowed to the cooperative.

An eligible patron cannot be a corporation and cannot be another ag cooperative.   In addition, a cooperative cannot reduce its income under I.R.C. §1382 for any deduction allowable to its patrons by virtue of I.R.C. §199A(g).  Thus, the cooperative must reduce its deductions that are allowed for certain payments to its patrons in an amount equal to the I.R.C. §199A(g) deduction allocated to its patrons.

Transition rule.  A transition rule applied such that the repeal of the DPAD did not apply to a qualified payment that a patron receives from an ag cooperative in a tax year beginning after 2017 to the extent that the payment is attributable to qualified production activities income with respect to which the deduction is allowed to the cooperative under the former DPAD provision for the cooperative’s tax year that began before 2018.  That type of qualified payment is subject to the pre-2018 DPAD provision, and any deduction allocated by a cooperative to patrons related to that type of payment can be deducted by patrons in accordance with the pre-2018 DPAD rules.  In that event, no post-2017 QBI deduction was allowed for those type of qualified payments. This simple statement created surprising results and added complexity to the computations for determining the proper 2018 QBID.  Taxpayers needed to identify sales to non-cooperatives, sales to cooperatives during the year that began in 2017, and sales to cooperatives during the year that began in 2018 to properly compute their 2018 QBID.

Status of Ag Cooperatives and Patrons After the Act

With the technical correction to I.R.C. §199A, where did things stand for farmers?

  • The overall QBI deduction cannot exceed 20 percent of taxable income less capital gain. That restriction applies to all taxpayers regardless of income.  When income exceeds the taxable income threshold , the 50 percent of W-2 wages limitation and qualified property limit are  phased-in.
  • The prior I.R.C. 199 DPAD no longer exists, except as resurrected for agricultural and horticultural cooperatives as noted above. The 20 percent QBI deduction of I.R.C. §199A is available for sole proprietorships and pass-through businesses.  For farming businesses structured in this manner, the tax benefit of the 20 percent QBI deduction will likely outweigh what the DPAD would have produced.
  • While those operating in the C corporate form can’t claim a QBI deduction, the corporate tax rate is now a flat 21 percent. That represents a tax increase for those corporations that would have otherwise triggered a 15 percent rate under prior law and benefitted from DPAD in prior years.
  • For C corporations that are also patrons of an agricultural cooperative, the cooperative’s DPAD does not pass through to the patron.
  • For a Schedule F farmer that is a patron of an agricultural cooperative and pays no wages, there are two steps to calculate the tax benefits. First, the cooperative’s DPAD that is passed through to the patron can be applied to offset the patron’s taxable income regardless of source.  Second, the farmer/patron is entitled to a QBI deduction equal to 20 percent of net farm income derived from qualified non-cooperative sales, subject to the taxable income limitation (presently $329,800 (mfj); $164,900 (single, MFS and HH for 2021).
  • For farmers that pay W-2 wages and sell to ag cooperatives , the QBI deduction is calculated on the sales to cooperatives by applying the lesser of 50 percent of W-2 wages or 9 percent reduction limitation. Thus, for a farmer that has farm income beneath the taxable income limitation , the QBI deduction will never be less than 11 percent (i.e., 20 percent less 9 percent).  If the farmer is above the taxable income limitation the 50 percent of W-2 wages limitation will be applied before the 9 percent limitation.  This will result in the farmer’s QBI deduction, which cannot exceed 20 percent of taxable income.  To this amount is added any pass-through DPAD from the cooperative to produce the total deductible amount.
  • For farmers that sell ag products to non-cooperatives and pay W-2 wages, a deduction of 20 percent of net farm income is available. If taxable income is less than net farm income, the deduction is 20 percent of taxable income less capital gains.  If net farm income exceeds the taxable income limitation the deduction may be reduced on a phased-in basis.
  • The newly re-tooled cooperative DPAD of I.R.C. 199A may incentivize more cooperatives to pass the DPAD through to their patrons.

Proposed Regulations

After a frustrating 2018 tax season experience with respect to associated IRS Forms and IRS computers not recognizing Forms as submitted in accordance with the instructions for the I.R.C. §199A(g) amount, the IRS issued Proposed Regulations concerning the computation of the I.R.C. §199A(g) amount.  REG-118425-18.   The Proposed Regulations clarified that patronage dividends include money, property, qualified written notices of allocations, qualified per-unit retain certificates for which a cooperative receives a deduction under I.R.C. §1382(b), nonpatronage distributions paid in money, property, qualified written notices of allocation, as well as money or property paid in redemption of a nonqualified written notice of allocation for which an exempt cooperative receives a deduction under I.R.C. §1382(c)(2).  But, dividends on capital stock are not included in QBI.  Prop. Treas. Reg. §1.199A-7(c)(1). 

Under Prop. Treas. Reg. §1.199A-7(c), patronage dividends or similar payments may be included in the patron’s QBI to the extent that these payments: (i) are related to the patron’s trade or business; (ii) are qualified items of income, gain, deduction, or loss at the cooperative’s trade or business level; and (iii) are not income from a specified service trade or business (SSTB) (as defined in I.R.C. §199A(d)(2)) at the cooperative level.  But, they are only included in the patron’s income if the cooperative provides the required information to the patron concerning the payments.  Prop. Treas. Reg. §1.199A-7(c)(2).    The transition DPAD rules were reaffirmed in Prop. Treas. Reg. §1.199A-7(h)(2) thus validating the related complex calculations on 2018 tax returns.

The patron’s QBID.  The amount of a patron’s deduction that can be passed through to the patron is limited to the portion of the patron’s deduction that is allowed with respect to qualified production activities income (QPAI) to which the qualified payments (patronage dividends and per unit retains) made to the patron are attributable. I.R.C. §199A(g)(2)(E).     In other words, the distribution must be of tax items that are allocable to the cooperative’s trade or business on behalf of or with a patron.  The cooperative makes this determination in accordance with Treas. Reg. §1.199A-3(b). This is, essentially, the former DPAD computation except that account is taken for non-patronage income not being part of the computation. 

There is a four-step process for computing the patron’s QBID:  1) separate patronage and non-patronage gross receipts (and associated deductions); 2) limit the patronage gross receipts to those that are domestic production gross receipts (likely no reduction here); 3) determine qualified production activities income from the domestic, patronage-sourced gross receipts; 4) apply a formula reduction (explained below).  Prop. Treas. Reg. §1.199A-8(b).

The ”wages” issue.  As noted, the farmer-patron must reduce the “patron’s QBID” by a formula that is the lesser of 9 percent of QBI that relates to qualified payments from the cooperative, or 50 percent of the patron’s W-2 wages paid that are allocable to the qualified payments from the cooperative.  I.R.C. §199A(b)(7)(A)-(B).  In Notice 2019-27, 2019-16 IRB, the IRS set forth various methods for calculating W-2 wages for purposes of computing the patron’s QBID.  See also Prop. Treas. Reg. §1.199A-11.  Because the test is the “lesser of,” a patron that pays no qualified W-2 wages has no reduction.  Remember, however, under I.R.C. §199A(b)(4) and Prop. Treas. Reg. §1.199A-11(b)(1), wages paid in-kind to agricultural labor are not “qualified wages” but wages paid to children under age 18 by their parents are.

I.R.C. §199A(b)(7) requires the formula reduction even if the cooperative doesn’t pass through any of the I.R.C. §199A(g) deduction (the deduction for a patron) to the patron for a particular tax year.  If the patron has more than a single business, QBI must be allocated among those businesses.  Treas. Reg. §1.199A-3(b)(5).  The Proposed Regulations do not mention how the formula reduction functions in the context of an aggregation election.  For example, if an aggregation election is made to aggregate rental income with income from the farming operation, must an allocation be made of a portion of the rental income as part of the formula reduction? 

The formula reduction applies to the portion of a patron’s QBI that relates to qualified payments from a cooperative.  If the patron has negative QBI that is associated with business done with the cooperative, the 9 percent amount will always be lower than the W-2 wage amount. 

An optional safe harbor allocation method exists for patrons with taxable income under the applicable threshold of I.R.C. §199A(e)(2) to determine the reduction.  Under the safe harbor, a patron must allocate the aggregate business expenses and W-2 wages ratably between income from qualified payments and income from other than qualified payments to determine QBI.  Prop. Treas. Reg. §1.199A-7(f)(2)(ii).  Unfortunately, the example contained in the Proposed Regulations not only utilized an apparently unstated “reasonable method of allocation,” but also an allocation of W-2 wage expense that doesn’t match the total expense allocation.   

The amount of deductions apportioned to determine QBI allocable to qualified payments must be equal to the proportion of the total deductions that the amount of qualified payments bears to total gross receipts used to determine QBI. The same proportion applies to determine the amount of W-2 wages allocable to the portion of the trade or business that received qualified payments.    

The part of the Proposed Regulations attempting to illustrate the calculation only mentions gross receipts from grain sales.  There is no mention of gross receipts from farm equipment, for example.  Based on the language of Prop. Treas. Reg. §1.199A-7(f)(2)(ii), gross receipts from the sale of equipment and machinery should be included in the calculation and the farmer would have to allocate gross receipts from equipment sales between patronage and non-patronage income.  Indeed, in prior years, depreciation may have been allocated between patronage and non-patronage income.   Likewise, the example didn’t address how government payments, custom work, crop insurance proceeds or other gross receipts are to be allocated.

This meant that the patron must know the qualified payments from the cooperative that were allocable to the patron that were used in computing the deduction for the patron at the cooperative level that could be passed through to the patron.  This information is contained on Form 1099-PATR Box 7.

A patron with taxable income above the threshold levels that receives patronage dividends (or similar payments) from a cooperative and is conducting a trade or business might be subject to the W-2 wages and “unadjusted basis immediately after acquisition” (UBIA) limitation. In that instance, the patron is to calculate the W-2 wage and UBIA limitations without regard to the cooperative’s W-2 or UBIA amounts.  Prop. Treas. Reg. §1.199A-7(e)(2).  That means  the cooperative (unlike a RPE) does not allocate its W-2 wages or UBIA to patrons.  Instead, a patron allocates (by election) W-2 wages and UBIA between patronage and non-patronage income using any reasonable method based on all the facts and circumstances that clearly reflects the income and expense of each trade or business.  Prop. Treas. Reg. §1.199A-7(f)(2)(i).  

The patron’s QBID that is passed through from the cooperative (which is not limited by W-2 wages at the patron level) is limited to the patron’s taxable income taking into account the non-patron QBID which is limited to 20 percent of taxable income not counting net capital gains.  Any unused patron-QBID is simply lost – there is not carryover or carryback provision that applies.

Identification by the cooperative.  A cooperative must identify the amount of a patron’s deduction that it is passing through to a patron in a notice that is mailed to the patron via Form 1099-PATR during the “applicable payment period” – no later than the 15th day of the ninth month following the close of the cooperative’s tax year.  I.R.C. §199A(g)(2)(A); Prop. Treas. Reg. §1.199A-8(d)(3); I.R.C. §1382(d). 

A patron uses the information that the cooperative reports to determine the patron’s QBID.  If the information isn’t received on or before the Form 1099-PATR due date, no distributions from the cooperative will count towards the patron’s QBI if the lack of reporting occurs after June 19, 2019.  Prop. Treas. Reg. §1.199A-7(c)(3); Prop. Treas. Reg. §1.199A-7(d)(3). 

Final Regulations (TD 9947)

On January 14, 2021 the IRS issued Final Regulations on the cooperative QBI issue.  The Final Regulations make several changes to the Proposed Regulations.  One clarification that likely won’t impact many farmers requires a cooperative to separately determine the amounts of qualified items that relate to non-specified service trades or business (SSTBs) and those that relate to SSTBs when making distributions to patrons.  Treas. Reg. §§1.199A-7(c)(3) and (d)(3). The cooperative is to report the net amount of qualified items from non-SSTBs in distributions to patrons without delineating on a business-by-business basis.  Once a patron receives the information from the cooperative, the patron will have to determine if the qualified item is includible in the patron’s QBI under Treas. Reg. §1.199A-7(c)(2) and whether the qualified item from the SSTB is includible in the patron’s QBI based on the threshold rules of I.R.C. §199A(d)(3).  Treas. Reg. §1.199A-7(d)(3)(i). 

Under the Proposed Regulations, a question existed whether a patron needed to include gain on selling farm equipment, farm program payments, self-rentals, or other similar income sources in calculation of the I.R.C. §199A(g) amount.  The Final Regulations didn’t answer the question. Under the Final Regulations, when calculating the I.R.C. §199A(b)(7) reduction, a patron is to use a “reasonable method” to allocated income between that from qualified payments and that not coming from qualified payments, based on all of the facts and circumstances.  Treas. Reg. §1.199A-7(f)(2)(i).  Basically, that means that a farmer/patron can make their own decision with respect to including or excluding such items.  The only requirement is that a “reasonable method” be utilized.

The final regulations specify that a farmer/patron that aggregates a rental real estate busines and a farming business that does business with a cooperative is to exclude the rental income when calculating the I.R.C. §199A(b)(7) reduction for the patron’s aggregated trade or business.  Similarly, the patron is to allocate rental expense against qualified payments when computing the reduction only to the extent rental expense is related to the qualified payments from the cooperative.  Preamble to TD 9947. 

On the wage issue, qualified payments need not be reduced if the cooperative was limited by the 50 percent of wage limitation.

The Final Regulations provide an example of the effect of negative QBI on the I.R.C. §199A(b)(7) reduction, pointing out that negative QBI from a cooperative results in no adjustment to the reduction computation:

“A farmer conducts two types of agricultural businesses (A and B). Assume the farmer treats A and B as one trade or business for purposes of the [I.R.C. §199A(a)] deduction. The farmer conducts A with non-Specified Cooperatives and B through a Specified Cooperative. The farmer generates $100 of qualifying income through A and receives $100 of qualifying income from a Specified Cooperative in B, all of which is also a qualified payment. The farmer has $180 of qualified expenses. For purposes of the [I.R.C. §199A(a)] deduction, the farmer’s QBI ($20) from the trade or business is used to calculate the deduction, resulting in a $4 deduction. The farmer then must determine if there is any [I.R.C. §199A(b)(7)] reduction to this amount. The farmer reasonably allocates its qualified expenses for purposes of calculating the I.R.C. §199A(b)(7)] reduction and determines $110 of the qualified expenses are allocable to B (and $70 to A). The farmer will use only QBI from B to calculate the [I.R.C. §199A(b)(7)] reduction because that is the only QBI properly allocable to qualified payments. Farmer’s QBI for purposes of [I.R.C. §199A(b)(7)(A)] is negative $10, resulting in a $0 [I.R.C. §199A(b)(7)] reduction (regardless of W-2 wages under [I.R.C. §199A(b)(7)(B)]). ((Preamble to TD 9947)).”

The Final Regulations are generally applicable to tax years beginning after January 19, 2021, but can be used for earlier tax years.  Otherwise, for tax years beginning on or before January 19, 2021, the Proposed Regulations apply.

Conclusion

The Final Regulations do clarify a couple of issues that were unclear in the Proposed Regulations.  However, the Final Regulations do not answer the question of whether gain from certain various sources of income for a farmer/patron in the I.R.C. §199A(g) computation.

January 15, 2021 in Cooperatives, Income Tax | Permalink | Comments (0)

Wednesday, January 13, 2021

The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four

Overview

The biggest three developments of 2020 in ag law and tax are up for discussion today.  2020 was a year of many important developments of relevance to the agricultural industry, but the top three stand out in particular. 

The three most important developments of 2020 – it’s the topic of today’s post.

No. 3 – SCOTUS DACA Opinion

Background.  In mid-2020, the U.S. Supreme Court issued its opinion in Department of Homeland Security, et al. v. Regents of the University of California, et al., 140 S. Ct. 1891 (2020) where the Court denied the U.S. Department of Homeland Security’s (DHS) revocation of the Deferred Action for Childhood Arrivals (DACA).  The Court’s decision is of prime importance to agriculture because the case involved the ability of a federal government agency to create rules that are applied with the force of law without following the notice and comment requirements of the Administrative Procedure Act.  Agricultural activities are often subjected to the rules developed by federal government agencies, making it critical that agency rules are subjected to public input before being finalized.

The DHS started the DACA program by issuing an internal agency memorandum in 2012.  The DHS took this action after numerous bills in the Congress addressing the issue failed to pass over a number of years.  The DACA program illegal aliens that were minors at the time they illegally entered the United States to apply for a renewable, two-year reprieve from deportation.  The DACA program also gave these illegal immigrants work authorizations and access to taxpayer-funded benefits such as Social Security and Medicare.  Current estimates are that between one million and two million DACA-protected illegal immigrants are eligible for benefits  In 2014, the DHS attempted to expand DACA to provide amnesty and taxpayer benefits for over four million illegal aliens, but the expansion was foreclosed by a federal courts in 2015 for providing benefits to illegal aliens without following the procedural requirements of the Administrative Procedure Act as a substantive rule and for violating the Immigration and Naturalization Act.  Texas v. United States, 809 F.3d 134 (5th Cir. 2015), aff’g., 86 F. Supp. 3d 591 (S.D. Tex. 2015)In 2016, the U.S. Supreme Court affirmed the lower court decisions.  United States v. Texas, 136 S. Ct. 2271 (2016).  Based on these court holdings and because DACA was structured similarly, the U.S. Attorney General issued an opinion that the DACA was also legally defective.  Accordingly, in June of 2017, the DHS announced via an internal agency memorandum that it would end the illegal program by no longer accepting new applications or approving renewals other than for those whose benefits would expire in the next six months.  Activist groups sued and the Supreme Court ultimately determined that the action of the DHS was improper for failing to provide sufficient policy reasons for ending DACA.  In other words, what was created with the stroke of a pen couldn’t be eliminated with a stroke of a pen. 

Administrative Procedure Act (APA).  The APA was enacted in 1946.  Pub. L. No. 79-404, 60 Stat. 237 (Jun. 11, 1946).  The APA sets forth the rules governing how federal administrative agencies are to go about developing regulations.  It also gives the federal courts oversight authority over all agency actions.  The APA has been referred to as the “Constitution” for administrative law in the United States.  A key aspect of the APA is that any substantive agency rule that will be applied against an individual or business with the force of law (e.g., affecting rights of the regulated) must be submitted for public notice and comment.  5 U.S.C. §553.  The lack of DACA being subjected to public notice and comment when it was created and the Court’s requirement that it couldn’t be removed in like fashion struck a chord with the most senior member of the Court.  Justice Thomas authored a biting dissent that directly addressed this issue.  He wrote, “Without grounding its position in either the APA or precedent, the majority declares that DHS was required to overlook DACA’s obvious legal deficiencies and provide additional policy reasons and justifications before restoring the rule of law. This holding is incorrect, and it will hamstring all future agency attempts to undo actions that exceed statutory authority.”

Farmers and ranchers often deal with the rules developed by federal (and state) administrative agencies.  Those agency rules often involve substantive rights and, as such, are subject to the notice and comment requirements of the APA.  Failure to follow the APA often results in the restriction (or outright elimination) of property rights without the necessary procedural protections the APA affords. It’s also important that when administrative agencies overstep their bounds, a change in agency leadership has the ability to swiftly rescind prior illegal actions – a point Justice Thomas made clear in his dissent.

