Friday, January 27, 2023

Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1

Overview

Today’s article concludes my look at the top ag law and tax developments of 2022 with what I view as the top two developments.  I began this series by looking at those developments that were significant, but not quite big enough to make the “Top Ten.”  Then I started through the “Top Ten.”

The top two ag law and tax developments in 2022 – it’s the topic of today’s post.

Recap

Here’s a bullet-point recap of the top developments of 2022 that I have written about:

  • Nuisance law (the continued developments in Iowa) - Garrison v. New Fashion Pork LLP977 N.W.2d 67 (Iowa Sup. Ct. 2022).
  • Minnesota farmer protection law - Pitman Farms v. Kuehl Poultry, LLC, et al., 48 F.4th 866 (8th Cir. 2022).
  • Regulation of ag activities on wildlife refuges - Tulelake Irrigation Dist. v. United States Fish & Wildlife Serv., 40 F.4th 930 (9th Cir. 2022).
  • Corps of Engineers jurisdiction over “wetland” - Hoosier Environmental Council, et al. v. Natural Prairie Indiana Farmland Holdings, LLC, et al., 564 F. Supp. 3d 683 (N.D. Ind. 2021).
  • U. S. Tax Court’s jurisdiction to review collection due process determination - Boechler, P.C. v. Commissioner, 142 S. Ct. 1493 (2022).
  • IRS Failure to Comply with the Administrative Procedure Act - Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022); Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (2022).
  • State law allowing unconstitutional searches unconstitutional - Rainwaters, et al. v. Tennessee Wildlife Resources Agency, No. 20-CV-6 (Benton Co. Ten. Dist. Ct. Mar. 22, 2022).
  • No. 10 USDA’s Emergency Relief Program and the definition of “farm income.”
  • No. 9 - USDA decision not to review wetland determination upheld - Foster v. United States Department of Agriculture, No. 4:21-CV-04081-RAL, 2022 U.S. Dist. LEXIS 117676 (D. S.D. Jul. 1, 2022).
  • No. 8 - Dicamba drift damage litigation - Hahn v. Monsanto Corp., 39 F.4th 954 (8th Cir. 2022), reh’g. den., 2022 U.S. App. LEXIS 25662 (8th Cir. Sept. 2, 2022).
  • No. 7 – The misnamed “Inflation Reduction Act.”
  • No. 6 – Caselaw and legislative developments concerning “ag gag” provisions.
  • No. 5 - WOTUS final rule.
  • No. 4 – Economic issues
  • No. 3 – Endangered Species Act regulations

No. 2 – California Proposition 12

National Pork Producers Council, et al. v. Ross, 6 F.4th 1021 (9th Cir. Jul. 28, 2021), cert. granted, 142 S. Ct. 1413 (2022)

In a huge blow to pork producers (and consumers of pork products) nationwide, the U.S. Court of Appeals for the Ninth Circuit has upheld California’s Proposition 12 in 2021.  Proposition 12 requires any pork sold in California to be raised in accordance with California’s housing requirements for hogs.  This means that any U.S. hog producer, by January 1, 2022, was required to upgrade existing facilities to satisfy California’s requirements if desiring to market pork products in California. In early 2022, the U.S. Supreme Court announced that it would review the Ninth Circuit’s opinion. 

While each state sets its own rules concerning the regulation of agricultural production activities, the legal question presented in this case is whether one state can override other states’ rules. The answer to that question involves an analysis of the Commerce Clause and the “Dormant” Commerce Clause.

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

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

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

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

California Proposition 12 Litigation

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

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

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

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

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

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

As noted above, the U.S. Supreme court decided to review the Ninth Circuit’s opinion.  Unfortunately, the Supreme Court has been careless in applying the anti-discrimination test, and in many cases, neither of the two requirements--interstate competition or harm to the national economy--is ever mentioned.  See, e.g., Hughes v. Oklahoma, 441 U.S. 322 (1979). The reason interstate competition goes unstated is obvious – in most cases the in-state and out-of-state actors compete in the same market.  But, the reason that the second requirement, harm to the national economy, goes unstated is because the Court simply assumes the issue away.  The Supreme Court’s decision in 2023 is a highly anticipated one for agriculture and the dormant Commerce Clause analysis and application in general.

No. 1 – The “Major Questions” Doctrine

West Virginia, et al. v. Environmental Protection Agency, et al., 142 S. Ct. 2587 (2022)

Clearly, the biggest development of 2022 that has the potential to significantly impact agriculture and the economy in general is the Supreme Court’s opinion involving the Environmental Protection Agency’s (EPA’s) regulatory authority under the Clean Air Act (CAA).  The Court invoked the “major question” doctrine to pair back unelected bureaucratic agency authority and return policy-making power to citizens through their elected representatives.  The future impact of the Court’s decision is clear.  When federal regulations amount to setting nationwide policy and when state regulations do the same at the state level, the regulatory bodies may be successfully challenged in court.

The case involved the U.S. Supreme Court’s review of the EPA’s authority to regulate greenhouse gas emissions from existing power plants under the CAA. The case arose from the EPA’s regulatory development of the Clean Power Plan (CPP) in 2015 which, in turn, stemmed from then-President Obama’s 2008 promise to establish policy that would bankrupt the coal industry.  The EPA claimed it had authority to regulate CO2 emissions from coal and natural-gas-fired power plants under Section 111 of the CAA.  Under that provision, the EPA determines emission limits.  But EPA took the position that Section 111 empowered it to shift energy generation at the plants to “renewable” energy sources such as wind and solar.  Under the CPP, existing power plants could meet the emission limits by either reducing electricity production or by shifting to “cleaner” sources of electricity generation.  The EPA admitted that no existing coal plant could satisfy the new emission standards without a wholesale movement away from coal, and that the CPP would impose billions in compliance costs, raise retail electricity prices, require the retirement of dozens of coal plants and eliminate tens of thousands of jobs.  In other words, the CPP would keep President Obama’s 2008 promise by bypassing the Congress through the utilization of regulatory rules set by unelected, unaccountable bureaucrats. 

