Monday, October 30, 2023
Reporting of Beneficial Ownership Information; Employee Retention Credit; Exclusion of Gain on Sale of Land with Residence; and a Farm Lease
Introduction
As I try to catch up on my writing after being on the road for a lengthy time, I have several items that seem to be recurring themes in what I deal with.
Another potpourri of random ag law and tax issues – it’s the topic of today’s post.
New Corporate Reporting Requirements
The Corporate Transparency Act (CTA), P.L. 116-283, enacted in 2021 as part of the National Defense Authorization Act, was passed to enhance transparency in entity structures and ownership to combat money laundering, tax fraud and other illicit activities. In short, it’s an anti-money laundering initiative designed to catch those that are using shell corporations to avoid tax. It is designed to capture more information about the ownership of specific entities operating in or accessing the U.S. market. The effective date of the CTA is January 1, 2024.
Who needs to report? The CTA breaks down the reporting requirement of “beneficial ownership information” between “domestic reporting companies” and “foreign reporting companies.” A domestic reporting company is a corporation, limited liability company (LLC), limited liability partnership (LLP) or any other entity that is created by filing of a document with a Secretary of State or any similar office under the law of a state or Indian Tribe. A foreign reporting company is a corporation, LLC or other foreign entity that is formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a Secretary of State or any similar office.
Note: Sole proprietorships that don’t use a single-member LLC are not considered to be a reporting company.
Reporting companies typically include LLPs, LLLPs, business trusts, and most limited partnerships and other entities are generally created by a filing with a Secretary of State or similar office.
Exemptions. Exemptions from the reporting requirement apply for securities issuers, domestic governmental authorities, insurance companies, credit unions, certain large accounting firms, tax-exempt entities, public utility companies, banks, and other entities that don’t fall into specified categories. In total there are 23 exemptions including an exemption for businesses with 20 or more full-time U.S. employees, report at least $5 million on the latest filed tax return and have a physical presence in the U.S. But, for example, otherwise exempt businesses (including farms and ranches) that have other businesses such as an equipment or land LLC or any other related entity will have to file a report detailing the required beneficial ownership information. Having one large entity won’t exempt the other entities.
What is a “Beneficial Owner”? A beneficial owner can fall into one of two categories defined as any individual who, directly or indirectly, either:
- Exercises substantial control over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company
Note: Beneficial ownership is categorized as those with ownership interests reflected through capital and profit interests in the company.
What must a beneficial owner do? Beneficial owners must report to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing and other international crimes. Beneficial owners must report their name, date of birth, current residential or business street address, and unique identifier number from a recognized issuing jurisdiction and a photo of that document. Company applicants can only be the individual who directly files the document that creates the entity, or the document that first registers the entity to do business in the U.S. A company applicant may also be the individual who is primarily responsible for directing or controlling the filing of the relevant document by someone else. This last point makes it critical for professional advisors to carefully define the scope ot engagement for advisory services with clients.
Note: If an individual files their information directly with FinCEN, they may be issued a “FinCEN Identifier” directly, which can be provided on a BOI report instead of the required information.
Filing deadlines. Reporting companies created or registered in 2024 have 90 days from being registered with the state to file initial reports disclosing the persons that own or control the business. NPRM (RIN 1506-AB62) (Sept 28, 2023). If a business was created or registered to do business before 2024, the business has until January 1 of 2025 to file the initial report. Businesses formed after 2024 must file within 30 days of formation. Reports must be updated within 30 days of a change to the beneficial ownership of the business, or 30 days from when the beneficial owner becomes aware of or has reason to know of inaccurate information that was previously filed.
Note: FinCEN estimates about 32.6 million BOI reports will be filed in 2024, and about 14.5 million such reports will be filed annually in 2025 and beyond. The total five-year average of expected BOI update reports is almost 12.9 million.
Penalties. The penalty for not filing is steep and can carry the possibility of imprisonment. Specifically, noncompliance can result in escalating fines ranging from $500 per day up to $10,000 total and prison time of up to two years.
State issues. A state is required to notify filers upon initial formation/registration of the requirement to provide beneficial ownership information to the FinCEN. In addition, states must provide filers with the appropriate reporting company Form.
Withdrawing an ERC Claim
Over the past year or so many fraudulent Employee Retention Credit claims have been filed. You may have heard or seen the ads from firms aggressively pushing the ability to claim the ERC. It’s gotten so bad that the IRS stopped processing claims for the fourth quarter of 2023. Many farming operations likely didn’t qualify for the ERC because they didn’t experience at least a 20 percent reduction in gross receipts on an aggregated basis (an eligibility requirement for the ERC) but may have submitted a claim.
Now IRS has provided a path for those that want to withdraw their claim so as not to be hit with a tax deficiency notice and penalties. IR 2023-169 (Sept. 14, 2023).
A withdrawal is possible for those that filed a claim but haven’t received notice that the claim is under audit. Just file Form 943 and write “withdrawn” on the left-hand margin. Make sure to sign and date the Form before sending it to the IRS. If your claim is under audit provide the Form directly to the auditor. If you received a refund but haven’t cashed it, write “VOID and ERC WITHDRAWAL” and send it back to the IRS.
How Much Gain on Land Can Be Excluded Under Home Sale Rule?
When you sell your principal residence, you can exclude up to $500,000 of gain on a joint return ($250,000 on a single return) if you have owned the home and used it as your principal residence for at least two out of the last five years immediately preceding the sale. I.R.C. §121. But how much land can be included with the sale of the home and have gain excluded within that $500,000 limitation? The Treasury Regulations provide guidance.
For starters, the land must be adjacent to the principal residence and be used as a part of the residence. Treas Reg. §1.121-1(b)(3). In addition, the taxpayer must own the land in the taxpayer’s name rather than in an entity that the taxpayer has an ownership interest in (unless the entity is an “eligible entity” defined under Treas. Reg. §301.7701-3(1)). Land that’s been used in farming within the two-year period before the sale isn’t eligible because its use in farming means it’s not been used as part of the residence.
Note: Sale of the principal residence and sale of the adjacent land is treated as a single sale for purposes of the gain limitation amount. That’s true even if the sale occurs in different years but within the two-year time constraint. Treas. Reg. §1.121-1(b)(3)(ii)(c). Also, when computing the maximum limitation for the gain exclusion, the sale of the principal residence is excluded before any gain for the sale of the vacant land. Treas. Reg. §1.121-1(b)(3)(ii).
For land that is eligible to be included with the residence, how much can be included? It depends. Land that contains a garden for home use and land that is landscaped as a yard can be included. Also, local zoning rules might be instructive. This all means that it’s a fact-based analysis. There is no bright-line rule. IRS rulings and caselaw illustrate that point.
Written Farm Lease Expires by its Terms; No Holdover Tenancy
A recent case from Kansas illustrates how necessary it is to pay attention to the terms of a written farm lease. Under the facts of the case, the plaintiff entered into a written farm lease with a landowner on January 10, 2018. The purpose of the lease was the maintenance and harvesting a hay crop on the leased ground. By its terms, the lease terminated on December 31, 2018, and contained a provision specifying that the parties could mutually agree in writing to extend the lease. However, the parties did not extend the lease and it expired as of December 31, 2018.
In 2019, the landowner sold the farm to a third-party buyer. After the sale, but before the buyer took possession, the plaintiff had the hay field fertilized. During the summer of 2019, the new landowner hired the defendant to cut and bale the hay, which the defendant ultimately completed late one night. However, early the next morning the plaintiff entered the property and took some of the hay after it was harvested and baled. The new owner called law enforcement and the plaintiff was informed not to return to the property. But the plaintiff returned to the property and took more hay. The plaintiff was criminally charged for multiple offenses. Ultimately, the plaintiff received a diversion in lieu of prosecution for the charges (against the new owner’s wishes) and was required to provide restitution and perform community service.
The plaintiff claimed that he was entitled to the hay bales because he had a verbal lease and tried to tender a rent check after removing the bales. The landowner refused to cash the check and moved cattle onto the hay ground. The plaintiff sued for breach of contract, breach of duty of good and fair dealing, and tortious interference with a contract or business relationship. The trial court rejected all of the claims and dismissed the case as a matter of law on the basis that the plaintiff did not have a valid lease after 2018. The trial court denied a motion to reconsider. On appeal, the appellate court affirmed noting that the lease had not been extended in writing and a holdover tenancy did not exist. As for monetary damages, the new landowner recovered $27,000 from the plaintiff. Thoele v. Lee, 2023 Kan. App. Unpub. LEXIS 381 (Kan. Ct. App. Sept. 15, 2023).
October 30, 2023 in Business Planning, Contracts, Income Tax, Real Property, Regulatory Law | Permalink | Comments (0)
Sunday, August 27, 2023
Ag Law and Tax Ramblings
Overview
The subject matter of agricultural law and taxation is very dynamic. Farmers, ranchers and agribusiness ventures can find themselves involved in legal and tax issues in many ways. Let’s take a look at a few of those issues.
Random thoughts and developments in ag law and tax – it’s the topic of today’s post.
Crop Insurance Deferral
Farmers facing drought this year will likely collect crop insurance. The tax law allows crop insurance proceeds to be deferred if the farmer has a business practice of deferring crop sales. But there’s a limitation on the amount that can be deferred. The amount that you can defer is limited to the portion related to crop damage. The portion associated with price is not deferrable. Crop damage is based on yield loss times the crop’s base price before you plant the crop. If the price at harvest equals or is greater than the base price, all of your crop insurance proceeds are related to yield and will be fully deferable.
However, if harvest price is lower than the base price, the portion of the crop insurance proceeds related to the drop in price is based solely on the price drop. That means that at least some of the crop insurance proceeds won’t be deferable.
Note: I have a formula in my treatise, Principles of Agricultural Law, with examples of the computation. Note that the formula is not official IRS policy, but the IRS in Pub. 225 does recognize the principal of the formula.
The good news is that you won’t have to calculate the numbers. Your crop insurance provider usually reports the amount of price and yield loss when the proceeds are sent out.
This year, it’s looking likely that most crop insurance proceeds will be a result of a price drop and not a price increase at harvest. So don’t be surprised if you won’t be able to defer all of your crop insurance proceeds. Keep that in mind as you start to think about tax planning coming into the last quarter of 2023.
Tax Legislation
The Tax Cuts and Jobs Act (TCJA) enacted in late 2017 contains numerous provisions that will expire at the end of 2025. Farmer and ranchers and tax preparers are beginning to raise questions with me about how I see the tax landscape shaping up come 2026. For starters, I think it’s unlikely that the Congress will act on major tax policy until it has too. That would mean that we won’t see tax legislation until late in 2025. However, the Congress has a habit of passing Omnibus spending legislation late in the year and tax provisions could be thrown in that bill this coming December. If that happens, what might be addressed later this year? I see one possibility being that of bonus depreciation being reinstated to 100 percent, perhaps on a retroactive basis. It’s currently 80 percent and is phasing down. Also, I have heard rumblings about making the qualified business income deduction (20 percent for sole proprietorships and pass-through income) permanent. There might also be another attempt to increase the Child Tax Credit.
As for what might happen in 2025, it will depend on the politics at that time and general economic conditions. One thing is for sure, the higher interest rate on the debt (caused by bad economic policies) is causing the government to spend much more on debt service and will make tax reform to help the economy more difficult.
Trains and Crossings
An issue for all motorists, but one of particular interest to motorists using rural roadways is the length of time that a train can block a crossing.
Many states have statutes that specify the maximum length of time that a train can block a public road. The state laws vary, but a general rule of thumb is that a blockage cannot exist for more than 20 minutes. There are numerous exceptions concerning such things as emergencies and when the blockage is a result of something beyond the railroad’s control. When state law doesn’t address the issue, there may be restrictions at the local level.
An interesting question involves the extent to which state laws on road blockages are valid. Railroads are subject to an interesting mix of federal and state law. Does federal law preempt state law on this issue? It can if state law only applies to railroad companies rather than the public at large and has more than just a remote or incidental effect on railway transportation. That’s because the Surface Transportation Board has exclusive jurisdiction to regulate railways.
This all means that state law must be carefully tailored to apply broadly to roadway obstructions generally, and not have anything more than a slight impact on railway transportation. If those requirements are not satisfied, federal law may control.
What’s a Tractor?
A recent case (Brownell v. Brownell, No. SCSC024547 (Dist. Ct. Fayette Co, IA (Aug. 16, 2023)) involved a father suing his son over the sale of a tractor. The father bought a tractor to use in his farming operation. It was equipped with a cab, three-point hitch, draw bar and PTO shaft – all of which were detachable. During his high school years, the son used the tractor in tractor pulls, which required the removal of the detachable parts. Dad continued to pay for the fuel for the tractor and kept it insured. Mom and Dad then divorced and as part of the divorce Dad discussed selling the tractor to their son. No formal written sale contract was entered into, but Dad told his attorney that he had agreed to sell the tractor to his son for $10,000 with no weights or other items, noting that a bank had a lien on all farm equipment.
The son paid $10,000 to his parents and when he took delivery of the tractor, he also took the draw bar, three-point hitch and PTO shaft. The legal question was whether the attachments counted as the “tractor” entitling the son to them. While the attachments were extraneous to the oral contract, the court said the son reasonably believed that they came with the tractor and were a part of it.
It’s always a good idea to get contracts in writing – even seemingly simples ones, and even ones between family members. It’s hard for me to fathom a father suing his son, but I have seen it happen numerous times.
Also, this case reminds me of a Kansas case about 25 years ago involving a new combine that caught fire during its first usage when the engine malfunctioned. While the insurance company made the farmer whole, the company claimed in court that it only insured the shell of the combine and not the component parts (i.e., the engine) so the engine manufacturer should be on the hook for the loss. The court disagreed. A “combine” meant all of the component parts of the combine. That’s what a reasonable insured would think with respect to a self-propelled combine.
Renting Out Part of the Home
If you rent out part of your home, be careful in how you account for the income. You will need to do an allocation for the expenses and the basis of the portion of the home rented out. For instance, in Lin v. Comr., T.C. Memo. 2023-37, a married couple rented out a basement apartment in their home to a friend. They charged $300/month (the Tax Court ignored the issues that the rent might have been below fair rental value) and deducted expenses associated with the rental on their Schedule E. They also claim depreciation but in doing so used their basis in the entire house. The Tax Court determined that the expenses should have been allocated to the space rented and that some of the expenses didn’t pertain to the rented portion of the home. For example, expenses incurred to renovate the bathroom were incurred after the tenant moved out and there was no evidence provided that they had ever rented the space before or would do so in the future. On the depreciation issue, the Tax Court held that the rental income was only offset by the basis in the rented space and that the couple didn’t supply any square footage numbers on which to allocate depreciation (or the other expenses) attributable to the rented portion of the home. The IRS did allow some expense deductions, and the Tax Court allowed those.
August 27, 2023 in Civil Liabilities, Contracts, Income Tax | Permalink | Comments (0)
Monday, July 10, 2023
Minnesota Farmer Protection Law – Update
Overview
Last fall I wrote about a case from Minnesota involving that state’s law enacted in 1991 to provide contract protection to farmers. The law arose out of the farm crisis of the 1980s and was applied in a contract production case. The farmers ultimately won that case, and now the trial court has issued its remand decision with an important ruling on the choice of law provision that was utilized in the contracts. That will be an important point for other state legislatures with or considering similar legislation.
Producer protection legislation and recent case – it’s the topic of today’s post.
Minnesota Farmer Protection Law
In early 1988, the Minnesota Legislature directed the Minnesota Department of Agriculture (MDA) to put together a task force to study the issue of agricultural contract production and recommend to the legislature how it might provide additional legal and economic protection to contract growers. The MDA’s Final Report was issued in February of 1990. During the 1990 legislative session, the Minnesota legislature approved various economic protections for farmers based on the task force recommendations focusing particularly on parent liability. As signed into law, MN Stat. §17.93 provides as follows:
“Parent company liability. If an agricultural contractor is the subsidiary of another corporation, partnership, or association, the parent corporation, partnership or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the contractor fails to pay or perform according to the terms of the contract.”
In addition, MN Stat. §17.90 specified as follows:
“’Producer” means a person who produces or causes to be produced an agricultural commodity in a quantity beyond the person’s own family use and: (1) is able to transfer title to another; or (2) provides management input for the production of an agricultural commodity.”
The MDA then prepared a “statement of need and reasonableness” (SONAR) to implement the new statutory provision. The SONAR referred to the legislation as the “Producer Protection Act” (PPA) and the MDA’s implementing rule (MN Rule 1572.0040) for MN Stat §17.93 which went into effect on March 4, 1991, read as follows:
“A corporation, partnership, sole proprietorship, or association that through ownership of capital stock, cumulative voting rights, voting trust agreements, or any other plan, agreement, or device, owns more than 50 percent of the common or preferred stock entitled to vote for directors of a subsidiary corporation or provides more than 50 percent of the management or control of a subsidiary is liable to a seller of agricultural commodities for any unpaid claim or contract performance claim of that subsidiary.”
During the same 1990 legislative session the Minnesota legislature approved and the governor signed into law MN Stat. §27.133. This new law stated as follows:
“Parent company liability. If a wholesale produce dealer is a subsidiary of another corporation, partnership, or association, the parent corporation, partnership, or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the wholesale produce dealer fails to pay or perform in according to the terms of the contract and this chapter.”
Concerning this provision, the legislature stated, “It is therefore declared to be the policy of the legislature that certain financial protection be afforded those who are producers on the farm…”.
Also, under both MN Stat. §17.93 and MN Stat. §27.133, “contractor” and “wholesale produce dealer” were defined as “persons” and “person” was to be applied to corporations, partnerships and other unincorporated associations.” MN Stat. §665.44, sub. 7.