No. 2 - Public Trust Doctrine

Background.  Centuries ago, the seas were viewed as the common property of everyone - they weren’t subject to private use and ownership.  Instead, they were held in what was known as the “public trust.”  This concept was later adopted in English law, the Magna Carta, and became part of the common (non-statutory) law of individual states in the United States after the Revolution.  Over the years, this “public trust doctrine” has been primarily applied to access to the seashore and intertidal waters, although recently some courts have expanded its reach beyond its historical application.

But, any judicial expansion of the public trust doctrine results in curtailing vested property rights.  That’s a very important concern for agriculture because of agriculture’s necessary use of natural resources such as land, air, water, minerals and the like.  Restricting or eliminating property rights materially impacts agricultural operations in a negative manner.  It also creates an economic disincentive to use property in an economically (and socially) efficient manner.

How could an expanded public trust doctrine apply?  For farmers and ranchers, it could make a material detrimental impact on the farming operation.  For instance, many endangered species have habitat on privately owned land.  If wildlife and their habitat are deemed to be covered by the doctrine, farming and ranching practices could be effectively curtailed.  What about vested water rights?  A farming or ranching operation that has a vested water right to use water from a watercourse for crop irrigation or livestock watering purposes could find itself having those rights limited or eliminated if, under the public trust doctrine, a certain amount of water needed to be retained in the stream for a species of fish. 

One might argue that the government already has the ability to place those restrictions on farming operations, and that argument would be correct.  But, such restrictions exist via the legislative and regulatory process and are subject to constitutional due process, equal protection and just compensation protections.  Conversely, land-use restrictions via the public trust doctrine bypass those constitutional protections.  No compensation would need to be paid, because there was no governmental taking – a water right, for example, could be deemed to be subject to the “public trust” and enforced without the government paying for taking the right.  

Nevada Case.  Mineral County v. Lyon County, No. 75917, 2020 Nev. LEXIS 56 (Nev. Sup. Ct. Sept. 17, 2020)involved the state of Nevada’s water law system for allocating water rights and an attempt to take those rights without compensation via an expansion of the public use doctrine.  The state of Nevada appropriates water to users via the prior appropriation system – a “first-in-time, first-in-right” system.  Over 100 years ago, litigation over the Walker River Basin began between competing water users in the Walker River Basin.  The Basin covers approximately 4,000 square miles, beginning in the Sierra Nevada mountain range and ending in a lake in Nevada.  In 1936, a federal court issued a decree adjudicating water rights of various claimants to water in the basin via the prior appropriation doctrine. 

In 1987, an Indian Tribe intervened in the ongoing litigation to establish procedures to change the allocations of water rights subject to the decree.  Since that time, the state reviews all changes to applications under the decree.  In 1994, the plaintiff sought to modify the decree to ensure minimum stream flows into the lake under the “doctrine of maintenance of the public trust.”  The federal district (trial) court granted the plaintiff’s motion to intervene in 2013.  In 2015, the trial court dismissed the plaintiff’s amended complaint in intervention on the basis that the plaintiff lacked standing; that the public trust doctrine could only apply prospectively to bar granting appropriative rights; any retroactive application of the doctrine could constitute a taking requiring compensation; that the court lacked the authority to effectuate a taking; and that the lake was not part of the basin. 

On appeal, the federal appellate court determined that the plaintiff had standing, and that the lake was part of the basin.  The appellate court also held that whether the plaintiff could seek minimum flows depended on whether the public trust doctrine allowed the reallocation of rights that had been previously settled under the prior appropriation doctrine.  Thus, the appellate court certified two questions to the Nevada Supreme Court:  1) whether the public trust doctrine allowed such reallocation of rights; and 2) if so, whether doing so amounted to a “taking” of private property requiring “just compensation” under the Constitution. 

The state Supreme Court held that that public trust doctrine had already been implemented via the state’s prior appropriation system for allocating water rights and that the state’s statutory water laws is consistent with the public trust doctrine by requiring the state to consider the public interest when making allocating and administering water rights.  The state Supreme Court also determined that the legislature had expressly prohibited the reallocation of water rights that have not otherwise been abandoned or forfeited in accordance with state water law. 

The state Supreme Court limited the scope of its ruling to private water use of surface streams, lakes and groundwater such as uses for crops and livestock. The plaintiff has indicated that it will ask the federal appellate court for a determination of whether the public trust doctrine could be used to mandate water management methods.  If the court would rule that it does, the result would be an unfortunate disincentive to use water resources in an economically efficient manner (an application of the “tragedy of the commons”).  It would also provide a current example (in a negative way) of the application of the Coase Theorem (well-defined property rights overcome the problem of externalities).  See Coase, “The Problem of Social Cost,” Journal of Law and Economics, Vol. 3, October 1960. 

Oregon CaseIn Chernaik v. Brown, 367 Or. 143 (2020), the plaintiffs claimed that the public trust doctrine required the State of Oregon to protect various natural resources in the state from harm due to greenhouse gas emissions, “climate change,” and ocean acidification. The public trust doctrine has historically only applied to submerged and submersible lands underlying navigable waters as well as the navigable waters. The trial court rejected the plaintiffs’ arguments. On appeal the state Supreme Court affirmed, rejecting the test for expanding the doctrine the plaintiffs proposed. Under that test, the doctrine would extend to any resource that is not easily held or improved and is of great value to the public. The state Supreme Court held that the plaintiffs’ test was too broad to be adopted and remanded the case to the lower court. 

No. 1 – CARES Act, CFAP Programs and Disaster Legislations and CAA, 2021

Quite clearly, the biggest development of 2020 involved the numerous tax and loan provisions enacted in an attempt to offset the loss of income and closure of business resulting from the actions of various state governors as a result of the virus.  Also, the various pieces of legislation made some of the most significant changes to the retirement planning rules in about 15 years.  In addition, tax provisions were contained in disaster legislation that took effect in 2020.  In late December of 2020, the Consolidated Appropriations Act of 2021 (CAA, 2021) was signed into law.  This law made significant changes to the existing Paycheck Protection Program (PPP), and provided another round of payments to farmers and ranchers under the Coronavirus Food Assistance Program (CFAP).  The CAA, 2021 also extended numerous tax provisions that were set to expire at the end of 2020.

Conclusion

2020 was another big year in the ag law and tax world.  There’s never a dull moment. 

January 13, 2021 in Environmental Law, Income Tax, Regulatory Law | Permalink | Comments (0)

Monday, January 11, 2021

The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three

No. 5 – Dicamba Drift Damages

The Issue

Numerous cases have been filed in recent years alleging damage to soybean crops as a result of dicamba drift.  However, one significant case has involved alleged dicamba drift damage to a peach crop.  In 2019, the federal trial court judge hearing the case allowed much of the case to go to the jury.  In early 2020, the jury returned a $265 million judgment against Monsanto/Bayer and BASF.  $15 million of that amount was to compensate the peach farmer.  $250 million was punitive damages.  Throughout 2020, the litigation continued with the courts addressing the whether the allocation of damages was proper and reasonable. 

Dicamba Drift, Peaches and Calculation of Damages

The plaintiff claimed that his peach orchard was destroyed after the defendants (Monsanto and BASF) conspired to develop and market dicamba-tolerant seeds and dicamba-based herbicides. The plaintiff claimed that the damage to the peaches occurred when dicamba drifted from application to neighboring fields. The plaintiff claimed that the defendants released its dicamba-tolerant seed with no corresponding dicamba herbicide that could be safely applied. As a result, farmers illegally sprayed an old formulation of dicamba herbicide that was unapproved for in-crop, over-the-top, use and was "volatile," or prone to drift.

While many cases had previously been filed on the dicamba drift issue, the plaintiff did not join the other litigation because it focused on damages to soybean crops. Monsanto moved to dismiss the claims for failure to warn; negligent training; violation of the Missouri Crop Protection Act; civil conspiracy; and joint liability for punitive damages. BASF moved to dismiss those same counts except the claims for failure to warn. The trial court granted the motion to dismiss in part. Monsanto argued that the failure to warn claims were preempted by the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), but the plaintiff claimed that no warning would have prevented the damage to the peaches. The trial court determined that the plaintiff had adequately plead the claim and denied the motion to dismiss this claim. Both Monsanto and BASF moved to dismiss the negligent training claim, but the trial court refused to do so. However, the trial court did dismiss the claims based on the Missouri Crop Protection Act, noting that civil actions under this act are limited to “field crops” which did not include peaches. The trial court did not dismiss the civil conspiracy claim based on concerted action by agreement, but did dismiss the aiding and abetting portion of the claim because that cause of action is no recognized under Missouri tort law.

The parties agreed to a separate jury determination of punitive damages for each defendant. Bader Farms, Inc. v. Monsanto Co., et al., No. MDL No. 1:18md2820-SNLJ, 2019 U.S. Dist. LEXIS 114302 (E.D. Mo. July 10, 2019). At the jury trial, the jury found that Monsanto had negligently designed or failed to warn for 2015 and 2016 and that both defendants had done so for 2017 to the present. The jury awarded the plaintiff $15 million in compensatory damages and $250 million in punitive damages against Monsanto for 2015 and 2016. The jury also found that the defendants were acting in a joint venture and in a conspiracy. The plaintiff submitted a proposed judgment that both defendants are responsible for the $250 million punitive damages award. BASF objected, but the trial court found the defendants jointly liable for the full verdict in light of the jury’s finding that the defendants were in a joint venture. Bader Farms, Inc. v. Monsanto Co., et al., MDL No. 1:18-md-02820-SNJL, 2020 U.S. Dist. LEXIS 34340 (E.D. Mo. Feb. 28, 2020). BASF then moved for a judgment as a matter of law on punitive damages or motion for a new trial or remittitur (e.g., asking the court to reduce the damage award), and Monsanto moved for a judgment as a matter of law or a new trial. The trial court, however, found both defendants jointly liable, although the court lowered the punitive damages to $60 million after determining a lack of actual malice.

The trial court did uphold the $15 million compensatory damage award upon finding that the correct standard under Missouri law was applied to the farm’s damages. Bader Farms, Inc. v. Monsanto Co, et al., MDL No. 1:18md2820-SNLJ, 2020 U.S. Dist. LEXIS 221420 (E.D. Mo. Nov. 25, 2020). The defendants filed a notice of appeal on December 22, 2020.

No. 4 – Groundwater Discharges and Functional Equivalency

The Issue

Under the Clean Water Act (CWA), a National Pollution Discharge Elimination System (NPDES) permit is required for an “addition” of any “pollutant” from a “point source” into the “navigable waters of the United States” (WOTUS).  33 U.S.C. §1362(12)Excluded are agricultural stormwater discharges and return flows from irrigated agriculture.  33 U.S.C. §1362(14).  Clearly, a discharge directly into a WOTUS is covered. A point source of pollution is that which comes from a discernible, confined and discrete conveyance such as a pipe, ditch or well. 

But, is an NPDES permit necessary if the discharge is directly into groundwater which then seeps its way to a WOTUS in a diffused manner?  Are indirect discharges from groundwater into a WOTUS covered?   If so, does that mean that farmland drainage tile is subject to the CWA and an NPDES discharge permit is required?  1n the 48 years of the CWA, the federal government has never formally taken that position, instead leaving the matter up to the states.  The issue is a big one for agriculture.  In 2020, the U.S. Supreme Court addressed the issue.

Ninth Circuit Decision

In 2018, three different U.S. Circuit Courts of Appeal decided cases on the discharge from groundwater issue.  One of those cases was heard by the U.S. Circuit Court of Appeals for the Ninth Circuit.  In Hawai’i Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF). Although constructed initially to serve as a backup disposal method for water reclamation, the wells became the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean.  The defendant injected approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells.  The wastewater seeped through the groundwater for about one-half of a mile until it reached the Pacific Ocean. The U.S. Court of Appeals for the Ninth Circuit held that the seepage into the Pacific from the point-source wells one-half mile away was “functionally one into navigable water,” and that a permit was required because the “pollutants are fairly traceable from the point source to a navigable water.”

EPA Reaction

After the Ninth Circuit issued its opinion, the EPA, on February 20, 2018, requested comment on whether pollutant discharges from point sources that reach jurisdictional surface waters via groundwater may be subject to Clean Water Act (“CWA”) regulation. Specifically, the EPA sought comment on whether the EPA should consider clarification or revision of previous EPA statements regarding the Agency’s mandate to regulate discharges to surface waters via groundwater under the CWA.  In particular, the EPA sought comment on whether it is consistent with the CWA to require a CWA permit for indirect discharges into jurisdictional surface waters via groundwater. The EPA also sought comment on whether some or all of such discharges are addressed adequately through other federal authorities, existing state statutory or regulatory programs or through other existing federal regulations and permit programs.

After receiving over 50,000 comments, on April 15, 2019, the EPA issued an interpretive statement concluding that the releases of pollutants to groundwater are categorically excluded from the NPDES regardless of whether the groundwater is hydrologically connected to surface water.  The EPA reasoned that the Congress explicitly left regulation of groundwater discharges to the states and that the EPA had other statutory authorities through which to regulate groundwater other than the NPDES.  The EPA, in its statement, noted that its interpretation would apply in areas not within the jurisdiction of the U.S. Circuit Courts of Appeal for the Ninth and Fourth Circuits. 

The Supreme Court and the Hawaii Case

In 2019, the U.S. Supreme Court agreed to hear the Ninth Circuit opinion.  Hawaii Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), pet. for cert. granted, County of Maui v. Hawaii Wildlife Fund, 139 S. Ct. 1164 (2019)Boiled down to its essence, the case turns on the meaning of “from.”  As noted above, an NPDES permit is required for point source pollutants that originate “from” a point source that are discharged into a navigable water.  The NPDES system only applies to discharges of “any addition” of any pollutant from “any point source” to “navigable waters.”  Thus, by the statutory text, there must be an “addition” of a pollutant to a navigable water of the U.S. “from” a point source.  Discharges of pollutants into groundwater are not subject to the NPDES permit requirement even if the groundwater is hydrologically connected to surface water.  The legislative history of the CWA indicates that the Congress intentionally chose not to regulate hydrologically-connected groundwater, instead leaving such regulation up to the states.  See, e.g., Umatilla Water Quality Protective Association v. Smith Frozen Foods, 962 F. Supp. 1312 (D. Or. 1997)

As noted, the case involved pollutants that originated from a point source, traveled through groundwater, and then a half-mile later reached a WOTUS.  Does the permit requirement turn on a direct discharge into a WOTUS (an addition of a pollutant from a point source), or simply a discharge that originated at a point source that ultimately ends up in a WOTUS?  Clearly, the wells at issue in the case are point sources – on that point all parties agreed.  But, are indirect discharges into a WOTUS via groundwater (which is otherwise exempt from the NPDES) subject to the permit requirement?

On April 23, 2020, in County of Maui v. Hawaii Wildlife Fund, 140 S. Ct. 1462 (2020), issued a 6-3 opinion written by Justice Breyer holding that an NPDES permit is required not only when there is a direct discharge of a pollutant from a point source into a WOTUS, but also when there is the “functional equivalent” of a direct discharge.    This conclusion, the Court noted, was somewhat of a middle ground between the Ninth Circuit’s “fairly traceable” test and the position that a permit is required only if a point source ultimately delivered the pollutant to a WOTUS.  The Court determined that because the Congress coupled the words “from” and “to” in the statutory language that the Congress was referring to the destination of a WOTUS rather than the origin of a point source.  Thus, the Court determined that a permit is required when there is a direct discharge of a point source pollutant to a WOTUS or when, in effect, that is what occurred.    The Court believed that the EPA’s recent Interpretive Statement excluding all releases of pollutants to groundwater from the permit requirement was too broad and would create a loophole that would defeat the purpose of the CWA. The Court noted that many factors could be relevant in determining whether a particular discharge is the functional equivalent of a direct discharge into a WOTUS, but that time and distance would be the most important factors in most cases.  The Court also indicated that other factors could include the nature of the material through which a pollutant traveled and the extent of its dilution or chemical change while doing so, and noted that the lower courts would provide additional guidance as they decided subsequent cases. 

Justice Thomas dissented (joined by Justice Gorsuch), pointing out that the use of the word “addition” in the statute requires an augmentation or increase of a WOTUS by a pollutant and that, as a result, anything other than a direct discharge is statutorily excluded.  Indeed, in 2010, the Court declined to hear a case where the lower court held that an NPDES permit is not required unless there is an “addition” of a pollutant to a WOTUS.  See e.g., Friends of the Everglades, et al. v. South Florida Water Management District, et al., 570 F.3d 1210 (11th Cir. 2009) reh’g., den., 605 F.3d 962 (11th Cir. 2010), cert. den., 131 S. Ct. 643 (2010).  Justice Thomas also noted that the Court’s opinion provided practically zero guidance on the question of when a permit is necessary when a direct discharge is not involved, except for the Court’s provision of a list of non-exhaustive factors.  Justice Thomas stated, “[The] Court does not commit to whether those factors are the only relevant ones, whether [they] are always relevant, or which [ones] are the most important.”

Justice Alito also dissented, similarly disenchanted with the nebulous standard and “buck-passing” of the Court to lower courts on the issue.  Justice Alito wrote that, “If the Court is going to devise its own legal rules, instead of interpreting those enacted by Congress, it might at least adopt rules that can be applied with a modicum of consistency.” 

Ultimately, the Court’s “functional equivalency” test was narrower than the “fairly traceable” test that the Ninth Circuit utilized, and the Court vacated the Ninth Circuit’s opinion and remanded the case for a decision based on the Court’s standard. 

Implications for agriculture.  The Court’s opinion is significant for agriculture.  From a hydrological standpoint, surface water and groundwater systems are often connected.  Groundwater is what often maintains a presence of surface water in a stream.  From agriculture’s perspective, the case is important because of the ways that a pollutant can be discharged from an initial point and ultimately reach a WOTUS.  For example, the application of manure or commercial fertilizer to a farm field either via surface application or via injection could result in eventual runoff of excess via the surface or groundwater into a WOTUS.  Certainly, when manure collects and channelizes through a ditch or depression and enters a WOTUS a direct discharge requiring an NPDES permit is required.  See, e.g., Concerned Area Residents for the Environment v. Southview Farm, 34 F.3d 114 (2d Cir. 1994).  But, that’s a different situation from seepage of manure (or other “pollutants”) through groundwater.  No farmer can guarantee that 100 percent of a manure or fertilizer application is used by the crop to which it is applied and that there are no traces of the unused application remaining in the soil.  Likewise, while organic matter decays and returns to the soil, it contains nutrients that can be conveyed via stormwater into surface water.  The CWA recognizes this and contains an NPDES exemption for agricultural stormwater discharges. But, if the Supreme Court decides in favor of the environmental group, the exemption would be removed, subjecting farmers (and others) to onerous CWA penalties unless a discharge permit were obtained - at a cost estimated to exceed $250,000 (not to mention time delays).