The U.S. Supreme Court stayed the CPP in 2016 preventing it from taking effect.  The EPA under the Trump Administration repealed the CPP on the basis that the Congress had not clearly delegated regulatory authority “of this breadth to regulate a fundamental sector of the economy.”  The EPA then replaced the CPP with the Affordable Clean Energy (ACE) rule.  Under the ACE rule, the focus was on regulating power plant equipment to require upgrades when necessary to improve operating practices.  Numerous states and private parties challenged the EPA’s replacement of the CPP with the ACE.  The D.C. Circuit Court vacated the EPA’s repeal of the CPP, finding that the CPP was within the EPA’s purview under Section 7411 of the CAA – the part of the CAA that sets standards of performance for new sources of air pollution.  American Lung Association v. Environmental Protection Agency, 985 F.3d 914 (D.C. Cir. 2021).  The Circuit Court also vacated the ACE and purported to resurrect the CPP.  In the fall of 2021, the U.S. Supreme Court agreed to hear the case.

The Supreme Court reversed, framing the issue as whether the EPA had the regulatory authority under Section 111 of the CAA to restructure the mix of electricity generation in the U.S. to transition from 38 percent coal to 27 percent coal by 2030.  The Supreme Court said EPA did not, noting that the case presented one of those “major questions” because under the CPP the EPA would tremendously expand its regulatory authority by enacting a regulatory program that the Congress had declined to enact.  While the EPA could establish emission limits, the Supreme Court held that the EPA could not force a shift in the power grid from one type of energy source to another.  The Supreme Court noted that the EPA admitted that did not have technical expertise in electricity transmission, distribution or storage.  Simply put, the Supreme Court said that devising the “best system of emission reduction” was not within EPA’s regulatory power.

 Clearly, the Congress did not delegate administrative agencies the authority to establish energy policy for the entire country.  While the Supreme Court has never precisely defined the boundaries and scope of the major question doctrine, when the regulation is more in line with what should be legislative policymaking, it will be struck down.  The Supreme Court’s decision is also broad enough to have long-lasting consequences for rulemaking by all federal agencies including the USDA/FSA.  The decision could also impact the Treasury Department’s promulgation of tax regulations. 

The Supreme Court’s decision returns power to the Congress that it has ceded over the years to administrative agencies and the Executive branch concerning matters of “vast economic and political significance.”  But it’s also likely that the Executive branch and the unelected bureaucrats of the administrative state will likely attempt to push the envelope and force the courts to push back.  It’s rare that the Executive branch and administrative agencies voluntarily return power to elected representatives as was done in numerous instances from 2017 through 2020. 

Conclusion

Agricultural law and tax issues were many and varied in 2022.  In 2023, the U.S. Supreme Court will issue opinions in the California Proposition 12 case and the Sackett case involving the scope of the federal government’s jurisdiction over wetlands.  Also, there has been a major development in the Tax Court involving tax issues associated with deferred grain contracts that has resulted in a settlement with IRS, the terms of which cannot be disclosed at this time.  If 2022 showed a trend with USDA it is that the USDA will continue several “hardline” positions against farmers – a narrow definition of farm income; broad regulatory control over wet areas in fields; and ceding regulatory authority to the EPA and the COE.  The U.S. Supreme Court is also anticipated to issue on opinion with potentially significant implications for Medicaid planning. 

Of course, the expanding war against Russia being fought in Ukraine will continue to dominate ag markets throughout 2023.  At home, the general economic data is not good and that will have implications in 2023 for farmers and ranchers.  On January 26, the U.S Bureau of Economic Analysis issued a report (https://www.bea.gov/) showing that the U.S. economy grew by 2.9 percent in the fourth quarter of 2022 and 2.1 percent for all of 2022.  But, the report also showed that economic growth in the economy is slowing.  Business investment grew by a mere 1.4 percent in the fourth quarter of 2022, consisting almost entirely of inventory growth.  That will mean that businesses will be forced to sell off inventories at discounts, which will lower business profits and be a drag on economic growth in 2023.  Nonresidential investment was down 26.7 percent due to the increase in home prices, increased interest rates and a drop in real income.  On that last point, real disposable income dropped $1 trillion in 2022, the largest drop since 1932 - the low point of the Great Depression.  Personal savings also dropped by $1.6 trillion in 2022.  This is a "ticking timebomb" that is not sustainable because it means that consumers are depleting cash reserves.  This indicates that spending will continue to slow in 2023 and further stymie economic growth - about two-thirds of GDP is based on consumer spending.  Relatedly, the Dow was down 8.8 percent for 2022, the worst year since 2008.   2022 also saw a reduction in the pace of international trade.  Imports dropped more than exports which increases GDP, giving the illusion that the economy is better off.  

Certainly, 2023 will be another very busy year for rural practitioners and those dealing with legal and tax issues for farmers and ranchers. 

January 27, 2023 in Civil Liabilities, Environmental Law, Income Tax, Regulatory Law, Water Law | Permalink | Comments (0)

Wednesday, January 25, 2023

Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3

Overview

Today’s article is another installment on what I believe to be the Top 10 developments in agricultural law and agricultural taxation of 2022.  Today, I look at developments number four and three.