Minnesota Litigation
In 2017, the defendants entered into chicken production contracts with Prairie’s Best Farm, Inc. to grow chickens in exchange for monthly payments and bi-monthly bonus payments. In late 2017, Simply Essentials bought the assets of Prairie’s Best and assumed the grower contracts. Simply Essentials, incorporated in Delaware and headquartered in California, was the subsidiary of the plaintiff, Pitman Farms, which owned more than 50 percent of Simply Essentials. Shortly thereafter, the plaintiff bought Simply Essentials’ membership interests and became its sole owner. In 2019, Simply Essentials encountered financial trouble, ceased processing activities and notified the defendants that it was terminating the contracts effective three months later. The defendants’ demands for payment in excess of $6 million from the plaintiff for breach of contract failed. Both parties sought a declaratory judgment concerning the application of the PPA to the contracts.
The plaintiff claimed that the PPA did not apply because the defendants were not “sellers” and, even if they were, the PPA didn’t apply because Simply Essentials was an LLC rather than a “corporation, partnership, or association. The plaintiff also asserted that the PPA’s parent company liability provisions didn’t apply to it because Delaware law applied, and that applying Minnesota law would violate the Dormant Commerce Clause. The defendant’s counterclaim made the opposite arguments.
Trial court decision. The trial court in Pitman Farms v. Kuehl Poultry, LLC, 508 F. Supp.3d 465 (D. Minn. 2020), ruled for the plaintiff, finding that the PPA did not apply by its terms because the defendants were not “sellers” and because Simply Essentials was an LLC rather than a “corporation, partnership, or association.”
Appellate decision. On appeal, the appellate court unanimously reversed and remanded. Pitman Farms v. Kuehl Poultry, LLC, et al., 48 F.4th 866 (8th Cir. 2022). The appellate court read the various statutes together to determine the legislature’s purpose and intent. The appellate court noted that the parent company liability statute of MN Stat. §27.133, the PPA of §§17.90-17.98 and the MDA’s implementing rule all arose from the same legislative session, addressed the same issue, and contained nearly identical language. Accordingly, the appellate court determined that the trial court should have looked to MN Stat. §27.133 when construing the meaning of “seller” contained in MN Stat. §17.93 and in MDA Rule 1572.0040. When the various provisions were taken together, the appellate court determined that “seller” can include “producer” under the PPA and the MDA’s implementing regulation.
The appellate court also concluded that the trial court erred in finding that “seller” was limited to transferors of title. Because the defendants did not have title to the chickens and could not therefore transfer title, the trial court held that the PPA did not apply. The appellate court held that such a construction was plainly contrary to the legislature’s intent in creating the PPA which was to provide financial protections to agricultural producers in general and not merely agricultural commodity sellers. Further, because the appellate court determined that “seller” included “producer,” the defendants were covered by the PPA as providing management services in accordance with MN Stat. §17.90 (2) for the growing of the chickens under contract. In addition, the appellate court held that the growers were also “sellers” for purposes of the parent company liability provision of MN Stat. §27.133.
The plaintiff also asserted that “subsidiary of another corporation, partnership or association” contained in MN Stat. §17.93 and §27.133 meant that both the parent and the subsidiary had to be either a corporation, partnership or an association. The trial court agreed with this interpretation. The appellate court also agreed but pointed out that LLCs (which Simply Essentials was) did not exist in Minnesota when the PPA was enacted and, as such, the legislature had not purposefully excluded them from the statute. The appellate court also noted that an LLC had been found to be a “person” for purposes of the Minnesota Human Rights Act. That law defined “person” to include a partnership, association, or corporation. In addition, an unpublished decision of the Minnesota Court of Appeals had previously held that an LLC was an “association” for purposes of a Minnesota oil transportation statute. Thus, there was no apparent reason why the legislature would have singled out LLCs to not be covered under the parent company liability provisions of the PPA.
The appellate court also noted the strong public policy statement of the Minnesota legislature in enacting the PPA – to protect producers of agricultural commodities from economic harm due to parent business entities using their organizational form to avoid liability for their subsidiaries’ actions. The appellate court sent the case back to the trial court (remand) for a new decision consistent with the guidance that the appellate court provided.
Trial court remand decision. On remand, the trial court (Pitman Farms v Kuehl Poultry, LLC, No. 19-cv-3040, 2023 U.S. Dist. LEXIS 97917 (D. Min. Jun. 6, 2023)) was faced with five issues: 1) whether a Minnesota choice of law clause in the grower contracts with Simply Essentials bound the plaintiff; 2) if the plaintiff was bound, whether the clause actually applied in the case; 3) whether Minnesota’s parent-liability line of cases apply to parents of foreign LLCs such as Simply Essentials; 4) if Minnesota parent liability law does apply to the plaintiff, whether there is a conflict between Minnesota and Delaware law; and 5) if Minnesota’s parent-liability authorities apply, whether they violate the “dormant” Commerce Clause.
The parties agreed that Minnesota law applied based on the choice of law provision in the contract that stated that Minnesota law applied. As to whether the clause applied to the grower contracts the court noted that under Minnesota law, a non-party to a contract (such as the plaintiff) may be bound by the contract's forum-selection clause when the non-party is "'closely related' to the dispute such that it becomes 'foreseeable' that it will be bound. The court determined that it wasn’t foreseeable to the plaintiff that it could be bound by the choice-of-law provision. In addition, the court determined that the clause did not apply by virtue of the parent-liability theory.
The court also determined that Minnesota law governed the growers’ claims. The court noted that the growers were in Minnesota, the contract production activities occurred in Minnesota, and Delaware’s only connection with the matter was that Simply Essentials was organized under Delaware law. Likewise, the court determined that there was no conflict between Minnesota and Delaware law, and that the Minnesota parent-liability authorities did not violate the dormant Commerce Clause and the Minnesota producer protection statute did not impose a burden on commerce outside the state of Minnesota.
What remains of the case is a determination of damages for the growers.
Conclusion
The case is an important one that provides a roadmap for other states as a model for legislation designed to protect growers under ag production contracts.
July 10, 2023 in Contracts | Permalink | Comments (0)
Saturday, July 8, 2023
Coeur d’ Alene, Idaho, Conference – Twin Track
Overview
On August 7-8 in beautiful Coeur d’ Alene, ID, Washburn Law School the second of its two summer conferences on farm income taxation as well as farm and ranch estate and business planning. A bonus for the ID conference will be a two-day conference focusing on various ag legal topics. The University of Idaho College of Law and College of Agricultural and Life Sciences along with the Idaho State Bar and the ag law section of the Idaho State Bar are co-sponsoring. This conference represents the continuing effort of Washburn Law School in providing practical and detailed CLE to rural lawyers, CPAs and other tax professionals as well as getting law students into the underserved rural areas of the Great Plains and the West. The conference can be attended online in addition to the conference location in Coeur d’ Alene at the North Idaho College.
More information on the August Idaho Conference and some topics in ag law – it’s the topic of today’s post.
Idaho Conference
Over two days in adjoining conference rooms the focus will be on providing continuing education for tax professionals and lawyers that represent agricultural clients. All sessions are focused on practice-relevant topic. One of the two-day tracks will focus on agricultural taxation on Day 1 and farm/ranch estate and business planning on Day 2. The other track will be two-days of various agricultural legal issues.
Here's a bullet-point breakdown of the topics:
Tax Track (Day 1)
- Caselaw and IRS Update
- What is “Farm Income” for Farm Program Purposes?
- Inventory Method – Options for Farmers
- Machinery Trades
- Easement and Rental Issues for Landowners
- Protecting a Tax Practice From Scammers
- Amending Partnership Returns
- Corporate Provided Meals and Lodging
- CRATs
- IC-DISCS
- When Cash Method Isn’t Available
- Accounting for Hedging Transactions
- Deducting a Purchased Growing Crop
- Deducting Soil Fertility
Tax Track (Day 2)
- Estate and Gift Tax Current Developments
- Succession Plans that Work (and Some That Don’t)
- The Use of SLATs in Estate Planning
- Form 1041 and Distribution Deductions
- Social Security as an Investment
- Screening New Clients
- Ethics for Estate Planners
Ag Law Track (Day 1)
- Current Developments and Issues
- Current Ag Economic Trends
- Handling Adverse Decisions on Federal Grazing Allotments
- Getting and Retaining Young Lawyers in Rural Areas
- Private Property Rights and the Clean Water Act – the Aftermath of the Sackett Decision
- Ethics
Ag Law Track (Day 2)
- Foreign Ownership of Agricultural Land
- Immigrant Labor in Ag
- Animal Welfare and the Legal System
- How/Why Farmers and Ranchers Use and Need Ag Lawyers and Tax Pros
- Agricultural Leases
Both tracks will be running simultaneously, and both will be broadcast live online. Also, you can register for either track. There’s also a reception on the evening of the first day on August 7. The reception is sponsored by the University of Idaho College of Law and the College of Agricultural and Life Sciences at the University of Idaho, as well as the Agricultural Law Section of the Idaho State Bar.
Speakers
The speakers for the tax and estate/business planning track are as follows:
Day 1: Roger McEowen, Paul Neiffer and a representative from the IRS Criminal Investigation Division.
Day 2: Roger McEowen; Paul Neiffer; Allan Bosch; and Jonas Hemenway.
The speakers for the ag law track are as follows:
Day 1: Roger McEowen; Cody Hendrix; Hayden Ballard; Damien Schiff; aand Joseph Pirtle.
Day 2: Roger McEowen; Joel Anderson; Kristi Running; Aaron Golladay; Richard Seamon; and Kelly Stevenson
Who Should Attend
Anyone that represents farmers and ranchers in tax planning and preparation, financial planning, legal services and/or agribusiness would find the conference well worth the time. Students attend at a much-reduced fee and should contact me personally or, if you are from Idaho, contract Prof. Rich Seamon (also one of the speakers) at the University of Idaho College of Law. The networking at the conference will be a big benefit to students in connecting with practitioners from rural areas.
As noted above, if you aren’t able to attend in-person, attendance is also possible online.
Sponsorship
If your business would be interested in sponsoring the conference or an aspect of it, please contact me. Sponsorship dollars help make a conference like this possible and play an important role in the training of new lawyers for rural areas to represent farmers and ranchers, tax practitioners in rural areas as well as legislators.
For more information about the Idaho conferences and to register, click here:
Farm Income Tax/Estate and Business Planning Track: https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html
Ag Law Track: https://www.washburnlaw.edu/employers/cle/idahoaglaw.html
July 8, 2023 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, June 11, 2023
Summer Seminars (Michigan and Idaho) and Miscellaneous Ag Law Topics
Overview
Later this week is the first of two summer conferences put on by Washburn Law School focusing on farm income taxation as well as farm and ranch estate and business planning. This week’s conference will be in Petoskey, Michigan, which is near the northernmost part of the lower peninsula of Michigan. Attendance can also be online. For more information and registration click here: https://www.washburnlaw.edu/employers/cle/farmandranchtaxjune.html On August 7-8, a twin-track conference will be held in Coeur d’Alene, Idaho.
More information on the August Idaho Conference and some topics in ag law – it’s the topic of today’s post.
Idaho Conference
On August 7-8, Washburn Law School will be sponsoring the a twin-track ag tax and law conference at North Idaho College in Coeur d’ Alene, ID. Over two days in adjoining conference rooms the focus will be on providing continuing education for tax professionals and lawyers that represent agricultural clients. All sessions are focused on practice-relevant topic. One of the two-day tracks will focus on agricultural taxation on Day 1 and farm/ranch estate and business planning on Day 2. The other track will be two-days of various agricultural legal issues.
Here's a bullet-point breakdown of the topics:
Tax Track (Day 1)
- Caselaw and IRS Update
- What is “Farm Income” for Farm Program Purposes?
- Inventory Method – Options for Farmers
- Machinery Trades
- Solar Panel Tax Issues – Other Easement and Rental Issues
- Protecting a Tax Practice From Scammers
- Amending Partnership Returns
- Corporate Provided Meals and Lodging
- CRATs
- IC-DISCS
- When Cash Method Isn’t Available
- Accounting for Hedging Transactions
- Deducting a Purchased Growing Crop
- Deducting Soil Fertility
Tax Track (Day 2)
- Estate and Gift Tax Current Developments
- Succession Plans that Work (and Some That Don’t)
- The Use of SLATs in Estate Planning
- Form 1041 and Distribution Deductions
- Social Security as an Investment
- Screening New Clients
- Ethics for Estate Planners
Ag Law Track (Day 1)
- Current Developments and Issues
- Current Ag Economic Trends
- Handling Adverse Decisions on Federal Grazing Allotments
- Getting and Retaining Young Lawyers in Rural Areas
- Private Property Rights and the Clean Water Act – the Aftermath of the Sackett Decision
- Ethics
Ag Law Track (Day 2)
- Foreign Ownership of Agricultural Land
- Immigrant Labor in Ag
- Animal Welfare and the Legal System
- How/Why Farmers and Ranchers Use and Need Ag Lawyers and Tax Pros
- Agricultural Leases
Both tracks will be running simultaneously, and both will be broadcast live online. Also, you can register for either track. There’s also a reception on the evening of the first day on August 7. The reception is sponsored by the University of Idaho College of Law and the College of Life Sciences at the University of Idaho, as well as the Agricultural Law Section of the Idaho State Bar.
For more information about the Idaho conferences and to register, click here: https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html and here: https://www.washburnlaw.edu/employers/cle/idahoaglaw.html
Miscellaneous Agricultural Law Topics
Proper Tax Reporting of 4-H/FFA Projects
When a 4-H or FFA animal is sold after the fair, the net income should be reported on the other income line of the 1040. It’s not subject to self-employment tax if the animal was raised primarily for educational purposes and not for profit and was raised under the rules of the sponsoring organization. It’s also not earned income for “kiddie-tax” purposes. But, if the animal was raised as part of an activity that the seller was engaged in on a regular basis for profit, the sale income should be reported on Schedule F. That’s where the income should be reported if the 4-H or FFA member also has other farming activities. By being reported on Schedule F, it will be subject to self-employment tax.
There are also other considerations. For example, if the seller wants to start an IRA with the sale proceeds, the income must be earned. Also, is it important for the seller to earn credits for Social Security purposes?
The Importance of Checking Beneficiary Designations
U.S. Bank, N.A. v. Bittner, 986 N.W.2d 840 (Iowa 2023)
It’s critical to make sure you understand the beneficiary designations for your non-probate property and change them as needed over time as your life situation changes. For example, in one recent case, an individual had over $3.5 million in his IRA when he died, survived by his wife and four children. His will said the IRA funds were to be used to provide for his widow during her life and then pass to a family trust for the children. When he executed his will, he also signed a new beneficiary designation form designating his wife as the primary beneficiary. He executed a new will four years later and said the IRA would be included in the marital trust created under the will if no federal estate tax would be triggered, with the balance passing to the children upon his wife’s death. He didn’t update his IRA beneficiary designation.
When he died, everyone except one son agreed that the widow got all of the IRA. The son claimed it should go to the family trust. Ultimately, the court said the IRA passed to the widow.
It’s important to pay close attention to details when it comes to beneficiary designations and your overall estate plan.
Liability Release Forms – Do They Work?
Green v. Lajitas Capital Partners, LLC, No. 08-22-00175-CV, 2023 Tex. App. LEXIS 2860 (Tex. Ct. App. Apr. 28, 2023)
Will a liability release form hold up in court? In a recent Texas case, a group paid to go on a sunset horseback trail ride at a Resort. They signed liability release forms that waived any claims against the Resort. After the ride was almost done and the riders were returning to the stable, the group rode next to a golf course. An underground sprinkler went off, making a hissing sound that spooked the horses. One rider fell off resulting in bruises and a fractured wrist. She sued claiming the Resort was negligent and that the sprinklers were a dangerous condition that couldn’t be seen so the liability waiver didn’t apply.
The court disagreed, noting that the liability release form used bold capitalized letters in large font for the key provisions. The rider had initialed those key provisions. The court also said the form wasn’t too broad and didn’t’ only cover accidents caused by natural conditions.
The outcome might not be the same in other states. But, if a liability release form is clear, and each paragraph is initialed and the document is signed, you have a better chance that it will hold up in court.
Equity Theft
Tyler v. Hennepin County, No. 22-166, 2023 U.S. LEXIS 2201 (U.S. Sup. Ct. May 25, 2023)
The U.S. Supreme Court has ruled that if you lose your home through forfeiture for failure to pay property taxes, that you get to keep your equity. The case involved a Minnesota county that followed the state’s forfeiture law when the homeowner failed to pay property tax, sold the property and kept the proceeds – including the owner’s equity remaining after the tax debt was satisfied. The Supreme Court unanimously said the Minnesota law was unconstitutional. The same thing previously happened to the owner of an alpaca farm in Massachusetts, and a farm owner in Nebraska. The Nebraska legislature later changed the rules for service of notice when applying for a tax deed, but states that still allow the government to retain the equity will have to change their laws.
Equity theft tends to bear more heavily on those that can least afford to hire legal assistance or qualify for legal aid. Also, all states bar lenders and private companies from keeping the proceeds of a forfeiture sale, so equity forfeiture laws were inconsistent. Now the Supreme Court has straightened the matter out.
You won’t lose your equity if you lose your farm for failure to pay property tax.
The Climate, The Congress and Farmers
Farmers in the Netherlands are being told that because of the goal of “net-zero emissions” of greenhouse gases and other so-called “pollutants” by 2050, they will be phased out if they can’t adapt. Could that happen in the U.S.? The U.S. Congress is working on a Farm Bill, and last year’s “Inflation Reduction Act” funnels about $20 billion of climate funds into agriculture which could end up in policies that put similar pressures on American farmers. Some estimates are that agricultural emissions will make up 30 percent of U.S. total greenhouse gas emissions by 2050. But, fossil fuels are vital to fertilizers and pesticides, which improve crop production and reduce food prices.