What about farm field tile drainage systems?  Seemingly, such systems would make it easier for “pollutants” to enter a WOTUS.  Such drainage systems are prevalent in the Midwest and other places, including California’s Central Valley.  Groundwater, by some standards, is polluted or includes pollutants.  Farm field drainage tile is deliberately installed to deliver that polluted groundwater to a WOTUS.  That is a significant reason that groundwater discharges have always been exempt from the NPDES permit requirement along with agricultural stormwater discharges and agricultural irrigation return flows.  Should the law now discourage agricultural drainage activities? 

Conclusion

Pesticide drift and groundwater discharges of “pollutants” - two big issues for agricultural producers.  Next time I look at the three biggest developments of 2020.

January 11, 2021 in Civil Liabilities, Environmental Law, Water Law | Permalink | Comments (0)

Saturday, January 9, 2021

The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Two

Overview

There were many major legal and tax developments during 2020 that impacted agriculture and will continue to do so into the future.  Today, I continue my journey through the biggest developments of 2020.

The seventh and six most impactful developments of 2020 – it’s the topic of today’s post.

No. 7 – NRCS Final Rule on Conservation Provisions of the 1985 Farm Bill

85 Fed. Reg. 53137 (Aug. 28, 2020)

The federal government’s regulation of farm and ranch land is critical to all agricultural producers.  As a result, a significant regulatory development in 2020 involving farming practices on land makes the list as No. 7. 

Background

In late 2018, the USDA published a new interim rule concerning the conservation provisions that originated with the 1985 Farm Bill.  On August 28, 2020, a Final Rule was published.  The Final Rule adds definitions for “wetland hydrology,” “normal climatic conditions,” and “best drained condition.”  The Final Rule also modifies the manner in which the Natural Resources Conservation Service (NRCS) is to delineate the various types of wetland and states that wetland determinations made between 1990 and 1996 are to be “certified” such that USDA benefits will not be denied if a farmer conducts farming activities on land that is covered by such a certification.  7 C.F.R. §12.5(b)(6)(i).   

Specifics

Delineations.  The NRCS claims that the Final Rule was prepared to clarify how the USDA “delineates, determines” and certifies wetlands located on subject land in a manner sufficient for making determinations of ineligibility for certain USDA program benefits.  However, the Final Rule does not clarify as much as it alters how the NRCS makes these determinations so as to make the process more convenient for the NRCS, and making appeals from that convenient, simplified process more difficult.  The Final Rule also represents a step away from the possible (but often inconvenient) scientific determination of wetland hydrology in regularly cropped farmed wetland across the prairie pothole region (a significant portion of the northern Great Plains and north-central Iowa and south-western Minnesota).

“Best drained condition.”  The NRCS claims that allowing the “best drained condition” of a tract is intended…” to provide clarity regarding a long-standing and practiced statutory concept that is fundamental to the identification of…” hydrologically altered farmed wetlands.  Calling this assertion a “stretch” is an understatement of substantial degree.  The phrase “best drained condition” is derived from Barthel v. United States Department of Agriculture, 181 F.3d 984 (8th Cir. 1999).   In that case, the U.S. Court of Appeals for the Eighth Circuit held that the plaintiff landowners were entitled to the historic “wetland and farming regime” of a 450-acre hay meadow irrespective of the degree of manipulation of a ditch drainage device.  After more than 15 years and multiple contempt actions brought against the U.S. Secretary of Agriculture in the Barthel litigation, the NRCS finally recognized that the Barthel decision meant that it had to apply a historic drainage (i.e., “best drained condition”) test to wetland determinations, and that the focus of the analysis was not to be on the manipulation of the drainage device, but rather on the effect of the manipulation of the drainage device on the subject property.    

Under the Final Rule, the NRCS explains how “best drained condition” is to be identified.  The NRCS asserts that the decision is to be made based upon the best available evidence.  That could include remote resources such as historical aerial imagery or other historical evidence. Indeed,  this is what the NRCS does in practice.  NRCS personnel make a decide whether or not the drainage outlet (device) is in good condition by examining the available historic aerial photographs and identifying one as providing the best historic drainage.  If the existing drainage matches that historic drainage, then aerial imagery may be used.  That’s what constitutes “best available evidence.”  One of a handful of aerial photographs taken between 1935 and 1985 is picked as the best by the agency expert.  Then it is set aside never to be used again.  The agency expert then judges if the outlet is compromised.

Since 1990, many landowners have been told that their wetland determinations made before 1996 were invalid and they requested new ones.  The new determinations resulted in more acres being determined as wetland than were designated in the original determinations.  This resulted in the loss of land use rights and the payment of penalties.  In one instance, an Iowa farmer was forced through a myriad of appeals as a result of wetland conversions done by his drainage district in the 1990s.  Following administrative appeals and court challenges (see Gunn v. United States, 118 F.3d 1233 (8th Cir. 1997), cert. den., 522 U.S. 1111 (1998)),  and after the farmer and the drainage district were forced to mitigate, an old determination surfaced showing that there actually was no wetland on his farm.  The initial determination of no wetland should have been considered certified. Will compensation be paid for the farmer’s loss of property rights?  Hardly. 

The NRCS responded to a comment about changing determinations based on new technology by stating that the limited circumstances where certified wetland determinations are subject to revision are:  “if the land in question has been removed from agricultural use, upon request of the USDA program participant, or when a violation of the wetland conservation provisions has occurred.”  In actual practice, this statement is incorrect.  NRCS states in its policy manual, The Food Security Act Manual, 5th Edition, that it will not make a review upon request unless it determines that there was an error.  Will the policy manual be amended to account for this statement in the Final Rule?  That’s a significantly important question for agricultural producers

There are numerous other aspects to the Final Rule.  In general, the Final Rule is troubling for farmers in many respects.  Perhaps the biggest is the NRCS position concerning wetland hydrology indicators for hydrologically altered wetland.  Millions of acres of these types of wetland are present in the prairie pothole states.  Also, of primary concern is the NRCS’ intent to triple the tile set-back requirements from the edge of farmed wetlands if the adjoining soil has groundwater discharge potential. 

It is difficult to believe that NRCS hydrologists, botanists and soil scientists were meaningfully involved in the writing of the Final Rule.

No. 6 – Dormant Commerce Clause

National Animal Meat Institute v. Becerra, 825 Fed. Appx. 518 (9th Cir. 2020). 

Background

Article I, section 8, clause 3 of the United States Constitution (the “Commerce Clause”) grants Congress the power to “regulate commerce” among the states.  Although the Constitution does not specifically limit a state’s power to regulate commerce, the United States Supreme Court has long interpreted the clause as an “implicit restraint on state authority, even in the absence of a conflicting federal statute.”  Gibbons v. Ogden, 22 U.S. 1 (1824) The basic precept was that when the Constitution was ratified the country was a single economic union, and the states surrendered their sovereign power to impose tariffs and restrain interstate trade.  See, e.g., THE FEDERALIST No. 7, 39–41 (Hamilton).  Instead, it is the Congress that can impose economic regulation (consistent with constitutional limits) on interstate commerce.  Thus, under the “Dormant Commerce Clause” a state cannot enact any rules or regulations that affirmatively discriminate against the economic production of goods in another state without a legitimate local justification for doing so. 

Clearly, a law that expressly mandates different treatment of in-state and out-of-state competing economic interests is unconstitutional on its face if that treatment favors in-state interests and burdens out-of-state interests. But, when a law is facially neutral, courts determine whether a Dormant Commerce Clause violation exists on the basis of whether the law imposes burdens on interstate commerce that are "clearly excessive in relation to the putative local benefits.”  See, e.g., Minnesota v. Barber, 136 U.S. 313 (1890)Gratiot Sanitary Landfill v. Michigan Department of Natural Resources, 504 U.S. 353 (1992). 

State Regulation of Out-of-State Ag Production Activities

Eggs.  In 2014, a California federal court dismissed for lack of standing a challenge brought by major egg producing states to a California law (AB1437) dictating methods of production for all eggs sold in California.  Missouri, et al. v. Harris, 58 F. Supp. 3d 1059 (E.D. Cal. 2014).  The legislation bans the sale of shell eggs within California by producers or handlers if the eggs are the product of an egg-laying hen that was confined in an enclosure that fails to comply with certain animal care standards. 

The lawsuit claimed that the law (which amended the state’s Health and Safety Code) and its implementing regulations, violated the Commerce Clause of the United States Constitution and was preempted by the Federal Egg Products Inspection Act.  21 U.S.C. §1031 et seq.  Effective January 1, 2015, the law criminalized the sale of eggs for human consumption in California if the eggs were the product of egg-laying hens confined in a manner not in compliance with the law no matter where they were produced. A violation of the law constitutes a misdemeanor and is punishable with a fine of not more than $1,000 or imprisonment in the county jail for not more than 180 days or both.  Cal. Health & Safety Code §25997. 

The implementing regulations require enclosures containing nine or more egg-laying hens to provide a minimum of 116 square inches of floor space per bird. 3 C.C.R. 1350.   Enclosures containing eight or fewer birds are also regulated. Id.  Purportedly, the law was enacted to “protect California consumers from the deleterious, health, safety, and welfare effects of the sale and consumption of eggs derived from egg-laying hens that are exposed to significant stress and may result in increased exposure to disease pathogens including salmonella.” The plaintiffs, however, alleged that the California legislature’s real intent was to “level the playing field” for California producers faced with a costly California regulatory regime.  It was not enacted, the plaintiffs claimed, with the primary concern of protecting the health of California citizens.

The trial court dismissed the case for lack of standing.  The court asserted that the plaintiffs were claiming injury-in-fact to all of the citizens in their respective states, and reasoned that the increased cost of egg production in the non-California states challenging the law did not affect the general citizenry of those states.  Instead, the court determined that the California legislation would only impact egg producers that failed to conform their farming procedures to comply with the California rules.  Thus, according to the court, the plaintiffs did not bring the case on behalf of “a substantial segment of their populations.”  While the court accepted as true the claim that the California legislation would impose a substantial cost on the plaintiff-states, that cost wouldn’t be borne on the citizenry of the states as a whole, but rather just the subset of egg farmers that wished to continue selling eggs in California. 

The court also dismissed as without merit and speculative the plaintiffs’ argument that any resulting increase in the cost of eggs would injure all egg consumers.  The plaintiffs also alleged that they were disadvantaged compared to other states that were not impacted by the California legislation.  The court also dismissed this allegation as a basis for standing because the plaintiff states would not have to completely withdraw from egg production but would only incur “price fluctuations.” 

The court also determined that the threat of prosecution by California was merely speculative and was not imminent.  The court noted that the plaintiffs didn’t “articulate any concrete plan by their egg farmers to violate California’s shell egg laws.”  Merely preferring to continue to market eggs to California, the court said, was not a specific harm.  Unfortunately, the trial court failed to cite any cases to support its position on the standing issue where a state threatened to impose or did impose criminal penalties on conduct occurring in other states.  

The trial court’s opinion was affirmed on appeal.  Missouri v. Harris, 842 F.3d 658 (9th Cir. 2016).  The U.S. Supreme Court declined to hear the case.  Missouri v. Becerra, 198 L. Ed. 2d 255 (2017).    

Calves, pigs and hens.  In the fall 2018 election, California voters passed Proposition 12 (“The Farm Animal Confinement Initiative”) that establishes minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and caves 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.

Under Proposition 12, effective January 1, 2022, all pork producers selling in the California market must raise sows in conditions where the sow has 24 square feet per sow. The law also applies to meat processors – whole cuts of veal and pork must be from animals that were housed in accordance with the space requirements of Proposition 12. 

The National Animal Meat Institute (NAMI) challenged Proposition 12 as an unconstitutional violation of the Dormant Commerce Clause by imposing substantial burdens on interstate commerce “that clearly outweigh any valid state interest.”  The trial court rejected the challenge, finding that the plaintiff failed to establish that the law discriminated against out-of-state commerce for the purpose of economic protectionism.  National Animal Meat Institute v. Becerra, 420 F. Supp. 3d 1014 (C.D. Cal. 2019).  On appeal, the appellate court affirmed.  National Animal Meat Institute v. Becerra, 825 Fed. Appx. 518 (9th Cir. 2020).  The appellate court determined that the trial court did not abuse its discretion in finding that the plaintiff was not likely to succeed on the merits of its Dormant Commerce Clause claim.  The appellate court also stated that the plaintiff acknowledged that Proposition 12 was not facially discriminatory, and had failed to produce sufficient evidence that California had a protectionist intent in enacting the law.  The appellate court noted the trial court’s finding that the law was not a price control or price affirmation statute.  Similarly, the appellate court held that the trial court did not abuse its discretion in holding that Proposition 12 did not substantially burden interstate commerce because it did not impact an industry that is inherently national or requires a uniform system of regulation.  The appellate court noted that the law merely precluded the sale of meat products produced by a specific method rather than burdening producers based on their geographic location. 

A separate legal action has been filed in a different California court against Proposition 12 and it continues. 

Conclusion

The regulation of activities on agricultural land, and the regulation of ag productions activities - two big developments in 2020.  Next time I start to examine the five most important ag law and tax developments of 2020.

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

Friday, January 8, 2021

Continuing Education Events and Summer Conferences

Overview

There are a couple of online continuing education events that I will be conducting soon, and the dates are set for two summer national conferences in 2021. 

Upcoming continuing education events – it’s the topic of today’s post.

Top Developments in Agricultural Law and Tax

On Monday, January 11, beginning at 11:00 a.m. (cst), I will be hosting a two-hour CLE/CPE webinar on the top developments in agricultural law and agricultural taxation of 2020.  I will not only discuss the developments, but project how the developments will impact producers and others in the agricultural sector and what steps need to be taken as a result of the developments in the law and tax realm.  This is an event that is not only for practitioners, but producers also.  It’s an opportunity to hear the developments and provide input and discussion.  A special lower rate is provided for those not claiming continuing education credit.

You may learn more about the January 11 event and register here:  https://washburnlaw.edu/employers/cle/taxseasonupdate.html

Tax Update Webinar – CAA of 2021

On January 21, I will be hosting a two-hour webinar on the Consolidated Appropriations Act, 2021.  This event will begin at 10:00 a.m. (cst) and run until noon.  The new law makes significant changes to the existing PPP and other SBA loan programs, CFAP, and contains many other provisions that apply to businesses and individuals.  Also, included in the new law are provisions that extend numerous provisions that were set to expire at the end of 2020.  The PPP discussion is of critical importance to many taxpayers at the present moment, especially the impact of PPP loans not being included in income and simultaneously being deductible if used to pay for qualified business expenses.  Associated income tax basis issues loom large and vary by entity type.

You may learn more about the January 21 event and register here:  https://agmanager.info/events/kansas-income-tax-institute

Summer National Conferences

Mark your calendars now for the law school’s two summer 2021 events that I conduct on farm income tax and farm estate and business planning.  Yes, there are two locations for 2021 – one east and one west.  Each event will be simulcast live over the web if you aren’t able to attend in-person.  The eastern conference is first and is set for June 7-8 at Shawnee Lodge and Conference Center near West Portsmouth, Ohio.  The location is about two hours east of Cincinnati, 90 minutes south of Columbus, Ohio, and just over two hours from Lexington, KY.  I am presently in the process of putting the agenda together.  A room block will be established for those interested in staying at the Lodge.  For more information about Shawnee Lodge and Conference Center, you made click here:  https://www.shawneeparklodge.com/

The second summer event will be held on August 2-3 in Missoula, Montana at the Hilton Garden Inn.  Missoula is beautifully situated on three rivers and in the midst of five mountain ranges.  It is also within three driving hours of Glacier National Park, and many other scenic and historic places.  The agenda will soon be available, and a room block will also be established at the hotel.  You may learn more about the location here:  https://www.hilton.com/en/hotels/msogigi-hilton-garden-inn-missoula/

Conclusion

Take advantage of the upcoming webinars and mark you calendars for the summer national events.  I look for to seeing you at one or more of the events.

January 8, 2021 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Thursday, January 7, 2021

The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One

Overview

After working through the “Almost Top Ten” agricultural law and tax developments of 2020, I have now reached what I consider to be the ten biggest developments of 2020 in terms of their significance to the agricultural sector as a whole.  Agricultural law and agricultural tax intersects with everyday life of farmers and ranchers in many ways.  Some of those areas of intersection of good, but some are quite troubling.  In any event, it points the need for being educated and having good legal and tax counsel that is well-trained in the special rules that apply agriculture.

Developments 10 through 8 of the “Top Ten” agricultural law and tax developments of 2020 – it’s the topic of today’s post.

No. 10 – Department of Justice Announces Investigation of Meatpackers

In May of 2020, President Trump asked the U.S. Department of Justice (DOJ) to investigate the pricing practices of the major meatpackers.  In addition, 11 state Attorneys General have asked the DOJ to do the same.  They pointed out in the DOJ request that the four largest beef processors control 80 percent of U.S. beef processing.  According to USDA data, boxed beef prices have recently more than doubled while live cattle prices dropped approximately 20 percent over the same timeframe.  The concern is that the meatpackers are engaged in price manipulation and other practices deemed unfair under federal law.

Questions about the practices of the meatpacking industry are not new – they have been raised for well over a century.  Indeed, a very significant federal law was enacted a century ago primarily because of the practices of the major meatpackers.  So, why is there still talk about investigations?  Is existing law ineffective?

Much of the matter is grounded in concerns about price manipulation by meatpackers.  Section 2020 of the Packers and Stockyards Act (PSA), 7 U.S.C. §§192(a) and (e) makes it unlawful for any packer who inspects livestock, meat products or livestock products to engage in or use any unfair, unjustly discriminatory or deceptive practice or device, or engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices or creating a monopoly in the buying, selling or dealing any article in restraint of commerce. This is a distinct concern in the livestock industry.

In June of 2010, the USDA issued proposed regulations providing guidance on the handling of antitrust-related issues under the PSA.  75 Fed. Reg. No. 119, 75 FR 35338 (Jun. 22, 2010).  Under the proposed regulations, "likelihood of competitive injury" was defined as "a reasonable basis to believe that a competitive injury is likely to occur in the market channel or marketplace.”  It includes, but is not limited to, situations in which a packer swine contractor, or live poultry dealer raises rivals' costs, improperly forecloses competition in a large share of the market through exclusive dealing, restrains competition, or represents a misuse of market power to distort competition among other packers, swine contractors, or live poultry dealers.  It also includes situations “in which a packer, swine contractor, or live poultry dealer wrongfully depresses prices paid to a producer or grower below market value, or impairs a producer's or grower's ability to compete with other producers or growers or to impair a producer's or grower's ability to receive the reasonably expected full economic value from a transaction in the market channel or marketplace."  According to the proposed regulations, a “competitive injury” under the PSA occurs when conduct distorts competition in the market channel or marketplace.  The scope of PSA §202(a) and (b) is stated to depend on the nature and circumstances of the challenged conduct. The regulations specifically note that a finding that a challenged act or practice adversely affects or is likely to affect competition is not necessary in all cases.  The proposed regulations note that a PSA violation can occur without a finding of harm or likely harm to competition, but as noted above, that is contrary to numerous court opinions that have decided the issue.  The regulations eventually made it into the form of an Interim Final Rule but were later withdrawn.  82 FR 48594 (Oct. 18, 2017).

