Thursday, July 15, 2021
Montana Conference and Ag Law Summit (Nebraska)
Overview
The second of the two national conferences on Farm/Ranch Income Tax and Farm/Ranch Estate and Business Planning is coming up on August 2 and 3 in Missoula, Montana. A month later, on September 3, I will be conducting an “Ag Law Summit” at Mahoney State Park located between Omaha and Lincoln, NE.
Upcoming conferences on agricultural taxation, estate and business planning, and agricultural law – it’s the topic of today’s post.
Montana
The second of my two 2021 summer conferences on agricultural taxation and estate/business planning will be held in beautiful Missoula, Montana. Day 1 on August 2 is devoted to farm income taxation, with sessions involving an update of farm income tax developments; lingering PPP and ERC issues (as well as an issue that has recently arisen with respect to EIDLs); NOLs (including the most recent IRS Rev. Proc. and its implications); timber farming; oil and gas taxation; handling business interest; QBID/DPAD planning; FSA tax and planning issues; and the prospects for tax legislation and implications. There will also be a presentation on Day 1 by IRS Criminal Investigation Division on how tax practitioners can protect against cyber criminals and other theft schemes.
On Day 2, the focus turns to estate and business planning with an update of relevant court and IRS developments; a presentation on the farm economy and what it means for ag clients and their businesses; special use valuation; corporate reorganizations; the use of entities in farm succession planning; property law issues associated with transferring the farm/ranch to the next generation; and an ethics session focusing on end-of life decisions.
If you have ag clients that you do tax or estate/business planning work for, this is a “must attend” conference – either in-person or online.
For more information about the Montana conference and how to register, click here: https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html
Nebraska
On September 3, I will be holding an “Ag Law Summit” at Mahoney St. Park, near Ashland, NE. The Park is about mid-way between Omaha and Lincoln, NE on the adjacent to the Platte River and just north of I-80. The Summit will be at the Lodge at the Park. On-site attendance is limited to 100. However, the conference will also be broadcast live over the web for those that would prefer to or need to attend online.
I will be joined at the Summit by Prof. Ed Morse of Creighton Law School who, along with Colten Venteicher of the Bacon, Vinton, et al., firm in Gothenburg, NE, will open up their “Ag Entreprenuer’s Toolkit” to discuss the common business and tax issues associated with LLCs. Also on the program will be Dan Waters of the Lamson, et al. firm in Omaha. Dan will address how to successfully transition the farming business to the next generation of owners in the family.
Katie Zulkoski and Jeffrey Jarecki will provide a survey of state laws impacting agriculture in Nebraska and key federal legislation (such as the “30 x 30” matter being discussed). The I will address special use valuation – a technique that will increase in popularity if the federal estate tax exemption declines from its present level. I will also provide an update on tax legislation (income and transfer taxes) and what it could mean for clients.
The luncheon speaker for the day is Janet Bailey. Janet has been deeply involved in Kansas agriculture for many years and will discuss how to create and maintain a vibrant rural practice.
If you have a rural practice, I encourage you to attend. It will be worth your time.
For more information about the conference, click here: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
Conclusion
The Montana and Nebraska conferences are great opportunities to glean some valuable information for your practices. As noted, both conferences will also be broadcast live over the web if you can’t attend in person.
July 15, 2021 in Bankruptcy, Business Planning, Environmental Law, Estate Planning, Income Tax, Real Property, Regulatory Law, Water Law | Permalink | Comments (0)
Wednesday, June 9, 2021
Ag Law and Tax Potpourri
Overview
Periodically, I cover recent “happenings” in ag law and tax. It’s been a while since a selected a few developments for summary on this blog. So, today is the day. A snippet of taxes, environmental law and property law
Recent developments in the courts of relevance to agricultural producers, rural landowners and taxpayers in general – it’s the topic of today’s post.
“Roberts Tax” is a “Tax” Entitled to Priority in Bankruptcy
In re Szczyporski, No. 2:20-cv-03133, 2021 U.S. Dist. LEXIS 61628 (E.D. Pa. Mar. 31, 2021).
As you likely recall, in 2012, Chief Justice Roberts of the U.S. Supreme Court badly twisted the law to salvage Obamacare by concluding that Obamacare’s requirement that certain persons buy government-mandated health insurance was constitutional because the mandate was a “tax” withing the taxing power of the Congress – even though Obamacare calls it a “penalty.” National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012). The cost of that “shared responsibility payment” was offset by a credit under I.R.C. §36B. I.R.C. §36B of the grants “premium tax credits” to subsidize certain purchases of health insurance made on “Exchanges.” The tax credit consists of “premium assistance amounts” for “coverage months.” I.R.C. §36B(b)(1). An individual has a coverage month only when he is covered by an insurance plan “that was enrolled in through an Exchange established by the State. I.R.C. §36B(c)(2)(A). The law ties the size of the premium assistance amount to the premiums for health plans which cover the individual “and which were enrolled in through an Exchange established by the State. I.R.C. §36B(b)(2)(A). The credit amount further depends on the cost of certain other insurance plans “offered through the same Exchange. I.R.C. §36B(b)(3)(B)(i).
The tax Code provision that Obamacare created clearly states that the credit is available to a taxpayer only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State.” I.R.C. §36B(b)(2)(A). When several persons living in a state that didn’t have a state exchange claimed they were exempt from the mandate to buy health insurance because of its cost absent the credit, Chief Justice Roberts again applied his contorted legal logic to conclude that “an Exchange established by the State” meant “an Exchange established by the State or Federal Government.” King v. Burwell, 576 U.S. 473 (2015). In other words, he completely rewrote the law a second time to salvage it.
Note. Justice Scalia had enough of the nonsense of Chief Justice Roberts when he wrote in his dissent in King, “The Court holds that when the Patient Protection and Affordable Care Act says “Exchange established by the State” it means “Exchange established by the State or the Federal Government.” That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so.” He also stated, “Words no longer have meaning if an Exchange that is not established by a State is “established by the State” and “The Court’s next bit of interpretive jiggery-pokery involves other parts of the Act that purportedly presuppose the availability of tax credits on both federal and state Exchanges.”
This all brings us to the current case. In Szczyporski, the debtor was required to file an income tax return in 2018, but hadn’t obtained the government-mandate health insurance resulting in the IRS assessing the “Roberts Tax” for 2018. In 2019, the debtor filed Chapter 13 bankruptcy and the IRS filed a proof of claim for taxes in the amount of $18,027.08 which included the Roberts Tax of $927. The IRS listed the Roberts Tax as an excise tax and the balance of the tax claim as income taxes. The debtors objected on the basis that the Roberts Tax is a penalty that is not qualify for priority treatment under 11 U.S.C. §507(a)(8). The debtor’s Chapter 13 plan was confirmed in 2020, and the IRS filed a brief objecting to the debtor’s tax treatment of the Roberts Tax.
The bankruptcy court ruled that the Roberts Tax was a “tax” under the bankruptcy Code entitled to priority treatment. In re Szczyporski, 617 B.R. 529, 2020 Bankr. LEXIS 1725 (Bankr. E.D. Pa., Jun. 23, 2020). On appeal, the federal district court affirmed, citing National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012). While that decision involved facts outside of the bankruptcy context, the Supreme Court concluded that the Roberts Tax was a “tax” because it was enacted according to the taxing power of the Congress. Thus, it was either an excise or income tax, both of which are entitled to priority in bankruptcy. Here, the district concluded it was an income tax.
Settlement Proceeds Are Taxable Income
Blum v. Comr., T.C. Memo. 2021-18
A damage award that a taxpayer receives that is not attributable to physical injury or physical sickness is 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. Comr., 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.
In Blum, the petitioner was involved in a personal injury lawsuit and received a payment of $125,000 to settle a malpractice suit against her attorneys. She did not report the amount on her tax return for 2015 and the IRS determined a tax deficiency of $27,418, plus an accuracy-related penalty. The IRS later conceded the penalty, but maintained that the amount received was not on account of personal physical injuries or personal sickness under I.R.C. §104(a)(2). The Tax Court agreed with the IRS because the petitioner’s claims against the law firm did not involve any allegation that the firm’s conduct had caused her any physical injuries or sickness, but merely involved allegations that the firm had acted negligently in representing her against a hospital.
EPA Properly Approved Missouri Water Quality Standards
Missouri Coalition for the Environment Foundation v. Wheeler, No. 2:19-CV-04215-NKL, 2021 U.S. Dist. LEXIS 102806 (W.D. Mo. Jun. 1, 2021)
In 2009, the state of Missouri proposed water quality standards for nutrient standards for nutrient pollutants in Missouri lakes. The Environmental Protection Agency (EPA) originally rejected the proposed standards, but ultimately accepted a revised version of the standards in 2018. The plaintiffs, a coalition of environmental groups, sued claiming that the water quality standards should be set aside on the basis that the EPA’s determination was arbitrary and capricious. The court upheld the state standards, finding them to have been grounded upon a rational basis that they would adequately protect the designated uses of protected waterbodies.
Plaintiffs’ Use of Road on Defendant’s Property Deemed a Prescriptive Easement
Ramsey v. Keesee, 2021 Ky. App. Unpub. LEXIS 231 (Ky. Ct. App. Apr. 16, 2021)
The plaintiffs each owned property adjacent to the defendant’s eastern boundary line. A road ran along the boundary on the defendant’s property, which was the only local road that connected to a state highway. One of the plaintiffs began maintaining the road without the defendant’s consent. In response, the defendant closed the gate on the road with a lock on it to prevent the plaintiffs from using it. The plaintiffs sued and sought to remove the gate from the road. The trial court determined the plaintiffs had acquired a prescriptive easement over the road by actual, hostile, open and notorious, exclusive and continuous possession of the road for the statutory period of 15 years. As a result, the trial court held that the plaintiffs had the right to use the road for agricultural purposes and to maintain the road in a reasonable manner.
On appeal, the defendant argued that one of the plaintiff’s use of the road two or three times per week did not constitute open and notorious possession because it was insufficient to put the defendant on notice. The appellate court noted that under state common law, it is the legal owner’s actual or imputable knowledge of another’s possession of lands that affects the ownership. As a result, the appellate court held that the plaintiff’s use of the road put the defendant on constructive notice. The defendant then argued that one of the plaintiff’s use of the road was permissive as she had maintained the gates on the road. The plaintiff argued that he always believed the road at issue was an old county road and that he never sought permission to use the road. The appellate court determined that the gates on the road were never intended to prevent the plaintiffs from using the road, but were primarily for farm purposes. The defendant also claimed that the trial court erred in determining the use and location of the prescriptive easement as two of the plaintiffs had not maintained the road. The appellate court noted that maintenance of the road was not a necessary element to establish an easement by prescription. Lastly, the defendant argued that the plaintiffs’ nonuse of the north part of the road resulted in an abandonment of the prescriptive easement. The appellate court noted that mere non-use of an easement does prove that an easement has been abandoned, and held that the plaintiffs occasional use of the road rebutted the defendant’s abandonment claim.
Conclusion
The developments never cease. There will be more as time goes on.
June 9, 2021 in Bankruptcy, Environmental Law, Real Property | Permalink | Comments (0)
Monday, June 7, 2021
Is a Tax Refund Exempt in Bankruptcy?
Overview
The U.S. legal system has a long history of allowing debtors to hold specified items of property exempt from creditors (unless the exemption is waived). This, in effect, gives debtors a “head start” in becoming reestablished after suffering economic reverses. But, how extensive is the list of exempt property, and does it include federal and state refunds.
The ability (or not) to treat tax refunds as exempt from creditors in bankruptcy – it’s the topic of today’s post.
Bankruptcy Exemptions – The Basics
Typically, one of the largest and most important exemptions is for the homestead. Initially even the exempt property is included in the debtor's estate in bankruptcy, but the exempt assets are soon returned to the debtor. Only nonexempt property is used to pay the creditors.
Each of the 50 states has developed a unique list of exemptions available to debtors. 18 states and the District of Columbia allow debtors to choose between their state exemptions or the federal exemptions. The remaining states have chosen to “opt-out” of the federal exemptions. Under the 2005 Bankruptcy Act, to be able to utilize a state’s exemptions, a debtor must have resided in the state for 730 days preceding the bankruptcy filing. If the debtor did not reside in any one state for 730 days immediately preceding filing, then the debtor may use the exemptions of a state in which the debtor resided for at least 180 days immediately preceding filing. If those requirements cannot be met, the debtor must use the federal exemptions.
Tax Refunds as Exempt Property – The Moreno Case
Each state’s statutory list of exempt assets in bankruptcy will determine the outcome of whether tax refunds are exempt. But, a recent case involving the state of Washington’s exemption list is instructive on how other states might approach the matter.
Facts of Moreno. In In re Moreno, No. 20-42855-BDL, 2021 Bankr. LEXIS 1262 (Bankr. W.D. Wash. May 11, 2021), the debtor filed Chapter 7 (liquidation) bankruptcy in late 2020. The debtor then filed her 2020 federal income tax return on January 28, 2021, and later received a tax refund of $10,631.00. That refund was made up of $572 of withheld taxes; $2,800 of a “Recovery Rebate Credit” (RRC); $1.079 of an Additional Child Tax Credit (ACTC); and $5,500 of an Earned Income Tax Credit (EITC). The bankruptcy trustee sought to include almost all of the debtor’s tax refund in the bankruptcy estate, excluding only 0.3 percent of the total amount ($31.89) based on the debtor’s Chapter 7 filing being December 30, 2020 (i.e., only one day of 2020 fell after the date the debtor filed bankruptcy).
Timing of filing. The debtor claimed that the tax refund arose post-petition because she filed the return post-petition. Consequently, the debtor claimed, the tax refund was not property of the bankruptcy estate. The court disagreed, noting that under 11 U.S.C. §541(a)(1), the bankruptcy estate includes all legal or equitable interests of the debtor in property as of the date the case commences. Based on that, the court determined that the debtor had obtained an interest in the tax refund as she earned income throughout 2020. Thus, the tax refund for the prepetition portion of the tax year were rooted in her prepetition earnings and were property of the bankruptcy estate regardless of the fact that she had to file a return to receive the refund.
RRC. The debtor used the state’s list of exemptions and the trustee conceded that certain portions of the debtor’s prorated tax refund were exempt. Specifically, the trustee did not dispute the debtor's right to retain the full RRC in the amount of $2,800. 11 U.S.C. §541(b)(11), enacted December 27, 2020, specifically excluded the RRC from the debtor’s bankruptcy estate.
Withheld taxes. The debtor filed an amended Schedule C on which she claimed that $572 of her 2020 refund attributable to withheld tax was exempt under state law. The trustee disagreed and the debtor failed to explain how state law applied to withheld taxes. However, the trustee conceded that amount was exempt as personal property (up to a dollar limitation). Rev. Code Wash. §6.15.010(1)(d)(ii). This same part of the state exemption statute, the trustee concluded, entitled the debtor to an additional exemption of $2,630, the balance allowable as exempt personal property after allowing the debtor to exempt $370 in cash and checking accounts.
ACTC and EITC. As for the part of the refund attributable to the ACTC and the EITC, the debtor claimed that it was exempt under Rev. Code Wash. §6.15.010(1)(d)(iv) as any past-due, current or future child support “that is paid or owed to the debtor” or as “public assistance” under Rev. Code Wash. §74.04.280 and 74.04.005. The trustee claimed that the ACTC was encompassed by the remaining “catch-all” exemption for personal property of Rev. Code Wash. §6.15.010(1)(d)(ii). However, the court noted that if the catch-all provision didn’t apply to the ACTC, it could be applied to the debtor’s other debts to the benefit of the debtor. Thus, the court needed to determine whether both the ACTC and the EITC were exempt under state law.
The Court first concluded that neither the ACTC nor the EITC portions of the tax refund constituted “child support” under RCW § 6.15.010(1)(d)(iv). Instead, the court determined that the plain meaning of “child support” refers to payments legally required of parents. That was not the case with neither the ACTC nor the EITC. The court likewise concluded that the credits were not “public assistance” as defined by Rev. Code Wash. §§ 74.04.280 and 74.04.005. Based on state law, the court noted, the credits would have to be “public aid to persons in need thereof for any cause, including…federal aid assistance.” Rev. Code Wash. §74.04.005(11). The court determined that the credits, under this statute, could only possibly be exempt as “federal aid assistance” which is defined under Rev. Code Wash. § 74.04.005(8) to include “[T]he specific categories of assistance for which provision is made in any federal law existing or hereafter passed by which payments are made from the federal government to the state in aid or in respect to payment by the state for public assistance rendered to any category of needy persons for which provision for federal funds or aid may from time to time be made, or a federally administered needs-based program.”