No. 4– Economic Issues

In general.  Economic issues impact daily decision-making for farmers and ranchers. These issues also impact tax and financial planning.   During 2022, economic issues impacted farms and ranches to a great degree.  Price inflation triggered by economic policies increased the price of fossil fuels which, along with other polices produced wage inflation.  In addition, massive deficit spending resulted in a quintupled the money supply which created excess demand that further increased inflation.  In addition, poor policy past policy choices by the Federal Reserve kept interest rates at artificially low levels further increasing demand and increasing inflation.  Beginning in the first half of 2022, the Federal Reserve started to increase interest rates to decrease demand and reduce inflation.  However, further deficit spending by the Congress enacted into law in August of 2022 will largely offset the impact of the Federal Reserve’s interest rate increases with the result that, as of the end of 2022, inflation was anticipated to continue with the possibility of decreased demand, a scenario not unlike the economic situation of the late 1970s. 

All of these political/economic choices have implications for farmers and ranchers.  Crop production, energy issues, monetary policy, issues in the meat sector, water issues west of the sixth Principal Meridian, and unanticipated outside shocks have farm-level impacts that professional advisors and counselors need to account for when representing farm and ranch clients.

Specific points.  Several specific economic points from 2022 are listed below.

  • The war in Ukraine has had a major impact on global grain trade and created additional issues for U.S. farmers and ranchers. Russia and Ukraine are leading exporters of food grains.  One estimate is that worldwide food and feed prices could rise by 22 percent which could, in turn, cause a surge in malnutrition in developing nations.  Since the war started, total world food output has decreased, resulting in a sharp drop in food exports from exporting countries.  Other food exporting countries have announced new limitations on food exports (or are exploring bans) to preserve domestic supplies.  This will have an impact on international grain markets and will likely have serious implications for the world’s wheat supply.  The extent of such disruptions remained unknown at the end of 2022.
  • The demand for beef remained strong in 2022.  But, a major issue was the disconnect between beef demand and the beef producer.  This fact, along with significant drought in much of the major cattle producing areas signaled producers to decrease herd size.  During 2022, the Congress was considering legislation focused on providing more robust and transparent marketing of live cattle.
  • Pork demand was not as impressive of beef, but improved during 2022.  Export demand dropped primarily due to China which cased U.S. pork production to decline along with pork values.    
  • Poultry, demand remained strong and flock sizes decreased largely because of the presence of Avian Flu.  Toward the latter part of 2022, retail egg prices increased substantially.
  • Water issues. West of the Sixth Principal Meridian, access to water is critical for the success of many farming and ranching operations.  During 2022, a dispute continued to brew between Colorado and Nebraska over water in northeast Colorado that Nebraska lays claim to under a Compact entered into almost 100 years ago.  Water access and availability will continue to be key to profitability of farms and ranches in the Plains and the West.
  • Land values; machinery and input costs. Farm and ranchland values remained strong during 2022, and input, machinery costs and land values continued to outpace inflation.  For those farmers that were able to pre-pay input expenses in 2021 for 2022 crops, much of the price increase of inputs could be blunted until another round of inputs were needed in late 2022 for the 2023 crop.  Also, many short-term loans were locked in before interest rates began rising.  That story will also likely be different in early 2023 when those loans are redone. 

During 2023, the biggest risks to agriculture will continue to be from outside the sector.  Unexpected catastrophic events such as the war in Ukraine, whether (or when) China will invade Taiwan, domestic monetary and fiscal policy, political developments at home and abroad, and government regulation of key segments of the economy that impact agricultural activities remain the biggest unknown variables to the profitability of farming and ranching operations and agribusinesses. 

No. 3 – Endangered Species Act regulations

In early 2022, the Environmental Protection Agency (EPA) announced a new policy regarding its Endangered Species Act (ESA) responsibilities under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).  The ESA requires federal agencies to determine whether an agency action “may affect” any species or habitat protected or designated under the ESA.  If an agency determines that the an action is “likely to adversely affect” protected species or habitat, the agency must consult with the U.S. Fish and Wildlife Service (USFWS) and the National Marine Fisheries Service to determine mitigation measures. The EPA administers the FIFRA, and the EPA now considers practically every decision it makes under FIFRA to require consultation in accordance with the ESA.  In late 2022, the EPA published its policy plan focusing on ESA mitigation for FIFRA pesticide registration reviews.

During 2022, additional ESA regulations were changed or modified, many of which will potentially negatively impact agricultural activities on private land.  For instance, “habitat” is no longer specifically defined, and the Critical Habitat Exclusion Rule was rescinded.  This will make it easier for the USFWS to designate critical habitat for protected species under the ESA.  Much critical habitat is on private property.  The USFWS also continued the process of revising its Listing Rule.

Upon enactment in 1973, the ESA barred the “taking” of endangered species.  The “taking” prohibition only extended to “threatened” species if the Interior Department deemed it necessary and advisable for the conservation of the species.  In 1975, the Interior Department, contrary to the statute, issued a “blanket rule” extending the prohibition to all threatened species, unless it adopted a special rule relaxing the prohibition for a particular species. In essence, the blanket rule provided no meaningful distinction between regulations for species that are listed as threatened or endangered. 

The Trump Administration restored the ESA’s distinction between the regulation of endangered and threatened species by repealing the blanket rule.  The move aligned the practice of the Interior Department with that of the Commerce Department (which manages marines species and never had a blanket rule).  The change applied prospectively only, and no species lost any protection due to the change.  The restoration of regulatory distinctions between endangered and threatened species is designed to better align the incentives of landowners with the interests of rare species. By repealing the blanket rule, burdens imposed on landowners will increase if species decline and relax as they recover.

While the blanket rule remained in effect during 2022, the USFWS is in the process of rescinding the rule.  Expect legal challenges to this action which is contrary to the statute and congressional intent to happen once the rule is formally rescinded. 

Conclusion

Next time I will look at developments two and one.