If the investigation is actually conducted, results could occur that would be very positive to livestock producers (and consumers) throughout the nation.

No. 9 – Conservation Easements

During 2020, the U.S. Tax Court and the appellate courts continued to issue numerous opinions involving the donation of permanent conservation easements to qualified organizations and the donor claiming an associated charitable deduction.  Presently, the U.S. Tax Court has over 100 cases on its docket involving donated conservation easements.  A donated conservation easement involves a legal agreement between a landowner and either a government agency or a land trust specifying that the donated land must be used in ways that preserve specified conservation/preservation goals. 

Very specific requirements contained in the Internal Revenue Code must be satisfied to secure a charitable deduction for the donor.  Those rules include a requirement that the donated easement be perpetual in nature and that any proceeds received upon judicial extinguishment of the easement be split between the donor and the donee in a prescribed manner.  The easement must also be valued very carefully and meet IRS guidelines.  In addition, syndicated easement transactions receive heightened scrutiny by the IRS.   A syndicated conservation easement transaction is one where the tax benefit is split among various investors.  It is a transaction that the IRS has identified as “abusive” when an appraisal is used to value the donated land that overvalues the land at issue and, thus, inflates the donor’s charitable deduction.

During 2020, the IRS offered a settlement program for persons and entities engaging in transactions that the IRS viewed as improper by allowed such taxpayers to avoid litigation by paying penalties and surrendering any tax benefits already received.  Relatedly, in 2020, the U.S. Senate started investigations into potential abuses involving conservation easements.  In August, the Senate published its findings, concluding the promoters of syndicated conservation easements and those participating in the transactions had avoided paying billions in taxes improperly.  The Senate report termed syndicated conservation easement transactions as an “abusive tax shelter,” and that allowing such deals to continue “could undermine the U.S. Tax system.”

The heightened IRS scrutiny of conservation easement transactions, coupled with the very high rate of success in court challenging the claimed charitable deductions makes it critical that attorneys, other tax advisors and appraisers follow every rule.  Deeds conveying the easement must be very carefully drafted.     The IRS has indicated that it will examine every transaction and litigate all cases where it deems an inappropriate charitable deduction has been claimed.

 No. 8 – Farm Records and FOIA

Telematch, Inc. v. United States Department of Agriculture., No. 19-2372, 2020 U.S. Dist. LEXIS 223112 (D.D.C. Nov. 27, 2020)

Farmers disclose a great deal of information and data to the USDA (federal government) to be able to participate in federal farm programs.  The information/data is often tied to the particular farmer and farm location, thus raising privacy concerns over what persons and/or entities have access to it.  Indeed, in recent years some animal activists opposed to large-scale confinement livestock production have committed acts of vandalism (and worse) against targeted facilities. 

Because the information about farmers, their operations, and the locations of fields and facilities is in the hands of the USDA it is generally subject to disclosure to the public.  In 1967, the Congress enacted the Freedom of Information Act (FOIA).  5 U.S.C. §552.  The FOIA requires the disclosure of federal government documents upon request.   The idea behind the law is to make federal agencies more transparent.  But can a FOIA request reach private information of farmers that is in the USDA’s hands?  Isn’t this personal information private?  It’s an important concern for farmers.  In 2020, a federal court issued an opinion that could prove to be very helpful toward easing the concerns of agricultural producers wanting to ensure that their private information is protected from public exposure. 

In Telematch, the plaintiff was in the business of collecting and analyzing agricultural data from various sources, including the federal government. The plaintiff submitted seven FOIA requests to the USDA for specific records. The records sought included farm, tract, and customer numbers created by the USDA. The USDA created these numbers to assign them to land enrolled in USDA programs and to identify program participants. The USDA denied the plaintiff’s FOIA requests either in part or fully on the basis that the records at issue were geospatial information exempt from disclosure as relating to specific farm locations and specific farmers, and on the basis that the information sought would result in an unwarranted invasion of personal privacy.

The plaintiff administratively appealed the FOIA requests, and then sued in federal court three months later after being unsatisfied with the USDA’s failure to adjudicate the appeal. The plaintiff alleged that the USDA violated the FOIA by withholding the customer, farm, and tract numbers. Additionally, the plaintiff alleged the USDA violated the FOIA by following an unlawful practice of systematically failing to adhere to FOIA deadlines. The plaintiff claimed that no substantial privacy interest was at stake, and the public interest in obtaining the requested information outweighed any privacy concerns.

As a starting point, the trial court noted that the FOIA mandates that an agency disclose records on request, unless the records fall within an exclusion. As to the farm and tract numbers, the trial court held that the USDA properly withheld the information as geospatial information. The trial court held that the farm and tract numbers are geospatial information, as they refer to specific physical locations.  Thus, USDA had properly not disclosed them to the plaintiff. 

The trial court also held that the USDA also properly withheld the customer numbers from disclosure.  Disclosing them, the trial court determined, would have been an invasion of personal privacy.  The court noted that while the customer numbers alone did not reveal information about landowners, they could be combined with other public data to identify individual farmers and reveal information about their farms and financial status. The plaintiff claimed that disclosing the customer, farm, and tract numbers would allow the public to monitor how the USDA was administering its farm programs.  Likewise, the plaintiff argued that the disclosure of the information would let the public determine whether the USDA was overpaying program participants and allow the public to determine whether farmers are complying with the USDA program.  However, the trial court concluded that neither of the plaintiff’s arguments warranted the disclosure of the numbered information because the plaintiff showed no evidence to support its claim of fraud and because the FOIA’s purpose is to shed light on what the government is doing rather than the conduct of USDA program participants. As a result, the court held that the USDA also properly withheld the customer numbers.

As for the plaintiff’s claim that the USDA systematically failed to adhere to FOIA deadlines, the court held that the plaintiff lacked standing for failing to establish the existence of an unlawful policy or practice. The court noted that the USDA responded to the FOIA requests according to then-existing USDA regulations. The regulations stated that FOIA requests served on USDA required prepayments for the request to commence. The plaintiff failed to prepay on some of the requests, and the USDA completed the remainder of the requests within FOIA deadlines. Finally, the court held that the USDA’s failure to adhere to statutory deadlines to process the plaintiff’s administrative appeals did not rise to the level of systematically ignoring FOIA requests.

An appeal was filed in the case on December 21, 2020.

Conclusion

The DOJ investigating meatpackers; tax issues with donated conservation easements; and the privacy of farm data – developments ten through eight.  Next time, I continue working my way toward the most significant ag law and ag tax development of 2020.

January 7, 2021 in Income Tax, Regulatory Law | Permalink | Comments (0)

Tuesday, January 5, 2021

The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three

Overview

Today’s post continues my trek through the “Almost Top 10” ag law and tax developments of 2020.  2020 was another big year for many illustrations of the law intersecting with agriculture.  In today’s final installation of the “Almost Top 10” I look at an Indiana case involving the state’s right-to-farm law; a Montana case involving the issue of whether dinosaur fossils are minerals and, thus, belong to the mineral estate owner; and force majeure clauses in contracts and their application to events that make contract performance impossible.

The final installment of the “Almost Top Ten” of 2020 – it’s the topic of today’s post.

Right-To-Farm Laws

Himsel v. Himsel, 122 N.E. 3d 395 (Ind. Ct. App. 2019); reh’g. den., No. 18A-PL-645, 2019 Ind App. LEXIS 314 (Ind. Ct. App. Jul. 12, 2019); rev. den., 143 N.E.3d 950 (Ind. 2020).

Every state has enacted a right-to-farm (RTF) law that is designed to protect existing agricultural operations by giving farmers and ranchers who meet the legal requirements a defense in nuisance suits. It may not be only traditional row crop or livestock operations that are protected.  But, the RTF laws vary widely from state-to-state.  One such law, the Indiana version (Ind. Code §32-30-6-9), was at issue in 2019 and 2020.

The Himsel Litigation

The Indiana Court of Appeals determined that the Indiana RTF law applied to protect the defendant because the change in the nature of the defendant’s hog operation from row crop farming to a large-scale confined animal feeding operation (CAFO) involving 8,000 hogs was “not a significant change” that would make the RTF law inapplicable.  In other words, 8,000 hogs in a confinement building raised by a contracting party that likely doesn’t make management decisions concerning the hogs, doesn’t report some the associated contract income as farm income on Schedule F, and cannot pledge the hogs as loan collateral due to a lack of an ownership interest in the hogs, was somehow not significantly different from a farmer raising 200 hogs and 200 head of cattle with associated crop ground who manages the diversified operation.  Just the sheer number of hogs alone stands out in stark contrast.  Indeed, the hog operation required a change in the existing zoning of the tract.

The plaintiffs in Himsel, members of the same family as the defendants, were found to have essentially come to the nuisance because one of them chose to retire from farming and remain on the land that he had lived on for nearly 80 years, and the other didn’t move from the rural home he built in 1971.  An 8,000-head hog confinement operation and the presence of 3.9 million gallons of untreated hog manure was deemed to be comparable to farming in this area in 1941.

The court also determined that a “taking” had not occurred because the plaintiff had not sold his home and moved away from the place where he grew up and lived all of his life, and the RTF law did not take the entire value of the plaintiffs’ property away.  The appellate court, however, did not address the implications of whether its opinion essentially granted the CAFO an easement to produce odors across the plaintiffs’ property.

The appellate court declined to rehear the case and the Indiana Supreme Court declined to review the appellate court’s decision by a single vote.  On July 17, 2020, a petition for certiorari was filed with the U.S. Supreme Court.  On October 5, 2020, the U.S. Supreme Court declined to hear the case. 

Following Indiana’s lead, several states have modified their state RTF laws to more closely align with the Indiana provision.

Dinosaur Fossils Are Not Minerals

Murray v. BEJ Minerals, LLC, 400 Mont. 135 (2020)

 A common granting clause in a mineral deed specifies that the grantor either conveys or reserves “the oil, gas and other minerals.”  That language can raise an issue concerning what “other minerals” means.  Does it include such things as gravel, clay granite, sandstone, limestone, coal, carbon dioxide, hot water and steam?  The courts have struggled with this issue and have reached differing conclusions.  Does the phrase mean anything that is in the soil that the surface estate owner doesn’t use for agricultural purposes?  Does is matter how the substance is extracted?  Does it matter if the material is located in the subsoil rather than the topsoil?  Is it material if the substance can be extracted without significant damage to the surface estate? 

The issue of whether dinosaur fossils are “minerals” for the purposes of a mineral reservation clause in a mineral deed was an issue in a recent Montana case.  In Murray, court dealt with the issue in a case with millions of dollars on the line.  Under the facts of the case, the plaintiffs (a married couple), leased farm and ranch land beginning in 1983.  Over a period of years, the owner of the land transferred portions of his interest in the property to his two sons and sold the balance to the plaintiffs.  From 1991 to 2005, the plaintiffs and the sons operated the property as a partnership.  In 2005, the sons severed the surface estate from the mineral estate and sold their remaining interests in the surface estate to the plaintiffs.  A mineral deed was to be executed at closing that apportioned one-third of the mineral rights to each son and one-third to the plaintiffs.  After the transactions were completed, the plaintiffs owned all of the surface estate of the 27,000-acre property and one-third of the mineral (subsurface) estate.  At the time, none of the parties suspected there were valuable dinosaur fossils on the property, and none of them gave any thought to whether dinosaur fossils were part of the mineral estate as defined in the mineral deed.  Likewise, none of the parties expressed any intent about who might own dinosaur fossils that might be found on the property. 

Specifically, the mineral deed stated that the parties would own, as tenants in common, “all right, title and interest in and to all of the oil, gas, hydrocarbons, and minerals in, on and under, and that may be produced from the [Ranch].”  The purchase agreement required the parties “to inform all of the other parties of any material event which may [affect] the mineral interests and [to] share all communications and contracts with all other Parties.” 

In 2006, the plaintiffs gave permission to a trio of fossil hunters to search (and later dig) for fossils on the property.  The hunters ultimately uncovered dinosaur fossils of great value including a nearly intact Tyrannosaurus rex skeleton and two separate dinosaurs that died locked in battle.  The fossils turned out to be extremely rare and quite valuable, with the “Dueling Dinosaurs” valued at between $7 million and $9 million.  In 2014, the plaintiffs sold the Tyrannosaurus rex skeleton to a Dutch museum for several million dollars.  A Triceratops foot was sold for $20,000 and a Triceratops skull was offered for sale for over $200,000.  The proceeds of sale were placed in an escrow account pending the outcome of a lawsuit that the sons filed.  The sons (the defendants in the present action) sued claiming that the fossils were “minerals” and that they were entitled to a portion of any sale proceeds.  The plaintiffs brought a declaratory judgment action in state court claiming that the fossils were theirs as owners of the surface estate.  The defendants removed the action to federal court and asserted a counterclaim on the basis that the fossils should be included in the mineral estate.  The trial court granted summary judgment for the plaintiffs on the basis that, under Montana law, fossils are not included in the ordinary and natural meaning of “mineral” and are thus not part of the mineral estate.

On appeal, the appellate court reversed.  The appellate court determined that the term “fossil” fit within the dictionary definition of “mineral.” Specifically, the appellate court noted that Black’s Law Dictionary defined “mineral” in terms of the “use” of a substance, but that defining “mineral” in that fashion did not exclude fossils.  The appellate court also noted that an earlier version of Black’s Law Dictionary defined “mineral” as including “all fossil bodies or matters dug out of mines or quarries, whence anything may be dug, such as beds of stone which may be quarried.”  Thus, the appellate court disagreed with the trial court that the deed did not encompass dinosaur fossils.  Turning to state court interpretations of the term “mineral”, the appellate court noted that the Montana Supreme Court had held certain substances other than oil and gas can be minerals if they are rare and exceptional.  Thus, the appellate court determined that to be a mineral under Montana law, the substance would have to meet the scientific definition of a “mineral” and be rare and exceptional.  The appellate court held that those standards had been met.  The plaintiffs sought a rehearing by the full Ninth Circuit and their request was granted.  The appellate court then determined that the issue was one of first impression under Montana law and certified the question of whether dinosaur fossils constitute “minerals” for the purpose of a mineral reservation under Montana law to the Montana Supreme Court.  

The Montana Supreme Court answered the certified question in the negative – dinosaur fossils are not “minerals” for the purpose of the mineral reservation at issue because they were not included in the expression, “oil, gas and hydrocarbons,” and could not be implied in the deed’s general grant of all other minerals.  “Fossils” and “minerals” were mutually exclusive terms as the parties used those terms in the mineral deed.  In making its determination, the Montana Supreme Court reasoned that whether a substance or material is a “mineral” is based on whether it is rare and valuable for its mineral properties, whether the conveying instrument expressed an intent to use the scientific definition of the term, and the relation of the substance or material to the land’s surface and the method and effect of its removal. The Court also noted that deeds are like contracts and should be interpreted in accordance with their plain and ordinary meaning to give effect to the parties’ mutual intent at the time of execution. 

The Court noted that the term “minerals” is defined in various areas of Montana statutory law (including tax provisions) and none include “fossils,” and that the only statutory provision mentioning fossils and minerals in the same statute referred to them separately.  The Court also noted that the U.S. Department of Interior (for purposes of federal law) had made an administrative decision in 1915 that dinosaur fossils are not “minerals.”  As such, the terms were mutually exclusive as used in the mineral deed between the parties, and the plaintiffs maintained ownership of any interests that the two sons had not specifically reserved in the mineral deed.  The deed simply did not contemplate including “fossils” under the mineral reservation clause.  Instead, the Court concluded that “minerals” under Montana law are a resource that is mined as a raw material for further processing, refinement and eventual economic exploitation.  Fossils are not mined, they are excavated, and they are not rare and valuable due to their mineral properties.  Therefore, unless specifically mentioned in the mineral deed, language identifying “minerals” would not “ordinarily and naturally” include fossils.

Based on the Montana Supreme Court’s answer to the certified question, the U.S. Court of Appeals for the Ninth Circuit affirmed the federal district court’s order granting summary judgment to the plaintiffs and declaring them the sole owners of the dinosaur fossils.  

Force Majeure Clauses in Contracts

Governmental reaction to the China-originated virus in 2020 created legal and economic issues for many persons and businesses.  One of those legal issues involves existing contracts.  The issuance of various Executive Orders by state governors as a result of the anticipated impact of the virus shut down significant economic activity in those states and triggered problems up and down the food supply chain.  That raised numerous questions.  What happens when a supply chain is disrupted?  What recourse exists for a farmer that entered into a contract to sell corn to an ethanol plant, and now the ethanol price has collapsed and the plant refuses to pay?  What if a hog buyer won’t buy hogs because the processing plant is shut-down?  What if a milk buyer backs out of a milk contract because the milk market has disintegrated?  Grain can be stored and milk can be dumped, but what do you do with a 300-lb. fat hog?

A common provision in some agricultural contracts (particularly hog production contracts) is known as a “force majeure” provision. Under such a provision, a contracting party is not liable for damages due to the delay or failure to perform under the contract because of an event that is beyond the party’s control.  Performance is excused until it becomes possible for the party to perform under the contract.

Force Majeure means “superior force” or “unavoidable accident.”  It applies when there are circumstances beyond a party’s control that excuses the party from performing, such as an extraordinary event like war, riot, crime, pandemic, etc. Most often, a “force majeure” event involves an “act of God” (i.e. flooding, earthquakes, or volcanoes) or the failure of third parties (such as suppliers and subcontractors) to perform their obligations to a contracting party. However, sometimes a contracting party will attempt to use the clause to extract themselves from a contract that has turned out to not be profitable for them.

A force majeure clause is not uncommon in contracts.  It concerns how the parties allocate risk and, in essence, frees the contracting parties from liability or obligation when an extraordinary event or circumstance beyond their control prevents at least one party from fulfilling their contractual obligations.  The event or circumstance must be one that the parties couldn’t have anticipated at the time the contract was entered into; the party seeking to remove themselves from the contract must not have caused the problem; and the event or circumstance makes it impossible or impractical to perform the contract.  

The wording of a force majeure clause is critical and should be negotiated by the contracting parties so that it applies equally to all parties to the contract. Often, it is helpful if the clause includes examples of acts that will excuse performance under the provision.

A contract may distinguish between “acts of God” and force majeure, and a contract may include an “act of God” clause rather than a force majeure clause.  Many contracts contain language specifying that if a particular event occurs, then no performance is required.  That type of language tends to deal with “acts of God.”  Again, it’s a matter of how the parties allocated risk. Perhaps the virus is such an event that is comparable to those that fall under the category of an “act of God.”

Conclusion

In the next post, I will start the journey through the “Top Ten” of 2020 in ag law and ag tax.

January 5, 2021 in Civil Liabilities, Contracts, Real Property | Permalink | Comments (0)

Sunday, January 3, 2021

The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two

Overview

I continue today with my perusal of the biggest developments in agricultural law and taxation from 2020 with the second installment of the “almost top 10” of 2020.  In part one, I covered deprioritization (or the lack thereof) of withheld taxes in a Chapter 12 bankruptcy; the preferential payment rule in bankruptcy involving the Dean Foods matter; the significant ag nuisance jury verdict in North Carolina involving Murphy Brown; and a recent federal court opinion holding that filing a tax return with false information on

Part two of the “almost top ten of 2020” (in no particular order) – that’s the topic of today’s post.