The political leader of Sri Lanka banned synthetic fertilizer and pesticide imports in 2021. The next year, inflation was at 55 percent, the economy was in shambles, the government fell, and the leader fled the country.
Energy security, ag production and food security are all tied to cheap, reliable and efficient energy sources. Using less energy will result in higher food prices, and that burden will fall more heavily on those least likely to be able to afford it.
As the Farm Bill is written, the Congress should keep these things in mind.
Secure Act 2.0 Errors
In late 2019, the Congress passed the SECURE ACT which made significant changes to retirement plans and impacted retirement planning. Guidance is still needed on some provisions of that law. In 2022, SECURE ACT 2.0 became law, but it has at least three errors that need to be fixed.
The SECURE ACT increased the required minimum distribution (RMD) age from 70 and ½ to age 72. With SECURE ACT 2.0, the RMD increased to age 73 effective January 1, 2023. It goes to age 75 starting in 2033. But, for those born in 1959, there are currently two RMD ages in 2033 – it’s either 73 or 75 that year. Which age is correct? Congressional intent is likely 75, but te Congress needs to clearly specify.
Another error involves Roth IRAs. Starting in 2024, if you earn more than $145,000 (mfj) in 2023, you will have to do non-deductible catch-up contributions in Roth form. But SECURE ACT 2.0 says that all catch-up contributions starting in 2024 will be disallowed. This needs to be corrected.
There’s also an issue with SEPs and SIMPLE plans that are allowed to do ROTH contributions and how those contributions impact ROTH limitations.
Congress needs to fix these issues this year. If it does, it will likely be late in 2023.
Implications of SCOTUS Union Decision on Farming Businesses
Glacier Northwest, Inc. v. International Board of Teamsters Local Union No. 174, No. 21-1449, 2023 U.S. LEXIS 2299 (U.S. Sup. Ct. Jun. 1, 2023)
The Supreme Court recently issued a ruling that will make it easier for employers to sue labor unions for tort-type damages caused by a work stoppage. The Court’s opinion has implications for ag employers.
The Court ruled that an employer can sidestep federal administrative agency procedures of the National Labor Relations Board (NLRB) and go straight to court when striking workers damage the company’s property rather than merely cause economic harm. The case involved a concrete company that sued the labor union representing its drivers for damages. The workers filled mixer trucks with concrete ready to pour knowing they were going to walk away. The company sued for damage to their property – something that’s not protected under federal labor law. The Union claimed that the matter had to go through federal administrative channels (the NLRB) first.
The Supreme Court said the case was more like an ordinary tort lawsuit than a federal labor dispute, so the company could go straight to court. Walking away was inconsistent with accepting a perishable commodity.
What’s the ag angle? Where there are labor disputes in agriculture, they are often timed to damage perishable food products such as fruit and vegetables. Based on the Court’s 8-1 opinion, merely timing a work stoppage during harvest might not be enough to be deemed economic damage, unless the Union has a contract. But striking after a sorting line has begun would seem to be enough.
Digital Grain Contracts
The U.S. grain marketing infrastructure is quite efficient. But there are changes that could improve on that existing efficiency. Digital contracts are starting to replace paper grain contracts. The benefits could be improved record-keeping, simplified transactions, reduced marketing costs and expanded market access.
Grain traveling in barges down the Ohio and Mississippi Rivers is usually bought and sold many times between river and export terminals. That means that each transaction requires a paper bill of lading that must be transferred when the barge was sold. But now those bills of lading are being moved to an online platform. Grain exporters are also using digital platforms.
These changes to grain marketing could save farmers and merchandisers dollars and make the supply chain more efficient. But a problem remains in how the various platforms are to be connected. Verification issues also loom large. How can a buyer verify that a purchased commodity meets the contract criteria? That will require information to be shared up the supply chain. And, of course, anytime transactions become digital, the digital network can be hacked. In that situation, what are the safeguards that are in place and what’s the backup plan if the system goes down?
Clearly, there have been advancements in digital grain trading, but there is still more work to be done. In addition, not all farmers may be on board with a digital system.
June 11, 2023 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Environmental Law, Estate Planning, Income Tax, Real Property | Permalink | Comments (0)
Thursday, April 20, 2023
Bibliography – First Quarter of 2023
The following is a listing by category of my blog articles for the first quarter of 2023.
Bankruptcy
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Chapter 12 Bankruptcy – Proposing a Reorganization Plan in Good Faith
Business Planning
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Civil Liabilities
Top Ag Law and Tax Developments of 2022 – Part 1
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Contracts
Top Ag Law and Developments of 2022 – Part 2
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Environmental Law
Here Come the Feds: EPA Final Rule Defining Waters of the United States – Again
Top Ag Law and Developments of 2022 – Part 2
Top Ag Law and Developments of 2022 – Part 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Estate Planning
Tax Court Opinion – Charitable Deduction Case Involving Estate Planning Fraudster
Happenings in Agricultural Law and Tax
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
RMD Rules Have Changed – Do You Have to Start Receiving Payments from Your Retirement Plan?
Common Law Marriage – It May Be More Involved Than What You Think
The Marital Deduction, QTIP Trusts and Coordinated Estate Planning
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Income Tax
Top Ag Law and Developments of 2022 – Part 3
Top Ag Law and Developments of 2022 – Part 4
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Tax Court Opinion – Charitable Deduction Case Involving Estate Planning Fraudster
Deducting Residual (Excess) Soil Fertility
Deducting Residual (Excess) Soil Fertility – Does the Concept Apply to Pasture/Rangeland? (An Addendum)
Happenings in Agricultural Law and Tax
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
RMD Rules Have Changed – Do You Have to Start Receiving Payments from Your Retirement Plan?
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Real Property
Equity “Theft” – Can I Lose the Equity in My Farm for Failure to Pay Property Taxes?
Happenings in Agricultural Law and Tax
Adverse Possession and a “Fence of Convenience”
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Abandoned Rail Lines – Issues for Abutting Landowners
Regulatory Law
Top Ag Law and Developments of 2022 – Part 2
Top Ag Law and Developments of 2022 – Part 4
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Foreign Ownership of Agricultural Land
Abandoned Rail Lines – Issues for Abutting Landowners
Secured Transactions
Priority Among Competing Security Interests
Water Law
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Happenings in Agricultural Law and Tax
April 20, 2023 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 19, 2023
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Overview
A common interpretive problem in oil and gas conveyances and leases arises when the owner of a fractional mineral interest either conveys or reserves a fraction using unclear language. One way that can happen is when a “double fraction” clause is used. That’s a clause that creates uncertainty as to whether the grant or reservation is a fraction of what the grantor owns or a fraction of the whole interest. For instance, if Bubba owns an undivided ½ interest in minerals and conveys “an undivided ½ interest in the minerals,” does that mean that Bubba conveyed a ½ interest in all of the minerals or simply ½ of Bubba’s ½? This interpretive issue can also arise when mineral interests are devised from a decedent’s estate. It also occurs when a conveyancing instrument refers to both “minerals” and a “royalty” or blends the two concepts in the same instrument.
The interpretive issues associated with a double fraction clause recently came up again in a Texas case. That case involved the construction of a 1924 deed containing a mineral reservation clause, and it could have wide-ranging impact on oil and gas titles in Texas and, perhaps, elsewhere.
The meaning of a “double-fraction” clause and the impact on future oil and gas conveyances – it’s the topic of today’s post.
Royalty Deed Interpretation
A royalty interest is an interest in a share of production, or the value or proceeds of production, free of the costs of production, when and if there is production. It is usually expressed as a fraction. But, the way those fractional interests are expressed can create confusion, whether the fraction is expressed as a “fraction of royalty” or as a “fractional royalty.”
Fractional royalty interests. With a fractional royalty interest, the owner is entitled to a share of gross production, free of cost in an amount determined by the fractional size of the owner’s interest. The share of production the owner is entitled to does not “float” with royalties of differing amounts reserved in an oil and gas lease. An expression of a fractional royalty clause is, for example, “an undivided 1/16th royalty interest of any oil, gas, or minerals that may hereafter be produced.”
Fraction of royalty interest. With a fraction or royalty interest, the amount of production that is associated with the interest will “float” depending on the royalty reserved in an oil and gas lease. The owner gets a share in production equal to a fraction multiplied by the royalty reserved in an oil and gas lease. Examples of such a clause would be, “1/16th of all oil and gas royalty” or “an undivided ½ interest in and to all of the royalty” or “1/2 of 1/8th of the oil, gas and other mineral royalty that may be produced.”
Double fractions. Complexity increases when a double fraction is used to describe the royalty interest. For instance, “1/4th of 1/8th of all royalty…” is an example of a double fraction clause. Many courts utilize the multiplication approach and would conclude that such a clause would convey a 1/32nd interest. Indeed, for conveyance or reservation clauses drafted before the 1970s, the general assumption was that the royalty provided for in an oil and gas lease would always be 1/8th. Thus, a right to “1/4th of royalty” would be the same thing as the right to 1/4th of the 1/8th royalty reserved in an oil and gas lease – a 1/32nd royalty. But, since the 1970s, mineral owners have often been able to negotiate a wider range of royalties in mineral leases with many of them larger than 1/8th (often ranging from 10 percent to over 30 percent). This resulted in the double fraction clause creating confusion as to the drafter’s intent. This confusion can arise not only in oil and gas conveyancing instruments, but also in bequests from a decedent’s estate.
Bequests. In Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2015), the decedent executed a will in 1947 that divided three tracts of real estate among her three children. The will also distributed her mineral estates on the tracts using double fraction language – “each of my children shall have and hold an undivided one-third (1/3) of an undivided one-eighth (1/8) of all oil, gas or other minerals in or under that may be produced from any of said lands… and should there be any royalty sold during my lifetime then [the three children], shall each receive one-third of the remainder of the unsold royalty.” The question was whether the double fraction language fixed the heirs devised royalty at 1/24th with any negotiated royalty above 1/8th passing to the current fee owner, or if the decedent intended her heirs to receive 1/3 of all future royalties, regardless of what the royalty fraction was. The heirs of two of the decedent’s children sought 1/3rd of the 1/5th royalty in a new oil and gas lease, and the successors of the other child claimed that the successors of the siblings were only entitled to 1/3rd of 1/8th and that any additional royalty belonged to the fee simple owner.
Note: The Hysaw case involved the “estate-misconception theory.” That theory reflects the historic prevalent belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals rather than the entire mineral estate in "fee simple determinable.” In turn, for decades afterwards, many lessors referred to their entire interest in the mineral estate with the simple use of “1/8.” One court has described the “estate misconception” theory as follows: “In earlier times, many landowners labored under the misconception that when they leased their mineral estate to an operator, they only retained 1/8th of the minerals in place, rather than a fee simple determinable with the possibility of reverter in the entirety of the mineral estate... Therefore, when the landowner conveyed a mineral interest to a third party in land that was already subject to a lease, he would often use a fraction of 1/8 to express what interest he intended to convey in his possibility of reverter. Since a landowner in reality retains a full 8/8 interest in the reverter, the application of the estate misconception doctrine has tremendous consequences.” Greer v. Shook, 503 S.W.3d 571 (Tex. Ct. App. 2016).
The Texas Supreme Court determined that the outcome should turn on the decedent’s intent. Based on the evidence, the Court found that intent to be to equally divide the royalties among the decedent’s children. Accordingly, the Court held that the decedent had devised a 1/3rd fraction of a royalty interest (regardless of the amount of that royalty) to each of her children. In other words, the decedent has used the phrase "one-eighth royalty" as a shorthand phrase for the entire royalty interest that a lessor could retain under a mineral lease. She had left a floating 1/3rd royalty to each child.
Recent Texas Case
Van Dyke v. The Navigator Group, No. 21-0146,
2023 Tex. LEXIS 144 (Tex. Sup. Ct. Feb. 17, 2023)
Facts. This case culminated a decade-long battle over a mineral interest reservation involving a double fraction and accumulated royalties of approximately $44 million. In 1924, the Mulkeys deeded their ranch to White and Tom reserving “one-half of one-eighth” of all minerals and mineral rights. After the conveyance, both parties conducted themselves as if they believed that they each owned one-half of the mineral interest, as did all successors-in-interest.
In 2012, an energy company drilled a well and paid both the successors-in-interest to the Mulkeys (the “Mulkey parties”) and the successors-in-interest to White and Tom (the “White parties”) equal one-half shares. The White parties filed a trespass-to-try-title action, claiming that the 1924 deed reserved only a 1/16th (1/2 of 1/8th) of the minerals to the Mulkey parties, and that the White parties owned fifteen-sixteenths of the minerals. The Mulkey parties claimed that the interest reserved was one-half of the total mineral estate, and that the reference to one-eighth of the minerals was a term of art under the “estate misconception” theory. Under that theory (which had been forgotten over time), one-eighth was commonly believed to mean the entire mineral estate.
Alternatively, the Mulkey parties claimed entitlement to one-half of the minerals because of the long history of the original parties and the successors-in-interest acting as if each party owned one-half of the mineral interest.
Trial and appellate courts. The trial court held that the 1924 deed unambiguously reserved a one-sixteenth interest in the Mulkey parties. The appellate court affirmed, also concluding that the “estate misconception theory” did not apply because “the deed did not contain any conflicting provisions requiring harmonization and the subject property was not burdened by an oil and gas lease at the time of conveyance.”
Texas Supreme Court. On further review, the Texas Supreme Court reversed and remanded. The Court noted that in the early 20th century that landowners commonly retained a one-eighth royalty interest under an oil and gas lease and that, over time, “1/8th” became synonymous with the mineral interest itself or as a proxy for the customary royalty of 1/8th. In essence, it became a term of art. The Court looked to Hysaw where, as noted, the Court held that each child received a “floating one-third interest in the royalty” based on what the evidence showed was the decedent’s intent. While, as the Court noted, using “1/8” to mean the entire mineral estate is rebuttable, such a rebuttal can only be accomplished with evidence from the document itself suggesting basic multiplication be applied. The Court found that while “1/8” was a term of art in use at the time the deed was drafted to mean the entire mineral estate, there was nothing else in the deed to rebut this meaning. As a result, the Court held that the Mulkey grantors did in fact reserve a full 1/2 interest in the mineral estate.
Note: The Court also noted that the court of appeals misapprehended how the estate-misconception theory is applied to instruments, such as the 1924 deed. Instead of looking to whether the lack of inconsistencies in an instrument require harmonization, courts should first assume that the specific use of a double fraction was intentional (a rebuttable presumption) and if the document lacks anything that could rebut that presumption (inconsistencies) then the intended (historical) use of the double fraction stands. For instance, the instrument in this case included the use of a double fraction (“1/2 of 1/8”) and there was no evidence to rebut the presumption that the parties intended “1/2 of 1/8” to mean “1/2 of the mineral estate.” As for the land not being encumbered by a lease at the time of the deed, the Court stated that the theory’s “relevance has never depended on the considerations that the court of appeals identified.”
The Court went on to examine the presumed-grant doctrine – a common law form of adverse possession. The Court noted three elements which must be satisfied for the presumed grant doctrine to prevail: “(1) a long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim.” The Court noted that a ninety-year history existed between the parties in which “conveyances, leases, ratifications, division orders, contract, probate inventories, and a myriad of other instruments” were recorded, thus providing notice of the interests owned by both parties. Likewise, for nearly a century, both parties had stipulated multiple times to the one-half ownership of the mineral estate. Indeed, in a 1950 conveyance, White had recited that he only held an undivided one-half interest in the oil, gas, and other minerals on the ranch. Based on all of this evidence and the conduct of the parties over time, the Court held that the Mulkey parties conclusively established their ownership under the presumed grant doctrine.
What Would Happen In Kansas?
In Kansas, a royalty deed is normally interpreted in accordance with the evidence concerning usage over time by the parties involved along with other relevant evidence. But, in Bellport v. Harrison, 255 P. 52 (Kan. 1927), the Court held that “royalty” must be construed in accordance with its “well-known meaning” and that it was not appropriate to look to custom to define the term “royalty.” The Court also concluded that the term “royalty” cannot have a meaning different from its “well-known” meaning as a result of usage. The case involved a sale by Harrison of “one-half of [a] royalty.” The receipt stated, “Received of A.J. Bellport, $2,400.00 payment for 1/16 royalty…”. The mineral interest was leased at the time and provided for payment of a 1/8th royalty. Harrison asserted that Bellport acquired one-half of Harrison’s 1/8th royalty, but Bellport claimed he purchased one-half of the mineral interest and that the reference to “1/16th royalty” conveyed to him a one-half mineral interest entitling him to one-half of the 1/8th royalty.
The trial court, based on custom, agreed with Bellport but the Kansas Supreme Court reversed. Arguably, the Court believed that the usage was unreasonable and not probative. The Court made a clear distinction between a royalty interest and a mineral interest. A “royalty” refers to a right to share in the production of oil and gas at severance. A royalty is personal property and does not include a perpetual interest in and to oil and gas in and other minerals in and under the land. Conversely, a “mineral interest” means an interest in and to oil and gas in and under the land and constitutes the present ownership of an interest in real property. See, e.g., Shepard v. John Hancock Mutual Life Insurance Co., 368 P.2d 19 (Kan. 1962).