January 25, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, January 23, 2023

Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5

Overview

Today’s article is another installment on what I believe to be the Top 10 developments in agricultural law and agricultural taxation of 2022.  Today, I look at developments number six and five.

No. 6 – Caselaw and Legislative Developments on “Ag Gag” Provisions

2022 saw further developments in the courts and in state legislatures involving legislative attempts to provide a level of protection to livestock facilities is to bar access to an animal production facility under false pretenses.  At their core, the laws attempt to prohibit a person having the intent to harm a livestock production facility from gaining access to the facility (such as via employment) to then commit illegal acts on the premises.  See, e.g., Iowa Code §717A.3A.  Laws that bar lying and trespass coupled with the intent to do physical harm to an animal production facility should not be constitutionally deficient.  Laws that go beyond those confines may be. 

In Animal Legal Defense Fund, et al. v. Reynolds, et al., No. 4:21-cv-00231-SMR-HCA (S.D. Iowa. Sept. 26, 2022), the plaintiffs (animal rights activist groups) claimed the statute violated their First Amendment rights by hindering them from gaining access to farms and dairies under false pretenses of seeking a job to be able to take pictures and/or videos without the property owner’s consent.  The defendants asserted that the case should be dismissed for lack of standing and lack of ripeness.

The Court (the same judge that ruled earlier in 2022 on another variant of the Iowa laws) held that the plaintiffs had standing because their organizational objectives would be hindered, and that an arrest is not required before a criminal statute can be challenged.  The Court noted that the statute prohibited video recordings (which the court asserted was protected “speech”) while trespassing which the plaintiffs considered important to broadcasting their negative messages about animal agriculture to the public.  More specifically, the court determined that the statute singled out conduct (that the plaintiffs contemplated) by expanding the penalty for conduct already prohibited by law and was not limited to specific uses of a camera.  Accordingly, the court determined that the statute was an unconstitutional restriction on the free speech rights of trespassers apparently on the basis that regulating free speech on private property would create a “slippery slope” for not allowing people to record politicians or express views about the Government.   In addition, any recording, production, editing, and publication of the videos is protected speech.  The court granted summary judgment to the plaintiffs. 

According to the court’s view, it seems practically impossible for farmers to protect their farming operations from those who intend to inflict harm via protected “speech.” Is the court saying that there is a constitutional right to trespass?  If so, that is flatly contrary to the recent U.S. Supreme Court opinion of Cedar Point Nursery, et al. v. Hassid, et al., No. 20-107, 2021 U.S. LEXIS 3394 (U.S. Sup. Ct. Jun. 23, 2021).  

Note:  Interestingly (and hypocritically) the Iowa federal district court’s website contains the following information: “To be admitted into the courthouse, you must present a government issued photo identification.  Please be aware the following items are NOT allowed in the courthouse: cell phones, cameras, other electronic devices (including Apple watches), recording devices,…”.

Note:  Iowa Code §716.7A, the Food Operation Trespass Law, remains in effect.  That law, effective on June 20, 2020, treats as an aggravated misdemeanor a first offense of entering or remaining on the property of a food operation without the consent of a person who has real or apparent authority to allow the person to enter or remain on the property.  A subsequent offense is a Class D felony.  This statutory provision was upheld as constitutional by an Iowa county district court judge in early 2022. 

Tenth Circuit.  In Animal Legal Defense Fund, et al. v. Kelly, 9 F.4th 1219 (10th Cir. 2021), pet. for cert. filed, (U.S. Sup. Ct. Nov. 17, 2021), the court construed the Kansas provision that makes it a crime to take pictures or record videos at a covered facility “without the effective consent of the owner and with the intent to damage the enterprise.”  The plaintiffs claimed that the law violated their First Amendment free speech rights.  The State claimed that what was being barred was conduct rather than speech and that, therefore, the First Amendment didn’t apply.  But, the court tied conduct together with speech to find a constitutional violation – it was necessary to lie to gain access to a covered facility and consent to film activities.  As such, the law regulated protected speech (lying with intent to cause harm to a business) and was unconstitutional.  The court determined that the State failed to prove that the law narrowly tailored to a compelling state interest in suppressing the “speech” involved.  The dissent pointed out (correctly and consistently with the Eighth Circuit) that “lies uttered to obtain consent to enter the premises of an agricultural facility are not protected speech.” The First Amendment does not protect a fraudulently obtained consent to enter someone else’s property. 

Note:  On April 25, 2022, the U.S. Supreme Court declined to hear the case.  Kelly v. Animal Legal Defense Fund, cert. den., 142 S. Ct. 2647 (2022). 

No. 5 – WOTUS Final Rule

On December 30, 2022, the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COA).  On December 30, 2022, the agencies announced the final "Revised Definition of 'Waters of the United States'" rule which will become effective on March 20, 2023.  It represents a “change of mind” of the agencies from the positions that they held concerning a water of the United States (WOTUS) and wetlands from just over three years ago.  The bottom line is that the new interpretation is extremely unfriendly to agriculture, particularly to farmland owners in the prairie pothole region of the upper Midwest.    

As promised, the Final Rule uses a definition that was in place before 2015 (for purposes of the Clean Water Act) for traditional navigable waters, territorial seas, interstate waters, and upstream water resources that “significantly” affect those waters.

Note:  Two joint memos were published with the final rule to set forth the delineation of the implementation of roles and responsibilities between the agencies.  One is a joint coordination memo to “ensure accuracy and consistency of jurisdictional determinations under the final rule.”  The other is a memo with the USDA to provide “clarity on the agencies’ programs under the Clean Water act and the Food Security Act (Swampbuster).”