The court determined that the state definition of “federal aid and assistance” applied to assistance in the form of monetary payments from the federal government to needy persons, but did not describe federal tax credits. Instead, tax credits are paid by the federal government directly to taxpayers. However, the court also noted that the statutory definition also included “federal aid assistance” and any “federally administered needs-based program.” As such, it was possible that the credits could be exempt as “assistance” from a “federally administered needs-based program.” On this point, the court noted that there was no statutory language nor legislative history associated with the credits indicating that they were part of a federally administered needs-based program. In addition, there was no caselaw on point that provided any light on the subject. However, disagreeing with the trustee’s objection to the categorization of any federal tax credit as a federally administered needs-based program, the court relied on court opinions from other states construing similarly worded state statutes to conclude that both the ACTC and the EITC were “federally administered needs-based programs” exempt from bankruptcy under Rev. Code Wash. §74.04.280. See In re Farnsworth, 558 B.R. 375 (Bankr. D. Idaho 2016); In re Hardy, 787 F.3d 1189 (8th Cir. 2015); In re Hatch, 519 B.R. 783 (Bankr. S.D. Iowa 2014); In re Tomczyk, 295 B.R. 894 (Bankr. D. Minn. 2003).
Conclusion
The Moreno case, even though it involved the particular language of one state’s exemption statute, provides good insight as to how bankruptcy courts in other states would analyze the issue of whether federal tax credits (and other tax benefits) are exempt from a debtor’s bankruptcy estate.
June 7, 2021 in Bankruptcy, Income Tax | Permalink | Comments (0)
Saturday, May 1, 2021
The Agricultural Law and Tax Report
May 1, 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, April 25, 2021
What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?
Overview
The general rule is that discharge of indebtedness produces ordinary income – known as cancellation of debt income (CODI). I.R.C. § 61(a)(12). However, there are exceptions to the general rule. One of those exceptions concerns a debtor that is “insolvent” but not in bankruptcy. An insolvent debtor that’s not in bankruptcy doesn’t have CODI to report. But how is insolvency to be measured? In 2017, the U.S. Tax Court clarified the issue. Unfortunately, just recently the IRS voiced its disagreement with the Tax Court’s 2017 opinion.
The definition of “insolvency” for purposes of the exclusion from income of CODI – it’s the topic of today’s post.
In General
An important part of debt resolution is the income tax consequences to the debtor. Actually, there are two major categories of income tax consequences--(1) gain or loss if property is transferred to the lender in satisfaction of indebtedness and (2) possible CODI to the extent debt discharged exceeds the fair market value of property given up by the debtor.
Recourse debt. The handling of discharge of indebtedness income depends upon whether the debt was recourse or nonrecourse. With recourse debt, the collateral stands as security on the loan. If the collateral is insufficient, the debtor is personally liable on the obligation and the debtor's non-exempt assets are reachable to satisfy any deficiency. The bulk of farm and ranch debt is recourse debt.
For recourse debt, when property is given up by the debtor, the income tax consequences involve a two-step process. Basically, it is as if the property is sold to the creditor, and the sale proceeds are applied on the debt. First, there is no gain or loss (and no other income tax consequence) up to the income tax basis on the property. The difference between fair market value and the income tax basis is gain or loss. There is no relief from gain--even if the taxpayer is insolvent. This is the end of the first step in the process--treated as a hypothetical sale on the debt being discharged. Second, if the indebtedness exceeds the property's fair market value, the difference is discharge of indebtedness income.
Nonrecourse debt. For nonrecourse debt, the collateral stands as security on the obligation. But if the collateral is worth less than the balance on the debt, the debtor does not bear personal liability on the obligation. Therefore, the creditor must look solely to the collateral in the event of default. Very little farm and ranch debt is nonrecourse, except perhaps for some installment land contracts and commodity loans from the Commodity Credit Corporation to the extent that the debtor may pay off the loan with a sufficient amount of an eligible commodity having a price support value equal to the outstanding value of the loan (or less than the value of the loan in the case of a “marketing assistance loan”).
Handling nonrecourse debt involves a simpler one-step process. See, e.g., Comr. v. Tufts, 461 U.S. 300 (1983). Fair market value is ignored, and the entire difference between the income tax basis of any property involved (and transferred to the creditor) and the amount of debt discharged is gain (or loss). There is no CODI.
Exceptions
There are several relief provisions that a debtor may be able to use to avoid the general rule that CODI constitutes income.
Bankruptcy. A debtor in bankruptcy does not report CODI as income. I.R.C. §108(a)(1)(A). However, the debtor must reduce tax attributes (including operating losses and investment tax credits carried forward) and reduce the income tax basis of their property. Losses are reduced dollar for dollar; credits are reduced one dollar for three dollars (one dollar of credit offsets three dollars of CODI). To preserve net operating losses and tax credit carryovers, a debtor may elect to reduce the basis of depreciable property before reducing other tax attributes.
Real property business debt. Taxpayers other than C corporations can elect to exclude from gross income amounts realized from the discharge of “qualified real property business indebtedness.” I.R.C. §108(a)(1)(D). Instead, the income tax basis of the property is reduced.
Note: The provision does not apply to farm indebtedness.
Solvent farmers. For all debtors other than farmers, once solvency is reached there is CODI. For solvent farm debtors, however, the discharge of indebtedness arising from an agreement between a person engaged in the trade or business of farming and a “qualified person” to discharge “qualified farm indebtedness” is eligible for special treatment. I.R.C. §108(a)(1(C). A special procedure for reducing tax attributes and reducing the basis of property is available to the debtor.
A “qualified person” is someone who is “actively and regularly engaged in the business of lending money and who is not somehow related to or connected with the debtor.” “Qualified farm indebtedness” means indebtedness incurred directly in connection with the operation by the taxpayer of the trade or business of farming and 50 percent or more of the average annual gross receipts of the taxpayer for the three proceeding taxable years (in the aggregate) must be attributable to the trade or business of farming. In many instances, the presence of off farm income can make qualifying for the solvent farm debtor rule difficult. Also, a cash rent landlord is likely to be deemed to not be engaged in the trade or business of farming such that discharge of indebtedness is not discharge of qualified farm indebtedness. See, e.g., Lawinger v. Comr., 103 T.C. 428 (1994).
If the requirements are met, a solvent farm debtor first reduces tax attributes in the following order:
- Net operating loss of the taxable year and any carryover losses to that year.
- General business credits (including investment tax credits carried over to that year).
- Minimum tax credit
- Capital losses for the year and capital losses carried over to that year.
- Passive activity loss and credit carryovers.
- Foreign tax credits
Again, losses reduce CODI dollar for dollar. One dollar of credits reduces three dollars of CODI.
After the reduction of tax attributes, solvent farm debtors reduce the income tax basis of property used in a trade or business or held for the production of income in the following order:
- Depreciable property.
- Land used or held for use in the trade or business of farming.
- Other qualified property.
Note: An election can be made to reduce the basis of depreciable property first, before reducing the tax attributes. This may help to preserve the tax attributes for later use.
If, after tax attributes and property basis is reduced, discharge of indebtedness remains, the remainder is income.
Purchase price adjustment. For solvent taxpayers who are not in bankruptcy, any negotiated reduction in the selling price of assets does not have to be reported as discharge of indebtedness income. I.R.C. §108(e)(5). To be eligible, the debt reduction must involve the original buyer and the original seller.
Insolvent debtors. Debtors who are insolvent but not in bankruptcy likewise do not have CODI. I.R.C. §108(a)(1)(B). But, again, insolvent debtors must reduce tax attributes and reduce the income tax basis of property. It is handled much like debtors in bankruptcy make the calculations. However, the amount of income from discharge of indebtedness that can be excluded from income is limited to the extent of the debtor's insolvency. If the amount of debt discharged exceeds the amount of the insolvency, income is triggered as to the excess. Thus, for the rule of insolvent taxpayers to apply, the taxpayer must be insolvent both before and after the transfer of property and transfer of indebtedness.
Determining Insolvency
The determination of the taxpayer’s solvency is made immediately before the discharge of indebtedness. “Insolvency” is defined as the excess of liabilities over the fair market value of the debtor’s assets. Both tangible and intangible assets are included in the calculation. Likewise, both recourse and nonrecourse liabilities are included in the calculation, but contingent liabilities are not. The separate assets of the debtor’s spouse are not included in determining the extent of the taxpayer’s insolvency.
Historically, the courts have held that property exempt from creditors under state law is not included in the insolvency calculation. However, the IRS ruled in mid-1999 that property exempt from creditors under state law is included in the insolvency calculation. Priv. Ltr. Rul. 9932013 (May 4, 1999), revoking Priv. Ltr. Rul. 9125010 (Mar. 10, 1991); Tech. Adv. Memo. 9935002 (May 3, 1999). In 2001, in Carlson v. Comr., 116 T.C. 87 (2001), the Tax agreed with the IRS position. The Tax Court held that a commercial fishing license was an “asset” because the license could be used, in combination with other assets, to immediately pay the income tax on canceled-debt income.
Recent Tax Court clarification. In Schieber v. Comr., T.C. Memo. 2017-32, the petitioner retired from a police force in 2005 and began receiving monthly distributions from his pension plan. The plan withheld federal income tax from the payments. The plan specified that the petitioner could not convert his interest in the plan into a lump-sum cash amount, assign the interest, sell the interest, borrow against the interest, or borrow from the plan. Upon the petitioner’s death, his surviving wife would receive payments for her life. In 2009, GMAC canceled approximately $450,000 of the petitioner’s mortgage debt that was secured by some of the petitioner’s non-residential real estate. The petitioner was not in bankruptcy in 2009. The canceled debt included $30,076 of interest. The petitioner excluded the forgiven interest from income because he had not deducted it on his Form 1040. See I.R.C. §108(e)(2). That provision specifies that “no income shall be realized from the discharge of indebtedness to the extent that payment of the liability would have given rise to a deduction.”
While the IRS conceded this point concerning the interest exclusion, the IRS claimed that the petitioner’s interest in the principal amount of $418,596 that was canceled should be included in income. The petitioner claimed that the pension plan should not be considered an asset for purposes of the insolvency computation of I.R.C. §108(d)(3). Under that provision a taxpayer may exclude canceled debt from income to the extent of the taxpayer’s insolvency, defined as the extent to which the taxpayer’s liabilities exceed the fair market value of the taxpayer’s assets.
I.R.C. §108(d)(3) does not define the term “assets.” As noted above, in Carlson v. Comr., 116 T.C. 87 (2001), the full Tax Court determined that the value of an exempt asset could be included in the insolvency calculation if it gives the taxpayer “the ability to pay an immediate tax on income” from the canceled debt. In Schieber, the petitioner claimed that he couldn’t access the pension funds by its terms. The IRS did not challenge that point, instead claiming that the point was irrelevant. Instead, the IRS claimed that the petitioner’s right to receive monthly payments caused the plan to be considered an “asset.” The Tax Court disagreed, clarifying that its prior decision in Carlson only extended to assets that gave the taxpayer the “ability to pay an immediate tax on income” from the canceled debt, not the ability to pay the tax gradually over time.
Just recently, the IRS announced its disagreement with the Tax Court’s opinion in Schieber. A.O.D. 2021-1, IRB 2021-15.
Conclusion
The Tax Court’s Schieber decision provided clarity concerning the definition of “assets” for purposes of the insolvency calculation of I.R.C. § 108(d)(3). If an asset doesn’t provide the debtor with the ability to pay an immediate tax on income, the asset’s value is excluded from the insolvency computation. Schieber cites back to the full Tax Court opinion in Carlson for its rationale. Unfortunately, the IRS audit and litigation position appears to be unchanged.
April 25, 2021 in Bankruptcy, Income Tax | Permalink | Comments (0)
Friday, April 2, 2021
Ag Law and Taxation - 2017 Bibliography
Overview
Today's post is a bibliography of my ag law and tax blog articles of 2017. This will make it easier to find the articles you are looking for in your research. In late January I posted the 2020 bibliography of articles. In late February I posted the bibliography of the 2019 articles. Last month, I posted the 2018 bibliography of articles. Today’s posting is the bibliography of my 2017 articles. Later this month I will post the 2016 bibliography.
The library of content continues to grow with relevant information for you practice or your farming/ranching business.
The 2017 bibliography of articles – it’s the subject matter of today’s post.
BANKRUPTCY
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law Developments of 2016 (Five Through One)
Farm Financial Stress – Debt Restructuring
Qualified Farm Indebtedness – A Special Rule for Income Exclusion of Forgiven Debt
What Are a Farmer’s Rights When a Grain Elevator Fails?
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
The Business of Agriculture – Upcoming CLE Symposium
Tough Financial Times in Agriculture and Lending Clauses – Peril for the Unwary
What Interest Rate Applies to a Secured Creditor’s Claim in a Reorganization Bankruptcy?
PACA Trust Does Not Prevent Chapter 11 DIP’s Use of Cash Collateral
Are Taxes Dischargeable in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2017/12/are-taxes-dischargeable-in-bankruptcy.html
Christmas Shopping Season Curtailed? – Bankruptcy Venue Shopping, That Is!
BUSINESS PLANNING
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law Developments of 2016 (Five Through One)
C Corporation Penalty Taxes – Time to Dust-Off and Review?
Divisive Reorganizations of Farming and Ranching Corporations
The Scope and Effect of the “Small Partnership Exception”
Using the Right Kind of an Entity to Reduce Self-Employment Tax
Employer-Provided Meals and Lodging
https://lawprofessors.typepad.com/agriculturallaw/2017/05/employer-provided-meals-and-lodging.html
Self-Employment Tax on Farming Activity of Trusts
Minority Shareholder Oppression Case Raises Several Tax Questions
Farm Program Payment Limitations and Entity Planning – Part One
Farm Program Payment Limitations and Entity Planning – Part Two
Summer Ag Tax/Estate and Business Planning Conference
An Installment Sale as Part of an Estate Plan
The Use of a Buy-Sell Agreement for Transitioning a Business
The Business of Agriculture – Upcoming CLE Symposium
Forming a Farming/Ranching Corporation Tax-Free
Farmers Renting Equipment – Does it Trigger A Self-Employment Tax Liability?
New Partnership Audit Rules
https://lawprofessors.typepad.com/agriculturallaw/2017/09/new-partnership-audit-rules.html
Self-Employment Tax on Farm Rental Income – Is the Mizell Veneer Cracking?
IRS To Finalize Regulations on Tax Status of LLC and LLP Members?
H.R. 1 – Farmers, Self-Employment Tax and Business Arrangement Structures
Summer 2018 – Farm Tax and Farm Business Education
Partnerships and Tax Law – Details Matter
CIVIL LIABILITIES
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law and Developments of 2016 (Five Through One)
Recreational Use Statutes – What is Covered?
Is Aesthetic Damage Enough to Make Out a Nuisance Claim?
Liability Associated with a Range of Fires and Controlled Burns
What’s My Liability for Spread of Animal Disease
Dicamba Spray-Drift Issues
https://lawprofessors.typepad.com/agriculturallaw/2017/07/dicamba-spray-drift-issues.html
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
The Business of Agriculture – Upcoming CLE Symposium
Right-to-Farm Laws
https://lawprofessors.typepad.com/agriculturallaw/2017/09/right-to-farm-laws.html
CONTRACTS
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law Developments of 2016 (Five Through One)
Another Issue With Producing Livestock on Contract – Insurance
The Ability of Tenants-in-Common To Bind Co-Tenants to a Farm Lease – and Related Issues
Ag Goods Sold at Auction – When is a Contract Formed?
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
The Business of Agriculture – Upcoming CLE Symposium
Ag Contracts and Express Warranties
https://lawprofessors.typepad.com/agriculturallaw/2017/09/ag-contracts-and-express-warranties.html
What Remedies Does a Buyer Have When a Seller of Ag Goods Breaches the Contract?
COOPERATIVES
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law Developments of 2016 (Five Through One)
What Is a Cooperative Director’s Liability to Member-Shareholders and Others?
CRIMINAL LIABILITIES
The Necessity Defense to Criminal Liability
The Business of Agriculture – Upcoming CLE Symposium
What Problems Does The Migratory Bird Treaty Act Pose For Farmers, Ranchers and Rural Landowners?
ENVIRONMENTAL LAW
Drainage Activities on Farmland and the USDA
The Application of the Endangered Species Act to Activities on Private Land
Eminent Domain – The Government’s Power to “Take” Private Property
Spray Drift As Hazardous Waste?
https://lawprofessors.typepad.com/agriculturallaw/2017/07/spray-drift-as-hazardous-waste.html
What Problems Does The Migratory Bird Treaty Act Pose For Farmers, Ranchers and Rural Landowners?
The Prior Converted Cropland Exception From Clean Water Act Jurisdiction
Air Emission Reporting Requirement For Livestock Operations
ESTATE PLANNING
Rights of Refusal and the Rule Against Perpetuities
Some Thoughts On Long-Term Care Insurance
Overview of Gifting Rules and Strategies
Disinheriting a Spouse – Can It Be Done?
https://lawprofessors.typepad.com/agriculturallaw/2017/04/disinheriting-a-spouse-can-it-be-done.html
Specific Property Devised in Will (or Trust) That Doesn’t Exist At Death – What Happens?