As a result, a Kansas court facing a double-fraction set of facts in a conveyancing instrument would likely focus on facts that enlighten the true nature of the instrument based on the language utilized rather than what the parties call it. This appears to be somewhat like the approach of the Texas Supreme Court taken in Van Dyke. The “estate misconception” theory is merely instructive, perhaps, but is not dispositive. It might also be safe to say that is the approach in Texas. See, e.g., Concord Oil Co. v. Pennzoil Exploration & Production Co., 966 S.W.2d 451 (Tex. 1998).
Conclusion
The Van Dyke ruling, at least in Texas, will probably have longstanding effect on oil and gas titles. The term “one-eighth” in a double fraction clause refers to the entire estate absent evidence to the contrary that proves otherwise and satisfies the presumed-grant doctrine. In any event, practitioners would do well to refrain from using double-fraction clauses.
March 19, 2023 in Contracts, Real Property | Permalink | Comments (0)
Thursday, February 2, 2023
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Overview
One of the most important things that a farmer or rancher can do is to put lease agreements in writing. The problems that can arise with an oral lease are to innumerable to list or even think of. The first case below is an example. The second case involves a farm couple that were struggling financially and were trying to utilize Chapter 12 bankruptcy and SBA COVID relief funds. But the rules must be followed closely, as the Nebraska bankruptcy court’s decision illustrates.
Problems with oral farming agreements and misuse of SBA loan funds – these are the topics of today’s post.
Document Filed with FSA Not a Valid Lease
Coniglio v. Woods, No. 06-22-00021-CV, 2022 Tex. App. LEXIS 8926 (Tex. Ct. App. Dec. 7, 2022)
Involved in this case was land in Texas that the landowner’s son managed for his father who lived in Florida. The landowner needed the hay cut on 107 acres of the over 5,100-acre farm and agreed orally that the plaintiff, a neighboring landowner, could cut the hay when necessary. The hay was cut on an annual basis. So that he could receive government farm program payments on the land, the plaintiff filed wrote up a “memorialization of a lease agreement” and filed it with the local USDA Farm Service Agency (FSA). The agreement stated as follows: “This is to inform you that Michael J. Woods operates my farm [farm number specified], (approximately 107 acres) agriculturally for hay. This lease agreement began in 2015 and will continue thru December 31, 2020.” The document was dated September 28, 2016, and was signed by the plaintiff. The landowner’s son also signed the agreement at the plaintiff’s request, but later testified that he didn’t believe the document to constitute a written lease. After three years of cutting the hay, the landowner wanted to lease the hay ground for solar development and the plaintiff was told by the landowner and son that the hay no longer needed to be cut and there would be no hay profits to share.
The plaintiff sued for breach of a farm lease agreement – purportedly a lease for a five-year term. The plaintiff also claimed that the father and son tortiously interfered with contract for future years, were unjustly enriched by the breach and had also violated the Texas Deceptive Trade Practices Act (DPTA). The trial court ruled in favor of the plaintiff on the basis that the form submitted to the USDA was sufficient to show the existence of a lease agreement, and entered a judgment for the plaintiff and against the father and son, jointly and severally, for $163,434.68 for breach of the “lease.” The trial court also awarded triple that amount ($490,304.94) for violation of the DPTA. The trial court also awarded court costs and attorney fees. The total award was $601,815.62,
On appeal, the defendant claimed that the document filed with the FSA did not satisfy the writing requirement of the statute of frauds. The father testified that he wasn’t aware of any lease agreement and the son testified the arrangement was simply one to have the plaintiff cut the hay when needed and the parties would split the hay. The son testified that he signed the agreement simply so that the plaintiff could receive the farm subsidies associated with the hay ground. The appellate court agreed, noting that the document didn’t contain the essential terms of the lease. It didn’t denote the names of the parties, didn’t describe the property, didn’t note the rental rate, and didn’t list any conditions or any consideration. Accordingly, the appellate court determined that no valid lease existed and reversed the trial court’s judgment.
Debtors Barred From Further Use of COVID Relief Funds
In re Klein, No. BK 22-40804, 2022 Bankr. LEXIS 3451 (Bankr. D. Neb. Dec. 7, 2022)
This is the debtors’ third Chapter 12 case since 2019. Two banks as creditors filed motions to dismiss, asserting the debtors were not eligible for Chapter 12 bankruptcy because they were not “family farmers” at the time of filing Chapter 12. The debtors claimed that they did meet the definition of a “family farmer” because they were engaged in farming with 15 cows, 5 calves, a one-half interest in a bull, and cash to operate. However, the debtors did not know where their cows were or if any of them were pregnant. They also failed to confirm a plan in their previous Chapter 12 cases, did not own any land or equipment and were on the brink of surrendering their livestock. Their only source of income was Social Security. The debtors obtained a $500,000 COVID hardship loan from the SBA in October of 2021 based on their representation that they were engaged in the business of farming, operating under a confirmed Chapter 12 plan. When they applied for the loan, the debtors agreed the loan money would only be used as working capital and there was no “substantial adverse change” in their financial condition. The debtors failed to schedule the loan and the debtors claimed they had an approved plan of reorganization for their bankruptcy claim, which they did not. When the debtors received the loan, they paid their attorneys for work on their prior bankruptcy cases, paid themselves for farm work, paid for their own groceries, and paid their daughters as contractors. Within four months of the loan disbursement the debtors had used $275,594.41 of the loan. The SBA sought a preliminary injunction against the debtors to ensure they could not use the remainder of the loan that SBA alleged was obtained by fraud. The bankruptcy court granted the preliminary injunction against the debtors to protect the remainder of the SBA loan. The court found that without the injunction the SBA would suffer irreparable harm if the loan proceeds were spent, and that the SBA would suffer greater harm if an injunction wasn’t entered than if the debtors’ access to was limited. The court also determined that the SBA was likely to succeed on its claim to except the debt from discharge and that public policy favored ensuring that the loan process was not abused and that the loan funds were properly used.
Observation
In Coniglio, the lack of a formal written document memorializing the relationship between the parties and the duties and expectations of both, created a problem that resulted in litigation – litigation that could have been avoided. Based on the facts as stated by the court, the arrangement appeared to be one of a custom cutter. That would be the result if the plaintiff supplied the machinery to cut the hay. In that event, the plaintiff would have simply been an independent contractor and not a tenant. The other possibility is that the plaintiff was a cropper that was compensated with a share of the crop. To be a cropper, the plaintiff would have used the landowner’s (or son’s) equipment. In that instance, the plaintiff would not have any legally enforceable interest in the crop, but would have a contract right to compensation for the provision of his in-kind labor. A cropper is an employee that is hired to produce a crop. A cropper has no interest in the real estate is not a tenant operating under a lease agreement. A cropper is, in essence, an employee. See, e.g., Henney v. Lambert, 237 Iowa 146, 21 N.W.2d 301 (1946). The court didn’t get into these distinctions, but that would be the analysis. In any event, the writing, by itself, was insufficient to constitute a lease.
Conclusion
The court opinions indicate the problems that can arise when farming agreements aren’t reduced to writing and how financial distress can lead to the snowballing of additional legal issues.
February 2, 2023 in Bankruptcy, Contracts | Permalink | Comments (0)
Monday, January 30, 2023
Bibliography - July Through December 2022
Overview
After the first half of 2022, I posted a blog article of a bibliography of my blog articles for the first half of 2022. You can find that bibliography here: Bibliography – January through June of 2022
Bibliography of articles for that second half of 2022 – you can find it in today’s post.
Alphabetical Topical Listing of Articles (July 2022 – December 2022)
Bankruptcy
More Ag Law Developments – Potpourri of Topics
Business Planning
Durango Conference and Recent Developments in the Courts
Is a C Corporation a Good Entity Choice For the Farm or Ranch Business?
What is a “Reasonable Compensation”?
https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html
Federal Farm Programs: Organizational Structure Matters – Part Three
LLCs and Self-Employment Tax – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html
LLCs and Self-Employment Tax – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html
Civil Liabilities
Durango Conference and Recent Developments in the Courts
Dicamba Spray-Drift Issues and the Bader Farms Litigation
Tax Deal Struck? – and Recent Ag-Related Cases
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
More Ag Law Developments – Potpourri of Topics
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Contracts
Minnesota Farmer Protection Law Upheld
Criminal Liabilities
Durango Conference and Recent Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/20Ag Law Summit
https://lawpr22/07/durango-conference-and-recent-developments-in-the-courts.html
Environmental Law
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
More Ag Law Developments – Potpourri of Topics
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Estate Planning
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
IRS Modifies Portability Election Rule
Modifying an Irrevocable Trust – Decanting
Farm and Ranch Estate Planning in 2022 (and 2023)
Social Security Planning for Farmers and Ranchers
How NOT to Use a Charitable Remainder Trust
Recent Cases Involving Decedents’ Estates
Medicaid Estate Recovery and Trusts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/medicaid-estate-recovery-and-trusts.html
Income Tax
What is the Character of Land Sale Gain?
Deductible Start-Up Costs and Web-Based Businesses
Using Farm Income Averaging to Deal With Economic Uncertainty and Resulting Income Fluctuations
Tax Deal Struck? – and Recent Ag-Related Cases
What is “Reasonable Compensation”?
https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html
LLCs and Self-Employment Tax – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html
LLCs and Self-Employment Tax – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html
USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)
Declaring Inflation Reduced and Being Forgiving – Recent Developments in Tax and Law
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas
More Ag Law Developments – Potpourri of Topics
IRS Audits and Statutory Protection
https://lawprofessors.typepad.com/agriculturallaw/2022/10/irs-audits-and-statutory-protection.html
Handling Expenses of Crops with Pre-Productive Periods – The Uniform Capitalization Rules
When Can Depreciation First Be Claimed?
Tax Treatment of Crops and/or Livestock Sold Post-Death
Social Security Planning for Farmers and Ranchers
Are Crop Insurance Proceeds Deferrable for Tax Purposes?
Tax Issues Associated With Easement Payments – Part 1
Tax Issues Associated With Easement Payments – Part 2
How NOT to Use a Charitable Remainder Trust
Does Using Old Tractors Mean You Aren’t a Farmer? And the Wind Energy Production Tax Credit – Is Subject to State Property Tax?
Insurance
Tax Deal Struck? – and Recent Ag-Related Cases
Real Property
Tax Deal Struck? – and Recent Ag-Related Cases
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2022/08/ag-law-summit.html
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
More Ag Law Developments – Potpourri of Topics
Ag Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Regulatory Law
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
The Complexities of Crop Insurance
https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html
Federal Farm Programs – Organizational Structure Matters – Part One
Federal Farm Programs – Organizational Structure Matters – Part Two
Federal Farm Programs: Organizational Structure Matters – Part Three
USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)
Minnesota Farmer Protection Law Upheld
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
Animal Ag Facilities and Free Speech – Does the Constitution Protect Saboteurs?
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Water Law
More Ag Law Developments – Potpourri of Topics
January 30, 2023 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 6, 2023
Top Ag Law and Developments of 2022 – Part 2
Overview
Today’s blog article continues the series that began earlier this week reviewing the top ag law and tax developments of 2022. I am working my way through those developments that were significant, but not quite of national significance to make the “Top Ten” of 2022.
More ag law and tax developments of 2022 – it’s the topic of today’s post.
Regulation of Agricultural Activities on Wildlife Refuges
Tulelake Irrigation Dist. v. United States Fish & Wildlife Serv., 40 F.4th 930 (9th Cir. 2022)
This case involves the management of six national wildlife refuges in the Klamath Basin encompassing over 200,000 acres. The court faced the specific question of whether the federal government can regulate agricultural activities on leased land within the refuges. The plaintiffs, an irrigation district and associated agricultural groups, sued the defendant, U.S. Fish and Wildlife Service, claiming the defendant violated environmental laws by regulating leased farmland in the Tule Lake and Klamath Refuge. The trial court granted summary judgment in favor of the defendant. The plaintiffs appealed. The appellate court noted that the Kuchel Act and the Refuge Act allow the defendant to determine the proper land management practices to protect the waterfowl management of the area. Under the Refuge Act, the defendant was required to issue an Environmental Impact Statement (EIS) and Comprehensive Conservation Plan (CCP). The defendant did issue an EIS and CCP for the Tule Lake and Klamath Refuge area, which included modifications to the agricultural use on the leased land within the region. The EIS/CCP required the leased lands to be flooded post-harvest, restricted some harvesting methods, and prohibited post-harvest field work, which the plaintiffs claimed violated their right to use the leased land. The plaintiffs argued that the language, “consistent with proper waterfowl management,” within the Kuchel Act was “nonrestrictive” and was not essential to the meaning of the Act. The appellate court held it was improper to read just that portion of the Act without considering the rest of the Act to understand the intent. The appellate court found the Kuchel Act was unambiguous and required the defendant to regulate the leased land to ensure proper waterfowl management. The Refuge Act allows the defendant to regulate the uses of the leased land, but the plaintiffs argued the agricultural practices were a “purpose” rather than a “use” so the defendant could not regulate it under the Refuge Act. The appellate court found the agricultural activity on the leased land was not a “purpose” equal to waterfowl management. The appellate court also held the language of the Act was unambiguous and determined that agricultural activities on the land were to be considered a use that the defendant could regulate. As such, the conditions needed to benefit waterfowl trumped ag considerations under both the Refuge Act and the Kuchel Act and, as the court stated, if the defendant determined that “an ag use is not consistent with proper waterfowl management, the Service must be allowed to restrict agricultural use. Accordingly, the appellate court affirmed the trial court’s award of summary judgment for the defendant.
Minnesota Farmer Protection Law Upheld
Pitman Farms v. Kuehl Poultry, LLC, et al., 48 F.4th 866 (8th Cir. 2022)
In early 1988, the Minnesota Legislature directed the Minnesota Department of Agriculture (MDA) to put together a task force to study the issue of agricultural contract production and recommend to the legislature how it might provide additional legal and economic protection to contract growers. The MDA’s Final Report was issued in February of 1990. During the 1990 legislative session, the Minnesota legislature approved various economic protections for farmers based on the task force recommendations focusing particularly on parent liability. As signed into law, MN Stat. §17.93 provides as follows:
“Parent company liability. If an agricultural contractor is the subsidiary of another corporation, partnership, or association, the parent corporation, partnership or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the contractor fails to pay or perform according to the terms of the contract.”
In addition, MN Stat. §17.90 specified as follows:
“’Producer” means a person who produces or causes to be produced an agricultural commodity in a quantity beyond the person’s own family use and: (1) is able to transfer title to another; or (2) provides management input for the production of an agricultural commodity.”
The MDA then prepared at “statement of need and reasonableness” (SONAR) to implement the new statutory provision. The SONAR referred to the legislation as the “Producer Protection Act” (PPA) and the MDA’s implementing rule (MN Rule 1572.0040) for MN Stat §17.93 which went into effect on March 4, 1991, read as follows:
“A corporation, partnership, sole proprietorship, or association that through ownership of capital stock, cumulative voting rights, voting trust agreements, or any other plan, agreement, or device, owns more than 50 percent of the common or preferred stock entitled to vote for directors of a subsidiary corporation or provides more than 50 percent of the management or control of a subsidiary is liable to a seller of agricultural commodities for any unpaid claim or contract performance claim of that subsidiary.”
During the same 1990 legislative session the Minnesota legislature approved, and the governor signed into law MN Stat. §27.133. This new law stated as follows:
“Parent company liability. If a wholesale produce dealer is a subsidiary of another corporation, partnership, or association, the parent corporation, partnership, or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the wholesale produce dealer fails to pay or perform in according to the terms of the contract and this chapter.”
Concerning this provision, the legislature stated, “It is therefore declared to be the policy of the legislature that certain financial protection be afforded those who are producers on the farm….”
Also, under both MN Stat. §17.93 and MN Stat. §27.133, “contractor” and “wholesale produce dealer” were defined as “persons” and “person” was to be applied to corporations, partnerships and other unincorporated associations.” MN Stat. §665.44, sub. 7.
In 2017, the defendants entered into chicken production contracts with Prairie’s Best Farm, Inc. to grow chickens in exchange for monthly payments and bi-monthly bonus payments. In late 2017, Simply Essentials bought the assets of Prairie’s Best and assumed the grower contracts. Simply Essentials, incorporated in Delaware and headquartered in California, was the subsidiary of the plaintiff, Pitman Farms, which owned more than 50 percent of Simply Essentials. Shortly thereafter, the plaintiff bought Simply Essentials’ membership interests and became its sole owner. In 2019, Simply Essentials encountered financial trouble, ceased processing activities and notified the defendants that it was terminating the contracts effective three months later. The defendants’ demands for payment in excess of $6 million from the plaintiff for breach of contract failed. Both parties sought a declaratory judgment concerning the application of the PPA to the contracts.
The plaintiff claimed that the PPA did not apply because the defendants were not “sellers” and, even if they were, the PPA didn’t apply because Simply Essentials was an LLC rather than a “corporation, partnership, or association. The plaintiff also asserted that the PPA’s parent company liability provisions didn’t apply to it because Delaware law applied, and that applying Minnesota law would violate the Dormant Commerce Clause. The defendant’s counterclaim made the opposite arguments.
The trial court ruled for the plaintiff, finding that the PPA did not apply by its terms because the defendants were not “sellers” and because Simply Essentials was an LLC rather than a “corporation, partnership, or association.”
On appeal, the appellate court unanimously reversed. The appellate court read the various statutes together to determine the legislature’s purpose and intent. The appellate court noted that the parent company liability statute of MN Stat. §27.133, the PPA of §§17.90-17.98 and the MDA’s implementing rule all arose from the same legislative session, addressed the same issue, and contained nearly identical language. Accordingly, the appellate court determined that the trial court should have looked to MN Stat. §27.133 when construing the meaning of “seller” contained in MN Stat. §17.93 and in MDA Rule 1572.0040. When the various provisions were taken together, the appellate court determined that “seller” can include “producer” under the PPA and the MDA’s implementing regulation.