“Renewable” Energy Cash Grants

Section 1603 of the American Recovery and Reinvestment Tax Act (ARRTA) was a green energy subsidy program created by the Congress and signed into law as a part of the 2009 economic “stimulus” package.  The program created a system of cash grants in lieu of investment tax credits for entities that installed various types of alternative energy property such as solar, wind, geothermal, biomass, and hydropower.  The purpose of payments (which were made after a qualified energy system was installed) was to reimburse grant recipients for a portion of the cost they incurred to install the energy systems at business locations.  The program started in 2009 and ended in 2012.

The program is not without criticism and IRS scrutiny.  The IRS rigorously audits companies utilizing the grants and, in some instances, the courts have ruled for the companies when the IRS partially denied the grants.  Those cases primarily involved indemnity agreements that allowed the financiers of the projects to recover their funds elsewhere if the grant was improperly disallowed.  In such “tax equity” deals it is common for the developer that finances a project to indemnify the tax equity investors if the tax benefits are less than expected. See, e.g., Alta Wind I Owner Lessor C v. United States, No. 13-402, 2020 U.S. Claims LEXIS 2071 (Fed. Cl. Oct. 21, 2020).  In Alta, the wind energy company plaintiff claimed that the government underpaid on the Sec. 1603 grant.  The court ruled that the company had alleged sufficient facts and injury to satisfy the constitutional standing requirement for the court to hear the case because the company had purchased the energy facilities at issue via a negotiated business transaction and alleged it had not been paid in full under Sec. 1603.

The IRS also won a significant case in 2020.  In early 2012, the plaintiff placed a qualified wind facility into service at a cost of $433,077,031. The plaintiff applied for a Section 1603 grant (in lieu of tax credits) of $129,923,109. As part of the grant application, the plaintiff submitted a development agreement that claimed to show a “proof of payment” in support of a $60 million development fee. The plaintiff, a “project company,” paid the development fee to its parent company, Invenergy, LLC. The U.S. Treasury awarded the plaintiff a grant of $117,216,098. The Treasury explained that the reason for the $12.7 million shortfall was based on the plaintiff’s excessive cost basis in the facility based on the inclusion of the development fee in the cost basis calculation. The Treasury asserted that the development fee transaction was a sham lacking economic substance shaped solely by tax avoidance motives.

The court agreed. Bank records showed that money passed through the bank accounts of several entities related to the plaintiff by wire transfer and then back into the original account. The court determined that the plaintiff could not establish any business purpose or economic substance to the banking transactions. A CPA from a national firm, as the result of an audit, testified that the development agreement contained no quantifiable services. Invenergy, LLC, was not able to produce any accounting journal entries showing a business purpose for the banking transactions. Thus, the court determined that the evidence showed a development fee with no quantifiable services, circular wire transfers that started and ended in the same bank account on the same day, none of which were corroborated by independent testimony. The court denied the plaintiff reimbursement of the $12,707,011 cash grant, and the U.S. Treasury was entitled to recover an overpayment of $4,380,039. Bishop Hill Energy, LLC, et al. v. United States, 143 Fed. Cl. 540 (2019). The court also reached the same conclusion in California Ridge Wind Energy, LLC v. United States, 143 Fed. Cl. 757 (2019).

The appellate court affirmed, upholding the trial court’s finding that amounts stated by the plaintiff in development agreements pertaining to the wind farms did not reliably indicate the development costs. The appellate court, on a consolidated appeal of the two cases, noted the “round-trip” nature of the payments; the absence in the agreements of any meaningful description of the development services to be provided, and the fact that all, or nearly all, of the development services had been completed by the time the agreements were executed. The appellate court also determined that the services were not quantifiable. As a result, the government could recover $10 million in cash grants from the two companies. California Ridge Wind Energy, LLC v. United States, 959 F.3d 145 (Fed. Cir. 2020).

The case is significant because it could impact the computation of tax credits for future projects. 

Trust Income Tax Regulations

On May 7, 2020, the IRS issued proposed regulations providing guidance on the deductibility of expenses that estates and non-grantor trusts incur.  REG-113295-18. The reason for the proposed regulations is that the Tax Cuts and Jobs Act (TCJA), effective for tax years beginning after 2017 and before 2026, bars individual taxpayers from claiming miscellaneous itemized deductions.  I.R.C. §67(g).  This TCJA suspension of miscellaneous itemized deductions for individuals raised questions as to whether and/or how estates and non-grantor trusts are impacted.  In late September, the IRS finalized the regulations.  TD 9918 (Sept. 21, 2020).

The Final Regulations affirm that deductions for costs which are paid or incurred in connection with the administration of an estate or trust and which would not have been incurred if the property were not held in such trust or estate remain deductible in computing AGI.  In other words, I.R.C. §67(e) overrides I.R.C. §67(g).  However, the Final Regulations do not provide any guidance on whether these deductions (including those under I.R.C. §§642(b), 651 and 661) are deductible in computing alternative minimum tax for an estate or trust.  That point was deemed to be outside the scope of the Final Regulations. 

As for excess deductions, the Final Regulations confirm the position of the Proposed Regulations that excess deductions retain their nature in the hands of the beneficiary.  Treas. Reg. §1.642(h)-2(a)(2).   Excess deductions passing from a trust or an estate have their nature pegged by Treas. Reg. §1.652(b)-3. The nature of excess deductions of a trust or an estate is determined by a three-step process:  1) direct expenses are allocated first (e.g., real estate taxes offset real estate rental income); 2) the trustee can exercise discretion when allocating remaining deductions – in essence, offsetting less favored deductions for individuals by using them against remaining trust/estate income (also, if direct expenses exceed the associated income, the excess can be offset at this step); 3) once all of the trust/estate income has been offset any remaining deductions constitute excess deductions when the trust/estate is terminated that are allocated to the beneficiaries in accordance with Treas. Reg. §1.642(h)-4.  Treas. Reg. 1.642(h)-2(b)(2).   

Lying With Purpose of Harming Livestock Facility is Protected Speech

Animal Legal Defense Fund v. Schmidt, 434 F. Supp. 3d 974 (D. Kan. 2020)

Beginning with Kansas in 1990, several states have enacted legislation designed to protect confined animal production facilities from sabotage activity from groups and individuals opposed to animal agriculture.  The laws generally forbid undercover filming or photography of activity on farms without the owner's consent.  They have been challenged as unconstitutional on numerous occasions. 

In this federal case involving Kansas law, the plaintiffs are a consortium of activist groups regularly conduct undercover investigations of livestock production facilities. Some of the plaintiffs gain access to farms through employment without disclosing the real purpose for which they seek employment (and lie about their ill motives if asked) and wear body cameras while working. For those hired into managerial and/or supervisory positions, they gain the ability to close off parts of the facility to avoid detection when filming and videoing. The film and photos obtained are circulated through the media and with the intent of encouraging public officials, including law enforcement, to take action against the facilities. The employee making the clandestine video or taking pictures, is on notice that the facility owner forbids such conduct via posted notices at the facility. The other plaintiffs utilize the data collected to cast the facilities in a negative public light but do no “investigation.”

In 1990, Kansas enacted the Kansas Farm Animal and Field Crop and Research Facilities Protect Act (Act). K.S.A. §§ 47-1825 et seq.  The Act makes it a crime to commit certain acts without the facility owner’s consent where the plaintiff commits the act with the intent to damage an animal facility. Included among the prohibited acts are damaging or destroying an animal facility or an animal or other property at an animal facility; exercising control over an animal facility, an animal from an animal facility or animal facility property with the intent to deprive the owner of it; entering an animal facility that is not open to the public to take photographs or recordings; and remaining at an animal facility against the owner's wishes. K.S.A. § 47-1827(a)-(d). In addition, K.S.A. § 47-1828 provides a private right of action for "[a]ny person who has been damaged by reason of a violation of K.S.A. § 47-1827 against the person who caused the damage." For purposes of the Act, a facility owner’s consent is not effective if it is induced by force, fraud, deception duress or threat. K.S.A. § 47-1826(e). The plaintiff challenged the constitutionality of the Act, and filed a motion for summary judgment. The defendant also motioned for summary judgment on the basis that the plaintiffs lacked standing or, in the alternative, the Act barred trespass rather than speech.

On the standing issue, the trial court held that the plaintiffs lacked standing to challenge the portions of the Act governing physical damage to an animal facility (for lack of expressed intent to cause harm) and the private right of action provision, However, the trial court determined that the plaintiffs did have standing to challenge the exercise of control provision, entering a facility to take photographs, etc., and remaining at a facility against the owner’s wishes to take pictures, etc. The plaintiffs that did no investigations but received the information from the investigations also were deemed to have standing on the same grounds. On the merits, the trial court determined that the Act regulates speech by limiting what the plaintiffs could say and by barring pictures/videos. The trial court determined that the provisions of the Act at issue were content-based and restricted speech based on viewpoint – barring only that speech that would harm an animal facility. The trial court determined that barring lying is only constitutionally protected when it is associated with a legally recognizable harm, and the Act is unconstitutional to the extent it bars false speech intended to damage livestock facilities. Because the provisions of the Act at issue restrict content-based speech, its constitutionality is measured under a strict scrutiny standard. As such, a compelling state interest in protecting legally recognizable rights must exist. The trial court concluded that even if privacy and property rights involved a compelling state interest, the Act must be narrowly tailored to protect those rights. By focusing only on those intending to harm owners of a livestock facility, the Act did not bar all violations of property and privacy rights. The trial court also determined that the Governor was a proper defendant. 

In a later action, the court entered a permanent injunction against enforcement of Kan. Stat. Ann. §§47-1827(b)-(d).  Animal Legal Defense Fund v. Kelly, No. 18-2657-KHV, 2020 U.S. Dist. LEXIS 58909 (D. Kan. Apr. 3, 2020).  A notice of appeal of the court’s decision was filed on May 1, 2020.  In July, the court trimmed-down the plaintiff’s request of attorney fees and costs from almost $250,000 to slightly over $176,000.  Animal Legal Defense Fund v. Kelly, No. 18-2657-KHV, 2020 U.S. Dist. LEXIS 124,480 (D. Kan. Jul. 15, 2020). 

Conclusion

In the next post, I will continue the look at the “almost Top 10” of 2020 with Part 3.

January 3, 2021 in Estate Planning, Income Tax, Regulatory Law | Permalink | Comments (0)

Friday, January 1, 2021

The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020

Overview

It’s the time of year again where I sift through the legal and tax developments impacting U.S. agriculture from the past year, and rank them in terms of their importance to farmers, ranchers, agribusinesses, rural landowners and the ag sector in general. 

As usual, 2020 contained many legal and tax developments of importance to the agricultural sector.  Of course, there were major tax law changes that occurred as a result of the federal government’s response to various state governors shutting down businesses in their states and locking down their economies with resulting economic harm.  The other issues continued their natural ebb and flow in reaction to the economics governing the sector and policy and regulatory implementations.

It’s also difficult to pair things down to ten significant developments.  There are other developments that are also significant, but perhaps less so on a national scale.  So, today’s post is the first installment in a series devoted to those developments that were left on the cutting table and didn’t quite make the “Top Ten” for 2020.

The “almost top ten of 2020” (in no particular order) – that’s the topic of today’s post.

Withheld Tax Not Deprioritized in Bankruptcy 

In In re DeVries, 621 B.R. 445 (8th Cir. B.A.P. 2020), rev’g., No. 19-0018, 2020 U.S. Bankr. LEXIS 1154 (Bankr. N.D. Iowa Apr. 28, 2020)

A major aspect of Chapter 12 bankruptcy is the ability to deprioritize governmental claims (e.g., taxes).  But, does the provision cover withheld taxes?  Is so, Chapter 12 is even more valuable to farm debtors. 

In this case, the debtors filed Chapter 12 and sold a significant amount of farmland and farming machinery in 2017, triggering almost $1 million of capital gain income and increasing their 2017 tax liability significantly. The tax liability was offset to a degree by income tax withholding from the wife’s off-farm job. Their amended Chapter 12 plan called for a refund to the estate of withheld federal and state income taxes. The taxing authorities objected, claiming that the withheld amounts had already been applied against the debtor’s tax debt as 11 U.S.C. §553(a) allowed. The debtors claimed that 2017 legislation barred tax debt arising from the sale of assets used in farming from being offset against previously collected tax. Instead, the debtors argued, the withheld taxes should be returned to the bankruptcy estate. If withheld taxes weren’t returned to the bankruptcy estate, the debtors argued, similarly situated debtors would be treated differently.

The bankruptcy court was faced with the issue of whether 11 U.S.C. §1232(a) entitled the bankruptcy estate to a refund of the withheld tax.  Largely based on legislative history, the trial court concluded that 11 U.S.C. §1232(a) overrode a creditor’s set-off rights under 11 U.S.C. §553(a) in the context of Chapter 12. The debtors’ bankruptcy estate was entitled to a refund of the withheld income taxes.

On appeal, the bankruptcy appellate panel for the Eighth Circuit reversed. The appellate panel determined that 11 U.S.C. §1232(a) is a priority-stripping provision and not a tax provision and only addresses the priority of a claim and does not establish any right to or amount of a refund. As such, nothing in the statue authorized a debtor’s Chapter 12 plan to require a taxing authority to disgorge, refund or turn-over pre-petition withholdings for the benefit of the bankruptcy estate. The statutory term “claim,” The court reasoned, cannot be read to include withheld tax as of the petition date. Accordingly, the statute was clear and legislative history purporting to support the debtor’s position was rejected. 

Bankruptcy and the Preferential Payment Rule – The Dean Foods Matter

A decade ago, the preferential payment rule arose in the context of the VeraSun bankruptcy.  In late 2020, the issue back in relation to bankruptcy filing of Dean Foods, the largest dairy subsidiary company in the United States. Dean Foods and its forty-three affiliates filed Chapter 11 bankruptcy on November 12, 2019 in the United States Bankruptcy Court for the Southern District of Texas, which is being jointly administered under case no. 19-36313.  In the fall of 2020, Dean Foods and its affiliates filed a joint Chapter 11 plan of liquidation.  Dairy farmers that sold milk to Dean Farms shortly before the bankruptcy filing then started receiving letters demanding repayment of the amount paid for those milks sales. 

The preferential payment rule does come with some exceptions.  The exceptions basically comport with usual business operations.  In other words, if the transaction between the debtor and the creditor occurred in the normal course of the parties doing business with each other, then the trustee’s “avoidance” claim will likely fail. 

Exchange for new value.  The bankruptcy trustee cannot avoid a transfer to the extent the transfer was intended by the debtor and the creditor (to or for whose benefit such transfer was made) to be a contemporaneous exchange for new value given to the debtor, and occurred in a substantially contemporaneous exchange.  11 U.S.C. §547(c)(1)(A-B).  A contemporaneous exchange for new value is not preferential because it encourages the creditor to deal with troubled debtors and because other creditors are not adversely affected if the debtor’s estate receives new value.  See, e.g., In re Jones Truck Lines, 130 F.3d 323 (8th Cir. 1997).  “New value” as used in Section 547(c) means “money or money’s worth in goods, services, or new credit.” 11 U.S.C. § 547(a)(2). An exchange for new value is presumed substantially contemporaneous if the transfer of estate property is made within seven days of the transfer of the new value.  See, e.g., In re Mason, 189 B.R. 932 (Bankr. N.D. Iowa 1995).

Ordinary course of business.  The bankruptcy trustee also cannot avoid a transfer  to the extent that the transfer was in payment of a debt that the debtor incurred in the ordinary course of the debtor’s business (or financial affairs) with the creditor, and the transfer was made in the ordinary course of business or financial affairs of the debtor and the creditor; or was made according to ordinary business terms.  11 U.S.C. §547(c)(2)(A)-(B).  If the transaction at is the first between the parties, “the transaction must be typical compared to both parties’ past dealings with similarly-situated parties.  In re Pickens, No. 06-01120, 2008 Bankr. LEXIS 6 (Bankr. N.D. Iowa Jan. 3, 2008). 

The vast majority of dairy farmers receiving the demand letters should be able to demonstrate that the milk sales were in the ordinary course of business.  But, just knowing the exceptions to the rule is vitally important.

Appellate Court Upholds $750,000 Compensatory Damage Award in Hog Nuisance Suit

McKiver v. Murphy-Brown, LLC, 980 F.3d 937 (4th Cir. 2020)

Here, the plaintiffs were pre-existing neighbors to the defendant’s large-scale confinement hog feeding facility conducted by a third-party farming operation via contract. The facility annually maintained nearly 15,000 of the defendant’s hogs that generated about 153,000 pounds of feces and urine every day. The waste was disposed of via lagoons and by spreading it over open “sprayfields” on the farm. The plaintiffs sued in state court in 2013 for nuisance violations, but later dismissed that action and refiled in federal court after learning of the defendant’s control over the hog feeding facility naming the defendant as the sole defendant.

The federal trial court coordinated 26 related cases against similar hog production operations brought by nearly 500 plaintiffs into a master case docket and proceeded with trials in 2017. In this case, the jury awarded $75,000 in compensatory damages to each of 10 plaintiffs and $5 million in punitive damages to each plaintiff. The punitive damage award was later reduced to $2.5 million per plaintiff after applying a state law cap on punitive damages.

On appeal, the appellate court determined that the trial court had properly allowed the plaintiffs’ expert testimony to establish the presence of fecal material on the plaintiffs’ homes and had properly limited the expert witness testimony of the defendant concerning odor monitoring she conducted at the hog facility. The appellate court also rejected the defendant’s claim that the third party farming operation should be included in the case as a necessary and indispensable party. The appellate court also affirmed the trial court’s holding concerning the availability of compensatory damages beyond the rental value of the property and the jury instruction on nuisance. The appellate court also concluded that the trial court properly submitted the question of punitive damages to the jury. The appellate court reversed the trial court’s admission of financial information of the defendant’s corporate grandfather and combining the punitive damages portion of the trial with the liability portion, but held that such errors did not require a new trial. However, the appellate court remanded the case for a consideration of the proper award of punitive damages without consideration of the grandparent’s company’s financial information (such as compensation amounts to corporate executives).

It’s also important to note that while North Carolina law was involved in this case, as a result of this litigation several states, including Nebraska and Oklahoma, have recently amended their state right-to-farm laws with the intent of strengthening the protections afforded farming operations. 

Shortly after the appellate court reached its decision, the defendant's parent company (China-based WH Group Ltd and its U.S.-based pork producer Smithfield Foods, Inc.) announced that it settled the nuisance suits brought by hundreds of plaintiffs.  Smithfield Foods, Inc. said that the settlement, "takes into account the divided decision of the court."  

Lifetime Ban on Owning Firearms For Filing Tax Returns With False Statement 

Folajtar v. The Attorney General of the United States, 980 F.3d 897(3rd Cir. 2020)

Any law that impairs a fundamental constitutional right (any of the first ten amendments to the Constitution) is subject to strict scrutiny – or at least it’s supposed to be.  The right to bear arms, as the Second Amendment, is a fundamental constitutional right.  Thus, any law restricting that right is to be strictly scrutinized.  But, does a convicted felon always permanently lose the right to own a firearm.  What if the felony is a non-violent one?  These questions were at issue in this case.