Discounting IRAs for Income Tax Liability?
Special Use Valuation and Cash Leasing
Self-Employment Tax On Farming Activity Of Trusts
Would an Interest Charge Domestic International Sales Corporation Benefit a Farming Business?
An Installment Sale as Part of An Estate Plan
Using An IDGT For Wealth Transfer and Business Succession
Federal Tax Claims in Decedent’s Estates – What’s the Liability and Priority?
Estate Tax Portability – The Authority of the IRS To Audit
Digital Assets and Estate Planning
https://lawprofessors.typepad.com/agriculturallaw/2017/10/digital-assets-and-estate-planning.html
INCOME TAX
The Burden of Proof in Tax Cases – What are the Rules?
The Home Office Deduction
https://lawprofessors.typepad.com/agriculturallaw/2017/02/the-home-office-deduction.html
IRS To Continue Attacking Cash Method For Farmers Via the “Farming Syndicate Rule”
Using Schedule J As A Planning Tool For Clients With Farm Income
Deductibility of Soil and Water Conservation Expenses
Should Purchased Livestock Be Depreciated or Inventoried?
The Changing Structure of Agricultural Production and…the IRS
Farm-Related Casualty Losses and Involuntary Conversions – Helpful Tax Rules in Times of Distress
Charitable Contributions Via Trust
https://lawprofessors.typepad.com/agriculturallaw/2017/03/charitable-contributions-via-trust.html
Ag Tax Policy The Focus in D.C.
https://lawprofessors.typepad.com/agriculturallaw/2017/04/ag-tax-policy-the-focus-in-dc-.html
For Depreciation Purposes, What Does Placed in Service Mean?
Tax Treatment of Commodity Futures and Options
Discounting IRAs for Income Tax Liability?
Like-Kind Exchanges, Reverse Exchanges, and the Safe Harbor
Insights Into Handling IRS Disputes
https://lawprofessors.typepad.com/agriculturallaw/2017/05/insights-into-handling-irs-disputes.html
Employer-Provided Meals and Lodging
https://lawprofessors.typepad.com/agriculturallaw/2017/05/employer-provided-meals-and-lodging.html
Self-Employment Tax On Farming Activity Of Trusts
Minority Shareholder Oppression Case Raises Several Tax Questions
Input Costs – When Can a Deduction Be Claimed?
Like-Kind Exchange Issues
https://lawprofessors.typepad.com/agriculturallaw/2017/06/like-kind-exchange-issues.html
Tax Issues With Bad Debt Deductions
https://lawprofessors.typepad.com/agriculturallaw/2017/06/tax-issues-with-bad-debt-deductions.html
Like-Kind Exchanges – The Related Party Rule and a Planning Opportunity
Tax Treatment of Cooperative Value-Added Payments
Would an Interest Charge Domestic International Sales Corporation Benefit a Farming Business?
Timber Tax Issues – Part One
https://lawprofessors.typepad.com/agriculturallaw/2017/07/timber-tax-issues-part-one.html
Timber Tax Issues – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2017/07/timber-tax-issues-part-two.html
An Installment Sale as Part of An Estate Plan
Using An IDGT For Wealth Transfer and Business Succession
Prospects for Tax Legislation
https://lawprofessors.typepad.com/agriculturallaw/2017/08/prospects-for-tax-legislation.html
Deferred Payment Contracts
https://lawprofessors.typepad.com/agriculturallaw/2017/08/deferred-payment-contracts.html
When Is A Farmer Not A “Qualified Farmer” For Conservation Easement Donation Purposes?
Substantiating Charitable Contributions
Forming a Farming/Ranching Corporation Tax-Free
Farmers Renting Equipment – Does It Trigger A Self-Employment Tax Liability?
Commodity Credit Corporation Loans and Elections
New Partnership Audit Rules
https://lawprofessors.typepad.com/agriculturallaw/2017/09/new-partnership-audit-rules.html
Alternatives to Like-Kind Exchanges of Farmland
South Dakota Attempts To Change Internet Sales Taxation – What Might Be The Impact On Small Businesses?
Fall Tax Schools
https://lawprofessors.typepad.com/agriculturallaw/2017/09/fall-tax-schools.html
Self-Employment Tax on Farm Rental Income – Is the Mizell Veneer Cracking?
Tax Treatment of Settlements and Court Judgments
The “Perpetuity” Requirement For Donated Easements
The Tax Rules Involving Prepaid Farm Expenses
It’s Just About Tax School Time
https://lawprofessors.typepad.com/agriculturallaw/2017/10/its-just-about-tax-school-time.html
IRS To Finalize Regulations On Tax Status of LLC and LLP Members?
The Deductibility (Or Non-Deductibility) of Interest
H.R. 1 - Farmers, Self-Employment Tax and Business Arrangement Structures
The Broad Reach of the Wash-Sale Rule
https://lawprofessors.typepad.com/agriculturallaw/2017/11/the-broad-reach-of-the-wash-sale-rule.html
Comparison of the House and Senate Tax Bills – Implications for Agriculture
Partnerships and Tax Law – Details Matter
Senate Clears Tax Bill - On To Conference
Are Taxes Dischargeable in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2017/12/are-taxes-dischargeable-in-bankruptcy.html
Bitcoin Fever and the Tax Man
https://lawprofessors.typepad.com/agriculturallaw/2017/12/bitcoin-fever-and-the-tax-man.html
House and Senate to Vote on Conference Tax Bill This Week
Another Tax Bill Introduced, Year-End Planning, and Jan. 10 Seminar/Webinar
PUBLICATIONS
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
REAL PROPERTY
Another Issue When the Definition of “Agriculture” Matters – Property Tax
The Ability of Tenants-in-Common To Bind Co-Tenants to a Farm Lease – and Related Issues
Like-Kind Exchanges, Reverse Exchanges, and the Safe Harbor
Like-Kind Exchange Issues
https://lawprofessors.typepad.com/agriculturallaw/2017/06/like-kind-exchange-issues.html
Easements on Agricultural Land – Classification and Legal Issues
Should I Enter Into An Oil and Gas Lease?
REGULATORY LAW
Checkoffs, The Courts and Free Speech
https://lawprofessors.typepad.com/agriculturallaw/2017/01/checkoffs-the-courts-and-free-speech.html
Joint Employment Situations In Agriculture – What’s the FLSA Test?
Farmers, Ranchers and Government Administrative Agencies
IRS To Target “Hobby” Farmers
https://lawprofessors.typepad.com/agriculturallaw/2017/03/irs-to-target-hobby-farmers.html
Drainage Activities on Farmland and the USDA
What is a “Separate Person” For Payment Limitation Purposes?
Livestock Indemnity Payments – What They Are and Tax Reporting Options
Can One State Regulate Agricultural Production Activities in Other States?
Farm Program Payment Limitations and Entity Planning – Part One
Farm Program Payment Limitations and Entity Planning – Part Two
Eminent Domain – The Government’s Power to “Take” Private Property
Department of Labor Overtime Rules Struck Down – What’s the Impact on Ag?
The Prior Converted Cropland Exception From Clean Water Act Jurisdiction
Air Emission Reporting Requirement For Livestock Operations
Federal Labor Law and Agriculture
https://lawprofessors.typepad.com/agriculturallaw/2017/11/federal-labor-law-and-agriculture.html
Electronic Logs For Truckers and Implications for Agriculture
SECURED TRANSACTIONS
Ag Supply Dealer Liens – Important Tool in Tough Financial Times
“Commercial Reasonableness” of Collateral Sales
What Are A Farmer’s Rights When a Grain Elevator Fails?
Selling Collateralized Ag Products – The “Farm Products” Rule
SEMINARS AND CONFERENCES
Fall Tax Schools
https://lawprofessors.typepad.com/agriculturallaw/2017/09/fall-tax-schools.html
Another Tax Bill Introduced, Year-End Planning, and Jan. 10 Seminar/Webinar
Summer 2018 - Farm Tax and Farm Business Education
The Business of Agriculture – Upcoming CLE Symposium
Summer Ag Tax/Estate and Business Planning Conference
WATER LAW
Prior Appropriation – First in Time, First in Right
Kansas Water Law - Reactions to and Potential Consequences of the Garetson decision
Public Access To Private Land Via Water
Big Development for Water in the West - Federal Implied Reserved Water Rights Doctrine Applies to Groundwater
April 2, 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, March 21, 2021
Ag Law and Taxation - 2018 Bibliography
Overview
Today's post is a bibliography of my ag law and tax blog articles of 2018. Many of you have requested that I provide something like this to make it easier to find the articles, and last month I posted the bibliography of the 2020 and 2019 articles. Soon I will post the bibliography of the 2017 articles and then 2016. After those are posted. I will post one long bibliography containing all of the articles up to that point in time. Then, to close out 2021, I will post the articles of 2021.
The library of content is piling up.
Cataloging the 2018 ag law and tax blog articles - it's the topic of today's post.
BANKRUPTCY
Top Ten Agricultural Law and Tax Developments of 2017 (Ten through Six)
Chapter 12 Bankruptcy – Feasibility of the Reorganization Plan
Farm Bankruptcy and the Preferential Payment Rule
Can a Bankrupt Farm Debtor Make Plan Payments Directly to Creditors?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Chapter 12 Bankruptcy and the Tools-of-the-Trade Exemption
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
BUSINESS PLANNING
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
The Spousal Qualified Joint Venture
https://lawprofessors.typepad.com/agriculturallaw/2018/02/the-spousal-qualified-joint-venture.html
The Spousal Qualified Joint Venture – Implications for Self-Employment Tax and Federal Farm Program Payment Limitations
Form a C Corporation – The New Vogue in Business Structure?
Tax Issues When Forming a C Corporation
End of Tax Preparation Season Means Tax Seminar Season is About to Begin
Converting a C Corporation to an S Corporation – The Problem of Passive Income
Valuation Discounting
https://lawprofessors.typepad.com/agriculturallaw/2018/05/valuation-discounting.html
Valuation Discounting – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2018/05/valuation-discounting-part-two.html
The Impact of the TCJA on Estates and Trusts
Buy-Sell Agreements for Family Businesses
When is an Informal Business Arrangement a Partnership?
Management Activities and the Passive Loss Rules
Expense Method Depreciation and Trusts
Qualified Business Income Deduction – Proposed Regulations
Intentionally Defective Grantor Trust – What is it and How Does it Work?
When Can a Corporate Shareholder be Held Liable for Corporate Debts and Liabilities?
Farm Wealth Transfer and Business Succession – The GRAT
Social Security Planning for Farmers
https://lawprofessors.typepad.com/agriculturallaw/2018/10/social-security-planning-for-farmers.html
Corporations Post-TCJA and Anti-Corporate Farming Laws
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
What Happens When a Partner Dies?
https://lawprofessors.typepad.com/agriculturallaw/2018/10/what-happens-when-a-partner-dies.html
What are the Tax Consequences on Sale or Exchange of a Partnership Interest?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
CIVIL LIABILITIES
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Landlord Liability for Injuries Occurring on Leased Premises
When Does a Rule of Strict Liability Apply on the Farm?
When Can I Shoot My Neighbor’s Dog?
https://lawprofessors.typepad.com/agriculturallaw/2018/05/when-can-i-shoot-my-neighbors-dog.html
Reasonable Foreseeability
https://lawprofessors.typepad.com/agriculturallaw/2018/05/reasonable-foreseeability.html
What is “Agriculture” for Purposes of Agritourism?
Negligence – Can You Prove Liability?
https://lawprofessors.typepad.com/agriculturallaw/2018/06/negligence-can-you-prove-liability.html
Wind Farm Nuisance Matter Resolved – Buy the Homeowners Out!
Torts Down on the Farm
https://lawprofessors.typepad.com/agriculturallaw/2018/08/torts-down-on-the-farm.html
Roadkill – It’s What’s for Dinner
https://lawprofessors.typepad.com/agriculturallaw/2018/09/roadkill-its-whats-for-dinner.html
What Difference Does it Make if I Post My Property “No Trespassing”?
Liability for Injuries Associated with Horses
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
CONTRACTS
Is a Farmer a Merchant? Why it Might Matter
Some Thoughts on the Importance of Leasing Farmland
Contract Rescission – When Can You Back Out of a Deal?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Disclaiming Implied Warranties
https://lawprofessors.typepad.com/agriculturallaw/2018/11/disclaiming-implied-warranties.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
COOPERATIVES
The Qualified Business Income (QBI) Deduction – What a Mess!
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
CRIMINAL LIABILITIES
Curtilage – How Much Ag Property is Protected from a Warrantless Search?
Establishing the Elements of a Cruelty to Animals Charge
What Difference Does it Make if I Post My Property “No Trespassing”?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
ENVIRONMENTAL LAW
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Top Ten Agricultural Law and Tax Developments of 2017 (Five through One)
Is a CWA Permit Needed for Pollution Discharges via Groundwater?
Non-Tax Ag Provisions and the Omnibus Bill
Wetlands and Farm Programs – Does NRCS Understand the Rules?
Regulation of Wetlands and “Ipse Dixit” Determinations
WOTUS Developments
https://lawprofessors.typepad.com/agriculturallaw/2018/08/wotus-developments.html
Does the Migratory Bird Treaty Act Apply to Farmers?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Is Groundwater a “Point Source” Pollutant?
“Waters of the United States” Means “Frozen Soil”?
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
Can an Endangered Species be Protected in Areas Where it Can’t Survive?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
ESTATE PLANNING
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
The Tax Cuts and Job Acts – How Does it Impact Estate Planning?
What’s the Charitable Deduction for Donations From a Trust?
The Spousal Qualified Joint Venture
https://lawprofessors.typepad.com/agriculturallaw/2018/02/the-spousal-qualified-joint-venture.html
Why Clarity in Will/Trust Language Matters
Some Thoughts on the Importance of Leasing Farmland
End of Tax Preparation Season Means Tax Seminar Season is About to Begin
Modifying an Irrevocable Trust – Decanting
Valuation Discounting – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2018/05/valuation-discounting-part-two.html
The Impact of the TCJA on Estates and Trusts
Impact of Post-Death Events on Valuation
Beneficiary Designations, Changed Circumstances and the Contracts Clause
Qualified Business Income Deduction – Proposed Regulations
Spousal Joint Tendencies and Income Tax Basis
Farm and Ranch Estate Planning in 2018 and Forward
The TCJA, Charitable Giving and a Donor-Advised Fund
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Unpaid Tax at Death – How Long Does IRS Have to Collect?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
INCOME TAX
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Top Ten Agricultural Law and Tax Developments of 2017 (Five through One)
The Qualified Business Income (QBI) Deduction – What a Mess!
The Tax Cuts and Jobs Act – How Does it Impact Estate Planning?
What’s the Charitable Deduction for Donations from a Trust?
Can Farmers Currently Deduct Research Expenditures?
Innovation on the Farm – Will the Research and Development Credit Apply?
What Happens When the IRS Deems an Ag Activity to Be a Hobby?
The Spousal Qualified Joint Venture – Implications for Self-Employment Tax and Federal Farm Program Payment Limitations
Livestock Sold or Destroyed Because of Disease
Form a C Corporation – The New Vogue in Business Structure?
Deductible Repairs Versus Capitalization
The Tax Treatment of Farming Net Operating Losses
Congress Modifies the Qualified Business Income Deduction
IRS Collections – The Basics
https://lawprofessors.typepad.com/agriculturallaw/2018/03/irs-collections-the-basics-.html
Tax Issues Associated with Oil and Gas Production
Refundable Fuel Credits – Following the Rules Matters
Distinguishing Between a Capital Lease and an Operating Lease
End of Tax Preparation Season Means Tax Seminar Season is About to Begin
Passive Activities and Grouping
https://lawprofessors.typepad.com/agriculturallaw/2018/04/passive-activities-and-grouping.html
Divorce and the New Tax Law – IRS Grants Some Relief
Gifts of Ag Commodities to Children and the New Tax Law
Post-Death Sale of Crops and Livestock
Is There a Downside Risk to E-Filing Your Taxes?
Purchase and Sale Allocations to CRP Contracts
Converting a C Corporation to an S Corporation – The Problem of Passive Income
The Impact of the TCJA on Estates and Trusts
The TCJA and I.R.C. 529 Plans
https://lawprofessors.typepad.com/agriculturallaw/2018/05/the-tcja-and-irc-529-plans.html
Farmers, Self-Employment Tax, and Personal Property Leases
State Taxation of Online Sales
https://lawprofessors.typepad.com/agriculturallaw/2018/06/state-taxation-of-online-sales.html
The Depletion Deduction for Oil and Gas Operations
Charitable Giving Post-2017
https://lawprofessors.typepad.com/agriculturallaw/2018/07/charitable-giving-post-2017.html
When is an Informal Business Arrangement a Partnership?