Adjacency.  The EPA wants to restore the “significant nexus” via “adjacency.”  This is a big change in the definition of “adjacency.”  It doesn’t mean simply “abutting.”  Instead, “adjacent” includes a “significant nexus” and a “significant nexus” can be established by “shallow hydrologic subsurface connections” to the “waters of the United States.  A “shallow subsurface connection,” the Final Rule states, may be found below the ordinary root zone (below 12 inches), where other wetland delineation factors may not be present.  Frankly, that means farm field drain tile.      

Specifically, the Final Rule sets forth two kinds of adjacency: 1) the traditional “relatively permanent” standard; and 2) the “significant nexus” standard.  The EPA and the COE say the agencies will not assume that all wetlands in a specific geographic area are similarly situated and can be assessed together on a watershed basis in a significant nexus analysis.  But it is clear from the Final Rule that the agencies intend to expand jurisdiction over isolated prairie pothole wetlands using the “significant nexus” standard. 

Note:  The “significant nexus” can be established via a connection to downstream waters by surface water, shallow subsurface water, and groundwater flows and through biological and chemical connections.  The Final Rule states that adjacency can be supported by a “pipe, non-jurisdictional ditch,… or some other factors that connects the wetland directly to the jurisdictional water.”  This appears to be the basis for overturning the NWPR.  Consequently, the prairie pothole region is directly in the “bullseye” of the Final Rule.

Prior converted cropland.  The agencies say the final rule increases “clarity” on which waters are not jurisdictional – including prior converted cropland.  This doesn’t make much sense.  Supposedly, the agencies are “clarifying” that prior converted cropland, (which is not a water), is not a water, but it somehow could be a water if the agencies had not clarified it?  In addition, the burden is placed on the landowner to prove that prior converted cropland is actually prior converted cropland and therefore not a water.

Ditches and drainage devices.  The Final Rule is vague enough to give the government regulatory authority over non-navigable ponds, ditches, and potholes.

The U.S. Supreme Court.  A case is presently pending before the U.S. Supreme Court involving the definition of a WOTUS.  In Sackett v. Environmental Protection Agency, 8 F.4th 1075 (9th Cir. 2021), cert, granted, 142 S. Ct. 896 (2022).  The issue in the case is whether the U.S. Circuit Court of Appeals for the Ninth Circuit used the proper test for determining whether wetlands are “waters of the United States” under the CWA.  Oral argument occurred in early October of 2022.  The Court’s opinion is anticipated sometime before mid-March of 2023, but the issuance of the Final Rule may cause that to be delayed.  In any event, the Supreme Court will have the final say on what a WOTUS rather than the COE or the EPA.

Conclusion

Next time I will look at developments four and three.

January 23, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, January 16, 2023

Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9

Overview

With this post, I begin the trek through what I believe to be the Top 10 developments in agricultural law and agricultural taxation of 2022.  Today, I look at developments No. 10 and nine. 

No. 10 – USDA’s Emergency Relief Program

Background.  The Extending Government Funding and Delivering Emergency Assistance Act was signed into law on September 30, 2021. This legislation includes $10 billion for farmers impacted by weather disasters during calendar years 2020 and 2021. It directs $750 million to assist livestock producers for losses incurred due to drought or wildfires in calendar year 2021 through the Emergency Livestock Relief Program (ELRP). Through the Emergency Relief Program (ERP), the legislation also provides funding for noninsured crop losses incurred.

The United States Department of Agriculture (USDA) released information in August of 2022 involving the question of whether income from the sale of farm equipment counted as farm income for purposes of the ERP.  The issue is an important one because an enhanced payment limit might be at stake.

ERP payments may only be made to a producer with a crop eligible for federal crop insurance or the noninsurance crop disaster assistance program (NAP). The crop for which the recovery is sought must have been subject to a qualifying disaster, which is defined broadly. As a type of qualifying disaster, droughts are rated in accordance with the U.S. Drought Monitor, which publishes a list of qualifying counties.

An ERP payment is not made to any producer that did not receive a crop insurance or NAP payment in 2020 or 2021. Because of this requirement, crop insurance premiums that an ERP recipient has paid are reimbursed by recalculating the ERP payment based on the ERP payment rate of 85% and then backing out the crop insurance payment based on coverage level.

In addition, the ERP requires that the producer receiving a payment obtain either NAP or crop insurance for the next crop years. Also, a producer that received prevented planting payments can qualify for ERP Phase 1 payments based on elected coverage.

Note. ERP payments are for damages occurring in 2020 and 2021, so if they were received in 2022 they are not deferrable to 2023.

Payment limit. The ERP payment limit is $125,000 for specialty crops. For all other crops, ERP imposes a limit of $125,000 combined for ERP Phases 1 and 2. However, for an applicant with “average adjusted gross farm income” (average adjusted gross income (AGI)) based on the immediate three prior years but skipping the first year back (e.g., in 2022, tax years 2018, 2019, and 2020 are used to compute the percentage) that is comprised of more than 75% from farming activities (the “75% test”), the normally applicable $900,000 AGI limit is dropped, and the payment limit goes to $900,000 for specialty crops and $250,000 for all other crops. There are separate payment limits for 2020 and 2021. 

Definition of farm income.  Farm income for ERP purposes includes the following.

  • Net income from Schedule F, Profit or Loss From Farming
  • Pass-through income from farming activities
  • Wages from a farming entity
  • Interest charge domestic international sales corporation (IC-DISC) income from an entity that materially participates in farming (has a majority of gross receipts from farming)
  • Income from packing, storing, processing, transporting and shedding of farm products
  • Gains from the sale of farm equipment, but only if farm income is at least two-thirds of overall AGI (excluding gains from equipment sales and the sale of farm inputs).