The appellate court also concluded that the trial court erred in finding that “seller” was limited to transferors of title. Because the defendants did not have title to the chickens and could not therefore transfer title, the trial court held that the PPA did not apply. The appellate court held that such a construction was plainly contrary to the legislature’s intent in creating the PPA which was to provide financial protections to agricultural producers in general and not merely agricultural commodity sellers. Further, because the appellate court determined that “seller” included “producer,” the defendants were covered by the PPA as providing management services in accordance with MN Stat. §17.90 (2) for the growing of the chickens under contract. In addition, the appellate court held that the growers were also “sellers” for purposes of the parent company liability provision of MN Stat. §27.133.
The plaintiff also asserted that “subsidiary of another corporation, partnership or association” contained in MN Stat. §17.93 and §27.133 meant that both the parent and the subsidiary had to be either a corporation, partnership or an association. The trial court agreed with this interpretation. The appellate court also agreed but pointed out that LLCs (which Simply Essentials was) did not exist in Minnesota when the PPA was enacted and, as such, the legislature had not purposefully excluded them from the statute. The appellate court also noted that an LLC had been found to be a “person” for purposes of the Minnesota Human Rights Act. That law defined “person” to include a partnership, association, or corporation. In addition, an unpublished decision of the Minnesota Court of Appeals had previously held that an LLC was an “association” for purposes of a Minnesota oil transportation statute. Thus, there was no apparent reason why the legislature would have singled out LLCs to not be covered under the parent company liability provisions of the PPA.
The appellate court also noted the strong public policy statement of the Minnesota legislature in enacting the PPA – to protect producers of agricultural commodities from economic harm due to parent business entities using their organizational form to avoid liability for their subsidiaries’ actions.
Conclusion
I will continue my journey through the top developments in ag law and tax in a subsequent post.
January 6, 2023 in Contracts, Environmental Law, Regulatory Law | Permalink | Comments (0)
Saturday, October 1, 2022
E-Mail Subscription Service
This is not really a blog article, but a notice.
I have heard from numerous readers of my blog articles that they are no longer receiving the email notices when a new article is posted to the blog. I have determined that the problem is that Feedburner is no longer supported by Google as an RSS/Email subscription service. The service has been discontinued. There is no comparable technology platform in the marketplace. This also means that the Law Professor Blog Network can no longer support email publishing of RSS feeds.
Accordingly, the Law Professor Blog Network has removed the option in the blog menu which offers the email subscription service. However, RSS feeds are still available. As a reader of my Agricultural Law and Taxation blog, you can still use whatever RSS Reader you prefer to subscribe by using an RSS feed. Recommended RSS feeds are Feedly, NewsBlur, and Inoreader.
For those of you who enjoy receiving my blog articles delivered to your email account each time I add a new article, I regret that the service providing them to your email has been discontinued. Try using one of the RSS readers mentioned above to still email subscribe to my blog articles.
October 1, 2022 in Contracts | Permalink | Comments (0)
Sunday, September 11, 2022
September 30 Ag Law Summit in Omaha (and Online)
Overview
On September 30, Washburn Law School with cooperating partner Creighton Law School will conduct the second annual Ag Law Summit. The Summit will be held on the Creighton University campus in Omaha, Nebraska. Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30 and will also be broadcast live online.
The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.
The 2022 Ag Law Summit – it’s the topic of today’s post.
Agenda
Developments in agricultural law and taxation. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world. There have been several major developments involving agricultural that have come through the U.S Supreme Court in recent months. I will discuss those decisions and the implications for the future. Several of them involve administrative law and could have a substantial impact on the ability of the federal government to micro-manage agricultural activities. I will also get into the big tax developments of the past year, including the tax provisions included in the recent legislation that declares inflation to be reduced!
Death of a farm business owner. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections. The handling of tax attributes after death will be covered as will some non-tax planning matters when an LLC owner dies. There are also entity-specific issues that arise when a business owner dies, and Prof. Morse will address those on an entity-by-entity basis. The transition issue for farmers and ranchers is an important one for many. This session will be a good one in laying out the major tax and non-tax considerations that need to be laid out up front to help the family achieve its goals post-death.
Governing documents for farm and ranch business entities. After a morning break Dan Waters with Lamson Dugan & Murray in Omaha will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.
Fence law issues. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.
Farm economics. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an ag economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? How will the war in Ukraine continue to impact agriculture in the U.S.? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.
Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.
Online. The Summit will be broadcast live online and will be interactive to allow you the ability to participate remotely.
Reception
For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.
Conclusion
If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.
I hope to see you in Omaha on September 30 or see that you are with us online.
You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
September 11, 2022 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, September 10, 2022
Minnesota Farmer Protection Law Upheld
Overview
During the farm debt crisis of the 1980s numerous states in the Midwest and Plains enacted law designed to provide legal protection to farmers from various types of economic harm that others caused them. Farmers are also particularly vulnerable to bad political choices. During the 1970s the federal government was encouraging farmers to leverage heavily to expand and plant “fence row to fence row.” Then the Carter Administration made bad economic choices and engaged in a Russian grain embargo. The economy suffered from stagflation and when the newly appointed Federal Reserve Chairman Paul Volcker announced he would “ring inflation out of the economy” by immediately and substantially raising interest rates in late 1979, farmers found themselves with collapsed collateral (land) values, increased debt payments and a decreased ability to continue financing farming operations.
As the 1980s wore on, the structure of agricultural production began changing at an increasing pace. The move was on towards contract production of agricultural production. It had started in the 1970s in the poultry industry but started expanding into hog production. Also, farm input and output markets began consolidating, largely because of lax enforcement of existing competition laws applicable to the agricultural industry. Farmers buy inputs from highly concentrated markets and sell into highly concentrated markets. They face “seller power” when it comes to purchasing inputs and “buyer power” as it relates to selling agricultural commodities.
The Minnesota legislature, in 1990, enacted a set of laws designed to provide economic protection for farmers producing agricultural commodities under contract. Recently, the U.S. Court of Appeals for the Eighth Circuit, in Pitman Farms v. Kuehl Poultry, LLC, et al., No. 21-1113, 2022 U.S. App. LEXIS 25167 (8th Cir. Sept. 8, 2022), said the laws applied to a parent corporation of a subsidiary that had canceled several million dollars’ worth of poultry grower contracts.
The Minnesota Producer Protection Act – it’s the topic of today’s post.
Background
In early 1988, the Minnesota Legislature directed the Minnesota Department of Agriculture (MDA) to put together a task force to study the issue of agricultural contract production and recommend to the legislature how it might provide additional legal and economic protection to contract growers. The MDA’s Final Report was issued in February of 1990. During the 1990 legislative session, the Minnesota legislature approved various economic protections for farmers based on the task force recommendations focusing particularly on parent liability. As signed into law, MN Stat. §17.93 provides as follows:
“Parent company liability. If an agricultural contractor is the subsidiary of another corporation, partnership, or association, the parent corporation, partnership or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the contractor fails to pay or perform according to the terms of the contract.”
In addition, MN Stat. §17.90 specified as follows:
“’Producer” means a person who produces or causes to be produced an agricultural commodity in a quantity beyond the person’s own family use and: (1) is able to transfer title to another; or (2) provides management input for the production of an agricultural commodity.”
The MDA then prepared at “statement of need and reasonableness” (SONAR) to implement the new statutory provision. The SONAR referred to the legislation as the “Producer Protection Act” (PPA) and the MDA’s implementing rule (MN Rule 1572.0040) for MN Stat §17.93 which went into effect on March 4, 1991, read as follows:
“A corporation, partnership, sole proprietorship, or association that through ownership of capital stock, cumulative voting rights, voting trust agreements, or any other plan, agreement, or device, owns more than 50 percent of the common or preferred stock entitled to vote for directors of a subsidiary corporation or provides more than 50 percent of the management or control of a subsidiary is liable to a seller of agricultural commodities for any unpaid claim or contract performance claim of that subsidiary.”
During the same 1990 legislative session the Minnesota legislature approved and the governor signed into law MN Stat. §27.133. This new law stated as follows:
“Parent company liability. If a wholesale produce dealer is a subsidiary of another corporation, partnership, or association, the parent corporation, partnership, or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the wholesale produce dealer fails to pay or perform in according to the terms of the contract and this chapter.”
Concerning this provision, the legislature stated, “It is therefore declared to be the policy of the legislature that certain financial protection be afforded those who are producers on the farm…”.
Also, under both MN Stat. §17.93 and MN Stat. §27.133, “contractor” and “wholesale produce dealer” were defined as “persons” and “person” was to be applied to corporations, partnerships and other unincorporated associations.” MN Stat. §665.44, sub. 7.
Facts of Pitman Farms v. Kuehl Poultry, LLC
In 2017, the defendants entered into chicken production contracts with Prairie’s Best Farm, Inc. to grow chickens in exchange for monthly payments and bi-monthly bonus payments. In late 2017, Simply Essentials bought the assets of Prairie’s Best and assumed the grower contracts. Simply Essentials, incorporated in Delaware and headquartered in California, was the subsidiary of the plaintiff, Pitman Farms, which owned more than 50 percent of Simply Essentials. Shortly thereafter, the plaintiff bought Simply Essentials’ membership interests and became its sole owner. In 2019, Simply Essentials encountered financial trouble, ceased processing activities and notified the defendants that it was terminating the contracts effective three months later. The defendants’ demands for payment in excess of $6 million from the plaintiff for breach of contract failed. Both parties sought a declaratory judgment concerning the application of the PPA to the contracts.
Trial Court Decision
The plaintiff claimed that the PPA did not apply because the defendants were not “sellers” and, even if they were, the PPA didn’t apply because Simply Essentials was an LLC rather than a “corporation, partnership, or association. The plaintiff also asserted that the PPA’s parent company liability provisions didn’t apply to it because Delaware law applied, and that applying Minnesota law would violate the Dormant Commerce Clause. The defendant’s counterclaim made the opposite arguments.
The trial court ruled for the plaintiff, finding that the PPA did not apply by its terms because the defendants were not “sellers” and because Simply Essentials was an LLC rather than a “corporation, partnership, or association.”
Eighth Circuit Opinion
On appeal, the appellate court unanimously reversed. The appellate court read the various statutes together to determine the legislature’s purpose and intent. The appellate court noted that the parent company liability statute of MN Stat. §27.133, the PPA of §§17.90-17.98 and the MDA’s implementing rule all arose from the same legislative session, addressed the same issue, and contained nearly identical language. Accordingly, the appellate court determined that the trial court should have looked to MN Stat. §27.133 when construing the meaning of “seller” contained in MN Stat. §17.93 and in MDA Rule 1572.0040. When the various provisions were taken together, the appellate court determined that “seller” can include “producer” under the PPA and the MDA’s implementing regulation.
The appellate court also concluded that the trial court erred in finding that “seller” was limited to transferors of title. Because the defendants did not have title to the chickens and could not therefore transfer title, the trial court held that the PPA did not apply. The appellate court held that such a construction was plainly contrary to the legislature’s intent in creating the PPA which was to provide financial protections to agricultural producers in general and not merely agricultural commodity sellers. Further, because the appellate court determined that “seller” included “producer,” the defendants were covered by the PPA as providing management services in accordance with MN Stat. §17.90 (2) for the growing of the chickens under contract. In addition, the appellate court held that the growers were also “sellers” for purposes of the parent company liability provision of MN Stat. §27.133.
The plaintiff also asserted that “subsidiary of another corporation, partnership or association” contained in MN Stat. §17.93 and §27.133 meant that both the parent and the subsidiary had to be either a corporation, partnership or an association. The trial court agreed with this interpretation. The appellate court also agreed but pointed out that LLCs (which Simply Essentials was) did not exist in Minnesota when the PPA was enacted and, as such, the legislature had not purposefully excluded them from the statute. The appellate court also noted that an LLC had been found to be a “person” for purposes of the Minnesota Human Rights Act. That law defined “person” to include a partnership, association, or corporation. In addition, an unpublished decision of the Minnesota Court of Appeals had previously held that an LLC was an “association” for purposes of a Minnesota oil transportation statute. Thus, there was no apparent reason why the legislature would have singled out LLCs to not be covered under the parent company liability provisions of the PPA.
The appellate court also noted the strong public policy statement of the Minnesota legislature in enacting the PPA – to protect producers of agricultural commodities from economic harm due to parent business entities using their organizational form to avoid liability for their subsidiaries’ actions.
Conclusion
The farm debt crisis of the 1980’s produced legislative efforts in numerous states to address the legal and economic plight of farmers. Over 30 years later, it’s refreshing to see how one of those laws has worked to protect farmers under chicken production contracts. Other states without such protections for farmers should take note of the Eighth Circuit’s opinion.
September 10, 2022 in Contracts, Regulatory Law | Permalink | Comments (0)
Monday, September 5, 2022
Bibliography – January through June of 2022
Overview
Periodically I post an article containing the links to all of my blog articles that have been recently published. Today’s article is a bibliography of my articles from the beginning of 2022 through June. Hopefully this will aid your research of agricultural law and tax topics.
A bibliography of articles for the first half of 2022 – it’s the content of today’s post.
Bankruptcy
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
Other Important Developments in Agricultural Law and Taxation
Recent Court Cases of Importance to Agricultural Producers and Rural Landowners
Business Planning
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Should An IDGT Be Part of Your Estate Plan?
Farm Wealth Transfer and Business Succession – The GRAT
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance – Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Intergenerational Transfer of the Farm/Ranch Business – The Buy-Sell Agreement
IRS Audit Issue – S Corporation Reasonable Compensation
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
S Corporation Dissolution – Part 1
https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
Durango Conference and Recent Developments in the Courts
Civil Liabilities
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
Agritourism
https://lawprofessors.typepad.com/agriculturallaw/2022/03/agritourism.html
Animal Ag Facilities and the Constitution
When Is an Agricultural Activity a Nuisance?
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Durango Conference and Recent Developments in the Courts
Dicamba Spray-Drift Issues and the Bader Farms Litigation
Tax Deal Struck? – and Recent Ag-Related Cases
Contracts
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
What to Consider Before Buying Farmland
Elements of a Hunting Use Agreement
https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html
Ag Law (and Medicaid Planning) Court Developments of Interest
Cooperatives
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Criminal Liabilities
Animal Ag Facilities and the Constitution
Is Your Farm or Ranch Protected From a Warrantless Search?
Durango Conference and Recent Developments in the Courts
Environmental Law
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
“Top Tan” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1
The “Almost Top Ten” (Part 3) – New Regulatory Definition of “Habitat” under the ESA
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
Estate Planning
Other Important Developments in Agricultural Law and Taxation
Other Important Developments in Agricultural Law and Taxation (Part 2)
The “Almost Top Ten” (Part 4) – Tax Developments
The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]
Nebraska Revises Inheritance Tax; and Substantiating Expenses
https://lawprofessors.typepad.com/agriculturallaw/2022/02/recent-developments-in-ag-law-and-tax.html
Tax Consequences When Farmland is Partitioned and Sold
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Should An IDGT Be Part of Your Estate Plan?
Farm Wealth Transfer and Business Succession – The GRAT
Family Settlement Agreement – Is it a Good Idea?
Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Proposed Estate Tax Rules Would Protect Against Decrease in Estate Tax Exemption
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Ag Law (and Medicaid Planning) Court Developments of Interest
Joint Tenancy and Income Tax Basis At Death
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
IRS Modifies Portability Election Rule
Income Tax
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 10 and 9
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1
The “Almost Top Ten” (Part 4) – Tax Developments
The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]
Purchase and Sale Allocations Involving CRP Contracts
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
What’s the Character of the Gain From the Sale of Farm or Ranch Land?
Proper Tax Reporting of Breeding Fees for Farmers
Nebraska Revises Inheritance Tax; and Substantiating Expenses
https://lawprofessors.typepad.com/agriculturallaw/2022/02/recent-developments-in-ag-law-and-tax.html
Tax Consequences When Farmland is Partitioned and Sold
Expense Method Depreciation and Leasing- A Potential Trap
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
income Tax Deferral of Crop Insurance Proceeds
What if Tax Rates Rise?
https://lawprofessors.typepad.com/agriculturallaw/2022/03/what-if-tax-rates-rise.html
Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance – Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
IRS Audit Issue – S Corporation Reasonable Compensation
Missed Tax Deadline & Equitable Tolling
https://lawprofessors.typepad.com/agriculturallaw/2022/04/missed-tax-deadline-equitable-tolling.html
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Joint Tenancy and Income Tax Basis At Death
Tax Court Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2022/05/tax-court-caselaw-update.html
Deducting Soil and Water Conservation Expenses
Correcting Depreciation Errors (Including Bonus Elections and Computations)
When Can Business Deductions First Be Claimed?
Recent Court Decisions Involving Taxes and Real Estate
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
Tax Issues with Customer Loyalty Reward Programs
S Corporation Dissolution – Part 1
https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
What is the Character of Land Sale Gain?
Deductible Start-Up Costs and Web-Based Businesses
Using Farm Income Averaging to Deal with Economic Uncertainty and Resulting Income Fluctuations
Tax Deal Struck? – and Recent Ag-Related Cases
Insurance
Tax Deal Struck? – and Recent Ag-Related Cases
Real Property
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
What to Consider Before Buying Farmland
Elements of a Hunting Use Agreement
https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html
Animal Ag Facilities and the Constitution
Recent Court Decisions Involving Taxes and Real Estate
Recent Court Cases of Importance to Agricultural Producers and Rural Landowners
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Tax Deal Struck? – and Recent Ag-Related Cases
Regulatory Law
The “Almost Top 10” of 2021 (Part 5)
https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-10-of-2021-part-5.html
The “Almost Top 10” of 2021 (Part 6)
https://lawprofessors.typepad.com/agriculturallaw/2022/02/the-almost-top-10-of-2021-part-6.html
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
Animal Ag Facilities and the Constitution
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Ag Law (and Medicaid Planning) Court Developments of Interest
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
The Complexities of Crop Insurance
https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html
Secured Transactions
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
Water Law
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3
Durango Conference and Recent Developments in the Courts
September 5, 2022 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, August 20, 2022
Ag Law Summit
Overview
Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30, and will also be broadcast live online.