Management Activities and the Passive Loss Rules
Tax Issues on Repossession of Farmland
Outline of Tax Proposals Released
https://lawprofessors.typepad.com/agriculturallaw/2018/07/outline-of-tax-proposals-released.html
Life Estate/Remainder Arrangements and Income Tax Basis
Expense Method Depreciation and Trusts
Qualified Business Income Deduction – Proposed Regulations
The Qualified Business Income Deduction and “W-2 Wages”
Tax Consequences on Partition and Sale of Land
Deducting Residual Soil Fertility
https://lawprofessors.typepad.com/agriculturallaw/2018/09/deducting-residual-soil-fertility.html
Social Security Planning for Farmers
https://lawprofessors.typepad.com/agriculturallaw/2018/10/social-security-planning-for-farmers.html
Eliminating Capital Gain Tax – Qualified Opportunity Zones
The TCJA, Charitable Giving and a Donor-Advised Fund
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
What is Depreciable Farm Real Property?
What is “Like-Kind” Real Estate?
https://lawprofessors.typepad.com/agriculturallaw/2018/10/what-is-like-kind-real-estate.html
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
Trusts and Like-Kind Exchanges
https://lawprofessors.typepad.com/agriculturallaw/2018/11/trusts-and-like-kind-exchanges.html
Unpaid Tax at Death – How Long Does IRS Have to Collect?
Non-Depreciable Items on the Farm or Ranch
What are the Tax Consequences on Sale or Exchange of a Partnership Interest?
Expense Method Depreciation and Structures on the Farm
Deduction Costs Associated with Items Purchased for Resale
https://lawprofessors.typepad.com/agriculturallaw/2018/12/sale-of-items-purchased-for-resale.html
Claiming Business Deductions? – Maintain Good Records, and… Hire a Tax Preparer
https://lawprofessors.typepad.com/agriculturallaw/income-tax/page/7/
Depletion – What is it and When is it Available?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
INSURANCE
Beneficiary Designations, Changed Circumstances and the Contracts Clause
Recent Developments Involving Crop Insurance
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Farm Liability Policies – Are All Activities on the Farm Covered?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
REAL PROPERTY
In-Kind Partition and Adverse Possession – Two Important Concepts in Agriculture
Some Thoughts on the Importance of Leasing Farmland
Prescriptive Easements and Adverse Possession – Obtaining Title to Land Without Paying for It
Purchase and Sale Allocations to CRP Contracts
Tax Issues on Repossession of Farmland
The Accommodation Doctrine – Working Out Uses Between Surfaces and Subsurface Owners
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
What is “Like-Kind” Real Estate?
https://lawprofessors.typepad.com/agriculturallaw/2018/10/what-is-like-kind-real-estate.html
Negative Easements – Is There a Right to Unobstructed Light, Air, or View?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
REGULATORY LAW
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Top Ten Agricultural Law and Tax Developments of 2017 (Ten through Six)
Is There a Constitutional Way to Protect Animal Ag Facilities?
Trade Issues and Tariffs – Are Agriculture’s Concerns Legitimate?
Federal Crop Insurance – Some Recent Case Developments
Non-Tax Ag Provisions in the Omnibus Bill
Are Mandatory Assessments for Generic Advertising of Ag Commodities Constitutional?
Wind Farm Nuisance Matter Resolved – Buy the Homeowners Out!
Regulation of Wetlands and “Ipse Dixit” Determinations
Ag Employment – Verifying the Legal Status of Employees
Roadkill – It’s What’s for Dinner
https://lawprofessors.typepad.com/agriculturallaw/2018/09/roadkill-its-whats-for-dinner.html
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
“Waters of the United States” Means “Frozen Soil”?
How Long Can a Train Block a Crossing?
https://lawprofessors.typepad.com/agriculturallaw/2018/11/how-long-can-a-train-block-a-crossing.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
SECURED TRANSACTIONS
Ag Finance – Getting the Debtor’s Name Correct on the Financing Statements
What Are “Proceeds” of Crops and Livestock?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
SEMINARS AND CONFERENCES
Agricultural Law and Economics Conference
Summer Farm Income Tax/Estate and Business Planning Conference
Upcoming Seminars
https://lawprofessors.typepad.com/agriculturallaw/2018/08/upcoming-seminars.html
Fall Tax Seminars
https://lawprofessors.typepad.com/agriculturallaw/2018/09/fall-tax-seminars.html
Year-End Ag Tax Seminar/Webinar
https://lawprofessors.typepad.com/agriculturallaw/2018/12/year-end-ag-tax-seminarwebinar.html
WATER LAW
Top Ten Agricultural Law and Tax Developments of 2017 (Ten through Six)
Top Ten Agricultural Law and Tax Developments of 2017 (Five through One)
The Accommodation Doctrine – Working on Uses Between Surface and Subsurface Owners
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Drainage Issues – Rules for Handling Excess Surface Water
The “Almost Top Ten” Ag Law and Tax Developments of 2018
March 21, 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, February 28, 2021
Ag Law and Taxation - 2019 Bibliography
Overview
Today's post is a bibliography of my ag law and tax blog articles of 2019. Many of you have requested that I provide something like this to make it easier to find the articles, and last month I posted the bibliography of the 2020 articles. Soon I will post the bibliography of the 2018 articles and then 2017 and 2016.
The library of content is piling up.
Cataloging the 2019 ag law and tax blog articles - it's the topic of today's post.
BANKRUPTCY
Non-Dischargeable Debts in Bankruptcy
https://lawprofessors.typepad.com/agriculturallaw/2019/02/non-dischargeable-debts-in-bankruptcy.html
Developments in Agricultural Law and Taxation
More Recent Developments in Agricultural Law
More Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2019/05/more-ag-law-and-tax-developments.html
Farmers, Bankruptcy and the “Absolute Priority” Rule
Ag in the Courtroom
https://lawprofessors.typepad.com/agriculturallaw/2019/07/ag-in-the-courtroom.html
Key Farm Bankruptcy Modification on the Horizon?
Ag Legal Issues in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/08/ag-legal-issues-in-the-courts.html
Are Taxes Dischargeable in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2019/09/are-taxes-dischargeable-in-bankruptcy.html
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2019
BUSINESS PLANNING
Can a State Tax a Trust with No Contact with the State?
Real Estate Professionals and Aggregation – The Passive Loss Rules
More Recent Developments in Agricultural Law
Self-Rentals and the Passive Loss Rules
What’s the Best Entity Structure for the Farm or Ranch Business?
Where Does Life Insurance Fit in an Estate Plan for a Farmer or Rancher?
Recent Developments in Farm and Ranch Business Planning
ESOPs and Ag Businesses – Part One
https://lawprofessors.typepad.com/agriculturallaw/2019/07/esops-and-ag-businesses-part-one.html
ESOPs and Ag Businesses – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2019/07/esops-and-ag-businesses-part-two.html
Is a Discount for The BIG Tax Available?
Tax Consequences of Forgiving Installment Payment Debt
Ag Law and Tax in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/09/ag-law-and-tax-in-the-courts.html
Shareholder Loans and S Corporation Stock Basis
The Family Limited Partnership – Part One
The Family Limited Partnership – Part Two
Does the Sale of Farmland Trigger Net Investment Income Tax?
Some Thoughts on Ag Estate/Business/Succession Planning
S Corporation Considerations
https://lawprofessors.typepad.com/agriculturallaw/2019/11/s-corporation-considerations.html
CIVIL LIABILITIES
When is an Employer Liable for the Conduct of Workers?
Selected Recent Cases Involving Agricultural Law
Ag Nuisances – Basic Principles
https://lawprofessors.typepad.com/agriculturallaw/2019/02/ag-nuisances-basic-principles.html
Do the Roundup Jury Verdicts Have Meaning For My Farming Operation?
What Does a “Reasonable Farmer” Know?
https://lawprofessors.typepad.com/agriculturallaw/2019/04/what-does-a-reasonable-farmer-know.html
Product Liability Down on the Farm - Modifications
Coming-To-The-Nuisance By Staying Put – Or, When 200 Equals 8,000
More Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2019/05/more-ag-law-and-tax-developments.html
Public Trust vs. Private Rights – Where’s the Line?
Ag Law in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/11/ag-law-in-the-courts.html
Fence Law Basics
https://lawprofessors.typepad.com/agriculturallaw/2019/11/fence-law-basics.html
CONTRACTS
Negotiating Cell/Wireless Tower Agreements
Developments in Agricultural Law and Taxation
Ag Contracts – What if Goods Don’t Conform to the Contract?
ENVIRONMENTAL LAW
Top 10 Developments in Ag Law and Tax for 2018 – Numbers 10 and 9
Top 10 Developments in Ag Law and Tax for 2018 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 6, 5, and 4
Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 3, 2, and 1
Big EPA Developments – WOTUS and Advisory Committees
Does Soil Erosion Pose a Constitutional Issue?
Public Trust vs. Private Rights – Where’s the Line?
More Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2019/05/more-ag-law-and-tax-developments.html
Eminent Domain and Agriculture
https://lawprofessors.typepad.com/agriculturallaw/2019/06/eminent-domain-and-agriculture.html
Court Decisions Illustrates USDA’s Swampbuster “Incompetence”
Regulatory Changes to the Endangered Species Act
Irrigation Return Flows and the Clean Water Act
Ag Law in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/10/ag-law-in-the-courts.html
Regulatory Takings – Pursuing a Remedy
https://lawprofessors.typepad.com/agriculturallaw/2019/10/regulatory-takings-pursuing-a-remedy.html
Does a Pollutant Discharge From Groundwater into a WOTUS Require a Federal Permit?
Groundwater Discharges of Pollutants and the Supreme Court
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2019
ESTATE PLANNING
Tax Filing Season Update and Summer Seminar!
Time to Review Estate Planning Documents?
Can a State Tax a Trust with No Contact with the State?
Estate Planning in Second Marriage Situations
Valuing Non-Cash Charitable Gifts
https://lawprofessors.typepad.com/agriculturallaw/2019/03/valuing-non-cash-charitable-gifts.html
Real Estate Professionals and Aggregation – The Passive Loss Rules
Can the IRS Collect Unpaid Estate Tax From the Beneficiaries?
Sale of the Personal Residence After Death
More Recent Developments in Agricultural Law
Thrills with Wills – When is a Will “Unduly Influenced”?
Heirs Liable for Unpaid Federal Estate Tax 28 Years After Death
What’s the Best Entity Structure for the Farm or Ranch Business?
Where Does Life Insurance Fit in an Estate Plan for a Farmer or Rancher?
Recent Developments in Farm and Ranch Business Planning
Wayfair Does Not Mean That a State Can Always Tax a Trust Beneficiary
ESOPs and Ag Businesses – Part One
https://lawprofessors.typepad.com/agriculturallaw/2019/07/esops-and-ag-businesses-part-one.html
Issues in Estate Planning – Agents, Promises, and Trustees
The Importance of Income Tax Basis “Step-Up” at Death
Ag Law in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/11/ag-law-in-the-courts.html
Co-Tenancy or Joint Tenancy – Does it Really Matter?
Year-End Legislation Contains Tax Extenders, Repealers, and Modifications to Retirement Provisions
INCOME TAX
Top 10 Developments in Ag Law and Tax for 2018 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 6, 5, and 4
Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 3, 2, and 1
Tax Filing Season Update and Summer Seminar!
QBID Final Regulations on Aggregation and Rents – The Meaning for Farm and Ranch Businesses
The QBID Final Regulations – The “Rest of the Story”
Can a State Tax a Trust with No Contact with the State?
Tax Matters – Where Are We Now?
https://lawprofessors.typepad.com/agriculturallaw/2019/02/tax-matters-where-are-we-now.html
New Developments on Exclusion of Employer-Provided Meals
Valuing Non-Cash Charitable Gifts
https://lawprofessors.typepad.com/agriculturallaw/2019/03/valuing-non-cash-charitable-gifts.html
Passive Losses and Material Participation
Passive Losses and Real Estate Professionals
Developments in Agricultural Law and Taxation
Real Estate Professionals and Aggregation – The Passive Loss Rules
Sale of the Personal Residence After Death
Cost Segregation Study – Do You Need One for Your Farm?
Cost Segregation – Risk and Benefits
https://lawprofessors.typepad.com/agriculturallaw/2019/04/cost-segregation-risks-and-benefits.html
Permanent Conservation Easement Donation Transactions Find Their Way to the IRS “Dirty Dozen” List
Self-Rentals and the Passive Loss Rules
More on Self-Rentals
https://lawprofessors.typepad.com/agriculturallaw/2019/04/more-on-self-rentals.html
Of Black-Holes, Tax Refunds, and Statutory Construction
What Happened in Tax During Tax Season?
Cost Segregation and the Recapture Issue
S.E. Tax and Contract Production Income
https://lawprofessors.typepad.com/agriculturallaw/2019/06/se-tax-and-contract-production-income.html
Recent Developments in Farm and Ranch Business Planning
Ag Cooperatives and the QBID – Initial Guidance
Wayfair Does Not Mean That a State Can Always Tax a Trust Beneficiary
Start Me Up! – Tax Treatment of Start-Up Expenses
More on Real Estate Exchanges
https://lawprofessors.typepad.com/agriculturallaw/2019/07/more-on-real-estate-exchanges.html
2019 Tax Planning for Midwest/Great Plains Farmers and Ranchers
Tax Treatment of Settlements and Court Judgments
ESOPs and Ag Businesses – Part One
https://lawprofessors.typepad.com/agriculturallaw/2019/07/esops-and-ag-businesses-part-one.html
Tax “Math” on Jury Verdicts
https://lawprofessors.typepad.com/agriculturallaw/2019/07/tax-math-on-jury-verdicts.html
Kansas Revenue Department Takes Aggressive Position Against Remote Sellers
Tax-Deferred Exchanges and Conservation Easements
Proper Handling of Breeding Fees
https://lawprofessors.typepad.com/agriculturallaw/2019/08/proper-handling-of-breeding-fees.html
Proper Tax Reporting of Commodity Wages
Tax Consequences of Forgiving Installment Payment Debt
Are Taxes Dischargeable in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2019/09/are-taxes-dischargeable-in-bankruptcy.html
Ag Law and Tax in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/09/ag-law-and-tax-in-the-courts.html
Refund Claim Relief Due to Financial Disability
Shareholder Loans and S Corporation Stock Basis
The Family Limited Partnership – Part Two
Hobby Losses Post-2017 and Pre-2026 – The Importance of Establishing a Profit Motive
The Importance of Income Tax Basis “Step-Up” at Death
Bad Debt Deduction
https://lawprofessors.typepad.com/agriculturallaw/2019/10/bad-debt-deduction.html
More on Cost Depletion – Bonus Payments
https://lawprofessors.typepad.com/agriculturallaw/2019/10/more-on-cost-depletion-bonus-payments.html
Recapture – A Dirty Word in the Tax Code Lingo
Does the Sale of Farmland Trigger Net Investment Income Tax?
Are Director Fees Subject to Self-Employment Tax?
Are Windbreaks Depreciable?
https://lawprofessors.typepad.com/agriculturallaw/2019/11/are-windbreaks-depreciable.html
Tax Issues Associated with Restructuring Credit Lines
Is a Tenancy-in-Common Interest Eligible for Like-Kind Exchange Treatment?
Year-End Legislation Contains Tax Extenders, Repealers, and Modifications to Retirement Provisions
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2019
INSURANCE
Prevented Planting Payments – Potential Legal Issues?
Ag Law in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/11/ag-law-in-the-courts.html
REAL PROPERTY
Negotiating Cell/Wireless Tower Agreements
Selected Recent Cases Involving Agricultural Law
The Accommodation Doctrine – More Court Action
Defects in Real Estate Deeds – Will Time Cure All?
Is there a Common-Law Right to Hunt (and Fish) Your Own Land?
Legal Issues Associated with Abandoned Railways
Public Trust vs. Private Rights – Where’s the Line?
Ag in the Courtroom
https://lawprofessors.typepad.com/agriculturallaw/2019/07/ag-in-the-courtroom.html
More on Real Estate Exchanges
https://lawprofessors.typepad.com/agriculturallaw/2019/07/more-on-real-estate-exchanges.html
How Does the Rule Against Perpetuities Apply in the Oil and Gas Context?
Ag Law in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/10/ag-law-in-the-courts.html
Cost Depletion of Minerals
https://lawprofessors.typepad.com/agriculturallaw/2019/10/cost-depletion-of-minerals.html
Co-Tenancy or Joint Tenancy – Does it Really Matter?
“Slip Slidin’ Away” – The Right of Lateral and Subjacent Support
Is a Tenancy-in-Common Interest Eligible for Like-Kind Exchange Treatment?
REGULATORY LAW
Top 10 Developments in Ag Law and Tax for 2018 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 6, 5, and 4
Top Ten Agricultural Law and Tax Developments of 2018 – Numbers 3, 2, and 1
Is There a Common-Law Right to Hunt (and Fish) Your Own Land?