Observation. Under the Tax Cuts and Jobs Act (TCJA), for tax years after 2017, a trade-in of farm equipment is treated as a sale that is reported on Form 4797, Sales of Business Property. As a result, many farmers may have little income reported on Schedule F for a tax year that they incurred a large gain from trading in farm equipment reported as having been sold on Form 4797. Thus, sale of farm equipment could cause such a farmer not to receive an additional ERP payment.

The same rule likely applies to income from custom farming or harvesting services and the income derived from providing seed to farmers (offset by allocated expenses).

 No. 9 – Decision to not Review USDA Wetland Certification Upheld  

Foster v. United States Department of Agriculture, No. 4:21-CV-04081-RAL, 2022 U.S. Dist. LEXIS 117676 (D. S.D. Jul. 1, 2022)

The plaintiff owned farmland with a .8-acre portion that USDA certified as a “wetland” in 2011 under the Swampbuster provisions of 16 U.S.C. §§3801, 3821-3824.  The wetland was about 8.5 inches deep at certain times during the year, particularly in the spring after snow melt. The wetland resulted from a tree belt that had been planted in 1936 to prevent soil erosion.  Snow accumulated around the tree belt in the winter and melted in the spring with the water collecting in a low spot in of the field before soaking into the ground or evaporating.  In about one-half of the crop years, the puddle would dry out in time or planting.  In other years it had to be drained to plant crops.  The certification meant that the puddle could not be drained so that it and the surrounding land could not be farmed without the loss of federal farm program benefits. 

The plaintiff sought a review of the certification under 16 U.S.C. §3822(a)(4) which provides for review of a final certification upon request by the person affected by the certification.  The USDA denied review in 2020 citing its own regulation of 7 C.F.R. §12.30(c)(6) which required the plaintiff to show how a natural event changed the topography or hydrology of the wetland that caused the certification to no longer be a reliable indicator of site conditions.  The plaintiff claimed that new evidence existed that would refute the 2011 certification, and also claimed that 16 U.S.C. §3822(a)(4) provided no restriction on the ability to get a review and, as a result, 7 C.F.R. §12.30(c)(6) violated the due process clause by restricting reviews and was arbitrary and capricious under the Administrative Procedure Act.   

The trial court held that 7 C.F.R. §12.30(c)(6) merely restricted when an agency must review a final certification.  The trial court also determined that 7 C.F.R. §12.30(c)(6) did not violate the due process clause as the plaintiff did not show any independent source of authority providing him with a right to certification review on request. The USDA’s denials of review were found not to be arbitrary or capricious and that the plaintiff failed to provide any evidence that the natural conditions of the site had changed, which would require a review of the certification.  The plaintiff also claimed that the Swampbuster provisions were unconstitutional under the Commerce Clause and the Tenth Amendment.  

The trial court rejected the plaintiff’s claims and determined that the statute of limitations on challenging the certification had run.  The trial court also held that the USDA was entitled to summary judgment on the plaintiff’s claim that Swampbuster was unconstitutional, holding that the provisions were within the power of the Congress under the spending clause of Article I, Section 8 of the Constitution.  The trial court also ruled that Swampbuster did not infringe upon state sovereignty by requiring states to implement a federal program, statute or regulation. The trial court further rejected the plaintiff’s claim that a part of Swampbuster violated the Congressional Review Act, finding that the provision at issue was precluded from judicial review.  The court dismissed all the plaintiff’s claims against the USDA and denied the ability for the area to be reviewed again. 

Note:  The trial court’s ruling seems incorrect and the plaintiff docketed an appeal with the U.S. Court of Appeals for the Eighth Circuit on August 16.  No. 22-2729.  The Constitution limits what the government can regulate, including water that doesn’t drain anywhere.  In addition, the U.S. Supreme Court has said the government cannot force people to waive a constitutional right as a condition of getting federal benefits such as federal farm program payments. 

Conclusion

In the next installment I will look at some more of the Top Ten of 2022.

January 16, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, January 9, 2023

Top Ag Law and Tax Developments of 2022 – Part 3

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.

Tax Court has Equitable Jurisdiction to Review CDP Determination

Boechler, P.C. v. Commissioner, 142 S. Ct. 1493 (2022)

The petitioner, a two-person North Dakota law firm, was assessed an “intentional disregard” penalty. The IRS notified them of an intent to levy. They requested and received a CDP (Collection Due Process) hearing, in which appeals sustained the proposed levy. I.R.C. §6330(d)(1) requires a Tax Court petition to be filed within 30 days, but the firm filed one day late. The Tax Court dismissed the petition for lack of jurisdiction.  The Eighth Circuit affirmed on the ground that the statutory requirement for filing was jurisdictional and thus could not be waived. In a unanimous decision, the U.S. Supreme Court ruled that the 30-day period was not a jurisdictional requirement largely due to lack of clarity in I.R.C. §6330(d)(1).  Moreover, the Supreme Court reasoned that its decision preserved the possibility for a court to apply equitable tolling to benefit taxpayers in this context, who often acted without counsel. While the application of equitable tolling would depend on further proceedings, the law firm will get the chance to make its case.

Comment: Although the Supreme Court’s decision does not create greater clarity, it may avoid some injustice. Eighth Circuit Judge Kelly wrote a concurring opinion in which he stated that a jurisdictional approach is a “drastic” measure that may impose a disproportionate burden on low-income taxpayers. This concurring opinion may have been what convinced the U.S. Supreme Court to hear the case. 

Additional Note:  In late 2022, the Tax Court addressed the issue of the right to judicial review of an IRS deficiency proceeding in accordance with I.R.C. §6213(a).  In Hallmark Research Collective v. Comr., 159 T.C. No. 6 (2022), the petition was electronically filed one day late.  The Tax Court held that the statute was clear in specifying that the IRS must issue a deficiency notice and that the taxpayer must respond by filing a Tax Court petition within a 90-day time limit.  As such, the 90-day time limit is a prerequisite of jurisdiction.  The court concluded that deficiency proceedings are based in statute and cannot be equitably tolled. 