The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.
The 2022 Ag Law Summit – it’s the topic of today’s post.
Agenda
Survey of ag law and tax. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world.
Tax issues upon death of a farmer. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections.
Farm succession planning drafting language. After a morning break Dan Waters, and estate planning attorney in Omaha, NE, will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.
Fences and boundaries. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.
The current farm economy and future projections. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.
Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.
Reception
For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.
Conclusion
If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.
I hope to see you in Omaha on September 30 or see that you are with us online.
You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
August 20, 2022 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, May 22, 2022
2021 Bibliography
Overview
In the past, I have posted bibliographies of my articles by year to help readers researching the various ag tax and ag law topics that I write about. The blog articles are piling up, with more 750 available for you to read and use for your research for clients (and yourself). The citations contained in the articles are linked so that you can go directly to the source. I trust that you find that feature helpful to save you time (and money) in representing clients.
Today, I provide you with the bibliography of my 2021 articles (by topic) as well as the links to the prior blogs containing past years. Many thanks to my research assistant, Kennedy Mayo, for pulling this together for me.
Prior Years
Here are the links to the bibliographies from prior years:
Ag Law and Taxation 2020 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/01/ag-law-and-taxation-2020-bibliography.html
Ag Law and Taxation – 2019 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/02/ag-law-and-taxation-2019-bibliography.html
Ag Law and Taxation – 2018 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/03/ag-law-and-taxation-2018-bibliography.html
Ag Law and Taxation – 2017 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/04/ag-law-and-taxation-2017-bibliography.html
Ag Law and Taxation – 2016 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/04/ag-law-and-taxation-2016-bibliography.html
2021 Bibliography
Below are the links to my 2021 articles, by category:
BANKRUPTCY
The “Almost Tope Ten” Ag Law and Ag Tax Developments of 2020
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Is a Tax Refund Exempt in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2021/06/is-a-tax-refund-exempt-in-bankruptcy.html
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html
Montana Conference and Ag Law Summit (Nebraska)
Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)
BUSINESS PLANNING
For Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
C Corporate Tax Planning; Management Fees and Reasonable Compensation – A Roadmap of What Not to Do
Will the Estate Tax Valuation Regulations Return?
June National Farm Tax and Estate/Business Planning Conference
August National Farm Tax and Estate/Business Planning Conference
C Corporation Compensation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/03/c-corporation-compensation-issues.html
Planning for Changes to the Federal Estate and Gift Tax System
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance
Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
Montana Conference and Ag Law Summit (Nebraska)
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html
The Illiquidity Problem of Farm and Ranch Estates
When Does a Partnership Exist?
https://lawprofessors.typepad.com/agriculturallaw/2021/09/when-does-a-partnership-exist.html
Gifting Assets Pre-Death – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-part-one.html
Gifting Assets Pre-Death (Entity Interests) – Part Two
Gifting Pre-Death (Partnership Interests) – Part Three
The Future of Ag Tax Policy – Where Is It Headed?
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Fall 2021 Seminars
https://lawprofessors.typepad.com/agriculturallaw/2021/09/fall-2021-seminars.html
Corporate-Owned Life Insurance – Impact on Corporate Value and Shareholder’s Estate
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
S Corporations – Reasonable Compensation; Non-Wage Distributions and a Legislative Proposal
2022 Summer Conferences – Save the Date
https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html
CIVIL LIABILITIES
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Prescribed Burning Legal Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html
Damaged and/or Destroyed Trees and Crops – How is the Loss Measured?
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Mailboxes and Farm Equipment
https://lawprofessors.typepad.com/agriculturallaw/2021/07/mailboxes-and-farm-equipment.html
Statutory Immunity From Liability Associated With Horse-Related Activities
CONTRACTS
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Deed Reformation – Correcting Mistakes After the Fact
Considerations When Buying Farmland
https://lawprofessors.typepad.com/agriculturallaw/2021/11/considerations-when-buying-farmland.html
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
The Potential Peril Associated With Deferred Payment Contracts
COOPERATIVES
Continuing Education Events and Summer Conferences
Final Ag/Horticultural Cooperative QBI Regulations Issued
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
CRIMINAL LIABILITIES
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
ENVIRONMENTAL LAW
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Court and IRS Happenings in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html
Valuing Ag Real Estate With Environmental Concerns
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html
No Expansion of Public Trust Doctrine in Iowa – Big Implications for Agriculture
Key “Takings” Decision from SCOTUS Involving Ag Businesses
Montana Conference and Ag Law Summit (Nebraska)
Navigable Waters Protection Rule – What’s Going on with WOTUS?
ESTATE PLANNING
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
What Now? – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2021/02/what-now-part-two.html
Will the Estate Tax Valuation Regulations Return?
June National Farm and Tax and Estate/Business Planning Conference
August National Farm Tax and Estate/Business Planning Conference
Farmland in an Estate – Special Use Valuation and the 25 Percent Test
The Revocable Living Trust – Is it For You?
Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)
Court Developments of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Planning for Changes to the Federal Estate and Gift Tax System
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
The Revocable Trust – What Happens When the Grantor Dies?
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance
Ohio Conference –June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
Reimbursement Claims in Estates; Drainage District Assessments
Montana Conference and Ag Law Summit (Nebraska)
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html
The Illiquidity Problem of Farm and Ranch Estates
Planning to Avoid Elder Abuse
https://lawprofessors.typepad.com/agriculturallaw/2021/08/planning-to-avoid-elder-abuse.html
Gifting Assets Pre-Death – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-part-one.html
Gifting Assets Pre-Death (Entity Interests) – Part Two
The Future of Ag Tax Policy – Where Is It Headed?
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Tax Happenings – Present Status of Proposed Legislation (and What You Might Do About It)
Corporate-Owned Life Insurance – Impact on Corporate Value and Shareholder’s Estate
Tax (and Estate Planning) Happenings
https://lawprofessors.typepad.com/agriculturallaw/2021/11/tax-and-estate-planning-happenings.html
Selected Tax Provisions of House Bill No. 5376 – and Economic Implications
2022 Summer Conferences – Save the Date
https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html
INCOME TAX
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four
Final Ag/Horticultural Cooperative QBI Regulations Issued
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Deducting Start-Up Costs – When Does the Business Activity Begin?
What Now? – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/02/what-now-part-one.html
C Corporate Tax Planning; Management Fees and Reasonable Compensation – A Roadmap of What Not to Do
Where’s the Line Between Start-Up Expenses, the Conduct of a Trade or Business and Profit Motive?
June National Farm Tax and Estate/Business Planning Conference
Selling Farm Business Assets – Special Tax Treatment (Part One)
Tax Update Webinar
https://lawprofessors.typepad.com/agriculturallaw/2021/03/tax-update-webinar.html
Selling Farm Business Assets – Special Tax Treatment (Part Two)
Selling Farm Business Assets – Special Tax Treatment (Part Three)
August National Farm Tax and Estate/Business Planning Conference
Court and IRS Happenings in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html
C Corporation Compensation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/03/c-corporation-compensation-issues.html
Tax Considerations When Leasing Farmland
Federal Farm Programs and the AGI Computation
Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/04/tax-potpourri.html
What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?
Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)
Court Developments of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
The Revocable Trust – What Happens When the Grantor Dies?
Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
What’s the “Beef” With Conservation Easements?
Is a Tax Refund Exempt in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2021/06/is-a-tax-refund-exempt-in-bankruptcy.html
Tax Court Happenings
https://lawprofessors.typepad.com/agriculturallaw/2021/06/tax-court-happenings.html
IRS Guidance On Farms NOLs
https://lawprofessors.typepad.com/agriculturallaw/2021/07/irs-guidance-on-farm-nols.html
Montana Conference and Ag Law Summit (Nebraska)
Tax Developments in the Courts – The “Tax Home”; Sale of the Home; and Gambling Deductions
Recovering Costs in Tax Litigation
https://lawprofessors.typepad.com/agriculturallaw/2021/07/recovering-costs-in-tax-litigation.html
Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/08/tax-potpourri.html
Weather-Related Sales of Livestock
https://lawprofessors.typepad.com/agriculturallaw/2021/08/weather-related-sales-of-livestock.html
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html
Livestock Confinement Buildings and S.E. Tax
When Does a Partnership Exist?
https://lawprofessors.typepad.com/agriculturallaw/2021/09/when-does-a-partnership-exist.html
Recent Tax Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2021/09/recent-tax-developments-in-the-courts.html
Gifting Assets Pre-Death – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-part-one.html
Gifting Pre-Death (Partnership Interests) – Part Three
The Future of Ag Tax Policy – Where Is It Headed?
Tax Happenings – Present Statute of Proposed Legislation (and What You Might Do About It)
Fall 2021 Seminars
https://lawprofessors.typepad.com/agriculturallaw/2021/09/fall-2021-seminars.html
Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas
Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
Tax Issues Associated With Easements
https://lawprofessors.typepad.com/agriculturallaw/2021/10/tax-issues-associated-with-easements.html
S Corporations – Reasonable Compensation; Non-Wage Distributions and a Legislative Proposal
Tax Reporting of Sale Transactions By Farmers
The Tax Rules Involving Prepaid Farm Expenses
Self Employment Taxation of CRP Rents – Part One
Self-Employment Taxation of CRP Rents – Part Two
Self-Employment Taxation of CRP Rents – Part Three
Recent IRS Guidance, Tax Legislation and Tax Ethics Seminar/Webinar
Tax (and Estate Planning) Happenings
https://lawprofessors.typepad.com/agriculturallaw/2021/11/tax-and-estate-planning-happenings.html
Selected Tax Provisions of House Bill No. 5376 – and Economic Implications
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
The Potential Peril Associated With Deferred Payment Contracts
Inland Hurricane – 2021 Version; Is There Any Tax Benefit to Demolishing Farm Buildings and Structures?
2022 Summer Conferences – Save the Date
https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html
The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold?
Gifting Ag Commodities To Children
https://lawprofessors.typepad.com/agriculturallaw/2021/12/gifting-ag-commodities-to-children.html
Livestock Indemnity Payments – What Are They? What Are the Tax Reporting Options?
Commodity Credit Corporation Loans and Elections
INSURANCE
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
REAL PROPERTY
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Prescribed Burning Legal Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html
Ag Zoning Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/02/ag-zoning-potpourri.html
Court and IRS Happenings in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html
Is That Old Fence Really the Boundary
https://lawprofessors.typepad.com/agriculturallaw/2021/04/is-that-old-fence-really-the-boundary.html
Court Developments of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Deed Reformation – Correcting Mistakes After the Fact
Valuing Ag Real Estate With Environmental Concerns
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html
Montana Conference and Ag Law Summit (Nebraska)
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html
Considerations When Buying Farmland
https://lawprofessors.typepad.com/agriculturallaw/2021/11/considerations-when-buying-farmland.html
The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold?
REGULATORY LAW
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Prescribed Burning Legal Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html
Packers and Stockyards Act Amended – Additional Protection for Unpaid Cash Sellers of Livestock
Federal Farm Programs and the AGI Computation
Regulation of Agriculture – Food Products, Slaughterhouse Line Speeds and CAFOS
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The FLSA and Ag’s Exemption From Paying Overtime Wages
The “Dormant” Commerce Clause and Agriculture
Trouble with ARPA
https://lawprofessors.typepad.com/agriculturallaw/2021/06/trouble-with-arpa.html
No Expansion of Public Trust Doctrine in Iowa – Big Implications for Agriculture
Key “Takings Decision from SCOTUS Involving Ag Businesses
Reimbursement Claims in Estates; Drainage District Assessments
Mailboxes and Farm Equipment
https://lawprofessors.typepad.com/agriculturallaw/2021/07/mailboxes-and-farm-equipment.html
Montana Conference and Ag Law Summit (Nebraska)
California’s Regulation of U.S. Agriculture
Checkoffs and Government Speech – The Merry-Go-Round Revolves Again
Is There a Constitutional Way To Protect Animal Ag Facilities
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
Livestock Indemnity Payments – What Are They? What Are the Tax Reporting Options?
SECURED TRANSACTIONS
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Cross-Collateralization Clauses – Tough Lessons For Lenders
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The “EIDL Trap” For Farm Borrowers
https://lawprofessors.typepad.com/agriculturallaw/2021/07/the-eidl-trap-for-farm-borrowers.html
The Potential Peril Associated With Deferred Payment Contracts
WATER LAW
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Montana Conference and Ag Law Summit (Nebraska)
May 22, 2022 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, May 4, 2022
Ag Law (and Medicaid Planning) Court Developments of Interest
Overview
Agricultural law is a dynamic area of the law. There is always something going on in the courts, with the IRS and in the economy that has relevance to legal issues. With today’s post I look at some recent developments of importance to farmers and ranchers, including an interesting Texas case involving Medicaid planning.
Recent court developments involving agricultural producers and farm/ranch families.
Hog is a “Good” Potentially Subject to State Product Liability Law
Tyson Fresh Meats, Inc. v. Dykhuis Farms, Inc., et al., No. 3:21-CV-90 RLM-MGG, 2022 U.S. Dist. LEXIS 59710 (N.D. Ind. Mar. 31, 2022)
The plaintiff claimed it bought hogs from a company that subcontracted with the defendant to raise the hogs. The defendant delivered 267 hogs to the plaintiff which processed the hogs and commingled the meat with other meat at its plant. Two days later, the defendant told the plaintiff that the hogs hadn’t gone through a required withdrawal period for a certain supplement. As a result, the plaintiff had to dispose more than 1.7 million pounds of “contaminated” fresh meat. The plaintiff sued for negligence and breach of state (Indiana) product liability law. The defendant claimed that it provided a service rather than a product and that hogs were not “products” subject to product liability law. The defendant motioned for dismissal of the case, but the court held that the service-product distinction couldn’t be resolved on a motion to dismiss.
On appeal, the appellate court held that “goods” under the Indiana Product Liability Law covered “all things” that are “movable” when contracted for, including “the unborn young of animals” and adult animals. On the negligence claim, however, the appellate court determined that the plaintiff failed to adequately allege that the defendant owed the plaintiff a duty of care. Thus, the plaintiff was not allowed to proceed with the negligence claim.
No Standing to Challenge Hog Operation Permits
Sierra Club v. Stanek, No. 123,023, 2022 Kan. App. Unpub. LEXIS 193 (Kan. Ct. App. Apr. 1, 2022)
The defendant granted four swine facility permits over the plaintiff’s objection. The plaintiff sought review under the Kansas Judicial Review Act (KJRA), claiming that the defendant misinterpreted the relevant statutes and regulations. The trial court agreed and reversed the defendant’s decision. On appeal, the permittees requested that the defendant grant modified permits so that they could continue operations. The defendant issued modified permits and the plaintiff sued. The appellate court held that the plaintiff lacked standing to petition for judicial review, reversed the trial court’s decision and remanded the case with directions to dismiss the plaintiff’s petition and reinstate the original permits.
Supreme Court Won’t Hear Kansas Case Involving Secret Filming.
Kelly v. Animal Legal Defense Fund, cert. den., No. 21-760, 2022 U.S. LEXIS 2153 (U.S. Sup. Ct. Apr. 25, 2022)
In 2021, the U.S. Court of Appeals for the Tenth Circuit, held that a Kansas law making it a crime to take pictures or record videos at a covered facility (primarily a slaughterhouse) “without the effective consent of the owner and with the intent to damage the enterprise” was unconstitutional. The plaintiffs claimed that the law violated their First Amendment free speech rights. The State claimed that what was being barred was conduct rather than speech and that, therefore, the First Amendment didn’t apply. But the court tied conduct together with speech to find a constitutional violation – it was necessary to lie to gain access to a covered facility and consent to film activities. As such, the law regulated protected speech (lying with intent to cause harm to a business) and was unconstitutional. The court determined that the State failed to prove that the law was narrowly tailored to a compelling state interest in suppressing the “speech” involved. The dissent pointed out (consistent with the Eighth Circuit) that “lies uttered to obtain consent to enter the premises of an agricultural facility are not protected speech.” According to the Eighth Circuit, the First Amendment does not protect a fraudulently obtained consent to enter someone else’s property. The Tenth Circuit disagreed and held the Kansas law unconstitutional. Animal Legal Defense Fund, et al. v. Kelly, 9 F.4th 1219 (10th Cir. 2021). The state of Kansas sought U.S. Supreme Court review. Pet. for cert. filed, (U.S. Sup. Ct. Nov. 17, 2021). On April 25, 2022, the U.S. Supreme Court declined to hear the case.
Prior Occupancy of Home Not Required For Exclusion Under Medicaid Rules
Texas Health & Human Services Commission v. Estate of Burt, No. 03-20-00462-CV, 2022 Tex. App. LEXIS 2556 (Tex. Ct. App. Apr. 21, 2022)
The decedent and his wife bought a home in 1974 and lived there until late 2010 when they sold it to their daughter. They then moved into a rental property that the daughter owned. In early 2017, the couple entered a skilled nursing facility and shortly thereafter bough a one-half interest in their original home to “secure home equity in a home that they could return to if one or both of them should be able to leave the nursing home.” The same day, they filled out the plaintiff’s form designating the home as their place of residence and indicating an intent to return. After the purchase, they had about $2,000 remaining in their bank accounts. They then sought Medicaid benefits, effective immediately.