Packers and Stockyards Act – Basic Provisions
Packers and Stockyards Act Provisions for Unpaid Cash Sellers of Livestock
More Recent Developments in Agricultural Law
Ag Antitrust – Is There a Crack in the Wall of the “Mighty-Mighty” (Illinois) Brick House?
Can Foreign Persons/Entities Own U.S. Agricultural Land?
Prevented Planting Payments – Potential Legal Issues?
Eminent Domain and Agriculture
https://lawprofessors.typepad.com/agriculturallaw/2019/06/eminent-domain-and-agriculture.html
Classification of Seasonal Ag Workers – Why It Matters
Administrative Agency Deference – Little Help for Ag From the Supreme Court
Regulation of Food Products
https://lawprofessors.typepad.com/agriculturallaw/2019/07/regulation-of-food-products.html
Ag Legal Issues in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/08/ag-legal-issues-in-the-courts.html
Kansas Revenue Department Takes Aggressive Position Against Remote Sellers
Court Decision Illustrates USDA’s Swampbuster “Incompetence”
Ag Law and Tax in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/09/ag-law-and-tax-in-the-courts.html
Regulatory Takings – Pursuing a Remedy
https://lawprofessors.typepad.com/agriculturallaw/2019/10/regulatory-takings-pursuing-a-remedy.html
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2019
SECURED TRANSACTIONS
Market Facilitation Program Pledged as Collateral – What are the Rights of a Lender?
SEMINARS AND CONFERENCES
Summer 2019 Farm and Ranch Tax and Estate/Business Planning Seminar
2019 National Ag Tax/Estate and Business Planning Conference in Steamboat Springs!
Summer Tax and Estate Planning Seminar!
2020 National Summer Ag Income Tax/Estate and Business Planning Seminar
Fall Seminars
https://lawprofessors.typepad.com/agriculturallaw/2019/08/fall-seminars.html
WATER LAW
The Accommodation Doctrine – More Court Action
Ag Legal Issues in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/08/ag-legal-issues-in-the-courts.html
Ag Law in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2019/10/ag-law-in-the-courts.html
Regulating Existing Water Rights – How Far Can State Government Go?
The Politics of Prior Appropriation – Is a Senior Right Really Senior?
Changing Water Right Usage
https://lawprofessors.typepad.com/agriculturallaw/2019/12/changing-water-right-usage.html
February 28, 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)
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
Unique, But Important Tax Issues – “Claim of Right;” Passive Loss Grouping; and Bankruptcy Taxation
Disaster/Emergency Legislation – Summary of Provisions Related to Loan Relief; Small Business and Bankruptcy
Retirement-Related Provisions of the CARES Act
Farm Bankruptcy – “Stripping, “Claw-Black,” and the Tax Collecting Authorities
SBA Says Farmers in Chapter 12 Ineligible for PPP Loans
The “Cramdown” Interest Rate in Chapter 12 Bankruptcy
Bankruptcy and the Preferential Payment Rule
BUSINESS PLANNING
Partnership Tax Ponderings – Flow-Through and Basis
Farm and Ranch Estate and Business Planning in 2020 (Through 2025)
Transitioning the Farm or Ranch – Stock Redemption
Estate and Business Planning for the Farm and Ranch Family – Use of the LLC (Part 1)
Estate and Business Planning for the Farm and Ranch Family – Use of the LLC (Part 2)
The Use of the LLC for the Farm or Ranch Business – Practical Application
CIVIL LIABILITIES
Top Ten Agricultural Law and Tax Developments from 2019 (Numbers 10 and 9)
Ag Law in the Courts – Feedlots; Dicamba Drift; and Inadvertent Disinheritance
Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech
Dicamba, Peaches and a Defective Ferrari; What’s the Connection?
Liability for Injuries Associated with Horses (and Other Farm Animals)
Issues with Noxious (and Other) Weeds and Seeds
Of Nuisance, Overtime and Firearms – Potpourri of Ag Law Developments
CONTRACTS
The Statute of Frauds and Sales of Goods
Disrupted Economic Activity and Force Majeure – Avoiding Contractual Obligations in Time of Pandemic
Is it a Farm Lease or Not? – And Why it Might Matter
COOPERATIVES
Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 2 and 1)
Concentrated Ag Markets – Possible Producer Response?
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)
Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 6 and 5)
Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 4 and 3)
Clean Water Act – Compliance Orders and “Normal Farming Activities”
Groundwater Discharges of “Pollutants” and “Functional Equivalency”
NRCS Highly Erodible Land and Wetlands Conservation Final Rule – Clearer Guidance for Farmers or Erosion of Property Rights? – Part One
NRCS Highly Erodible Land and Wetlands Conservation Final Rule – Clearer Guidance for Farmers or Erosion of Property Rights? – Part Two
NRCS Highly Erodible Land and Wetlands Conservation Final Rule – Clearer Guidance for Farmers or Erosion of Property Rights? – Part Three
The Prior Converted Cropland Exception – More Troubles Ahead?
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
ESTATE PLANNING
Ag Law in the Courts – Feedlots; Dicamba Drift; and Inadvertent Disinheritance
Recent Developments Involving Estates and Trusts
What is a “Trade or Business” For Purposes of Installment Payment of Federal Estate Tax?
Alternate Valuation – Useful Estate Tax Valuation Provision
Farm and Ranch Estate and Business Planning in 2020 (Through 2025)
Retirement-Related Provisions of the CARES Act
Are Advances to Children Loans or Gifts?
Tax Issues Associated with Options in Wills and Trusts
Valuing Farm Chattels and Marketing Rights of Farmers
Is it a Gift or Not a Gift? That is the Question
Does a Discretionary Trust Remove Fiduciary Duties a Trustee Owes Beneficiaries?
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
When is Transferred Property Pulled Back into the Estate at Death? Be on Your Bongard!
‘Tis the Season for Giving, But When is a Transfer a Gift?
INCOME TAX
Top Ten Agricultural Law and Tax Developments of 2019 (Numbers 2 and 1)
Does the Penalty Relief for a “Small Partnership” Still Apply?
Substantiation – The Key to Tax Deductions
Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech
Unique, But Important Tax Issues – “Claim of Right;” Passive Loss Grouping; and Bankruptcy Taxation
Conservation Easements and the Perpetuity Requirement
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?
Tax Treatment of Meals and Entertainment
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
Retirement-Related Provisions of the CARES Act
Income Tax-Related Provisions of Emergency Relief Legislation
The Paycheck Protection Program – Still in Need of Clarity
Solar “Farms” and The Associated Tax Credit
Obtaining Deferral for Non-Deferred Aspects of an I.R.C. §1031 Exchange
Conservation Easements – The Perpetuity Requirement and Extinguishment
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?
More Developments Concerning Conservation Easements
Imputation – When Can an Agent’s Activity Count?
Exotic Game Activities and the Tax Code
Demolishing Farm Buildings and Structures – Any Tax Benefit?
Tax Incentives for Exported Ag Products
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
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?
Farmland Lease Income – Proper Tax Reporting
Merging a Revocable Trust at Death with an Estate – Tax Consequences
The Use of Deferred Payment Contracts – Specifics Matter
Is Real Estate Held in Trust Eligible for I.R.C. §1031 Exchange Treatment?
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
Abandoned Railways and Issues for Adjacent Landowners
Obtaining Deferral for Non-Deferred Aspects of an I.R.C. §1031 Exchange
Are Dinosaur Fossils Minerals?
https://lawprofessors.typepad.com/agriculturallaw/2020/06/are-dinosaur-fossils-minerals.html
Real Estate Concepts Involved in Recent Cases
Is it a Farm Lease or Not? – And Why it Might Matter
REGULATORY LAW
Top Ten Agricultural Law and Tax Developments from 2019 (Numbers 10 and 9)
Top Ten Agricultural Law and Tax Developments from 2019 (Number 8 and 7)
Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech
Hemp Production – Regulation and Economics
DOJ to Investigate Meatpackers – What’s it All About?
Dicamba Registrations Cancelled – Or Are They?
What Does a County Commissioner (Supervisor) Need to Know?
The Supreme Court’s DACA Opinion and the Impact on Agriculture
Right-to-Farm Law Headed to the SCOTUS?
The Public Trust Doctrine – A Camel’s Nose Under Agriculture’s Tent?
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?
Of Nuisance, Overtime and Firearms – Potpourri of Ag Law Developments
What Farm Records and Information Are Protected from a FOIA Request?
Can One State Dictate Agricultural Practices in Other States?
SECURED TRANSACTIONS
Family Farming Arrangements and Liens; And, What’s a Name Worth?
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
SEMINARS AND CONFERENCES
Summer 2020 Farm Income Tax/Estate and Business Planning Conference
Registration Open for Summer Ag Income Tax/Estate and Business Planning Seminar
Summer 2020 – National Farm Income Tax/Estate and Business Planning Conference
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
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
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
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
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 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)
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)
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)
Thursday, December 3, 2020
Bankruptcy and the Preferential Payment Rule
Overview
Economic times continue to be difficult in much of agriculture. 2020 has been a difficult year economically for many agricultural producers as well as commodity processors and other agribusinesses. An issue that frequently arises in bankruptcies of purchasers of agricultural products like grain, livestock, fruit or milk is known as the “preferential payment rule.” It can be a surprise not only to farmers in financial distress, but also to creditors who receive payment for agricultural goods sold shortly before the buyer files bankruptcy. It’s an issue that can arise in the normal course of doing business before bankruptcy is filed when nothing “unusual” appears to be happening.
A decade ago, the preferential payment rule arose in the context of the VeraSun bankruptcy. Now, it’s 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. Earlier this week, Dean Foods and its affiliates filed a joint Chapter 11 plan of liquidation.
Farmers that sold milk to Dean Farms shortly before the bankruptcy filing are now receiving letters demanding repayment of the amount paid for those milks sales. Do these demand letters need to be responded to? Are they legitimate? The answer rests in the bankruptcy code’s preferential transfer rule.
For today’s article, I have asked for insight from one of the premier farm bankruptcy attorneys in the country. Joe Peiffer of Ag and Legal Business Legal Strategies of Cedar Rapids, Iowa helped author today’s article. His insights on how farmers should respond to the demand letters being sent to farmers on behalf of Dean Foods are particularly insightful.
The preferential payment rule, a unique bankruptcy provision – it’s the topic of today’s post.
In General
11 U.S.C. §547 provides in general that when a debtor makes a payment to a creditor and the debtor files bankruptcy within 90 days of making the payment, the bankruptcy trustee can “avoid” the payment by making the creditor pay the amount received to the bankruptcy estate where it will be distributed to the general creditors of the debtor. 11 U.S.C. §547(b)(4)(A). The timeframe expands from 90 days to one year if the creditor is an “insider.” 11 U.S.C. §547(b)(4)(B). The rule can come as a shock to a creditor that has received payment, paid their own creditors from the funds received from the debtor, and now has no funds to pay the bankruptcy estate to satisfy the bankruptcy trustee’s avoidance claim.
However, there is a jurisdictional limit. When the bankruptcy trustee seeks to recover a money judgment of less than $25,000, any associated legal action must be brought in the defendant’s (dairy farmer’s) home jurisdiction. 28 U.S.C. § 1409(b). Thus, a New York dairy farmer could only be sued in New York and a Wisconsin dairy farmer could only be sued in Wisconsin, etc., etc. Out of 1,881 dairy farmers identified as potentially having been paid by Dean Foods within 90 days of the bankruptcy filing, 708 have total payments under the $25,000 threshold.
There is also an administrative priority provision that can possibly apply. Under this provision, claims for deliveries that are made within in 20 days of the bankruptcy filing are elevated to the priority of an administrative expense claim. 11 U.S.C. §503(b)(9). In the Dean Foods bankruptcy, the 20-day timeframe would apply to deliveries made on or after October 23, 2019 until the petition date of November 12, 2019. The provision only covers deliveries. It does not cover payments. Of the 13,510 potentially preferential payments listed in the Dean Foods Statement of Financial Affairs, 1,590 could potentially cover deliveries made in that 20-day period.
Exceptions
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).
So how can a farmer demonstrate an ordinary course of business? Basically, it is shown by demonstrating that the transfer to the debtor was consistent with a pattern of previous transfers between the parties. Business transactions between the parties that are within the norm of industry practice are essential to establishing that the transactions occurred in the ordinary course of business. Also, a payment that is made in the “ordinary course of business” between the debtor and the creditor will involve invoices that are paid in the time period required on the invoice, or payment made in accordance with industry custom or past dealings.
Settlement Payment Via Forward Contract. A trustee also cannot avoid a transfer that is a settlement payment made by a forward contract merchant in connection with a commodity contract or forward contract entered before the bankruptcy petition is filed. 11 U.S.C. §546(e).
Security interest. A trustee also cannot avoid a transfer that creates a security interest in property that the debtor acquires that secures new value given in accordance with a security agreement that contains a description of the property as collateral and is perfected on or before 30 days after the debtor receives possession of the property.
Recent Case
A recent court decision from Arkansas illustrates how the preferential payment rule can apply in an agricultural setting. In Rice v. Prairie Gold Farms, No. 2:17CV126 JLH, 2018 U.S. Dist. LEXIS 51678 (E.D. Ark. Mar. 28, 2018), the debtor was a partnership engaged in wheat farming activities. The debtor entered into two contracts for the sale of wheat with a grain broker. The contracts called for a total of 10,000 bushels of wheat to be delivered to the broker anytime between June 1, 2014 and July 31, 2014. In return, the debtor was to be paid $6.78/bushel for 5,000 bushels and $7.09/bushel for the other 5,000 bushels for a total price of $69,350. The debtor delivered the wheat in fulfillment of the contracts on July 21, 2014 and August 4, 2014 and received $71,957.10 later in August, in return for a total delivery of 10,813.07 bushels.
The grain broker debtor subsequently filed Chapter 11 bankruptcy on October 23, 2014 (which was later converted to Chapter 7). The Chapter 7 trustee sought to avoid the payment for the farmer’s wheat crop by the grain broker as a preferential transfer under 11 U.S.C. §547(b) and return the money paid to the farmer for his wheat crop to the bankruptcy estate for distribution to creditors. The trial court disagreed with the trustee, noting that 11 U.S.C. §547(c)(1) disallowed avoidance of a transfer if it is made in a contemporaneous exchange for new value that the debtor received. The trustee claimed that the transfer of wheat was not contemporaneous because the contract was entered into in May and the wheat was not delivered and payment made until over two months later.
The trial court determined that the transfer was for new value and payment occurred in a substantially contemporaneous manner corresponding to the delivery of the wheat. Thus, the exception of 11 U.S.C. §547(c)(1) applied. The court also noted that the wheat sale contracts were entered into in the ordinary course of the debtor’s business and, thus, also met the exception of 11 U.S.C. §547(c)(2). The debtor and the grain broker had a business history of similar transactions, and the court noted that the trustee failed to establish that the wheat contracts were inconsistent with the parties’ history of business dealings.
In the Arkansas case, the court noted that the parties had prior dealings that they conducted in the same manner and that nothing was out of the ordinary. There wasn’t any attempt to defraud creditors or shield assets from the reach of creditors. That’s really the point behind the preferential transfer rule. For those that continue conducting business as usual, the rule won’t likely come into play.
Response to Preference Demands
Information gathering. For a farmer or other creditor that receives a demand letter from attorneys representing Dean Foods or any other debtor in bankruptcy, it is important to immediately assemble documentation to provide to competent bankruptcy counsel to respond to the demand for return of the preferential transfer.
Dairy farmers that were selling milk to Dean Foods directly or to a subsidiary that have received preference demand letters should assemble the following:
- Payment evidence, such as milk check stubs or electronic funds transfer receipts. This will show when the milk was delivered to the dairy, as well as when the dairy made payment for the milk.
- Contracts for delivery of milk should be provided to counsel as it will assist the farmer in demonstrating that the payment by the dairy qualifies to protect the farmer from the preference demand. Since dairies generally make payment for the milk twice a month like clockwork, the preference demands can be defeated using the ordinary course of business defense outlined above.
- Any other documentation that helps establish a normal, standard industry practice of business dealings with Dean Foods.
Positing a defense. Failure to respond to the preference demand letters will generally mean that the dairy farmer will be sued by the liquidation trust in the United States Bankruptcy Court for the Southern District of Texas in Houston, TX. Such a lawsuit will seek to recover the payments made within 90 days of the bankruptcy filing.. In the Dean Foods bankruptcy this would mean payments that cleared the dairy’s bank after August 14, 2019.
In many instances, demands for the return of payments made to farmers are made without any consideration by the demanding party having considered whether the defenses to a preference action, such as ordinary course of business, is applicable. The demands are frankly extortion demands seeking some money without any actual right to the money. The parties demanding return of the preferences are banking on the willingness of the farmer to purchase a release rather than consider defenses and respond to the preference demand so they can avoid the cost of defense of the preference action in Houston, TX. In the VeraSun bankruptcy case, a group of lawyers formed the VeraSun Preference Defense Group to analyze and propose responsive letters to the parties demanding the return of the allegedly preferential payments. Most of the thousands of demands were withdrawn when the indefensible demands were exposed. A similar effort should be mounted in the Dean Foods bankruptcy.