The plaintiff pleaded guilty in 2011 to willfully making a materially false statement on her federal tax returns. She was sentenced to three-years’ probation, including three months of home confinement, a $10,000 fine, and a $100 assessment. She also paid back taxes exceeding $250,000, penalties and interest. Her conviction triggered 18 U.S.C. §922(g)(1), which prohibits those convicted of a crime punishable by more than one year in prison from possessing firearms. The plaintiff’s crime was punishable by up to three years’ imprisonment and a fine of up to $100,000.

As originally enacted in 1938, 18 U.S.C. §922(g)(1) denied gun ownership to those convicted of violent crimes (e.g., murder, kidnapping, burglary, etc.). However, the statute was expanded in the 1968. Later, the U.S. Supreme Court recognized gun ownership as an individual constitutional right in 2008. District of Columbia v. Heller, 554 U.S. 570 (2008). In a split decision, the majority reasoned that any felony is a “serious” crime and, as such, results in a blanket exclusion from Second Amendment protections for life. The majority disregarded the fact that the offense was non-violent, was the plaintiff’s first-ever felony offense, and was an offense for which she received no prison sentence. The majority claimed it had to rule this way because of deference to Congressional will that, the majority claimed, created a blanket, categorical rule.

The dissent rejected the majority’s categorical rule, pointing out that the plaintiff’s offense was nonviolent, and no evidence of the plaintiff’s dangerousness was presented. The dissent also noted that the majority’s “extreme deference” gave legislatures the power to manipulate the Second Amendment by simply choosing a label. Instead, the dissent reasoned, when the fundamental right to bear arms is involved, narrow tailoring to public safety is required. Because the plaintiff posed no danger to anyone, the dissent’s position was that her Second Amendment rights should not be curtailed. Likewise, because gun ownership is an individual constitutional right, the dissent pointed out that the Congress bears a high burden before extinguishing it. Post-2008, making a categorical declaration is insufficient to satisfy that burden, according to the dissent.

Expect this case to be headed to the U.S. Supreme Court. 

Conclusion

That’s the first part of the trip through the “almost Top 10” of 2020.  I will continue the trek through the list next time.

January 1, 2021 in Bankruptcy, Civil Liabilities, Criminal Liabilities | Permalink | Comments (0)

Sunday, December 27, 2020

Boundaries and Surveys – What Are the Rules?

Overview

Boundary issues are rather common in rural settings.  Often boundary disputes arise because a survey doesn’t match an existing fence line.  In that situation, what controls?  How is the actual legal property boundary determined?  There are numerous legal rules and doctrines that can come into play and a later, accurate survey may not actually determine the outcome.  Over 25 years ago, I participated in a the writing of a book involving Kansas agricultural law with the late James Wadley of Washburn Law School and Sam Brownback who would later become a member of the U.S. Congress and then the U.S. Senate followed by being elected to two terms as the Governor of Kansas.  Today’s article involves some of the concepts we discussed in that book.

Boundaries involving rural properties – it’s the topic of today’s post.

Old Fences

Landowners generally consider existing fences to be the partition (boundary) between adjacent properties.  But the law may view things differently.  The actual boundary is an imaginary line that can be found by examining the deeds to the adjacent properties.  An existing fence line is merely evidence of where the boundary line between the properties is located.  It is immaterial whether the fence is a permanent fence or not.

However, there may be situations where the fence line has become part of the property description over time as the land changed hands.  This is particularly true in the eastern third of the United States where a metes and bounds property description is used that describes the perimeter of the land.  In other parts of the country where the Government Survey System is utilized, an existing fence line may be treated by the adjoining landowners as the physical boundary between adjacent tracts.  In either of these situations, the fence line may be considered to be the legal property boundary. 

In most situations a parcel of land will be identified described by mapping out survey lines.  This can result in an existing fence not being on the precise surveyed boundary.  The fence may have been constructed off of the true legal boundary as a matter of convenience.  For example, if the true boundary crosses a stream or goes through thick brush, maintenance of the fence is made simpler if there is no stream crossing or brush to clear.  This does not present any issues when the fence is not intended to be the boundary line.  But, when a fence is an old fence that has been in its present location for quite some time and the adjacent owners treat the fence line as the boundary line irrespective of whether it actually is the true legal boundary, problems can arise.  In that situation, the issue is whether the fence line can be substituted for the actual legal boundary and, if so, how it can become the true boundary. 

Adverse Possession

The mere passage of time, by itself, does not cause a fence line to be substituted for the actual property boundary.  But, the manner in which the adjacent owners have used the property over time may cause the fence line to become fixed as the boundary with the legal effect of changing the boundary as described in the deed to the property.  Under the legal doctrine of adverse possession title can be acquired to property that one doesn’t actually own via the usage of the property for a prescribed amount of time (e.g., 15 years in Kansas).  The party attempting to acquire title via adverse possession must know that the property that they are using does not belong to them.  In other words, the party asserting the doctrine knows that the existing fence line is not on the property boundary and uses the additional property between the true boundary and the fence line as their own, adverse to the true owner. 

If the true boundary is not known, courts typically examine the intent of the party holding property beyond the true line (i.e., the party benefitting from the misplaced fence).  If the property is occupied by mere mistake and with no intent to claim land that does not belong to the person, the occupation of the property will not be considered to be adverse.  Alternatively, if the occupant takes possession of the property believing the land to be his or her own up to the mistaken line and claiming title to it, the possession will be considered adverse if the true owner knows of the possession and assertion of ownership and does nothing to prevent it for the statutory timeframe.

A boundary that changes via adverse possession is formalized by a “quiet title” action in court.

Settling Disputes

Most efforts to resolve fence problems on the basis of adverse possession fail because both parties believe the existing fence is the boundary and, therefore, neither party intends to claim any more than they are legally entitled to.  Thus, their occupation is usually not considered to be adverse, and the boundary dispute will have to be settled via other means.

Written agreement.  One way in which the parties may settle the boundary dispute is by executing a written agreement followed by the issuing of corrective deeds.  With this approach, the property descriptions of the adjoining tracts can be changed to reflect the fence line.  This may require the execution of one or more deeds from one party to the other to transfer the area being adjusted.

Memorandum of uncertain boundary.  Another manner in which a boundary dispute may be resolved is by the parties executing a memorandum of understanding designating the existing fence line as the boundary.  The memorandum can be recorded in the land records.  Once recorded it will bind the present and subsequent owners of the property and their successors.  But, for the memorandum to be enforceable, the boundary must be uncertain or in dispute.  The memorandum, known as a “parol agreement” is not subject to state statutes that govern conveyances of land.  Even so, the memorandum should accurately describe the land at issue, and the parties should sign it.  The adjacent landowners, as parties to the agreement, should then treat the agreed-upon line as the boundary between the tracts. 

Note: If prior owners had agreed to a boundary but didn’t reduce it to writing or record it on the land records, the boundary may be relocated in accordance with the prior agreement if it can be proved. 

Doctrine of practical location.  Also knows as “boundary by acquiescence,” the “doctrine of practical location” applies when the adjoining landowners don’t know where the true legal boundary between their tracts is and one party occupies to the fence line.  In Kansas, if the other party acquiesces in that occupation for 15 years, the result is that the existing fence will become the true boundary.  The parties could also reach an agreement that the existing fence line is the true boundary.  However, if the parties know that the fence is not on the true boundary but do know where the true boundary is, neither parol agreements nor boundary by acquiescence will be applicable.

Equitable exchange.  Some courts will grant an “equitable exchange.”  With an equitable exchange, one party is ordered to trade property on one side of the line for property that is on the other side.  For a court to grant such a remedy, it must be shown that the true location of the boundary will present an unusual hardship or some other circumstance that would cause a court to take action. 

Conflicting Surveys

If a boundary remains in dispute because of conflicting surveys, any boundaries and markers set by the first survey control in a conflict with a subsequent survey.  This is true even if there were errors in the original survey.  When a subsequent survey is done, the issue is where the original survey located the boundary lines.  In other words, the goal of a subsequent survey is to locate the lost boundary line.  The objective is not to dispute the location of the boundary.  This rule applies to both government and private surveys.  The reason for the rule is to protect the property rights of parties who have purchased, occupied and enjoyed the land in reliance on the original survey.  But, if the reason for the rule doesn’t exist and no one has taken action based on the incorrect survey, there is no need to apply the rule.  In that instance, if the original survey is inaccurate, it may be corrected with an accurate, new survey.

Note:  Unfortunately, the rule is often overlooked by subsequent surveyors who mistakenly believe that the line should be located in accordance with the most accurate survey possible. 

When a boundary dispute involves a disagreement between surveys, it is necessary to consider how the use of the land has been affected by the original survey’s location of the boundary.  If the fence was erected along the old but erroneous survey line, and the parties have actively farmed to the fence line, the fence should not be moved.  If the fence does not follow either the original survey or the later survey, the true boundary line may need to be designated.  Whether the fence will need to be moved as a result will depend on the application of the other principles and doctrines discussed above. 

Recent Case

A recent case from Iowa illustrates some of the principles that commonly arise in a boundary disputed involving agricultural land.  In Black v. Jorgensen, No. 19-1576, 2020 Iowa App. LEXIS 1161 (Iowa Ct. App. Dec. 16, 2020), the plaintiff sought to quiet title related to a disputed area where her land adjoined the defendant’s property. The disputed property consisted of 6.44 acres between the boundary of record east to the fence that had been maintained by the parties’ predecessors. The boundary of record was a government survey line that ran through a drainage ditch that was densely wooded and vegetated. The parties’ predecessors had built a fence fifty years prior on the east side of the ditch to keep cattle from going into the ditch.  The defendant built a new fence that ran partially along the government survey line, curved around the eastern embankment of the ditch, and ended on the south end of the survey line. Two acres of land fell between where the old fence allegedly ran and the defendant’s new fence. The other four and a half acres were between the new fence line and the government survey line in the ditch.

The plaintiff claimed ownership of the land between the survey line and the old fence built by the parties’ predecessors. The plaintiff argued she had obtained title to the disputed land by boundary by acquiescence, practical location, and adverse possession.

The trial court held that the plaintiff did not prove a boundary by acquiescence, practical location, or adverse possession. On appeal, the plaintiff argued the trial court erred in failing to quiet title in her favor. The appellate court held that the plaintiff failed to establish a boundary by acquiescence. The appellate court noted that neither the plaintiff  or the defendant, nor the parties’ predecessors had ever discussed that the old fence was the boundary line, and the predecessors considered the government survey line to be the boundary line. On the issue of boundary by practical location, the appellate court held that the plaintiff had failed to establish the boundary was disputed, indefinite, or uncertain. The appellate court noted that county plat maps and the legal descriptions of the land all indicated a straight-line border between the properties through the drainage ditch.

On the issue of adverse possession, the appellate court held that the plaintiff failed to establish that she had exercised hostile, open, exclusive, and continuous possession of the disputed area for at least ten years (the Iowa statutory timeframe). The appellate court noted that the parties rarely used the disputed area, and that it was mainly used for hunting by both parties. Therefore, the appellate court affirmed the trial court’s rejection of the plaintiff’s boundary claims and confirmed that the defendant owned the disputed area.

Conclusion

Boundary disputes are not uncommon when farm and ranch land is involved.  Numerous principles can come into play when determining the true boundary.  In rural settings, usage of adjoining properties may more commonly determine the boundary between properties than does a survey.  That last point can come as a surprise to many, including surveyors.

December 27, 2020 in Real Property | Permalink | Comments (0)

Thursday, December 24, 2020

Taxation of Settlements and Court Judgments

Overview      

Farming and ranching, while it can provide a rewarding way of life for those involved, is a very dangerous occupation.  Working with or around machinery and equipment, hazardous chemicals and pesticides, livestock, water, and projects that involve electricity are just some of the activities that can lead to injury or death.   Sometimes, legal recourse is sought and that can lead to a court judgment or a settlement.

How is a monetary court award or settlement taxed?  It’s an important question, particularly when the amount of the award or settlement is large.  A recent IRS private ruling illustrates how the taxation of court awards and settlements are taxed.

The taxation of monetary court awards or settlements – it’s the topic of today’s post.

The Basics

Generally, the courts use a fact based “origin of the claim” test to determine the tax character of court awards and settlement funds. See, e.g., French v. Comr., T.C. Sum. Op. 2018-36.  Under the test, any funds the taxpayer receives are deemed to be a substituted payment for the damages that the taxpayer was alleging.  As a result, an amount recovered will be determined either to be taxable or not subject to tax, with causality the key to the determination.  See, e.g., Lindsey v. Comr., 422 F.3d 684 (8th Cir. 2005)Often, that causality is tied to extrinsic factors such as the details of the litigation, allegations contained in the complaint, and how the settlement negotiations were proceeding. 

The “origin of the claim” test also determines the character of any taxable amount as either ordinary income or capital gain. 

Physical injury or sickness.  Recoveries from out-of-court settlements or as a result of judgments obtained may fall into any one of several categories. Quite clearly, damages received on account of personal physical injury or physical sickness are excluded from income.  I.R.C. §104(a)(2)Amounts received on account of mental distress may be received tax-free if the distress is directly related to personal injury. See, e.g., Barnes v. Comm’r, T.C. Memo. 1997-25. As the regulations point out, nontaxable damages include “an amount received (other than workmen's compensation) through prosecution of a legal suit or action based on tort or tort-type rights, or through a settlement agreement entered into in lieu of such prosecution.”  Treas. Reg. § 1.104-1.

Punitive damages.  Legislation enacted in 1996 specifies that recoveries representing punitive damages are taxable as ordinary income regardless of whether they are received on account of personal injury or sickness. Small Business Job Protection Act of 1996, P.L. 104-188, Sec. 1605(a); See, e.g., O'Gilvie v. United States, 519 U.S. 79 (1996). 

Lost profit.  The 1996 enactment also made it clear that damages not attributable to physical injury or physical sickness are includible in gross income.  In many lawsuits, there is almost always some lost profit involved and recovery for lost profit is ordinary income.  See, e.g., Simko v. Comm’r, T.C. Memo. 1997-9.  For recoveries in connection with a business, if the taxpayer can prove that the damages received were for injury to capital, no income results except to the extent the damages exceed the income tax basis of the capital asset involved.  The recovery is, in general, a taxable event except to the extent the amount recovered represents a return of basis.  Recoveries representing a reimbursement for lost profit are taxable as ordinary income.

Legal Challenge

In 2006, the U.S. Circuit Court of Appeals for the District of Columbia ruled that the distinction drawn in the 1996 amendment was unconstitutional. Murphy v. United States, 460 F.3d 79 (D.C. Cir. 2006). In the case, the plaintiff sued her former employer and was awarded $70,000 ($45,000 for mental pain and anguish and $25,000 for “injury to professional reputation”).  The plaintiff originally reported the entire $70,000 as taxable and then filed amended returns excluding the income.  The IRS maintained that the entire $70,000 was taxable, and the trial court agreed.  On appeal, the court held that the $70,000 was not excludible from income under the statute, but that I.R.C. §104(a)(2) was unconstitutional under the Sixteenth Amendment since the entire award was unrelated to lost wages or earnings, but were, instead, payments for the restoration of the taxpayer’s human capital.  Thus, the entire $70,000 was excludible from income. However, in late 2006, the court vacated its opinion and set the case for rehearing.  Upon rehearing, the court reversed itself and held that even if the taxpayer’s award was not “income” within the meaning of the Sixteenth Amendment, it is within the reach of the power of the Congress to tax under Article I, Section 8 of the Constitution.  In addition, the court reasoned that the taxpayer’s award was similar to an involuntary conversion of assets – the taxpayer was forced to surrender some part of her mental health and reputation in return for monetary damages.”  The U.S. Supreme Court declined to hear the case.  Murphy v. Internal Revenue Service, 493 F.3d 170 (D.C. Cir. 2007), reh’g. den., 2007 U.S. App. LEXIS 22173 (D.C. Cir. Sept. 14, 2007), cert. den., 553 U.S. 1004 (2008).

IRS Private Ruling

In Private Letter Ruling 202050009 (Sept. 10, 2020), the taxpayer was riding his bicycle on his way home from work when he was hit by an automobile.  He was severely and permanently injured, including sustaining a traumatic brain injury resulting in his cognitive impairment.  The taxpayer sued the company that employed the driver that hit him.  The complaint alleged damages on account of the defendant’s negligence, recklessness and the driver’s willful and wanton acts.  Damages were sought for the taxpayer’s medical bills; mental anguish; loss of enjoyment of life; disability; pain and suffering; and other injuries and damages, including loss of consortium for the taxpayer’s wife.  

The trial court jury found the defendant liable and awarded the taxpayer (and spouse) damages for past and future economic damages (medical bills) and for past and future non-economic damages (mental anguish).  The jury also awarded the taxpayer’s wife damages for past and future loss of consortium.

The IRS determined that the taxpayer’s damages were not taxable because the awarded damages were tied to the taxpayer’s physical injuries sustained as a result of the bicycle accident.   

Attorney Fees

As a side-note, if the amount of an award or court settlement includes contingent attorney fees, the portion of the award representing contingent attorney fees is includible in the taxpayer’s gross income.  Comm’r, v. Banks, 543 U.S. 426 (2005), rev’g and rem’g sub. nom., Banks v. Commr, 345 F.3d 373 (6th Cir. 2003).

For fees and costs paid after October 22, 2004, with respect to a judgment or settlement occurring after that date, legislation enacted in 2004 provides for a deduction of attorney’s fees and other costs associated with discrimination in employment or enforcement of civil rights.  I.R.C. § 62(a)(20).

Conclusion

Most legal actions brought by farmers or ranchers against others as a result of business transactions or tort-type injuries often involve an element of lost profit and some involve recovery of basis.  Therefore, there is likely to be at least a partially taxable event.  The proper characterization of recoveries is vitally important.  In addition, there may be a discharge of indebtedness involved and, in some instances, the transaction may be characterized as a “sale” of property to a creditor.

And a very Merry Christmas to all!

December 24, 2020 in Income Tax | Permalink | Comments (0)

Tuesday, December 22, 2020

Can One State Dictate Agricultural Practices in Other States?

Overview

For several years now, some states (particularly California) have been testing the boundaries of the constitutional limits on economic regulation. The issue could have troubling implications for agriculture.  These states have enacted laws setting requirements that out-of-state producers of agricultural goods must meet before those goods can be sold in the state establishing the requirements. 

Clearly, a state can regulate economic activity within its borders, and can also establish the rules for goods that are sold and services that are provided within its jurisdiction.  However, when do those rules and regulations cross the constitutional line from being within a state’s authority to impermissibly regulating another state’s economic activity and national interests?

A state’s ability to regulate the economic activity of another state – it’s the topic of today’s post.

What Is the “Dormant Commerce Clause”?