COE Improperly Declined Jurisdiction

Hoosier Environmental Council, et al. v. Natural Prairie Indiana Farmland Holdings, LLC, et al., 564 F. Supp. 3d 683 (N.D. Ind. 2021)

Note:  I’m reaching back into 2021 to grab this case.  I didn’t see it until early in 2022,  and it should have been on last year’s list.  But, nevertheless, I want to include it as a significant development for 2022 albeit it was a 2021 federal court decision from Indiana. 

This case involved the issue of the U.S. Army Corps of Engineers (COE) deciding not to regulate a wet area on a farm and whether the decision not to exercise jurisdiction was done properly.  The court’s decision is instructive on the procedure for determining the existence of a wetland, what “prior converted cropland is” and how the agency should properly decline to regulate

The defendant acquired farmland to build and operate a concentrated animal feeding operation (CAFO) with over 4,350 dairy cows.  The COE inspected the property and concluded that much of the land was not subject to the Clean Water Act (CWA). The plaintiffs, two environmental groups, sued alleging that the defendant violated the CWA and that the COE’s administrative jurisdictional determination violated the Administrative Procedures Act (APA).  The land at issue was drained in the early 1900's via the creation of several large ditches and drainage canals to move surface water into the Kankakee River 9.5 miles downstream.  The CAFO was constructed on what had been a lakebed over a century ago, and two of the drainage ditches are on the defendant’s land. 

Note:  The lake was totally drained in the early 1990s to make farmland.  Vested with that is the right to maintain the drain.  See, e.g., Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999).  It is immaterial what the size of the lake was or whether it was where a marsh was at some time in the past.  The land at issue was completely transformed to farmland long before the defendant acquired the land at issue. 

The primary issue before the court was whether the COE’s determination that the land was prior converted wetland (and therefore not subject to COE regulation) was arbitrary and capricious.  The court examined the record to determine if the COE followed its own guidance for delineating wetlands.  The court noted that the administrative record lacked any description of the prior drainage system (the series of medial and lateral ditches transecting the property before defendant’s alterations), the defendant’s new drainage system, how these systems were designed to function, and whether they were effective in removing wetland hydrology from the area. 

Note:  While the plaintiffs made much ado about the COE’s lack of consideration of the hydrology of the land before the farm’s alterations, that is largely an irrelevant point.  Famers are entitled to maintain the “wetland and farming regime” on the land and may engage in whatever drainage activities necessary to keep that historic farming activity and production.  The land in question had been converted to farmland many decades earlier and had been constantly maintained in that status.

The court examined aerial photographs, noting that there was an absence of data identified in the COE’s “Midwest Supplement” to assess the relevant drainage factors, including how the existing and current drainage systems were designed to function, whether they were effective in removing wetland hydrology from the area, and when any conversion occurred.  The absence of these sources, coupled with an absence of any meaningful discussion of the hydrology of the site before the defendant’s alterations, led the court to believe that the COE failed to follow the procedures outlined in its own guidance in deciding the land was prior converted cropland.  The COE also reviewed 14 aerial photographs that spanned from 1938 to 2017.  Those photos showed the presence of row cropping and offered no evidence of potential wetlands.  Relying on aerial photographs, the COE expert’s determination, and a determination of the Natural Resources Conservation Service to conclude that wetlands did not exist, was certainly appropriate. 

Note:  In addition, the court’s analysis on this point seems suspect.  The COE did not need to find and document all three factors.  The hydrology had been materially altered to enable consistent row crop farming.  In that situation wetland hydrology is not present, and the area in question is not a wetland.  As a result, other levees, systems, or dams do not alter area hydrology because there is no wetland hydrology present to alter.  The court referred to the COE’s 1987 Manual for its conclusion that the COE didn’t follow its own procedures.  However, the 1987 Manual was established to evaluate recent alterations to undisturbed wetland.  The court incorrectly applied this standard to materially hydrologically altered wetland where the alteration had occurred a century earlier.  As such, the land in issue was prior converted wetland.  The court incorrectly applied the standards of the 1987 Manual to the facts before it involving alterations that occurred over 100 years ago.   

The court also determined that there was no indication in the record that the aerial photographs were used to assess hydrology characteristics of the defendant’s land before alterations were made, how the drainage systems were designed to function, and how effectively and efficiently they could convert land from wetland to upland.  Further, the court noted there was also no explanation why the COE skipped these steps.  The COE took the position that its review of aerial photographs was sufficient to determine the land’s normal circumstances. The court disagreed, determining that the evidence did not support the COE’s claim that its decision was based on identified relevant factors.  Instead, the court concluded that the COE made impermissible post hoc justifications.  If reliance on its own manuals was not warranted in this situation, the court stated, the COE needed to provide a rationale.  As such, the court determined that the evidence did not support the COE’s argument that its decision was rationally based on the relevant wetland hydrological factors before concluding the land was prior converted cropland.  Absent that rationale, the COE’s determination of wetland status of the defendant’s farmland was arbitrary and capricious. 

Note:  The COE followed its correct procedure in this case contained in the Midwest Supplement and also accepted a prior USDA determination as to the land’s status for federal farm program purposes. The ditches and drains that were legally installed successfully removed wetland hydrology.  The COE did not deviate from its own regulatory guidance and procedures, but the court assumed that it did.  There was no need for the COE to find and document all three wetland characteristic factors. The elimination of wetland hydrology eliminates the possibility that the land was a wetland. 