Conclusion
Understanding the preferential payment rule is important, especially in the context of agricultural bankruptcies. The matter can get complicated in agricultural settings with the use of deferred payment contracts, forward grain contracts and the various types of unique business relationships that farmers enter into with the purchasers of their commodities. Competent legal counsel well-trained in the intricacies of agricultural law is a must.
December 3, 2020 in Bankruptcy | Permalink | Comments (0)
Friday, November 6, 2020
Ag and Tax In the Courts
Overview
The courts keep issuing rulings of importance to agricultural producers and others involved in agriculture or who own agricultural land. Also, tax issues of general relevance continue to be resolved in the courts. In today’s post, I take a look at some recent cases involving farm bankruptcy; the “public trust” doctrine; the proper tax classification of a work relationship; on-farm sales of processed beef; and zoning.
A potpourri of ag and tax legal issues – these are the topics of today’s post.
Court Denies Proposed Sale of Land by Chapter 12 Debtor
In re Holthaus, No. 20-40065, 2020 Bankr. LEXIS 3001 (Bankr. D. Kan. Oct. 26, 2020)
The debtors (a married couple) owned farmland in two counties. They filed Chapter 12 bankruptcy and sought to sell three tracts of land through two contracts. 11 U.S.C. §363(b)(1) provides that a trustee "after notice and a hearing, may use, sell or lease, other than in the ordinary course of business, property of the estate." In determining whether to approve a proposed sale under 11 U.S.C. §363, courts generally apply standards that, although stated various ways, represent essentially a business judgment test. The debtors had not filed a reorganization plan at the time of the proposed sale of the land.
The first contract consisted of two parcels totaling 200 acres which would be used as prime cropland. The second contract was for 120 acres of cropland in need of erosion remediation and not eligible for participation in government agricultural programs in its current condition. The debtors claimed that there was an oral agreement to lease the purchased properties back to the debtors for $175 per acre per year after the sale, as well as a right of first refusal if the buyer were to sell the properties, so that the debtors could continue to farm the land. Both contracts were silent as to the amount of rent to be paid and whether the right of first refusal applied to all three of the properties. The debtors proposed to sell the prime cropland for $4,000 per acre, based on a recent sale of another property in the county.
The creditors had mortgage liens on the properties and vigorously opposed the sale of the three properties. The creditors argued that the debtors were undervaluing all three tracts of land. Specifically, the creditors argued that the debtors erred in relying on a past sale in the county to arrive at $4,000 per acre. The creditor argued that the recent sale involved land that included a significant portion of pasture and wasteland, and that the debtors’ land was compromised of high-quality tillable land and no waste. As a result, the creditors argued that the sale price of the prime cropland should be $5,000 per acre.
The bankruptcy court agreed with the creditors and held that the debtors had inadequately priced the prime cropland. However, the bankruptcy court held that the second contract did not undervalue the less desirable cropland. The bankruptcy court noted that although the debtors’ sale did not require satisfaction of outstanding liens, there were significant concerns about some aspects of the proposed sale. First, the debtors’ ability to resume farming would be dependent upon the lease of the three tracts after the sale for rent that would be less than the debtor’s present debt service. Additionally, the debtors’ right to lease would only last as long as the proposed buyer owned the properties. Consequently, the bankruptcy court denied the debtors’ proposed sale primarily due to an inadequate sale price for the prime cropland.
Observation: Clearly, not having the prime cropland exposed to the market through a listing was a problem. If that had been done, there likely would have been testimony (and other evidence) to support the price in addition to the debtor's testimony. Having an appraiser testify could have helped the debtor.
Public Trust Doctrine Inapplicable to Natural Resources Allegedly Harmed by “Climate Change”
Chernaik v. Brown, 367 Or. 143 (2020)
I wrote recently about attempts to expand the “public trust” doctrine and the impact such an expansion would have on agricultural production and land ownership. You can read that article here: https://lawprofessors.typepad.com/agriculturallaw/2020/10/the-public-trust-doctrine-a-camels-nose-under-agricultures-tent.html. In that article I discussed a Nevada Supreme Court opinion in which the Court refused to expand the doctrine. Now, the Oregon Supreme Court has likewise refused to expand the doctrine.
In the Oregon case, 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. The Supreme Court remanded the case to the lower court.
Zoning Ordinance Bars Keeping of Farm Animals
Maffeo v. Winder Borough Zoning Hearing Board, 220 A.3d 1210 (Pa. Commw. Ct. 2019)
The plaintiff owned a two-acre property in an area zoned residential. She kept approximately 50 animals on the property including goats, donkeys, and chickens. The city manager’s office had received numerous noise and odor complaints regarding the animals. The city sent the plaintiff a cease and desist letter giving the plaintiff 20 days to remove the animals. A city ordinance prohibited any person from keeping goats, donkeys, and other farm animals on residentially zoned property. The plaintiff appealed the cease and desist letter to the defendant city, the zoning hearing board. The plaintiff admitted that most of her property was located within a residentially zoned district but argued that a small corner of the property was located in a conservation district allowing for agricultural uses. The zoning board denied the plaintiff’s argument and concluded that although part of the property was zoned for agricultural use, it was undisputed that the plaintiff’s animals were within 200 feet of a residential lot which violated a separate city ordinance.
The trial court affirmed. On appeal, the plaintiff argued the trial court failed to consider evidence that she properly cared for her animals and that her property had not been surveyed. Specifically, the plaintiff argued a letter from the county humane society should have been considered to show she properly cared for her animals. The appellate court held that although the letter was not in the record, both the zoning board and trial court had expressly considered the letter in making their respective rulings. The appellate court noted that the care for the animals was not at issue, but rather whether zoning rules and ordinance permitted the plaintiff to keep farm animals on her property. The appellate court also determined that a zoning survey of the property had been done recently, which showed that most of the property was within a residential district and only a small portion was zoned as conservation. The plaintiff failed to present any evidence to rebut the survey before the hearing board or trial court, therefore the appellate court held that the plaintiff was in violation of the city ordinance. Finally, the plaintiff argued the zoning board was unevenly enforcing its zoning ordinances because a neighbor had testified before the hearing board that he kept chickens on his property and a city officer had told him that doing so did not violate any city ordinance. The appellate court held that this evidence alone was insufficient to establish uneven enforcement without any other evidence presented.
On-Farm Sales of Processed Beef Subject to Sales Tax
Priv. Ltr. Rul. 8115 (Mo. Dept. of Rev., Sept. 25, 2020)
The taxpayer sought a ruling from the Missouri Department of Revenue (MDOR) concerning the sale of beef products from his farm. The taxpayer raises cattle, slaughters them, and then sends the beef out to be processed at a local processing plant. The taxpayer pays the processing plant for its services and then the taxpayer sells the resulting beef products to customers at his farm. The taxpayer’s question was whether the beef sales were subject to sales tax. The MDOR issued a ruling stating that the sales are subject to sales tax at the food tax rate of 1 percent. The MDOR noted that 7 U.S.C. §2012, defines “food” as "any food or food product for home consumption." The taxpayer was selling raw beef at retail for home consumption.
Payments Received By CPA Were Wages and Not S.E. Income; Deductions Disallowed
Thoma v. Comr., T.C. Memo. 2020-67
The petitioner acquired a partial interest in an accounting firm and ultimately became the sole owner of the firm that he operated as a sole proprietorship. The petitioner later went into business with another accountant pursuant to two contracts. One contract purported to be a partnership agreement and the second contract “restated” the first contract. The plaintiff provided accounting services to the firm and also brought his own clients to the firm. He later sold his interest back to the business under an agreement stating that he didn’t retain any management or supervisory role in the business.
During the year of sale of his interest and the following year (2010 and 2011), the business made bi-weekly payments to the petitioner for accounting services. The business issued Schedules K-1 reporting the payments as guaranteed payments to a limited partner with no withholding. The petitioner did not receive any paid sick leave or paid vacation time. The business had a professional liability policy that included the petitioner. The petitioner received a letter from the Department of Justice requesting the records of a client and the petitioner responded to the letter without informing the business. That ultimately resulted in the business locking the petitioner out, barring him from the computer network and placing him on administrative leave and his relationship with the business being terminated.
The petitioner reported his income for 2010 and 2011 as self-employment income allowing him to claim deductions for deposits into his SIMPLE IRA and for health insurance premiums that he paid as well as for one-half of his self-employment tax liability. The IRS disallowed the deductions, recharacterizing the income as wages. That resulted in his expenses being treated as unreimbursed employee expenses deductible only as miscellaneous itemized deductions subject to the two-percent of adjusted gross income floor. Likewise, the petitioner’s health insurance deductions were only deductible as a medical expense deduction and the SIMPLE IRA deduction was disallowed. The IRS also imposed accuracy-related penalties.
The Tax Court agreed with the IRS position, concluding that the petitioner and the other accountant did not intend to carry on a business together or share profit and loss. Thus, they never formed a partnership. The 2010 agreement, the Tax Court determined resulted in an at-will employment arrangement with the petitioner having no management authority. The issuance of the Schedules K-1 were not controlling, but merely a factor in determining the existence of a partnership. The Tax Court also held that the petitioner was not an independent contractor because of the longstanding relationship of the petitioner and the other accountant. The accountant/firm retained the right to fire the petitioner and provided him with professional liability insurance, office space and tax prep software. The firm also retained control over the details of his work and he did not have any opportunity for profit or loss independent of the business. The IRS-imposed penalties were upheld.
Conclusion
The courts again illustrate the numerous legal and tax issues that are relevant for farmers, ranchers rural landowners and taxpayers in general. It’s always a good idea to have competent legal and tax counsel within arm’s reach.
November 6, 2020 in Bankruptcy, Income Tax, Real Property, Regulatory Law | Permalink | Comments (0)
Monday, October 12, 2020
Principles of Agricultural Law
Overview
The fields of agricultural law and agricultural taxation are dynamic. Law and tax impacts the daily life of a farmer, rancher, agribusiness and rural landowner practically on a daily basis. Whether that is good or bad is not really the question. The point is that it’s the reality. Lack of familiarity with the basic fundamental and applicable rules and principles can turn out to be very costly. As a result of these numerous intersections, and the fact that the rules applicable to those engaged in farming are often different from non-farmers, I started out just over 25 years ago to develop a textbook that addressed the major issues that a farmer or rancher and their legal and tax counsel should be aware of. After three years, the book was complete – Principles of Agricultural Law - and it’s been updated twice annually since that time.
The 47th edition is now complete, and it’s the topic of today’s post – Principles of Agricultural Law.
Subject Areas
The text is designed to be useful to farmers and ranchers; agribusiness professionals; ag lenders; educational professionals; lawyers, CPAs and other tax preparers; undergraduate and law students; and those that simply want to learn more about legal and tax issues. The text covers a wide range of topics. Here’s just a sample of what is covered:
Ag contracts. Farmers and ranchers engage in many contractual situations, including ag leases, to purchase contracts. The potential perils of verbal contracts are numerous and can lead to unnecessary litigation. What if a commodity is sold under forward contract and a weather event destroys the crop before it is harvested? When does the law require a contract to be in writing? For purchases of goods, do any warranties apply? What remedies are available upon breach? If a lawsuit needs to be brought to enforce a contract, how soon must it be filed? Is a liability release form necessary? Is it valid? What happens when a contract breach occurs? What is the remedy?
Ag financing. Farmers and ranchers are often quite dependent on borrowing money for keeping their operations running. What are the rules surrounding ag finance? This is a big issue for lenders also? What about dealing with an ag cooperative and the issue of liens? What are the priority rules with respect to the various types of liens that a farmer might have to deal with?
Ag bankruptcy. A unique set of rules can apply to farmers that file bankruptcy. Chapter 12 bankruptcy allows farmers to de-prioritize taxes. That can be a huge benefit. Knowing how best to utilize those rules is very beneficial. That’s especially true with the unsettled issue of whether Payment Protection Program (PPP) funds can be utilized by a farmer in bankruptcy. The courts are split on that issue.
Income tax. Tax and tax planning permeate daily life. Deferral contracts; depreciation; installment sales; like-kind exchanges; credits; losses; income averaging; reporting government payments; etc. The list could go on and on. Having a basic understanding of the rules and the opportunities available can add a lot to the bottom line of the farming or ranching operation as well as help minimize the bleeding when times are tough.
Real property. Of course, land is typically the biggest asset in terms of value for a farming and ranching operation. But, land ownership brings with it many potential legal issues. Where is the property line? How is a dispute over a boundary resolved? Who is responsible for building and maintaining a fence? What if there is an easement over part of the farm? Does an abandoned rail line create an issue? What if land is bought or sold under an installment contract? How do the like-kind exchange rules work when farmland is traded?
Estate planning. While the federal estate tax is not a concern for most people and the vast majority of farming and ranching operations, when it does apply it’s a major issue that requires planning. What are the rules governing property passage at death? Should property be gifted during life? What happens to property passage at death if there is no will? How can family conflicts be minimized post-death? Does the manner in which property is owned matter? What are the applicable tax rules? These are all important questions.
Business planning. One of the biggest issues for many farm and ranch families is how to properly structure the business so that it can be passed on to subsequent generations and remain viable economically. What’s the best entity choice? What are the options? Of course, tax planning is a critical part of the business transition process.
Cooperatives. Many ag producers are patrons of cooperatives. That relationship creates unique legal and tax issues. Of course, the tax law enacted near the end of 2017 modified an existing deduction for patrons of ag cooperatives. Those rules are very complex. What are the responsibilities of cooperative board members?
Civil liabilities. The legal issues are enormous in this category. Nuisance law; liability to trespassers and others on the property; rules governing conduct in a multitude of situations; liability for the spread of noxious weeds; liability for an employee’s on-the-job injuries; livestock trespass; and on and on the issues go. Agritourism is a very big thing for some farmers, but does it increase liability potential? Nuisance issues are also important in agriculture. It’s useful to know how the courts handle these various situations.
Criminal liabilities. This topic is not one that is often thought of, but the implications can be monstrous. Often, for a farmer or rancher or rural landowner, the possibility of criminal allegations can arise upon (sometimes) inadvertent violation of environmental laws. Even protecting livestock from predators can give rise to unexpected criminal liability. Mail fraud can also arise with respect to the participation in federal farm programs. The areas of life potentially impacted with criminal penalties are worth knowing, as well as knowing how to avoid tripping into them.
Water law. Of course, water is essential to agricultural production. Water issues vary across the country, but they tend to focus around being able to have rights to water in the time of shortage and moving the diversion point of water. Also, water quality issues are important. In essence, knowing whether a tract of land has a water right associated with it, how to acquire a water right, and the relative strength of that water rights are critical to understand.
Environmental law. It seems that agricultural and the environment are constantly in the news. The Clean Water Act, Endangered Species Act and other federal (and state) laws and regulations can have a big impact on a farming or ranching operation. Just think of the issues with the USDA’s Swampbuster rules that have arisen over the past 30-plus years. What constitutes a regulatory taking of property that requires the payment of compensation under the Constitution? It’s good to know where the lines are drawn and how to stay out of (expensive) trouble.
Regulatory law. Agriculture is a very heavily regulated industry. Animals and plants, commodities and food products are all subject to a great deal of regulation at both the federal and state level. Antitrust laws are also important to agriculture because of the highly concentrated markets that farmers buy inputs from and sell commodities into. Where are the lines drawn? How can an ag operation best position itself to negotiate the myriad of rules?
Conclusion
It is always encouraging to me to see students, farmers and ranchers, agribusiness and tax professionals get interested in the subject matter and see the relevance of material to their personal and business lives. Agricultural law and taxation is reality. It’s not merely academic. The Principles text is one that can be very helpful to not only those engaged in agriculture, but also for those advising agricultural producers. It’s also a great reference tool for Extension educators. It’s also a great investment for any farmer – and it’s updated twice annually to keep the reader on top of current developments that impact agriculture.
If you are interested in obtaining a copy, perhaps even as a Christmas gift, you can visit the link here: http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html. Instructors that adopt the text for a course are entitled to a free copy. The book is available in print and CD versions. Also, for instructors, a complete set of Powerpoint slides is available via separate purchase. Sample exams and work problems are also available. You may also contact me directly to obtain a copy.
If you are interested in obtaining a copy, you can visit the link here: http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html. You may also contact me directly.
October 12, 2020 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)
Saturday, July 25, 2020
Recent Court Developments of Interest
Overview
The court decisions of relevance to agricultural producers, rural landowners and agribusinesses keep on coming. There never seems to be a slack time. Today’s article focuses on some key issues involving bankruptcy, business valuation, and insurance coverage for loss of a dairy herd due to stray voltage. More ag law court developments – that’s the topic of today’s post.