After both the decedent and his wife died shortly thereafter, the application was denied due to a finding of “resources in excess of program limits” because the plaintiff included the couple’s interest in the home as an available countable resource for Medicaid purposes. After the last of them to die, a debt of $23,479.35 was left owing to the nursing facility. Their daughter appealed the plaintiff’s decision to deny Medicaid benefits, but a hearing officer and the plaintiff’s Legal Services Attorney upheld the denial due to the couple’s inability to establish prior occupancy of the home as a principal place of residence. As such, the plaintiff determined, none of the equity value of the home could be excludible for Medicaid eligibility purposes.
The daughter sought judicial review, claiming that the home should have been excluded from her parent’s countable resources for Medicaid eligibility purposes under 42 U.S.C. §1382b(a)(1). This statute provides that a Medicaid applicant’s home is not an available asset for Medicaid eligibility purposes and is defined as any personal residence in which the applicant has an ownership interest. State (Texas) law contains an identical definition. 1 Tex Admin. Code §§358.103(38), (69). Under federal regulations, “place of residence” is defined as “the dwelling the individual considers his or her established or principal home and to which, if absent, he or she intends to return.” Program Operations Manual System, SI 01130.100A.2. Again, state law on this point is identical, defining a home as the “place of residence of the applicant or applicant’s spouse if the applicant “occupies or intends to return to the home.” 1 Tex. Admin. Code §358.348(a)(1) mirroring 20 C.F.R. §416.1212. The plaintiff adopted an identical regulation requiring prior occupancy consistent with the Texas statutory provision. Accordingly, the plaintiff asserted that because the decedent and wife did not have any ownership interest in a home at the time they entered the nursing home, they had no excludible home to which they could intend to return to at that time. In other words, the plaintiff’s subjective intent was to be ignored and the plaintiff read a “prior occupancy” requirement into the applicable regulations construing 42 U.S.C. §1382b(a)(1) and the comparable Texas provision.
The trial court ruled that the plaintiff’s interpretation was unreasonable and not supported by substantial evidence, reversed the plaintiff’s decision and remanded the case. The plaintiff appealed, but the appellate court determined that the plaintiff’s interpretation requiring prior occupancy of a home was incorrect. While the plaintiff argued that because the couple bought their interest in the home after entering the nursing facility, they could not be viewed as “intending to return” to it and, as a result, it could not be considered their “home.” The appellate court noted that “intent to return” in the federal regulation applied only to the continued exclusion of the home before the time the applicant left the property, and that the federal regulation specified that an applicant’s principal place of residence is the place the person considers to be the person’s established home – the subjective intent of the applicant(s).
While there were no prior Texas appellate decisions directly on point, the appellate court did cite a local county district court opinion in a letter ruling where the court stated, “if Congress had intended to require prior occupancy, it would have been simple to state it.” That appellate court went on to reason the purpose of Medicaid is better served by allowing an applicant to claim the home exemption for a home that a Medicaid recipient buys or inherits while in a nursing facility, as long as the recipient intends (subjectively) to return to the home upon discharge from the facility. The appellate court found this reasoning persuasive, found a contrary Arkansas court opinion on the issue that held the opposite to be unpersuasive (Groce v. Director, Arkansas Department of Human Services, 82 Ark. App. 447, 117 S.W.3d 618 (Ark. Ct. App. 2003)), and concluded that there was no “prior actual residence requirement” under Medicaid. Thus, the plaintiff’s regulatory interpretation was an improper reading of the statute. As a result, the appellate court affirmed the trial court’s decision.
Conclusion
The legal issues keep on rolling involving agriculture. It will be interesting to see if the Texas Medicaid court decision is appealed. As noted, there is a split of authority on that issue that has implications for long-term care planning. I will do another recent development blog soon.
May 4, 2022 in Contracts, Estate Planning, Regulatory Law | Permalink | Comments (2)
Thursday, February 17, 2022
Elements of a Hunting Use Agreement
Overview
Some landowners allow hunting on the farm and ranch land that they own. Often, the use of a tract for hunting will simply be by oral permission. But, other landowners may take the step to reduce expectations to writing to avoid misunderstandings and minimize future legal issues. So, what are the elements of a good hunting use agreement?
Building a solid hunting use agreement – it’s the topic of today’s post.
The Property Interest Involved
Engaging in a hunting activity on someone else’s property involves the property law concept of that of a license. A license is a term that covers a wide range of permissive land uses which, unless permitted, would be trespasses. Thus, a hunter who is on the premises with permission is a licensee. The license can be terminated at any time by the person who created the license (the landowner) by denying permission to hunt. A license is only a privilege. It is not an interest in the land itself and can be granted orally. But, when permission to hunt is obtained in writing, what makes for a good agreement?
Elements of a Hunting Use Agreement
Legal description and map. It is essential to include a description of the property that the “hunting operator” may hunt. Provide the number of acres and give a general description of the property, and then provide a precise legal description attached as an “Exhibit” to the agreement. Also, it is generally a good idea to provide a map showing any areas where hunting is not allowed and attach the map as an Exhibit to the agreement.
Hunting rights. The agreement should clearly specify the rights of the hunting operator. Because the agreement is a hunting use agreement, the document should clearly state that the “hunting operator” has the right to use the property solely for the purpose of hunting wild game that is specifically described in the agreement. That specific game should not only be listed, but bag limits, species, sex, size and antler/horn limitations should be noted as appropriate.
The agreement should also clearly specify whether the hunting operator’s right to use the property for hunting game are exclusive or non-exclusive. If the hunting operator is granted an exclusive hunting right, the landowner is not entitled to use the property for game hunting purposes during the term of the agreement. If the hunting operator’s right is non-exclusive, the landowner (and/or any designees) is entitled to use the property for game hunting purposes. With non-exclusive rights, it may be desirable to denote any limitations to the landowner’s retained hunting rights.
On the hunting rights issue, it is usually desirable on the landowner’s part to include a clause in the agreement specifying that the landowner and the landowner’s family, agents, employees, guests and assigns retain the right to use and control the property for all purposes. Those purposes should be listed, with the common “including but not limited to” language. Such uses as livestock grazing; growing crops and orchards; mineral exploration; drilling and mining; irrigation, timber harvesting; granting of easements and similar rights to third parties; fishing; horseback riding; hiking; and other recreational activities, etc., may want to be listed.
Specification of the beginning and ending date of the hunting operator’s right to use the property should be included. It is suggested to denote that the property may be used for game hunting purposes limited to legal hunting seasons and hours tied to the particular wild game at issue. The agreement should not extend the hunting operator’s rights beyond the applicable hunting season(s).
Consideration. What is a “fair” rate to charge for the granting of hunting rights? The answer to that question will depend upon rates charged for similar properties and game in the area. That could be difficult to determine, but data might be available for comparison. Check your state’s land grant university Extension Service for any information that might be available. County Extension agents may be a good place to start.
The agreement should describe how payment is to me made and when it is due. In addition, give thought to including clause language noting that the landowner might have lien rights under state law and state whether a security deposit is required and/or security agreement is or has been executed to secure payment.
Think through whether and to what extent (if any) payment is required if the property (or a part thereof) becomes unavailable to hunting because of unanticipated events such as flood; fire; government taking or condemnation; drilling, mining or logging operations, etc. Is payment to be adjusted? If so, how?
Improvements. Is the hunting operator to be given the right to construct improvements on the property? If so, the right needs to be detailed. Is the landowner obligated to construct any improvements? For larger hunting operations the landowner commonly constructs certain improvements such as new roads; fences; gates; hunting camps; wildlife crops and feeding facilities; water facilities; blinds; tree stands, and similar structures. List a completion date for constructed improvements. Also, give thought to including a provision in the agreement for the cleaning, repair and maintenance of improvements. Which party does what, and which party pays?
Prohibited uses. Clearly state what uses on the property are not allowed. Are campfires allowed? What about the use of dogs? What about camping overnight on the property? Are pack animals to be used? If so, specify that the animals must be in compliance with any applicable branding or other identification requirements. If pack animals are allowed, that might mean that corrals will be needed and feeding requirements will have to be met. Also, with respect to pack animals, make sure the document requires that the hunting operator complies with inspection, inoculation, vaccine and health requirements. The landowner should be provided with reports and certificates, etc.
The driving of vehicles should be restricted to particular areas and if gates are to be driven through, include a provision requiring the hunting operator to be responsible for leaving the gates in the condition found (locked, unlocked, etc.).
Insurance coverage. An important aspect of any fee-based activity on the premises is insurance. The agreement should specify whether which party (or both) is to maintain liability insurance coverage and in what amount. Make sure the insurance covers any improvements on the property. Also, for landowners, don’t rely on coverage under an existing comprehensive liability policy for the farm or ranch. That policy likely has an exclusion for non-farm (or ranch) business pursuits of the insured. Being compensated for hunting on the property would likely fall within the exclusion.
Miscellaneous. There may be numerous miscellaneous provisions that might apply. These can include provisions for the landowner’s warranty of ownership; whether the agreement is to be recorded; and the maintenance of trade association memberships and licenses and permits.
Liability Issues
Numerous states have enacted agritourism legislation designed to limit landowner liability to those persons engaging in an “agritourism activity.” Typically, such legislation protects the landowner (commonly defined as a “person who is engaged in the business of farming or ranching and provides one or more agritourism activities, whether or not for compensation”) from liability for injuries to participants or spectators associated with the inherent risks of a covered activity. The statutes tend to be written very broadly and can apply to such things as corn mazes, hayrides and even hunting and fishing activities.
Recognizing the potential liability of owners and occupiers of real estate for injuries that occur to others using their land under the common law rules, the Council of State Governments in 1965 proposed the adoption of a Model Act to limit an owner or occupier's liability for injury occurring on the owner's property. The Council noted that if private owners were willing to make their land available to the general public without charge, every reasonable encouragement should be given to them. The stated purpose of the Model Act was to encourage owners to make land and water areas available to the public for recreational purposes by limiting their liability toward persons who enter the property for such purposes. Liability protection was extended to holders of a fee ownership interest, tenants, lessees, occupants, and persons in control of the premises. Land which receives the benefit of the act include roads, waters, water courses, private ways and buildings, structures and machinery or equipment when attached to the realty. Recreational activities within the purview of the act include hunting, fishing, swimming, boating, camping, picnicking, hiking, pleasure driving, nature study, water skiing, water sports, and viewing or enjoying historical, archeological, scenic or scientific sites. Most states have enacted some version of the 1965 Model legislation.
Note: The point is to check state law with respect to both agritourism statutes and recreational use statues. Generally, they will provide liability protections to the landowner for hunting activities on the premises if the landowner does not act willfully or wantonly (with reckless disregard to the safety of the hunting operator). State laws vary on the protection of the statutes if a fee is charged.
Conclusion
Allowing hunting activities to be engaged in on farming or ranching property can provide an additional source of income. But, it’s important to enter into written agreements with hunters. The points made above should be an guide for helping construct a good agreement that will benefit the parties involved.
February 17, 2022 in Contracts, Real Property | Permalink | Comments (0)
Friday, February 11, 2022
What to Consider Before Buying Farmland
Overview
Buying farmland is a major decision. That means that it’s important to carefully consider numerous things before signing the purchase contract. Many persons have bought farmland only to encounter unanticipated problems.
So, what can be done to avoid the unexpected? A lot of it boils down to making sure that the buyer has full information about the property they are interested in buying. This is especially important with respect to farmland.
Considerations when buying farmland – it’s the topic of today’s post.
Environmental Issues – Due Diligence
Endangered Species. Rural landowners can have issues with various state and federal regulatory agencies such as the Natural Resources Conservation Service (NRCS); the Environmental Protection Agency (EPA); the U.S. Army Corps of Engineers (COE); the Interior Department; and the Fish and Wildlife Service (USFWS). The extent to which any of those government agencies has regulatory authority over the land in question is tied to where the land is located. Some parts of the country are more susceptible to government regulations. States such as Florida, California and Tennessee, for example, are a few of the states with a substantial agricultural economy that have many endangered or threatened species and animals and plants. A “habitat” designation for protected species on privately owned land can severely restrict farming and ranching activities on that land. Some pre-purchase research as to listed species in the state where you are considering and then determining whether a habitat designation might influence the land is worthwhile.
Comprehensive Environmental Response Compensation & Liability Act (CERCLA). CERCLA focuses on the cleanup of hazardous waste sites, but it can have significant ramifications for agricultural operations because the term “hazardous waste” has been defined to include most pesticides, fertilizers, and other chemicals commonly used on farms and ranches and its presence can lead to huge liability.
Perhaps the most important defense to CERCLA liability is the “innocent purchaser” defense. This defense applies if the defendant purchased land not known at the time of purchase to contain hazardous substances, but which is later determined to have some environmental contamination at the time of the purchase or is contiguous to land not known at the time of the purchase to be contaminated. A buyer attempting to utilize this defense must establish that the real estate was purchased after the disposal or placement of the hazardous substance, and that the buyer didn’t know or had no reason to know at the time of purchase that a hazardous substance existed on the property. To utilize the defense, the buyer, as of the purchase date, must have undertaken “all appropriate inquiry” into the previous ownership and uses of the property in an effort to minimize liability. The phrase “all appropriate inquiry” generally depends upon the existence or nonexistence of five factors: (1) the buyer’s knowledge or experience about the property; (2) the relationship of the purchase price to the value of the property if it was uncontaminated; (3) commonly known or reasonably ascertainable information about the property; (4) the obviousness of the presence or likely presence of contamination of the property; and (5) the ability to detect such contamination by appropriate inspection.
A buyer of farmland can take several common-sense steps to help satisfy the “appropriate inquiry obligation”. Certainly, a title search should be made of the property. Any indication of previous owners that may have conducted operations that might lead to contamination should be investigated. Aerial photographs of the property should be viewed, and historical records examined. Likewise, investigation should be made of any government regulatory files concerning the property. A visual observation of the premises should be made, soil and well tests conducted, and neighbors questioned. However, the execution of an environmental audit may be the best method to satisfy the “all appropriate inquiry” requirement. Some states have enacted legislation requiring the completion of an environmental audit upon the sale of agricultural real estate. Today, many real estate brokers, banks and other lenders utilize environmental audits to protect against cleanup liability and lawsuits filed under CERCLA.
Drainage records. In some parts of the country farmland is tile drained. This is particularly the case in areas of the corn belt east of Nebraska. Public records are a good place to look for information about a tract of farmland. Checking drainage records with the local Auditor’s office (at least in some states) is a good place to discover drainage information. Those records may not be in the Recorder’s records and probably won’t show up in an abstract. Also, there may be private drainage agreements and/or easements that exist. Those agreements will likely be recorded and appear in the Recorder’s office records for the property.
USDA records. USDA records about the land should be examined. This includes Farm Service Agency (FSA) and NRCS records. Many sellers will choose to make all of the records open concerning a particular farm. So, that can be a good way to get your hands on USDA maps and documents. This will also allow the buyer to determine if there are any government contracts or easements on the property, such as the Conservation Reserve Program or the Wetlands Reserve Program. Also, the USDA information will allow the buyer to determine if any of the land is highly erodible or has wetland status.
Wetlands. A wetland designation on even a small part of the farmland can create significant problems for the owner. There are two possible aspects to such a designation. One aspect is regulation via the USDA’s Swampbuster rules. Under those rules, land designated as a wetland cannot be farmed. Doing so can bring substantial penalties. This makes it imperative to analyze any available aerial photos, soil maps and the type of vegetation that is growing on various areas of the land.
The other aspect with respect to wetland is the “waters of the United States” (WOTUS) issue under the jurisdiction of the EPA and the COE. Under the current regulatory interpretation of the extent of federal jurisdiction, virtually any connection with a WOTUS can bring substantial restrictions on what can be done on the designated location(s) and result in substantial penalties. In addition, a wetland designation with Swampbuster and/or WOTUS implications can have a substantial negative effect on the land’s value.
Note: Any time that a governmental agency gets involved, the administrative process can drag on for months and even years. It can be a horrible and costly process. Due diligence before the purchase can help steer you away from a tract that might get you caught up in a bureaucratic web.
Other Issues
Existing lease. It’s important to determine whether the land being purchased is leased to a tenant. In some states, long-term farm leases must be recorded. In that situation, check the publicly filed records. But most farm leases are oral leases that run from year-to-year. Relatedly, for farmland purchases from an individual (or entity) seller or an estate, it is important to understand whether the lease will continue (and, if so, for how long) or whether it has been properly terminated in accordance with state law. The mere sale of the land, absent some written agreement, will not terminate any existing lease.
Note: Do not take a realtor’s (or auctioneer’s) word for it that an existing lease has been terminated or that the purchase will terminate the lease.
If the land is leased, determine who the tenant is. Is there only one tenant or multiple tenants? Ask the existing owner/seller to check the FSA records to see how the government program payments (if any) are being paid and who signed up for them as “tenant.” If multiple tenants are involved, have they all been properly terminated in accordance with state law?
Local Development Plans
The erection of either wind turbines or solar panels on adjacent or nearby property will have an impact on land value of the tract you buy. If there currently is no such development, are plans in the works? Check archives of local newspapers for information on county commissioner meetings as well as with the county clerk. What’s the talk in the community? Have easements been acquired on adjacent tracts, but development not begun. Get the seller to sign-off on a disclosure statement about what they know concerning potential development in the area, and whether the seller has been approached by wind or solar developers.
Note: The seller’s failure to disclose key information when required by law as well as an untruthful disclosure that the buyer can prove, can serve as the basis for cancelling a farm sale before closing occurs if the failure pertains to information that serves as the basis of the bargain.