Article I, section 8, clause 3 of the United States Constitution (the “Commerce Clause”) grants Congress the power to “regulate commerce” among the states.  Although the Constitution does not specifically limit a state’s power to regulate commerce, the United States Supreme Court has long interpreted the clause as an “implicit restraint on state authority, even in the absence of a conflicting federal statute.”  Gibbons v. Ogden, 22 U.S. 1 (1824) The basic precept was that when the Constitution was ratified the country was a single economic union, and the states surrendered their sovereign power to impose tariffs and restrain interstate trade.  See, e.g., THE FEDERALIST No. 7, 39–41 (Hamilton).  Instead, it is the Congress that can impose economic regulation (consistent with constitutional limits) on interstate commerce.  Thus, under the “Dormant Commerce Clause” a state cannot enact any rules or regulations that affirmatively discriminate against the economic production of goods in another state without a legitimate local justification for doing so. 

Clearly, a law that expressly mandates different treatment of in-state and out-of-state competing economic interests is unconstitutional on its face if that treatment favors in-state interests and burdens out-of-state interests. But, when a law is facially neutral, courts determine whether a Dormant Commerce Clause violation exists on the basis of whether the law imposes burdens on in terstate commerce that are "clearly excessive in relation to the putative local benefits.”  See, e.g., Minnesota v. Barber, 136 U.S. 313 (1890); Gratiot Sanitary Landfill v. Michigan Department of Natural Resources, 504 U.S. 353 (1992). 

Recent Cases Involving Agriculture

Eggs.  In 2014, a California federal court dismissed for lack of standing a challenge brought by major egg producing states to a California law (AB1437) dictating methods of production for all eggs sold in California.  Missouri, et al. v. Harris, 58 F. Supp. 3d 1059 (E.D. Cal. 2014).  The legislation bans the sale of shell eggs within California by producers or handlers if the eggs are the product of an egg-laying hen that was confined in an enclosure that fails to comply with certain animal care standards. 

The lawsuit claimed that the law (which amended the state’s Health and Safety Code) and its implementing regulations, violated the Commerce Clause of the United States Constitution and was preempted by the Federal Egg Products Inspection Act.  21 U.S.C. §1031 et seq.  Effective January 1, 2015, the law criminalized the sale of eggs for human consumption in California if the eggs were the product of egg-laying hens confined in a manner not in compliance with the law no matter where they were produced. A violation of the law constitutes a misdemeanor and is punishable with a fine of not more than $1,000 or imprisonment in the county jail for not more than 180 days or both.  Cal. Health & Safety Code §25997. 

The implementing regulations require enclosures containing nine or more egg-laying hens to provide a minimum of 116 square inches of floor space per bird. 3 C.C.R. 1350 Enclosures containing eight or fewer birds are also regulated. Id.  Purportedly, the law was enacted to “protect California consumers from the deleterious, health, safety, and welfare effects of the sale and consumption of eggs derived from egg-laying hens that are exposed to significant stress and may result in increased exposure to disease pathogens including salmonella.” The plaintiffs, however, alleged that the California legislature’s real intent was to “level the playing field” for California producers faced with a costly California regulatory regime.  It was not enacted, the plaintiffs claimed, with the primary concern of protecting the health of California citizens.

The trial court dismissed the case for lack of standing.  The court asserted that the plaintiffs were claiming injury-in-fact to all of the citizens in their respective states, and reasoned that the increased cost of egg production in the non-California states challenging the law did not affect the general citizenry of those states.  Instead, the court determined that the California legislation would only impact egg producers that failed to conform their farming procedures to comply with the California rules.  Thus, according to the court, the plaintiffs did not bring the case on behalf of “a substantial segment of their populations.”  While the court accepted as true the claim that the California legislation would impose a substantial cost on the plaintiff-states, that cost wouldn’t be borne on the citizenry of the states as a whole, but rather just the subset of egg farmers that wished to continue selling eggs in California. 

The court also dismissed as without merit and speculative the plaintiffs’ argument that any resulting increase in the cost of eggs would injure all egg consumers.  The plaintiffs also alleged that they were disadvantaged compared to other states that were not impacted by the California legislation.  The court also dismissed this allegation as a basis for standing because the plaintiff states would not have to completely withdraw from egg production but would only incur “price fluctuations.” 

The court also determined that the threat of prosecution by California was merely speculative and was not imminent.  The court noted that the plaintiffs didn’t “articulate any concrete plan by their egg farmers to violate California’s shell egg laws.”  Merely preferring to continue to market eggs to California, the court said, was not a specific harm.  Unfortunately, the trial court failed to cite any cases to support its position on the standing issue where a state threatened to impose or did impose criminal penalties on conduct occurring in other states.  

The trial court’s opinion was affirmed on appeal.  Missouri v. Harris, 842 F.3d 658 (9th Cir. 2016).  The U.S. Supreme Court declined to hear the case.  Missouri v. Becerra, 198 L. Ed. 2d 255 (2017).    

Beyond eggs.  In the fall 2018 election, California voters passed Proposition 12 (“The Farm Animal Confinement Initiative”) that establishes minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and caves 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.

Under Proposition 12, effective January 1, 2022, all pork producers selling in the California market must raise sows in conditions where the sow has 24 square feet per sow. The law also applies to meat processors – whole cuts of veal and pork must be from animals that were housed in accordance with the space requirements of Proposition 12. 

The National Animal Meat Institute (NAMI) challenged Proposition 12 as an unconstitutional violation of the Dormant Commerce Clause by imposing substantial burdens on interstate commerce “that clearly outweigh any valid state interest.”  The trial court rejected the challenge, finding that the plaintiff failed to establish that the law discriminated against out-of-state commerce for the purpose of economic protectionism.  National Animal Meat Institute v. Becerra, 420 F. Supp. 3d 1014 (C.D. Cal. 2019)On appeal, the appellate court affirmed.  National Animal Meat Institute v. Becerra, 825 Fed. Appx. 518 (9th Cir. 2020).  The appellate court determined that the trial court did not abuse its discretion in finding that the plaintiff was not likely to succeed on the merits of its Dormant Commerce Clause claim.  The appellate court also stated that the plaintiff acknowledged that Proposition 12 was not facially discriminatory, and had failed to produce sufficient evidence that California had a protectionist intent in enacting the law.  The appellate court noted the trial court’s finding that the law was not a price control or price affirmation statute.  Similarly, the appellate court held that the trial court did not abuse its discretion in holding that Proposition 12 did not substantially burden interstate commerce because it did not impact an industry that is inherently national or requires a uniform system of regulation.  The appellate court noted that the law merely precluded the sale of meat products produced by a specific method rather than burdening producers based on their geographic location. 

A separate legal action has been filed in a different California court against Proposition 12 and it continues. 

Conclusion

Frankly, it’s difficult to not see the protectionist intent behind the California laws. Even assuming explicit protectionist intent is not present, in the litigation challenging the California laws, substantial data was produced showing the economic harm to out-of-state egg and pork producers wishing to sell their products in the California market. 

Of course, if the California requirements applied only to California egg and pork producers, out-of-state producers would be at an economic advantage.  If the point of the laws is health-based, it would seem that requiring egg and pork products to meet federal quality standards should be sufficient for eggs and pork to be sold in California.  Allowing one state to regulate certain sectors of another state’s agricultural production is the reason economic regulation among the states was reserved for the Congress in the first place.  If the courts don’t get this issue correct, problems abound for agriculture – regulating out-of-state agricultural activities won’t stop with eggs and pork.

December 22, 2020 in Regulatory Law | Permalink | Comments (0)

Sunday, December 20, 2020

‘Tis the Season for Giving, But When Is A Transfer A Gift?

Overview

Federal estate and gift tax planning changed significantly starting in 2013 due to changes in the law.  Since then, gifting has become less important for many because of the significant increase in the federal estate and gift tax unified credit.  The exemption equivalent of that credit offsets $11.58 million in federal estate tax for death and gifts made in 2020.  With the “stepped-up” basis rule of I.R.C. §1014, most people find it advantageous to not make gifts of property during life and hold the property until death where it will be taxed in the estate but covered by the exclusion and receive a date-of-death fair market value basis in the hands of the heir(s).  There is also the option to make annual cumulative gifts of up to $15,000 (for 2020 and 2021) in cash or property value to a donee. 

But what constitutes a gift?  The answer to that question may not be as simple as it might seem.

When is a transfer of property a completed gift for federal gift tax purposes?  It’s the topic of today’s post.

Dominion or Control 

Generally, the ownership or possession of property is not necessary to make a gift.  The measuring stick for the imposition of federal gift tax is not a change in ownership.  Rather, it is the relinquishment of dominion and control.  Treas. Reg. §25.2511-2(b).  This rule applies to outright transfers as well as to transfers in trust.  Any resulting gift tax is the primary and personal liability of the donor in the amount of the value of the property that passes from the donor to the done, regardless of whether the donee is known and ascertainable at the time of the transfer.  Treas. Reg. §25. 2511-2(a).   

The notion that a change in ownership is not necessary to trigger gift tax is, perhaps, best illustrated with a transfer in trust.  With respect to a trust, a trustee (rather than a beneficiary) owns assets, but a beneficiary can be the one that makes a gift.  Examples of this include the beneficiary releasing a lifetime general power of appointment (such as a Crummey right.  See Crummey et al. v. Comr., 392 F.2d 87 (9th Cir 1968)), or allowing the power to lapse.  A gift may also result from the beneficiary making a transfer a beneficial interest in trust (e.g., signing a non-judicial settlement agreement that modifies a trust).  A gift can also result where a beneficiary has the right to receive all of the income of a trust coupled with a lifetime special power of appointment and exercises that power of appointment.  The exercise of the power constitutes a gift of the income interest.  This is another illustration of how a taxable gift can be made of an asset that the donor does not own, at least on paper.  The point is that when the overall property rights give a taxpayer dominion and control over those property rights, a transfer of those rights will be a taxable transfer for gift tax purposes. 

Disclaimer

The main power that allows a person to avoid the types of gifts mentioned above is known as a disclaimer.  A disclaimer is simply the right of the holder of the power to say “no” to the receipt of a beneficial interest or a power of appointment so long as certain requirements are satisfied. I.R.C. §2518.  If the requirements are met, the disclaimer is known as a “qualified disclaimer” and the act of disclaiming would not be a gift for gift tax purposes.  I.R.C. §2518(a)-(b).  A qualified disclaimer is defined as an irrevocable and unqualified refusal by a person to accept an interest in property but only if the refusal is in writing and the writing is received by the transferor of the interest not later than the date that is nine months after the later of the date of the transfer or the day on which the person attains age 21.  Also, the disclaimant must not have accepted any of the benefits of the property and, as a result of the refusal, the interest must pass without any direction on the disclaimant’s part.  I.R.C. §2518(b). 

Thus, if a beneficiary of property does not accept the benefits or dominion or control of the property and, as a result, the property passes without the beneficiary’s direction, a qualified disclaimer has been made.  In that instance, the beneficiary is treated as being deceased before the initial transfer so that the beneficiary can never have dominion or control or the ability to direct how the property is to pass.  But remember, there is a time limit governing a qualified disclaimer. Nine or fewer months must have passed since the initial transfer or, if later, since the beneficiary attained the age of 21.

Recent IRS Memo

Recently, the Chief Counsel Office of the IRS issued a Memorandum illustrates these principles in the context of a Foundation.  In CCA 202045011 (Jun. 10, 2020), the taxpayer was a U.S. resident and was the primary beneficiary of a foreign Foundation.  The Board of the Foundation resolved to transfer the remaining Foundation assets to the taxpayer.  U.S. citizens and residents are subject to U.S. federal gift tax on worldwide assets – including accounts that might be of a foreign foundation in another country but, nonetheless, might be subject to U.S. gift tax. 

The taxpayer, after receiving notice from the Board, gave written instructions to the Board to send the funds the Foundation’s account denoted as “Bank 1 Account” to “Bank 2 Account.”  The taxpayer did not own “Ban 2 Account” and couldn’t withdraw the funds once there were in the account.  Instead, the funds contained in “Bank 2 Account” belonged to other beneficiaries.  The IRS concluded that, as a result of the Board’s resolution, the minute that resolution hit, the taxpayer had dominion and control over the Foundation’s account – Bank 1 Account.  Thus, as a result, once the taxpayer directed the Board to send those assets to Bank 2 Account, the direction amounted to a release of dominion and control by the taxpayer over the Bank 1 Account constituting a taxable gift.  In addition, since the transfer was at the direction of the taxpayer, it wasn’t a qualified disclaimer.  As noted above, a qualified disclaimer requires the disclaimed property to transfer without the disclaimant’s direction.  Also, even though it was a foreign account, the U.S. resident had U.S. gift tax on that foreign account. 

But the point remains – federal gift tax is not necessarily driven by a change of ownership, instead it is driven by the relinquishment of dominion and control.

Conclusion

Federal gift tax is triggered on the release of dominion and control over property.  That can be a distinct concept from that of a change of ownership.  It’s a sometimes subtle difference, but a difference with a distinction.  While the tax consequence of gifting isn’t that big of a tax issue for very many given the current exemption level, that could change if the political winds change in the future and the applicable exemption for the coupled federal estate and gift tax systems decreases.  It could also become a bigger issue if the stepped-up basis rule is eliminated and/or estate and gift tax rates change.

December 20, 2020 in Estate Planning | Permalink | Comments (0)

Saturday, December 19, 2020

2021 Summer National Farm and Ranch Income Tax/Estate & Business Planning Conference

Overview

The curtain has dropped on my 2020 agricultural law and taxation “tour.”  As I write this, I am in transit returning to Kansas (and then Iowa) from the last stop of 2020 in San Angelo, Texas.  Many of you have already asked about the 2021 National Summer Farm/Ranch Income Tax/Estate and Business Planning Conference. 

In today’s article, I take a moment to mention an upcoming event and the summer conference(s). 

January Webinar

On January 11, 2021, I will be doing a live webinar worth two hours of CLE/CPE credit on the biggest developments in agricultural law and taxation during 2020.  I will also examine other significant developments and what the forthcoming legal and tax issues facing agriculture in the immediate future might be.  This webinar is for lawyers and other tax practitioners as wells as farmer, ranchers, agribusiness professionals, rural landowners, ag media and any others that have an interest in what is going on in the legal and tax world that affects agricultural production and land ownership.  I will dive into constitutional issues involving property rights; water law; environmental law and regulation, income tax issues; farm programs; and other legal and tax issues of importance.

You can learn more about and register for the January 11 event here:  https://washburnlaw.edu/employers/cle/taxseasonupdate.html

Summer 2021 Conferences

Ohio conference.  Two national conferences are being planned for the summer of 2021.  The first event will be in Ohio either at the Salt Fork State Park Lodge and Conference Center near Cambridge, Ohio or at the Shawnee Lodge and Conference Center near Portsmouth, Ohio.  The dates will be either June 1-2; June 7-8 or June 14-15.  I am presently waiting on confirmation that the technology at the locations can meet our needs to provide a high-quality live simulcast of the conference over the internet.  I will announce the dates and location as soon as I have the details finalized, which should be by the end of this month.

You can learn more about the two possible Ohio locations here:  https://www.shawneeparklodge.com/; https://www.saltforkparklodge.com/.

Missoula, Montana.  The second summer national conference will be held in Missoula, Montana on August 2-3.  You can learn more about the venue for the Montana conference here:   https://www.hilton.com/en/hotels/msogigi-hilton-garden-inn-missoula/.   It will also be simulcast live over the internet.

 As the program details are put together, I will provide more details.  Stay tuned.

December 19, 2020 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Wednesday, December 16, 2020

Bankruptcy Happenings

Overview

The courts keep cranking out the bankruptcy opinion involving farmers and others.  The uniqueness of the cases presents interesting issues that are important to understand – not only for those involved in the litigation, but for others that can learn the various issues that can arise in a bankruptcy matter.

In today’s post, I take a look at several bankruptcy-related issues that came up in recent cases – the payment of administrative claims; the deprioritization of taxes in a Chapter 12 bankruptcy; and the necessity of clarity when describing collateral in a security agreement and financing statements. 

A potpourri of bankruptcy-related matters – it’s the topic today’s post. 

Administrative Expense Claimant Not Entitled to Notice of Conversion. 

In re Roberts, 610 B.R. 900 (Bankr. D. N.M. 2019)

Bankruptcy lawyers wouldn’t likely assist a client through the bankruptcy process unless getting paid for their services were ensured.   But, the services of a bankruptcy attorney are essential to for the parties involved – structuring a successful reorganization of the business in a reorganization bankruptcy; ensuring proper payment to creditors in a liquidation bankruptcy; and seeing to it that the debtor’s expectations are met in difficult circumstances.

The Bankruptcy Code ensures that bankruptcy legal counsel gets paid by allowing legal fees to be paid as an administrative expense of the bankruptcy.  It’s an expense that is entitled to priority over the claims of general unsecured creditors with pre-petition claims.  See 11 U.S.C. §§503(b); 507(a)(2). 

In Roberts, the debtors had farmed for forty years before filing Chapter 11 bankruptcy. Although the debtors were farmers, they were not eligible to file Chapter 12 (farm) bankruptcy as family farmers due to excessive debt.  Unfortunately for the debtors, they filed Chapter 12 before the Congress, in August of 2019, increased the debt level for Chapter 12 filers.

Several creditors objected to the debtors’ reorganization plan, arguing that the plan had significant deficiencies. After mounting expenses and the disbarment of their lawyer for unethical conduct, the debtors were forced to retain new bankruptcy counsel and file a new plan. The creditors argued that the new plan also contained deficiencies, namely that the plan did not propose to pay unsecured creditors in full. After the change in law that increased the debt limit for Chapter 12 filers, the debtors and creditors agreed to convert the case to chapter 12. The debtors’ initial bankruptcy counsel objected, arguing that she had not been given adequate notice of the conversion as an administrative expense claimant, and it would be inequitable to convert the case because her claim might be converted to a pre-petition claim.

The bankruptcy court held that the debtors were eligible to convert their pending Chapter 11 case to Chapter 12 and that the debtors need not give administrative claimants notice of their motion to convert. The bankruptcy court determined that the debtors only needed to give notice to the trustee and all creditors when seeking to convert their case.  An administrative claimant is not a “creditor” as that term is defined in the Bankruptcy Code.  11 U.S.C. §101(10).  

Further, the bankruptcy court held that the debtors’ conversion would not cause any administrative expense claims to be treated as pre-petition claims. The prior bankruptcy counsel argued that her administrative expenses would be subordinated upon conversion of the Chapter 11 case to a Chapter 12. The bankruptcy court, however, held that while that argument was true for converting a Chapter 11 case to a Chapter 7, when a Chapter 11 case is converted to Chapter 12, the Chapter 12 plan must provide for full payment of all Chapter 11 administrative expenses. Finally, the bankruptcy court held that conversion to Chapter 12 was equitable as it gave the debtors a chance to reorganize, and it gave the creditors and administrative expense claimants the best chance of getting paid. 

Withheld Tax Not Deprioritized in Bankruptcy 

In In re DeVries, No. 20-6011, 2020 Bankr. LEXIS 3323 (B.A.P. 8th Cir. Nov. 25, 2020), rev’g., No. 19-0018, 2020 U.S. Bankr. LEXIS 1154 (Bankr. N.D. Iowa Apr. 28, 2020)

The debtors filed Chapter 12 and sold a significant amount of farmland and farming machinery in 2017, triggering almost $1 million of capital gain income and increasing their 2017 tax liability significantly. The tax liability was offset to a degree by income tax withholding from the wife’s off-farm job. Their amended Chapter 12 plan called for a refund to the estate of withheld federal and state income taxes.