Court Determines Interest Rate in Chapter 12 Case
In re Key Farms, Inc., No. 19-02949-WLH12, 2020 Bankr. LEXIS 1642 (Bankr. D. Wash. Jun. 23, 2020)
The bankrupt debtor in this case is a family farming operation engaged in apple, cherry, alfalfa, seed corn and other crop production. The parents of the family own 100 percent of the debtor. In 2014, the debtor changed its primary lender which extended a line of credit to the debtor that the father personally guaranteed and a term loan to the debtor that the father also personally guaranteed. The lender held a first-priority security interest in various real and personal property to secure loan repayment. The debtor became unable to repay the line of credit and the default caused defaults on the term loan and the guarantees. The lender sued to foreclose on its collateral and have a receiver appointed.
The debtor filed Chapter 12 bankruptcy and proposed a reorganization plan where it would continue farming during 2020-2024 in accordance with proposed budgets. The plan provided for repayment of all creditors in full, and repayment of the lender over 20 years at a 4.5 percent interest rate (prime rate of 3.25 percent plus 1.25 percent). The lender opposed plan confirmation.
In determining whether the reorganization plan was fair and equitable to the lender based on the facts, the bankruptcy court noted the father’s lengthy experience in farming and familiarity with the business and that the farm manager was experienced and professional. The court also noted that parents had extensive experience with crop insurance and that they were committing unencumbered personal assets to the plan. In addition, the court took note of the debtor’s recent shift to more profitable crops and a demonstrated ability to manage around cash flow difficulties, and that the lender would be “meaningfully oversecured.” The court also determined that the debtor’s farming budgets appeared to be based on reasonable assumptions and forecasted consistent annual profitability. However, the court did note that the debtor had a multi-year history of operating losses in recent years; was heavily reliant on crop insurance; was engaged in an inherently risky business subject to forces beyond the debtor’s control; had no permanent long-term leases in place for the considerable amount of acreage that it leased; could not anticipate how the Chinese Virus would impact the business into the future; and proposed a lengthy post-confirmation obligation to the lender.
Accordingly, the court made an upward adjustment to the debtor’s prosed additional 1.25 percent to the prime rate by increasing it by at least 1.75 percent. The court scheduled a conference with the parties to discuss how to proceed.
Valuation Discount Applies to Non-Voting Interests
Grieve v. Comr., T.C. Memo. 2020-28
The petitioner was the Chairman and CEO of a company. After his wife’s death, he established two limited liability companies, with a management company controlled by his daughter as the general partner in each entity holding a 0.2 percent controlling voting manger interest and a 99.8 percent nonvoting interest in each entity held by a family trust – a grantor retained annuity trust (GRAT). The petitioner gifted the 99.8 percent interest in the two entities and filed Form 709 to report the gifts. The IRS revised the reported value of the gifts and asserted a gift tax deficiency of about $4.4 million based on a theoretical game theory construct.
According to the IRS, a hypothetical seller of the 99.8 percent nonvoting interests in the two LLCs would not sell the interests at a large discount to the net asset value (NAV), but would seek to enter into a transaction to acquire the 0.2 percent controlling voting interest from the current owner of that interest in order to obtain 100 percent ownership and eliminate the loss in value as a result of lack of control and lack of marketability. In support of this, the IRS assumed that the owner of the 99.8 percent nonvoting interest would have to pay the controlling 0.2 percent voting member a premium above their undiscounted NAV. Under traditional methodology, the IRS expert estimated that a 28 percent discount to the NAV was appropriate for the 99.8 percent nonvoting units. But, instead of accepting that level of discount, the IRS proposed that the owner of the nonvoting units would pay a portion of the dollar amount of the discount from NAV to buy the remaining 0.2 percent voting interest.
The petitioner’s expert used a standard valuation methodology to prepare valuation appraisal reports. This expert applied a lack of control discount of 13.4 percent for the gift to the GRAT and a 12.7 percent lack of control discount for the gift to the irrevocable trust. The valuation firm also applied a 25 percent discount for both gifts.
The Tax Court determined that the IRS failed to provide enough evidence for its valuation estimates. The Tax Court also rejected the IRS assumption of the impact of future events on valuation, noting that the IRS valuation expert reports lacked details on how the discounts were calculated. Thus, the Tax Court rejected the proposed valuation estimates of the IRS and accepted those of the petitioner. The result was a 35 percent discount (total) for entity-level lack of control and lack of marketability compared to a 1.4 percent discount had the IRS approach been accepted.
S Corporation Value Accounts for Tax on Shareholders
Kress v. United States., 327 F. Supp. 2d 731 (E.D. Wisc. 2019)
The taxpayers, a married couple, gifted minority interests of stock in their family-owned S corporation to their children and grandchildren in 2007-2009. The taxpayers paid gift tax on the transfers of about $2.4 million. The taxpayers’ appraiser valued the S corporation earnings as of the end of 2006, 2007 and 2008 as a fully tax-affected C corporation. On audit, the IRS also followed a tax-effected approach to valuation of the S corporation earnings but applied an S corporation premium (pass-through benefit) and asserted that the gifts were undervalued as a result. The IRS assessed an additional $2.2 million of federal gift tax. The taxpayers paid the additional tax and sued for a refund in 2016.
The issue was the proper valuation of the S corporation. Historically, the IRS has not allowed for tax-affected S corporation valuation based on Gross v. Comr., T.C. Memo. 1999-254; Wall v. Comr., T.C. Memo. 2001-75; Estate of Heck v. Comr., T.C. Memo. 2002-34; Estate of Adams v. Comr., T.C. Memo. 2002-80; Dallas v. Comr., T.C. Memo. 2006-212; and Estate of Gallagher v. Comr, T.C. Memo. 2011-148. The IRS also has an internal valuation guide that provides that “…no entity level tax should be applied in determining the cash flows of an electing S corporation. …the personal income taxes paid by the holder of an interest in an electing S corporation are not relevant in determining the fair market value of that interest.”
But other courts have allowed the tax impact on shareholders. See, e.g., Delaware Open MRI Radiology Associates, 898 A.2d 290 (Del. Ct. Chanc. 2006); Bernier v. Bernier, 82 Mass. App. Ct. 81 (2012).
The court accepted the tax-affect valuation but disallowed the S corporation premium that IRS asserted. The court also allowed a discount for lack of marketability between 25 percent and 27 percent depending on the year of the transfer at issue.
Stray Voltage Could Lead to Partial Insurance Coverage
Hastings Mutual Insurance Co. v. Mengel Dairy Farms, Inc., No. 5:19CV1728, 2020 U.S. Dist. LEXIS 87612 (N.D. Ohio May 19, 2020)
The defendant unexpectedly had several cows and calves die and also suffered a loss of milk production and profits. The defendant filed a claimed against the plaintiff for insurance coverage for death of livestock, cost of investigation and repairs, and loss of business profits. The plaintiff investigated the claim, utilizing an electrical company to do so. The electrical company found a stray electrical current present on the property. The plaintiff then hired a fire and explosion company to investigate the property. This investigation resulted in a finding of no stray voltage on the property, but the company did express its belief that stray voltage did cause the defendant’s harm. As a result, the plaintiff paid the insurance claim for death of livestock and repairs, but not for loss of business profits.
The plaintiff then filed an action for a determination under the policy of whether loss of business profits was a covered loss. The plaintiff sought a declaratory judgment specifying that coverage for loss and damage resulting from the stray voltage was not triggered because the defendant was not subject to a “necessary suspension” of farming operations, and that the defendant’s loss or damage had to be directly caused by a “peril insured against” rather than being caused by dehydration which resulted from the cattle’s reaction to the stray voltage. The defendant filed a counterclaim for breach of contract; breach of good faith and fair dealing; and unjust enrichment. The plaintiff moved for summary judgment on the basis that the policy wasn’t triggered for lack of electrocution and that there was no suspension in the defendant’s business operations. The court determined that the policy did not define the term electrocution in the context of dairy animals. As such, the court concluded that the term could be reasonably interpreted to mean death by electrical shock or the cause of irreparable harm. As an ambiguous term, it was defined against the plaintiff and in the defendant’s favor. The court also refused to grant summary judgment on the cause of death issue. In addition, because the defendant did not cease operations, the court concluded that the policy provided no coverage for lost profits. The court also rejected the defendant’s breach of contract claim due to lack of suspending the business and rejected the good faith/fair dealing claim because mere negligence was not enough to support such a claim. The unjust enrichment claim was likewise denied.
Conclusion
The cases discussed above are all quite relevant to agricultural producers. For those struggling financially that find themselves in a Chapter 12, the interest rate utilized in the case is of primary importance. Many factors go into determining the rate, and farming operations can achieve a lower rate by meeting certain factors listed by the court in the decision mentioned above. Likewise, the valuation issue is critical, particularly if the federal estate tax exemption amount were to drop. When federal (and, possibly, state) estate tax is involved, valuation is the “game.” Finally, in all insurance cases, the language of the policy is critical to determine coverage application. Any ambiguous terms will be construed against the company. In all situations, having good legal counsel is a must.
July 25, 2020 in Bankruptcy, Business Planning, Insurance | Permalink | Comments (0)
Friday, July 3, 2020
The “Cramdown” Interest Rate in Chapter 12 Bankruptcy
Overview
In the context of Chapter 12 (farm) bankruptcy, unless a secured creditor agrees otherwise, the creditor is entitled to receive the value, as of the effective date of the plan, equal to the allowed amount of the claim. Thus, after a secured debt is written down to the fair market value of the collateral, with the amount of the debt in excess of the collateral value treated as unsecured debt which is generally discharged if not paid during the term of the plan, the creditor is entitled to the present value of the amount of the secured claim if the payments are stretched over a period of years.
What does “present value” mean? It means that a dollar in hand today is worth more than a dollar to be received at some time in the future. It also means that an interest rate will be attached to that deferred income. But, what interest rate will make a creditor whole? A recent decision involving a farming operation in the state of Washington is a good illustration of how courts address the issue.
“Cramdown” and Present Value
When a farmer files a Chapter 12 bankruptcy, the law allows the “cramdown” of a secured creditor if the farmer reorganization plan provides that the secured creditor gets to retain the lien that secures the claim and the value, as of the effective date of the plan, of property to be distributed by the trustee or the debtor under the plan on account of the claim is not less than the allowed amount of the claim. 11 U.S.C. §1225(a)(5)(B)(i)-(ii). The real issue is what “not less than the allowed amount of the claim” means. That’s particularly true when the rule is applied in the context of cash payments that are to be made in the future. In that instance, a value must be derived as of the plan’s effective date, that is discounted to present value. Present value is the discounted value of a stream of expected future incomes. That stream of income received in the future is discounted back to present value by a discount rate.
The determination of present value is highly sensitive to the discount rate, which is commonly expressed in terms of an interest rate. Several different approaches have been used in Chapter 12 bankruptcy cases (and nearly identical situations in Chapters 11 and 13 cases) to determine the discount rate. Those approaches include the contract rate – the interest rate used in the debt obligation giving rise to the allowed claim; the legal rate in the particular jurisdiction; the rate on unpaid federal tax; the federal civil judgment rate; the rate based on expert testimony; a rate tied to the lender’s cost of funds; and the market rate for similar loans.
Supreme Court Decision
In 2004, the U.S. Supreme Court, in, addressed the issue in the context of a Chapter 13 case that has since been held applicable in Chapter 12 cases. Till v. SCS Credit Corporation, 541 U.S. 465 (2004). In Till, the debtor owed $4,000 on a truck at the time of filing Chapter 13. The debtor proposed to pay the creditor over time with the payments subject to a 9.5 percent annual interest rate. That rate was slightly higher than the average loan rate to account for the additional risk that the debtor might default. The creditor, however, argued that it was entitled to a 21 percent rate of interest to ensure that the payments equaled the “total present value” or were “not less than the [claim’s] allowed amount.” The bankruptcy court disagreed, but the district court reversed and imposed the 21 percent rate. The United States Court of Appeals for the Seventh Circuit held that the 21 percent rate was “probably” correct, but that the parties could introduce additional concerning the appropriate interest rate.
On further review by the U.S. Supreme Court, the Court held that the proper interest rate was 9.5 percent. That rate, the Court noted, was derived from a modification of the average national loan rate to account for the risk that the debtor would default. The Court’s opinion has been held to be applicable in Chapter 12 cases. See, e.g., In re Torelli, 338 B.R. 390 (Bankr. E.D. Ark. 2006); In re Wilson, No. 05-65161-12, 2007 Bankr. LEXIS 359 (Bankr. D. Mont. Feb. 7, 2007); In re Woods, 465 B.R. 196 (B.A.P. 10th Cir. 2012). The Court rejected the coerced loan, presumptive contract rate and cost of funds approaches to determining the appropriate interest rate, noting that each of the approaches was “complicated, impose[d] significant evidentiary costs, and aim[ed] to make each individual creditor whole rather than to ensure the debtor’s payments ha[d] the required present value.” A plurality of the Court explained that these difficulties were not present with the formula approach. The Court opined that the formula approach requires that the bankruptcy court determine the appropriate interest rate by starting with the national prime rate and then make an adjustment to reflect the risk of nonpayment by the debtor. While the Court noted that courts using the formula approach have typically added 1 percent to 3 percent to the prime rate as a reflection of the risk of nonpayment, the Court did not adopt a specific percentage range for risk adjustment.
Subsequent Cases
Since the Supreme Court’s Till decision, the lower courts have decided many cases in which they have attempted to apply the Till approach. Indeed, the Circuit Courts have split on whether the appropriate interest rate for determining present value should be the market rate or a rate based on a formula. For example, in a relatively recent Circuit Court case on the issue, the Second Circuit held that a market rate of interest should be utilized if an efficient market existed in which the rate could be determined. In re MPM Silicones, L.L.C., No. 15-1682(l), 2017 U.S. App. LEXIS 20596 (2nd Cir. Oct. 20, 2017). In the case, the debtor filed Chapter 11 and proposed a reorganization plan that gave first-lien holders an option to receive immediate payment without any additional “make-whole” premium, or the present value of their claims by utilizing an interest rate based on a formula that resulted in a rate below the market rate. The bankruptcy court confirmed the plan, utilizing the formula approach of Till. The federal district court affirmed. On further review, the appellate court reversed noting that Till had not conclusively specified the use of the formula approach in a Chapter 11 case. The appellate court remanded the case to the bankruptcy court for a determination of whether an efficient market rate could be determined based on the facts of the case.
Recent Washington Case
A recent case from the state of Washington is a good illustration of how a court can use the Till opinion to fashion an interest rate suitable to the debtor’s particular farming operation. In In re Key Farms, Inc., No. 19-02949-WLH12, 2020 Bankr. LEXIS 1642 (Bankr. D. Wash. Jun. 23, 2020), the debtor was a family farming operation engaged in apple, cherry, alfalfa, seed corn and other crop production. The parents of the family owned 100 percent of the debtor, the farming entity. In 2014, the debtor changed its primary lender which extended a line of credit to the debtor that the father personally guaranteed and a term loan to the debtor that the father also personally guaranteed. The lender held a first-priority security interest in various real and personal property to secure loan repayment. The debtor became unable to repay the line of credit and the default caused defaults on the term loan and the guarantees. The lender sued to foreclose on its collateral and have a receiver appointed.
The debtor then filed Chapter 12 bankruptcy and proposed a reorganization plan where it would continue farming under 2020-2024 in accordance with proposed budgets through 2024. The plan provided for repayment of all creditors in full. The plan proposed to repay then lender over 20 years at a 4.5 percent interest rate (prime rate of 3.25 percent plus 1.25 percent). The lender opposed plan confirmation. A primary issue was what an appropriate cramdown interest rate would be.
The court looked at the unique features of the debtor to set the rate. Indeed, in determining whether the reorganization plan was fair and equitable to the lender based on the facts, the court noted the father’s lengthy experience in farming and familiarity with the business and that the farm manager was experienced and professional. The court also noted that the parents had extensive experience with crop insurance and that they were committing unencumbered personal assets to the reorganization plan. The court also noted the debtor’s shift in recent years to more profitable crops, a demonstrated ability to manage around cash flow difficulties, and that the lender would be “meaningfully oversecured.” The court also determined that the debtor’s farming budgets appeared to be based on reasonable assumptions and forecasted consistent annual profitability.
However, the court did note that the debtor had a multi-year history of operating losses in recent years; was heavily reliant on crop insurance; was engaged in an inherently risky business subject to forces beyond the debtor’s control; had no permanent long-term leases in place for the considerable amount of acreage that it leased; could not anticipate how the Chinese Virus would impact the business into the future; and proposed a lengthy post-confirmation obligation (30 years) to the lender. Accordingly, the court made an upward adjustment to the debtor’s proposed additional 1.25 percent to the prime rate by increasing it by at least 1.75 percent. The court scheduled a conference with the parties to discuss how to proceed.