Also check county records for long-range planning documents. Are plans in place to widen a road that borders the property that would take some of the land out of production? If so, how would that impact your plans for the property?
Signatures. Make sure to obtain all appropriate signatures (that means a spouse, when applicable), and determine whether the sale is part of a family settlement agreement. Also, it is important to make sure that the legal description matches what is being purchased. On this point, take great care when using the abstract and bring it up to date before the purchase and have it carefully examined for accuracy and for defects in title.
Sometimes a tract of land won’t have precisely the acres that the buyer thinks it has. A half-section, for example, may not actually contain a full 320 acres. That’s especially likely if the tract lies on the edge of a township, county or a state border. Similarly, if a “correction” line is present (to account for the curvature of the earth), that can impact the actual number of acres being purchased. In other words, a “section” may not actually be a full section.
Physical Inspection
From a practical standpoint, put your boots on and physically walk the tract. Look at the fences. Are they on the actual, intended location or boundary? If not, had the adjoining landowners mutually recognized the existing fence location for a long-enough period of time (determined by state law) so that it is the actual dividing line irrespective of what a survey shows? Is there a written fence agreement that has been recorded? Probably not, but it’s a good idea to check the real estate records. Look for paths that might be easements. Relatedly, are existing paths wide enough to allow equipment into fields and locations where planting is desired? How much of the land is consumed by ditches and roads? The seller will try to sell in accordance with deeded acres, but a buyer that plans on farming the property is interested in paying only for tillable ground. Not much, if any, value is assigned to non-tillable ground other than pasture.
Valuation
Land grant universities have good survey data on the value of various classifications of land. That is a good place to start on determining what a fair/average price for the land might be based on its location and soil type/grassland classification. Also, actual local sale data (if it exists) is very helpful in determining market value.
Of course, economic conditions and markets change over time, so current cash flow projections can be off as time passes, so it’s a good idea to build in a buffer to account for negative changes in economic conditions, or unexpected weather issues.
Taxes
How much of the purchase price can be allocated to depreciable items such as fences, farm structures, drainage tile, feeding floors, residual fertilizer supply, etc.? To the extent that the purchase price can be allocated to such items, it effectively lowers the out-of-pocket cost of the purchase.
Conclusion
There are many things to think about and get clarified when buying farmland. I am sure that I have not covered them all in this brief article. What would you add to the list?
February 11, 2022 in Contracts, Real Property | Permalink | Comments (0)
Friday, January 7, 2022
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
Overview
As I pointed out in the previous articles in this series, agricultural law and agricultural tax law intersect with everyday life of farmers and ranchers in many ways. Some of those areas of intersection are good, but some are quite troubling. In any event, it points to the need for being educated and having good legal and tax counsel that is well-trained in the special rules that apply to agriculture.
This is the third installment in my list of the “Top Ten” agricultural law and tax developments of 2021. The list is comprised of what are, in my view, the most important developments in agricultural law (which includes taxation that impacts farmers and ranchers) to the sector as a whole. The developments primarily are focused on the impact to production agriculture, but the issues involved will also have effects that spillover to rural landowners and agribusinesses as well as consumers of agricultural products.
The Sixth and Fifth most important agricultural law and tax developments of 2021 – it’s the topic of today’s post.
6. The Potential Peril Associated With Deferred Payment Grain Sales. On November 8, a group of Mississippi farmers filed a class action against UMB Bank, N.A. for misleading them about the financial status of a grain elevator they sold grain to that filed bankruptcy before paying them. Island Farms, LLC, et al. v. UMB Bank, N.A., No.___, (S.D. Miss. filed Nov. 8, 2021). The case is a grim reminder of the financial peril a farmer can be in when grain is delivered to an elevator, but payment is not made on delivery. After grain is delivered, but before it is paid for, the seller is an unsecured creditor of the buyer. If the buyer files bankruptcy before making payment, the seller is not likely to recover much, if anything.
Based on the plaintiffs’ complaint, they delivered grain to a grain elevator that, unbeknownst to them, was insolvent and being propped up by the defendant bank. The elevator’s grain purchases involved the farmers delivering and transferring title to the grain to the elevator. The elevator would then weigh, inspect and access the grain, and deliver payment in the form of a check within a period of a few days, or at another date if any particular farmer so desired.
The elevator is one of the largest grain elevator operations serving farmers in the Mississippi Delta, and was highly leveraged with massive amounts of debt. The elevator’s principal creditor was the bank, with loans dating back to 2015. The total balance on the loans was approximately $70 million as of September 2021. $37 million was the balance on a revolving loan and $33 million was the balance on a term note. The bank required the grain elevator to post collateral, which meant that virtually all of its assets were collateralized. The loan agreements gave the bank a continuing security interest upon all property of the grain elevator, whether then owned or later acquired. The elevator’s most valuable collateral was the grain they stored, and the amount they could borrow was determined in part by the amount of grain in inventory.
By the spring of 2021, the elevator was in serious financial distress, having less than $4,000 cash on hand, and was effectively insolvent. In addition, throughout 2021 the elevator failed to make payments to reduce the balance of the revolving loan, which it was contractually obligated to reduce. However, the bank permitted the elevator to keep the balance of the loan at the maximum level throughout the year. The elevator was required to furnish audited financial statements to the bank within 120 days of December 31, the end of its fiscal year.
The plaintiffs claim that the elevator was kept afloat by the bank’s forbearance on their loans. The bank was aware that if it called the loans, there would be little grain it could claim as security for the grain elevator’s debt. As a result, the plaintiffs claim that the bank proposed to wait until the grain elevator had as much grain as practicable before calling the loan and thereby effectively forcing the grain elevator into bankruptcy – which it filed for Chapter 11 (reorganization) bankruptcy on September 29, 2021.
Although the elevator was in financial distress, the farmers claim that it continued to hold out to farmers the opposite. In the spring of 2021, the elevator issued an update that stated it would be better prepared financially than in years past. The update also mentioned that the elevator had funding in place from multiple sources to ensure everyone got paid on time. However, several checks that the elevator wrote bounced during the harvest season. By the end of September, the bank notified the elevator that all amounts owed under the loan would be due immediately. As a result, the elevator filed Chapter 11 on September 29, 2021, effectively placing the bank in priority position as a secured creditor in accordance with its security agreements and the farmers in non-priority, general unsecured creditor status.
The plaintiffs claim that the elevator made knowingly false representations and concealed information that it had a duty to disclose. Additionally, they claim the bank aided and abetted the elevator’s fraud by remaining silent while knowing that the farmers would deliver their crops with a time interval before being paid. The plaintiffs specifically claim that the bank deliberately propped up the grain elevator until the crops were delivered during harvest season. The plaintiffs claim that the bank was the beneficiary of the elevator’s fraud, and that it has been unjustly enriched at the plaintiffs’ expense. The plaintiffs further claim that in addition to equitable title of the crops, they had a constructive trust over the grain for the purpose of getting paid. They assert that had the grain elevator clearly indicated its financial position, the plaintiffs would have sold their crops elsewhere. Ultimately, the plaintiffs seek forfeiture of all money received by the bank in the matter.
The Mississippi case points out the problems that a farmer can encounter when a buyer fails before making paying on delivered grain. While state indemnity funds and bonding programs might be available, they often don’t go far in making any particular farmer whole. Certainly, the financial status of a buyer should be examined carefully before delivery is made. That means seeing a certified audit of the buyer before making delivery. Also, carefully using a letter of credit or an escrow account might provide security against a buyer’s default and achieve deferability. In any event, planning is required anytime an ag commodity is sold on a deferred basis to a buyer.
Update: Shortly after the elevator filed bankruptcy, two farming entities sued for an expedited determination that the grain contracts they had with the debtor were executory and subject to an immediate deadline for the executor to assume them. In In re Express Grain Terminals, LLC, No. 21-11832-SDM, 2021 Bankr. LEXIS 3415 (Bankr. N.D. Miss. Dec. 14, 2021), the court determined that the contracts were executory and set deadlines for the debtor to assume or reject them. The debtor was required to provide adequate assurance of performance of both the monetary and non-monetary requirements of the executory contracts. The issues became whether the executory contracts were a part of a “single contract” under the Master Trade Agreement (MTA), and whether the executory contracts were actually contracts for “financial accommodations” under 11 U.S.C. §365(c)(2). The court determined that the individual farmer contracts were the executory contracts that the debtor could assume or reject. Based on state law, the court found that the individual farmer contracts were severable. In addition, the language of the MTA and the individual grain contracts demonstrated the severable nature of the individual grain contracts. In addition, the court determined that the parties’ conduct indicated the severable nature of the individual grain contracts. The court also held that the individual grain contracts with farmers were not contracts for financial accommodation because they were not contracts for the extension of cash or line of credit.
5. U.S. Supreme Court May Decide Whether FIFRA Preempts State Law – Roundup Litigation. Since 2015, thousands of cancer victims have sued Monsanto in state and federal court, alleging that Roundup caused their non-Hodgkins lymphoma. In 2021, a state court in California and a federal court in California issued important decisions on whether the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) pre-empts a state-law failure-to-warn claim when the warning cannot be added to the Roundup product without the Environmental Protection Agency’s (EPA’s) approval.
Background. In 2005, the U.S. Supreme Court, in Bates, et al. v. Dow Agrosciences LLC, 544 U.S. 431 (2005) provided guidance on how courts are to analyze FIFRA preemption claims in the future. The plaintiffs in Bates were 29 Texas peanut farmers who claimed that in the 2000 growing season their crops were severely damaged by the application of the defendant’s pesticide. The farmers claimed that the defendant knew or should have known that the pesticide would stunt the growth of peanuts in acidic soils. However, the pesticide label stated that the pesticide was recommended in all areas where peanuts were grown. Before the 2001 growing season, the defendant reregistered the pesticide with the EPA, and the EPA approved a supplemental label that specified that the product was not to be used on peanuts grown in soils with a high acidity level (pH of 7.2 or greater). After negotiations failed, the farmers gave notice of intent to sue under Texas law, and the defendant filed a motion for declaratory judgment in Federal District Court on the grounds that FIFRA preempted the farmers’ claims. The farmers also brought tort claims based in strict liability and negligence, fraud, breach of warranty and violation of the Texas Deceptive Trade Practices-Consumer Protection Act. The District Court granted the defendant’s motion, finding that FIFRA preempted the farmers’ claims, and the U.S. Court of Appeals for the Fifth Circuit affirmed. The Fifth Circuit reasoned that the farmers’ claims were preempted because if the claims were successful, the defendant would be induced (as opposed to being actually required) to change its label. Accordingly, the farmers’ successful claim would impose an additional “requirement” on the defendant under state law – something the states cannot do under FIFRA.
The Supreme Court began its analysis in Bates by noting that FIFRA preemption applies to state rules that: (1) establish a requirement for labeling or packaging that; (2) is in addition to or different from what FIFRA requires. The Court noted, therefore, that rules that require manufacturers to design reasonably safe products, use due care in conducting appropriate testing of their products, market products free of manufacturing defect, and to honor their express warranties or other contractual commitments are not preempted because they do not qualify as requirements for labeling or packaging. Thus, the Court ruled that the farmers’ claims for defective design, defective manufacture, negligent testing and breach of express warranty were not preempted. The Court rejected the Fifth Circuit’s “inducement” test as overbroad – that the farmers’ claims were preempted because, if successful, the defendant would be induced to change the pesticide label. However, the Court ruled that the farmers’ fraud and negligent- failure-to-warn claims were premised on common law rules that qualified as “requirements” for labeling or packaging. But, such claims are only preempted, the Court reasoned, if the state level common law rules establish requirements that are “in addition to or different from” FIFRA’s standards. The farmers claimed that their claims based on fraud and failure-to-warn were not preempted because these common law duties were equivalent to FIFRA’s requirements that a pesticide label not contain “false or misleading” statements, or inadequate instructions or warnings.
Ultimately, the Court ruled that it had not received sufficient briefing on whether FIFRA preempted the farmers’ fraud and failure-to-warn claims brought under Texas law, and remanded the case to the Fifth Circuit for a resolution of those claims. In remanding on these claims, the Court emphasized that a state law labeling requirement must in fact be equivalent to a requirement under FIFRA to survive preemption. If, for example, the element of falsity contained in a Texas common law fraud action imposes a broader obligation than FIFRA’s requirement that labels not contain “false or misleading statements,” the action would be preempted to the extent of the difference. The Court also opined that state law requirements must be measured against any relevant EPA regulations that give content to FIFRA’s misbranding standards. Likewise, the Court stated that jury instructions must ensure that nominally equivalent labeling requirements are genuinely equivalent such that a pesticide manufacturer should not be held liable under a state labeling requirement unless the manufacturer is also liable for misbranding under FIFRA.
In rejecting the “inducement” test of the Fifth Circuit and utilizing a “parallel requirements” test for determining FIFRA preemption, it is likely that more claims against pesticide manufacturers will survive preemption. It is no longer a valid ground for preemption that a state-based claim, if successful, would induce a manufacturer to change a label. Under the “parallel requirements” test, preemption applies only to claims that, if successful, would actually require a label to be changed. Thus, the key is whether applicable state law imposes broader obligations on pesticide manufacturers than does FIFRA.
Note: Nothing in FIFRA precludes states from providing a remedy to farmers and state law claims can be asserted based on alleged FIFRA violations to the extent that the claims would not impose a requirement that is in addition to or different from FIFRA requirements. However, a federal claim cannot be asserted. See, e.g., G & M Farms, Inc. v. Britz-Simplot Grower Solutions, LLC, et al., No. 1:13-cv-0368 LJO MJS, 2013 U.S. Dist. LEXIS 75458 (E.D. Cal. May 29, 2013).
Based on the Court’s opinion in Bates, it became reasonable to believe that additional litigation would be brought against applicators and other parties that have some connection with the activity that caused damages along with pesticide manufacturers, and that some state legislatures might reexamine state statutes governing pesticides with an eye toward conformity with FIFRA. In any event, the Court illustrated its preference against preemption without clear direction from the Congress.
2021 developments. In a California case, a married couple claimed that their usage of Roundup on their properties for several decades caused the husband’s non-Hodgkin’s lymphoma. They made numerous legal claims, including a claim that Monsanto knew or had reason to know that its Roundup products were defective and inherently dangerous and unsafe when used in the manner that Monsanto instructed. The jury determined that Monsanto had designed Roundup in a manner that was a substantial factor causing the husband’s harm; that Roundup had potential risks that were known or knowable in light of scientific and medical knowledge that were generally known in the scientific community at the time of manufacture, distribution and sale; that Monsanto was negligent in designing, manufacturing and supplying Roundup; and that Monsanto negligently failed to warn and instruct of Roundup’s danger. The trial court jury awarded $2,055,000,000 to the plaintiffs. The trial court reduced the total damage award to $86.7 million.
In 2021, the appellate court affirmed in Pilliod v. Monsanto Co., 67 Cal. App. 5th 591 (2021), pet. for review den., No. S270957, 2021 Cal. LEXIS 7965 (Cal. Sup. Ct. Nov. 17, 2021). The appellate court determined that Monsanto had not shown that FIFRA preempted the plaintiffs’ design defect and failure to warn claims because it failed to identify any state-law requirements that were in addition to or different from FIFRA’s misbranding requirements.
Also in 2021, the U.S. Circuit Court of Appeals for the Ninth Circuit issued its opinion on the application of FIFRA preemption in a bellweather case involving Roundup. Hardeman v. Monsanto Co., 997 F.3d 941 (9th Cir. 2021). In Hardeman, the trial court jury returned a verdict in the plaintiff’s favor of $5,267,634.10 in compensatory damages and $75 million in punitive damages for the plaintiff’s non-Hodgkin’s lymphoma allegedly caused by long-term used of Roundup. Monsanto appealed claiming that FIFRA preempted the plaintiff’s failure to warn claims; that the trial court committed numerous errors; and that the punitive damage award was excessive in violation of California law and the Constitution’s Due Process Clause. The appellate court disagreed, holding that the plaintiff’s failure-to-warn claims based on Roundup’s labeling were consistent with FIFRA and, therefore, neither expressly nor impliedly preempted. FIFRA’s requirement, the appellate court found, that a pesticide not be misbranded were consistent with (if not broader) than California’s common law duty to warn. Thus, Monsanto could comply with both FIFRA and California law which eliminated any preemption claim. The appellate court also held that the trial court had applied the correct standard for the admission of the plaintiff’s expert witness testimony, and properly included and excluded various evidence as to Roundup being likely carcinogenic – a risk that was known at the time of the plaintiff’s exposure. The appellate court also upheld the trial court’s reduction of punitive damages from $75 million to $20 million was proper.
Note: On August 16, 2021, Monsanto filed a petition for certiorari with the U.S. Supreme Court. The Supreme Court held a conference on the matter on December 10. While the Court did not decide whether to take the case at its conference on December 10, on December 13 the Court invited the U.S. Solicitor General to file briefs expressing the views of the United States on the matter. Monsanto Co. v. Hardeman, No. 21-241, 2021 U.S. LEXIS 6152 (U.S. Sup. Ct. Dec. 13, 2021). The issue the Court may consider is whether FIFRA preempts a state law failure-to-warn claim when the warning cannot be added to a product without the EPA's approval and the EPA has repeatedly concluded that the warning is not appropriate. A side issue in the case is whether the Ninth Circuit's standard for admitting expert testimony is inconsistent with the Court's precedent and Rule 702 of the Federal Rules of Evidence.
Conclusion
The next installment in this series will detail what I view as the fourth and third most important developments in ag law and ag tax from 2021. Stay tuned and keep reading.
January 7, 2022 in Contracts, Environmental Law, Secured Transactions | Permalink | Comments (0)