In the fall of 2019, the debtors submitted pro forma state and federal tax returns as well as their traditional tax returns for 2017 to the bankruptcy court in conjunction with the confirmation of their amended Chapter 12 plan. The pro-forma returns showed what the debtors’ tax liability would have been without the sale of the farmland and farm equipment. The pro-forma returns also showed, but for the capital gain, the debtors would have been entitled to a full tax refund of the taxes already withheld from the wife’s off-farm job. The amended plan required the IRS and the Iowa Department of Revenue (IDOR) to refund to the debtors’ bankruptcy estate withheld income taxes. The taxing authorities objected, claiming that the withheld amounts had already been applied against the debtor’s tax debt as 11 U.S.C. §553(a) allowed. The debtors claimed that 2017 legislation barred tax debt arising from the sale of assets used in farming from being offset against previously collected tax. Instead, the debtors argued, the withheld taxes should be returned to the bankruptcy estate. If withheld taxes weren’t returned to the bankruptcy estate, the debtors argued, similarly situated debtors would be treated differently.

The bankruptcy court was faced with the issue of whether 11 U.S.C. §1232(a) entitled the bankruptcy estate to a refund of the withheld tax. The IRS and IDOR claimed that 11 U.S.C. §553(a) preserved priority position for tax debt that arose before the bankruptcy petition was filed. The court disagreed, noting that 11 U.S.C. §1232(a) deals specifically with how governmental claims involving pre-petition tax debt are to be treated – as unsecured, non-priority obligations. But the court noted that 11 U.S.C. §1232(a) does not specifically address “clawing-back” previously withheld tax. It merely referred to “qualifying tax debt” and said it was to be treated as unsecured and not entitled to priority.

Referencing the legislative history behind both the 2005 and 2017 amendments, the bankruptcy court noted that the purpose of the priority-stripping provision was to help farmers have a better chance at reorganization by de-prioritizing taxes, including capital gain taxes. The court pointed to statements that Sen. Charles Grassley made to that effect. The bankruptcy court also noted that the 2017 amendment was for the purpose of strengthening (and clarifying) the original 2005 de-prioritization provision by overturning the result in Hall v. United States, 566 U.S. 506 (2012) to allow for de-prioritization of taxes arising from both pre and post-petitions sales of assets used in farming. Accordingly, the court concluded that 11 U.S.C. §1232(a) overrode a creditor’s set-off rights under 11 U.S.C. §553(a) in the context of Chapter 12. The debtors’ bankruptcy estate was entitled to a refund of the withheld income taxes.

On appeal, the bankruptcy appellate panel for the Eighth Circuit reversed. The appellate panel determined that 11 U.S.C. §1232(a) is a priority-stripping provision and not a tax provision and only addresses the priority of a claim and does not establish any right to or amount of a refund. As such, nothing in the statue authorized a debtor’s Chapter 12 plan to require a taxing authority to disgorge, refund or turn-over pre-petition withholdings for the benefit of the bankruptcy estate. The statutory term “claim,” The court reasoned, cannot be read to include withheld tax as of the petition date. Accordingly, the statute was clear and legislative history purporting to support the debtor’s position was rejected. 

Adequate Protection Denied Due to Unperfected Security Interest

In re Blackjewel L.L.C.,No. 3:19-bk-30289, 2020 Bankr. LEXIS 3413 (Bankr. S.D. W. Va. Dec. 7, 2020)

In this case, the debtor was a coal company that voluntarily filed for Chapter 11. The debtor operated 32 properties and held more than 500 mining permits around the country. At the time it filed bankruptcy, the debtor owed six million dollars to its 1,700 workers in Wyoming and Central Appalachia, $32 million to an international investment firm, and over $17 million in ad valorem taxes (the country version of severance taxes that contribute to local services and state education).  In total, at the time of filing, the debtor owed approximately $245 million to various creditors and had $138,000 in a bank account. 

The debtor and creditor entered into a loan and security agreement in connection with a note and other financial accommodations. The creditor filed a financing statement, indicating collateral that included debtor accounts, receivables and inventory. After amending the original loan and security agreement, the creditor filed a new financing statement that no longer referred to the debtor accounts, receivables and inventory. The new financing statement indicated a security interest in the debtor’s bank accounts, accounts receivable, and liens. The debtor and creditor then entered into a joinder agreement, where another business joined the original debtor as a co-borrower under the loan and security agreement. As a result, the creditor filed a new financing statement with respect to the new debtor again indicating a security interest in the debtors’ bank accounts, accounts receivable, and liens. The debtors subsequently entered into a coal purchase and sale agreement (PSA) with another party.

When the debtors filed their Chapter 11 petition, they had failed to pay prepetition wages to employees related to the PSA. The debtors and other party settled, whereby the other party paid the debtors for post-petition accounts receivable pertaining to the PSA. The debtors used the bulk of the settlement to pay employees for unpaid work. The creditor filed a motion for adequate protection, requesting payment of the residual settlement proceeds as a form of adequate protection. The creditor argued that it held a valid security interest in the debtors’ accounts receivable and the proceeds thereof. The debtors argued that the settlement proceeds could not be proceeds of the debtors’ prepetition accounts receivable because at the time of the petition date, there were no accounts receivable owed to the debtors. The creditor argued that it held a prepetition perfected security interest that included the debtors’ PSA and the proceeds thereof.

The bankruptcy court held that the creditor had established its security interest in the debtors’ PSA. Specifically, the bankruptcy court held that because the debtors had granted the creditor a security interest in all its receivables under the loan and security agreement, the creditor had a security interest in the contract rights to the PSA. However, the bankruptcy court held that the creditor failed to establish that its security interest in the PSA and its proceeds was perfected. The creditor argued that it perfected its security interest in the PSA by filing a financing statement when the co-borrower joined the original debtor under the loan and security agreement. The bankruptcy court held that the description of the collateral in the financing statement was insufficient as it did not reasonably identify the debtors’ PSA by specific reference or other means as determined under the UCC. The bankruptcy court held that creditor’s financing statement that indicated a security interest in all the debtors’ accounts receivable was insufficient to perfect its security interest under the UCC. The bankruptcy court noted that there is a distinction between a security interest in accounts receivable and a security interest in an underlying contract such as the PSA at issue. Further, the court noted that the creditor’s financing statement did not contain any specific reference to the PSA, while other specific contracts were described.

The creditor argued that its financing statement should be read to indicate collateral consisting of agreements related to the payment of accounts receivable. Alternatively, the debtors argued that the creditor had a lien on the debtors’ liens and not an independent lien on the prepetition PSA. The bankruptcy court agreed with the debtors, and held that adopting the creditor’s interpretation would lead to a security interest in all debtors’ agreements and in all debtors’ agreements related to the payment of the debtors’ agreements. Finally, the bankruptcy court held that it would have been inequitable for any liens to attach to the post-petition proceeds in this case as the proceeds arose out of unencumbered inventory to the estate. The bankruptcy court held that allowing the creditor to receive the proceeds would have been inequitable to the unsecured creditors. As a result, the bankruptcy court denied the creditor’s motion for adequate protection due to its unperfected security interest.

Clearly, had the financing statement referenced “all assets” the creditor would have prevailed.  Also, if the financing statement had said “collateral described on the security agreement,” then other parties examining it would have contacted the creditor to verify the collateral.  The statements made on a financing statement are critical and can make a huge difference in perfection. 

Conclusion

Bankruptcy is complex and good bankruptcy counsel is a must.  The issues are varied and the best results can be obtained by being able to spot issues that might arise in advance and make proper plans.  Also, words matter on financing instruments.

December 16, 2020 in Bankruptcy | Permalink | Comments (0)

Saturday, December 12, 2020

What Farm Records and Information Are Protected From a FOIA Request?

Overview

Farmers disclose a great deal of information and data to the USDA (federal government) to be able to participate in federal farm programs.  The information/data is often tied to the particular farmer and farm location, thus raising privacy concerns over what persons and/or entities have access to it.  Indeed, in recent years some animal activists opposed to large-scale confinement livestock production have committed acts of vandalism (and worse) against targeted facilities. 

Because the information about farmers, their operations, and the locations of fields and facilities is in the hands of the USDA it is generally subject to disclosure to the public.  In 1967, the Congress enacted the Freedom of Information Act (FOIA).  5 U.S.C. §552.  The FOIA requires the disclosure of federal government documents upon request.   The idea behind the law is to make federal agencies more transparent.  But can a FOIA request reach private information of farmers that is in the USDA’s hands?  Isn’t this personal information private?  It’s an important concern for farmers.

The reach of a FOIA request and its application to farmers – it’s the topic of today’s post.

FOIA Background

The FOIA requires that a federal agency must disclose requested records unless the records fall within an exemption. There are nine primary exemptions that protect certain documents, data and other information from a valid FOIA request.  They are as follows: 1) classified documents governed by the President via Executive Order; 2) records that are “related solely to the internal personnel rules and practices of an agency”; 3) information that has been “specifically exempted from disclosure by statute”; 4) information that is protected by trade secret; 5) “inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency”; 6) information contained in personnel and medical files and similar files when disclosure would constitute a clearly unwarranted invasion of personal privacy; 7)  various types of law enforcement information; 8) matters contained in or related to examination, operating, or condition reports prepared by or for regulators or supervisors of financial institutions; and 9) geological information and data, including maps, concerning wells. 5 U.S.C. §552(b)(1-9).

Over the years, the courts have construed the exemptions narrowly based on a rationale that the FOIA has a strong presumption in favor of disclosure.  See, e.g., United States Department of State v. Ray, 502 U.S. 164 (1991).  When a request is made for documents from an agency, the particular government agency holding the requested information bears the burden to show that an exemption applies.

Application to Agriculture

As applied to agriculture, the most common exemptions are when the requested information is protected by statute, and when disclosure of the requested information would result in a clear invasion of privacy.  Sometimes the exemption for geological information also comes into play. 

Statutorily protected information.  With respect to the exemption for statutorily protected information contained in 5 U.S.C. 552(b)(3), there are two aspect to the exemption.  First, if the governing statute absolutely bars disclosure, there is no agency discretion.  Alternatively, the applicable statute may only place a limited prohibition on disclosure and define particular matters to be withheld or provide specific criteria for withholding.  In that instance, the information sought is only protected from disclosure if the specific requirements of the statute are satisfied.  As applied to agriculture, federal law provides that “the Secretary, any officer or employee of the Department of Agriculture, or any contractor or cooperator of the Department, shall not disclose (A) information provided by an agricultural producer or owner of agricultural land concerning the agricultural operation, farming or conservation practices, or the land itself, in order to participate in programs of the Department; or (B) geospatial information otherwise maintained by the Secretary about agricultural land or operations for which information described in subparagraph (A) is provided." 7 U.S.C. § 8791(b)(2)(A)(B). The USDA commonly uses this provision as its basis for not disclosing farm and tract numbers (along with maps and aerial photographs) as protected geospatial information.   

Personnel, medical and similar files.  The USDA also often uses the exemption for personnel, medical and similar files located at 5 U.S.C. §552(b)(6) on the basis that the disclosure of such documents would constitute an unwarranted invasion of privacy.  Living individuals have a privacy interest in not having agencies disseminate personal information about them.  But, for a government agency to withhold information under this exemption, the privacy interest must outweigh the public interest.  The basic legal question is whether the disclosure of the information would constitute a clearly unwarranted invasion of personal privacy.  There’s a two-step process in answering that question.  The first step involves determining whether disclosure would compromise a substantial privacy interest.  If it would, that substantial interest must be weighed against the public interest in the release of the records. The  party requesting the records bears the burden of identifying an overriding public interest and demonstrating that disclosure would further that interest.  See, e.g., Stein v. Central Intelligence Agency, et al., 454 F. Supp. 3d 1 (D. D.C. 2020).  The requester "must show that the public interest sought to be advanced is a significant one" and "the information is likely to advance that interest."  See, e.g.,  National Archives & Records Administration. v. Favish, et al., 541 U.S. 157 (2004).

Recent Case

The issue of what farm records are exempt from a FOIA request was at issue in a recent case.  In Telematch, Inc. v. United States Department of Agriculture., No. 19-2372, 2020 U.S. Dist. LEXIS 223112 (D.D.C. Nov. 27, 2020), the plaintiff was in the business of collecting and analyzing agricultural data from various sources, including the federal government. The plaintiff submitted seven FOIA requests to the USDA for specific records. The records sought included farm, tract, and customer numbers created by the USDA. The USDA created these numbers to assign them to land enrolled in USDA programs and to identify program participants. The USDA denied the plaintiff’s FOIA requests either in part or fully on the basis that the records at issue were geospatial information exempt from disclosure as relating to specific farm locations and specific farmers, and on the basis that the information sought would result in an unwarranted invasion of personal privacy.

The plaintiff administratively appealed the FOIA requests, and then sued in federal court three months later after being unsatisfied with the USDA’s failure to adjudicate the appeal. The plaintiff alleged that the USDA violated the FOIA by withholding the customer, farm, and tract numbers. Additionally, the plaintiff alleged the USDA violated the FOIA by following an unlawful practice of systematically failing to adhere to FOIA deadlines. The plaintiff claimed that no substantial privacy interest was at stake, and the public interest in obtaining the requested information outweighed any privacy concerns.

As a starting point, the trial court noted that the FOIA mandates that an agency disclose records on request, unless the records fall within an exclusion. As to the farm and tract numbers, the trial court held that the USDA properly withheld the information as geospatial information. The trial court held that the farm and tract numbers are geospatial information, as they refer to specific physical locations.  Thus, USDA had properly not disclosed them to the plaintiff. 

The trial court also held that the USDA also properly withheld the customer numbers from disclosure.  Disclosing them, the trial court determined, would have been an invasion of personal privacy.  The court noted that while the customer numbers alone did not reveal information about landowners, they could be combined with other public data to identify individual farmers and reveal information about their farms and financial status. The plaintiff claimed that disclosing the customer, farm, and tract numbers would allow the public to monitor how the USDA was administering its farm programs.  Likewise, the plaintiff argued that the disclosure of the information would let the public determine whether the USDA was overpaying program participants and allow the public to determine whether farmers are complying with the USDA program.  However, the trial court concluded that neither of the plaintiff’s arguments warranted the disclosure of the numbered information because the plaintiff showed no evidence to support its claim of fraud and because the FOIA’s purpose is to shed light on what the government is doing rather than the conduct of USDA program participants. As a result, the court held that the USDA also properly withheld the customer numbers.

As for the plaintiff’s claim that the USDA systematically failed to adhere to FOIA deadlines, the court held that the plaintiff lacked standing for failing to establish the existence of an unlawful policy or practice. The court noted that the USDA responded to the FOIA requests according to then-existing USDA regulations. The regulations stated that FOIA requests served on USDA required prepayments for the request to commence. The plaintiff failed to prepay on some of the requests, and the USDA completed the remainder of the requests within FOIA deadlines. Finally, the court held that the USDA’s failure to adhere to statutory deadlines to process the plaintiff’s administrative appeals did not rise to the level of systematically ignoring FOIA requests.

Conclusion

The trial court’s decision in the Telematch case is welcome news to farmers.  While the FOIA generally allows the public to gain access to governmental records, there are key exceptions that can apply to data the USDA collects from farmers participating in federal farm programs. 

December 12, 2020 in Regulatory Law | Permalink | Comments (0)

Sunday, December 6, 2020

Year-End CPE/CLE – Six More to Go

Overview

As 2020 winds down so do my continuing education events for the year.  These late year events are important for practitioners that need additional education credit by the end of the year.  I have six more events remaining this year, some in-person and some online.  One event is a two-hour ethics session for those still needing ethics credit before the year ends.

Year-end continuing education opportunities – it’s the topic of today’s post.

Upcoming Events

This week finds me in Salina, Kansas for the second day of a two-day professional tax training event.  This is a comprehensive conference digging into the specifics of what practitioners need to know for preparing 2020 tax returns for clients.  Included will be up-to-the-minute relevant developments from the courts and the IRS as well as all trust return preparation issues and examples.  More information about the Salina event can be found here:  https://www.agmanager.info/events/kansas-income-tax-institute.

Later this week, on Wednesday, I will be speaking at the AICPA Agriculture Conference.  This national conference is online.  I will be speaking on financial distress tax and non-tax issues facing farmers and ranchers that are struggling financially.  You can learn more about this event here:  https://future.aicpa.org/cpe-learning/conference/aicpa-agriculture-conference.  The next day, I will be doing another Day 2 of a tax conference.  This event will be online, originating from the campus of Kansas State University (KSU).  This is an approved NASBA event.  Thus, CPAs can receive CPE credit for viewing online.  You can learn more about this event here:  https://www.agmanager.info/events/kansas-income-tax-institute

On Friday, I will be doing a two-hour tax ethics session.  This session originates from Washburn Law School and will involve discussion of ethical issues that tax practitioners face when representing clients with tax issues and the preparation of returns.  Also, addressed will be Circular 230 issues and various ethical rules that CPAs and lawyers are subject to when representing clients.  More information about the ethics event can be found here:  https://washburnlaw.edu/employers/cle/taxethics.html.

The following week finds me in San Angelo, TX on December 17 and 18.  This event is sponsored by the San Angelo Chapter of the Texas Society of CPAs.  I will focus on farm estate and business planning as well as farm income tax.  More information about this event can be found here:  https://www.tscpa.org/sanangelo/news/details/2020/11/05/dec.-17---farm-and-ranch-estate-and-business-planning and here: https://www.tscpa.org/sanangelo/news/details/2020/11/05/dec.-17---farm-and-ranch-income-tax-update.  The San Angelo event is my last scheduled event for the year.  It’s been quite a year.  While all of my professional engagements moved online from mid-March until mid-June, about half of them remained online since mid-June.  I start out on the road during the first week of January 2021. 

2021 summer events are being planned for Missoula, Montana as well as east Tennessee.  There possibly will be a third national event in late September.  I also do a number of in-house CPA and law firm training each year.  If your firm is looking for in-house training in 2021 and have an interest in what I can offer, please contact me and I will do my best to get you on the calendar. 

Also, tune in to RFD-TV/SiriusXM each week to hear the hosts interview me concerning various ag law and tax topics.  You can also find me every other Monday morning at 6:00 a.m. (central) on WIBW radio (580 a.m.) and every other Wednesday on KFRM 550 a.m. discussing the biggest and most critical developments in agricultural law and taxation.  All of these shows are captured and posted to the media page of the Washburn Agricultural Law and Tax Report – www.washburnlaw.edu/waltr.

Conclusion

2020 has been a challenge for many and has involved modifying the practice of law and/or tax and how client representation is engaged in.  It’s also been a challenge given the new virus-related legislation and the frequent changes that have come by way of questions and answers and various notices, news releases and postings on the IRS website.  Strange times, indeed.

Stay tuned.

December 6, 2020 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)