Conclusion
The interest rate issue is an important one in reorganization bankruptcy. the market rate, as applied to an ag bankruptcy, does seem to recognize that farm and ranch businesses are subject to substantial risks and uncertainties from changes in price and from weather, disease and other factors. Those risks are different depending on the type of agricultural business the debtor operates. A market rate of interest would is reflective of those factors.
July 3, 2020 in Bankruptcy | Permalink | Comments (0)
Tuesday, June 2, 2020
SBA Says Farmers in Chapter 12 Ineligible for PPP Loans
Overview
Economic conditions in agriculture have been difficult for several years. Added to the down economic cycle that much of agriculture has experienced are the severe hits the economy has taken by actions of state governors reacting to the virus. Prices for various agricultural commodities are off significantly and Chapter 12 farm bankruptcy filings are up. One of the measures that the Congress has created to try to provide relief to businesses is the Paycheck Protection Program (PPP). I have written about the details of that program in other posts, but another aspect of the program that impacts farmers has now come into focus – the issue of whether a farmer in Chapter 12 bankruptcy is eligible for a PPP loan.
Chapter 12 filers and PPP loan eligibility – it’s the topic of today’s post.
Chapter 12
Under 1986 amendments to the Bankruptcy Act of 1978, Congress created Chapter 12 bankruptcy for “family farmers.” Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, 100 Stat. 3105 (1986), adding 11 U.S.C. § 1201 et seq. The Act was scheduled to expire on October 1, 1993 but was extended numerous times before being made a permanent part of the Bankruptcy Code by the Bankruptcy Act of 2005, effective July 1, 2005. Chapter 12 was designed as a response to the difficulties that farmers (and fishermen) suffered in the 1980s. Chapter 12 is conceptually and statutorily similar to other reorganization-type bankruptcies, but provides more flexibility in making periodic payments to take into account the seasonal nature of many farming or fishing operations. Under Chapter 12, the debtor proposes a repayment plan that lasts three to five years. Chapter 12 is also less expensive and, in many respects, less complex than other forms of reorganization bankruptcy.
PPP and Applicants in Bankruptcy
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, Pub. L. No. 116-136, 134 Stat. 281 (2020). The CARES Act amended the Small Business Administration’s (SBAs) existing “7a Loan Program” to create the PPP. The PPP provides loans for eligible small businesses to cover allowed uses including payroll costs, interest on mortgage obligations and rent. The SBA’s First Interim Rule did not address eligibility of bankrupt debtors for the PPP, but it did require an applicant to fill out a form that required the applicant to certify that the applicant was not “presently involved in bankruptcy.” However, in the SBA’s Fourth Interim Final Rule, posted to its website on April 24, 2020, the SBA said in a Q and A that a business would not be approved for a PPP loan if the business was in bankruptcy. The rationale given was that making a PPP loan to an applicant in bankruptcy would be too risky – either via unauthorized use of funds or non-repayment of unforgiven loans.
Implications for Applicants in Bankruptcy
A bankruptcy court in Wisconsin recently dealt with the issue of PPP loan eligibility for a farmer in Chapter 12 bankruptcy. In Schuessler v. United States SBA, No. 20-02065-bhl, 2020 Bankr. LEXIS 1347 (E.D. Wisc. May 22, 2020), the debtors, a married couple operating a farm dairy operation, filed Chapter 12 bankruptcy in late 2018. On the same day, their wholly-owned, limited liability company (LLC) entity that runs the daily farming and dairy operation filed a separate Chapter 12 petition. The debtors direct the farming operation and own the real estate and improvements. The cases were jointly administered, and the debtors’ second amended plan was confirmed on May 8, 2019. The debtors’ income comes primarily from milk sales and from the sale of culled cows. Due to the present economic crisis exacerbated by state governors, the debtors’ milk sale revenue declined by more than 30 percent. Since January of 2019, the wholesale price of milk declined from nearly $19.00 to $12.50 per cwt. In addition, due to slaughterhouse closures, the debtors received much lower than historical prices for their culled cow sales. The debtors listed a significant mortgage and utility expenses on the bankruptcy schedules and noted that they employ 14 people with an average monthly payroll of $59,835.
The debtors applied for a Paycheck Protection Program (PPP) loan from the Small Business Administration (SBA) and were rejected because of their pending bankruptcy case. They otherwise met the requirements of the PPP. Without the loan, there was no doubt that the debtors would be forced to lay off essential employees and would be potentially driven out of business. The debtors then filed for Declaratory Judgment, Writ of Mandamus and Injunctive Relief against the SBA. The bankruptcy court rejected the debtors’ claims and dismissed the complaint.
The bankruptcy court noted that the SBA’s Fourth Interim Final Rule, Section III (4) specified that a debtor in bankruptcy is not eligible for a PPP loan. The issue was whether the SBA’s position violated the anti-discrimination provisions contained in 11 U.S.C. §525(a). Those provisions bar the government from revoking, suspending, or refusing to renew “a license, permit, charter, franchise, or other similar grant” based on a person either being in or having been a debtor in bankruptcy. The bankruptcy court noted that the U.S. Court of Appeals for the Seventh Circuit (to which any appeal would be made) had not yet ruled on the issue of the scope of 11 U.S.C. §525(a), but that four other Circuit Courts of Appeal had. Three of those courts took a narrow view of 11 U.S.C. §525(a) and only the U.S. Court of Appeals for the Second Circuit determined that debtors in bankruptcy couldn’t be denied any “property interests” that were essential to the debtor’s “fresh start” in bankruptcy. Stolz v. Brattleboro Housing Authority, 315 F.3d 80 (2d Cir. 2002).
The bankruptcy court also agreed with the SBA’s reliance on other courts that had recently held that the denial of PPP eligibility to bankrupt debtors did not violate 11 U.S.C. §525(a) because the PPP funds are distributed via “loans” and are, as a result, outside the scope of the antidiscrimination provisions of 11 U.S.C. §525(a). See Cosi, Inc. v. SBA, Adv. No. 20-50591 (Bankr. D. Del. Apr. 30, 2020); Trudy’s Texas Star, Inc. v. Carranza, Adv. No. 20-1026 (Bankr. W.D. Tex. May 7, 2020). In addition, the bankruptcy court noted that in In re Elter, 95 B.R. 618 (Bankr. E.D. Wis. 1989) the refusal to extend a government-guaranteed student loan based on the debtor’s bankruptcy history did not violate 11 U.S.C. §525(a). It was the plain terms of the CARES Act creating the PPP as a subsidized loan guarantee program, the bankruptcy court reasoned, that kept it beyond the anti-discrimination provisions of 11 U.S.C. §525(a) that applied to a “license, charter, franchise, or other similar grant.” While the underlying statute (15 U.S.C. §636(a)(36)(F)(i)) is silent on whether bankrupt debtors are ineligible for PPP loans, the bankruptcy court noted that there was nothing in the statute that suggested the Congress intended to limit the SBA’s rulemaking or that the Congress provided an exhaustive list of eligibility requirements that the SBA couldn’t supplement via rulemaking. Thus, the Fourth Interim Final rule was not beyond the SBA’s delegated authority. In addition, the court held that the Fourth Interim Final Rule did not violate the APA for being arbitrary and capricious. The bankruptcy court noted that had the Congress intended to bar the SBA from denying loan eligibility to applicants in bankruptcy, it could have done so.
Conclusion
The Wisconsin bankruptcy court’s conclusion barring Chapter 12 debtors from PPP eligibility is harsh. It clearly runs counter to the policy objective of Chapter 12 bankruptcy – to keep farming operations in business and servicing their debt after having their debt restructured. Chapter 12 was enacted based heavily on the recognition that farming is subject to numerous factors that can be beyond the control of the particular farmer. That’s certainly the case with the economic collapse brought on by the (largely unconstitutional) actions of various state governors. The bankruptcy court’s decision also runs counter to two other bankruptcy court decisions on the PPP eligibility issue – a bankruptcy court in Texas and one in Vermont. See Hidalgo County Emergency Service Foundation v. Carranza, Adv. No. 20-2006, 2020 Bankr. LEXIS 1174 (Bankr. S.D. Tex. Apr. 25, 2020); and In re Springfield Hospital, Inc., No. 19-10283, 2020 Bankr. LEXIS 1205 (Bankr. D. Vt. May 4, 2020). Indeed, the Texas bankruptcy court also noted the lack of collateral requirements to obtain a PPP loan and that the funds need not be repaid if they were used in a qualified manner, illustrating the minimal-to-non-existent risk to a lender of a borrower’s default.
Congress has been apprised of the SBA’s position and the inconsistent rulings by courts. Unless the Congress takes action (or the SBA changes its mind), more farming operations will fail than otherwise would.
June 2, 2020 in Bankruptcy | Permalink | Comments (0)
Wednesday, May 27, 2020
Ag Law and Tax Developments
Overview
During the last couple of months while various state governors have issued edicts randomly declaring some businesses essential and other non-essential, the ag industry has continued unabated. The same is true for the courts – the ag-related cases and tax developments keep on coming in addition to all of the virus-related developments.
As I periodically do, I provide updates of ag law and tax issues of importance to agricultural producers and others in the ag industry, as well as rural landowners in general.
That the topic of today’s post – a few recent developments in ag law and taxation.
FSA Not Entitled To Set-Off Subsidy Payments
In Re Roberts, No. 18-11927-t12, 2020 Bankr. LEXIS 1338 (Bankr. D. N.M. May 19, 2020)
Bankruptcy issues are big in agriculture at the present time. Several recent blog articles have touched on some of those issues, including bankruptcy tax issues. This case dealt with the ability of a creditor to offset a debt owed to it by the debtor with payments it owed to the debtor. The debtors (husband and wife) borrowed $300,000 from the Farm Service Agency (FSA) in late 2010. The debtors enrolled in the Price Loss Coverage program and the Market Facilitation Program administered by the FSA. The debtors filed Chapter 11 bankruptcy in mid-2018 and converted it to a Chapter 12 bankruptcy in late 2019. The debtors defaulted on the FSA loan after converting their case to Chapter 12.
The debtors were entitled to receive approximately $40,000 of total MFP and PLC payments post-petition. The FSA sought a set-off of the pre-petition debt with the post-petition subsidy payments. The court refused to the set-off under 11 U.S.C. §553 noting that the offsetting obligations did not both arise prepetition and were not mutual as required by 11 U.S.C. §553(a). There was no question, the court opined, that the FSA’s obligation to pay subsidy payments arose post-petition and that the debtors’ obligation to FSA arose pre-petition. Thus, set-off was not permissible.
HSA Inflation-Adjusted Amounts for 2021
Rev. Proc. 2020-32, 2020-24 I.R.B.
Persons that are covered under a high deductible health plan (HDHP) that are not covered under any other plan that is not an HDHP, are eligible to make contributions to a health savings account (HSA) subject to certain limits. For calendar year 2021, an HDHP is a health plan with an annual deductible of at least $1,400 for individual coverage or $2,800 for family coverage, and maximum out-of-pocket expenses of $7,000 for individual coverage or $14,000 for family coverage. For 2021, the maximum annual contribution to an HSA is $3,600 for self-only coverage and $7,200 for family coverage.
Charitable Deduction Allowed for Donated Conservation Easement
Champions Retreat Golf Founders, LLC v. Comr., No. 18-14817, 2020 U.S. App. LEXIS 15237 (11th Cir. May 13, 2020), rev’g., T.C. Memo. 2018-146
The vast majority of the permanent conservation easement cases are losers for the taxpayer. This one was such a taxpayer loser at the Tax Court level, but not at the appellate level. Under the facts of the case, the petitioner claimed a $10.4 million charitable deduction related to the donation of a permanent conservation easement on a golf course. The IRS denied the deduction on the basis that the easement was not exclusively for conservation purposes because it didn’t protect a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem as required by I.R.C. §170(h)(4)(A)(ii). The IRS also asserted that the donation did not preserve open space for the scenic enjoyment of the general public or in accordance with a governmental conservation policy for the public’s benefit under I.R.C. §170(h)(4)(A)(iii). The Tax Court agreed with the IRS and denied the deduction. The Tax Court determined that the “natural habitat” requirement was not met – there was only one rare, endangered or threatened species with a habitat of only 7.5 percent of the easement area. In addition, the Tax Court noted that part of the golf course was designed to drain into this habitat area which would introduce chemicals into it. Thus, the easement’s preservation of open space was not for public enjoyment nor in accordance with a governmental policy of conservation.
On further review, the appellate court reversed. The appellate court found that the deduction was proper if the donation was made for the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem or was made for the preservation of open space for the scenic enjoyment of the general public. The appellate court noted that without the golf course, the easement would satisfy the requirements and an easement deduction is not denied simply because a golf course is included. The appellate court remanded the case for a determination of the proper amount of the deduction.
Residence Built on Farm Was “Farm Residence” For Zoning Purposes
Hochstein v. Cedar County. Board. of Adjustment, 305 Neb. 321, 940 N.W.2d 251 (2020)
Many cases involve the issue of what is “agricultural” for purposes of state or county zoning and related property tax issues. In this case, Nebraska law provided for the creation of an “ag intensive district.” In such designated areas, any “non-farm” residence cannot be constructed closer than one mile from a livestock facility. The plaintiff operated a 4,500-head livestock feedlot (livestock feeding operation (LFO)) and an adjoining landowner operates a farm on their adjacent property. The adjoining landowner applied to the defendant for a zoning permit to construct a new house on their property that was slightly over one-half mile from the plaintiff’s LFO. The defendant (the county board of adjustment) approved the permit and the plaintiff challenged the issuance of the permit on the basis that the adjoining landowner was constructing a “non-farm” residence. The defendant affirmed the permit’s issuance on the basis that the residence was to be constructed on a farm. The plaintiff appealed and the trial court affirmed. On further review, the appellate court affirmed. On still further review by the state Supreme Court, the appellate court’s opinion was affirmed. The Supreme Court noted that the applicable regulations did not define the terms “non-farm residence” or “farm residence.” As such, the defendant had discretion to reasonably interpret the term “farm residence” as including a residence constructed on a farm.
Ag Cooperative Fails To Secure Warehouse Lien; Loses on Conversion Claim.
MidwestOne Bank v. Heartland Co-Op, 941 N.W.2d 876 (Iowa 2020)
I dealt with the issue in this case in my blog article of March 27. You may read it here: https://lawprofessors.typepad.com/agriculturallaw/2020/03/conflicting-interests-in-stored-grain.html In the article, I detail many of the matters that arose in this case.
The facts of the case revealed that a grain farmer routinely delivered and sold grain to the defendant, an operator of a grain warehouse and handling facility. The contract between the parties contemplated the sale, drying and storage of the grain. The farmer also borrowed money from the plaintiff to finance the farming operation and granted the plaintiff a security interest in the farmer’s grain and sale proceeds. The plaintiff filed a financing statement with the Secretary of State’s office on Feb. 29, 2012 which described the secured collateral as “all farm products” and the “proceeds of any of the property [or] goods.” The financing statement was amended in late 2016 and continued. The underlying security agreement required the farmer to inform the plaintiff as to the location of the collateral and barred the farmer from removing it from its location without the plaintiff’s consent unless done so in the ordinary course of business. It also barred the farmer from subjecting the collateral to any lien without the plaintiff’s prior written consent. However, the security agreement also required the farmer to maintain the collateral in good condition at all time and did not require the plaintiff’s prior written consent to do so.
The plaintiff complied with the 1985 farm products rule and the farmer gave the plaintiff a schedule of buyers of the grain which identified the defendant. From 2014 through 2017, the farmer sold grain to the defendant, and the defendant remitted the net proceeds of sale via joint check to the farmer and the plaintiff after deducting the defendant’s costs for drying and storage – a longstanding industry practice. The plaintiff, an ag lender in an ag state, claimed that it had no knowledge of such deductions until 2017 whereupon the plaintiff sued for conversion. The defendant did not properly perfect a warehouse lien and the lien claim was rejected by the trial court, but asserted priority on a theory of unjust enrichment. The trial court rejected the unjust enrichment claim.
The state Supreme Court agreed, refusing to apply unjust enrichment principles in the context of Article 9 of the Uniform Commercial Code (UCC). The court did so without any mention of UCC §1-103 (b) which states that, "Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity” including the law merchant [undefined] and the law relative to capacity to contract; duress; coercion; mistake; principal and agency relationships; estoppel, fraud and misrepresentation; bankruptcy, and other validating or invalidating cause [undefined] supplement its provisions.” This section has been characterized as the "most important single provision in the Code." 1 J. White & R. Summers, Uniform Commercial Code § 5. “As such, the UCC was enacted to displace prior legal principles, not prior equitable principles.” However, the Supreme Court completely ignored this “most important single provision in the Code.” The Court also ignored longstanding industry practice and believed an established ag lender in an ag state that it didn’t know the warehouse was deducting its drying and storage costs before issuing the joint check.
Conclusion
The developments keep rolling in. More will be covered in future articles.
May 27, 2020 in Bankruptcy, Income Tax, Real Property, Secured Transactions | Permalink | Comments (0)