Concerning the lateral ditch, the plaintiffs claimed that the record did not support the COE’s conclusion that the lateral ditches were irrigation canals that drained uplands and lacked relatively permanent flow.  The plaintiffs pointed to a lack of administrative record and the claimed failure of the COE to follow the relevant factors that it lists in its Approved Jurisdictional Determination Form. The court also held that the COE’s finding of non-jurisdiction over the lateral ditches was arbitrary and capricious. 

The court remanded the case to the COE to conduct a more thorough investigation of the defendant’s tract.

Note:  For farmers, the case is a frustrating one.  At issue was land that had been farmed for over 80 years and the right to continue to farm consistent with the historic drainage of the property was caught up in bureaucratic red tape. The court’s expansive view of standing and lack of understanding of the actual science behind the hydrology and geographic facts of the case created a problem for a dairy operation that should have never happened.  What was involved in the case were shallow ditches dug into prior converted wetland.  That is an activity that the Clean Water Act does not regulate. 

Conclusion

I will continue my journey through the top developments in ag law and tax in a subsequent post.

January 9, 2023 in Environmental Law, Income Tax | 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)

Monday, January 2, 2023

Here Come the Feds: EPA Final Rule Defining Waters of the United States – Again

Overview

On December 30, 2022, the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COA).  On December 30, 2022, the agencies announced the final "Revised Definition of 'Waters of the United States'" rule which will be effective 60 days after it is published in the Federal Register.  It represents a “change of mind” of the agencies from the positions that they held concerning a water of the United States (WOTUS) and wetlands from just over three years ago.  The bottom line is that the new interpretation is extremely unfriendly to agriculture, particularly to farmland owners in the prairie pothole region of the upper Midwest.    

Background

The scope of the federal government’s Clean Water Act (CWA) regulatory authority over wet areas on private land, streams and rivers has been controversial for more than 40 years.  The CWA bars the discharge of a “pollutant” into the “navigable waters of the United States without a federal discharge permit.  A “pollutant” is defined as “dredged spoil, solid waste, incinerator residue, sewage, garbage, sewage sludge, munitions, chemical wastes, biological materials, radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar dirt and industrial, municipal, and agricultural waste.”

Note:  The legislative history of the CWA reveals that the Congress was not thinking about preserving wetlands when the definition of a “pollutant” was written.  Instead, it blended together (under the umbrella of “pollution”) the COE’s responsibility to protect navigation with the EPA’s responsibility to prevent contamination.  This is the genesis of upstream regulation that environmental groups and numerous courts latched onto.  Routine farming activities were exempted from the discharge permit requirement.       

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

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

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

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

The “WOTUS Rule”.  The Obama Administration attempted take advantage of the lack of clear guidance on the scope of federally jurisdictional wetland by dramatically expanding the federal government’s reach by issuing an expansive WOTUS rule.  The EPA/COE regulation was deeply opposed by the farming/ranching and rural landowning communities and triggered many legal challenges.   The rule was challenged by over 30 states and the courts were, in general, highly critical of the regulation and it became a primary target of the Trump Administration.

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

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

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

Another definition.  On December 7, 2021, the EPA and the COE published a proposed rule redefining a “water of the United States” (WOTUS) in accordance with the pre-2015 definition of the term. 86 FR 69372 (Dec. 7, 2021).   Under the proposed rule, EPA stated its intention to define a WOTUS in accordance with the 1986 regulations as further defined by the courts since that time.  In addition, the agencies said that the proposed rule would base the existence of a WOTUS on the “significant nexus” standard set forth in prior Supreme Court decisions.  As such, a WOTUS would include traditional navigable waters; territorial seas and adjacent wetlands; most impoundments of a WOTUS and wetlands adjacent to impoundments or tributaries that meet either the relatively permanent standard or the significant nexus standard; all waters that are currently used or were used in the past or may be susceptible to use in interstate or foreign commerce, including all waters that are subject to the ebb and flow of the tide. 

The proposed rule defines “interstate waters” as “all rivers, lakes, and other waters that flow across, or form a part of State boundaries” regardless of whether those waters are also traditionally navigable. A “tributary” is also defined as being a WOTUS if it fits in the “other waters” category via a significant nexus with covered waters or if it is relatively permanent. The EPA and COE further define the “relatively permanent standard” as “waters that are relatively permanent, standing or continuously flowing and waters with a continuous surface connection to such waters.” The “significant nexus standard” is defined as “waters that either alone or in combination with similarly situated waters in the region, significantly affect the chemical, physical, or biological integrity of traditional navigable waters, interstate waters, or the territorial seas (the "foundational waters").”

Final Rule

The agencies announced their Final Rule on December 30, 2022.  It will become effective 60 days after it is published in the Federal Register.  As promised, the Final Rule uses a definition that was in place before 2015 (for purposes of the Clean Water Act) for traditional navigable waters, territorial seas, interstate waters, and upstream water resources that “significantly” affect those waters.

Note:  Going back to before 2015 is interesting.  It was in 2015 that the Obama Administration was going to “clarify” everything, and the result was to greatly expand control over private property.  As noted above, this “clarification” resulted in more than 30 states suing the federal government and an injunction was imposed.  Also as noted above, the EPA and the COE under the Trump administration then pursued a long, careful rulemaking procedure which brought actual clarity to the definition.  It’s that clarity that has now been completely overturned, supposedly for “clarity’s” sake.

Two joint memos were published with the final rule to set forth the delineation of the implementation of roles and responsibilities between the agencies.  One is a joint coordination memo to “ensure accuracy and consistency of jurisdictional determinations under the final rule.”  The other is a memo with the USDA to provide “clarity on the agencies’ programs under the Clean Water act and the Food Security Act (Swampbuster).”

Adjacency.  The EPA wants to restore the “significant nexus” via “adjacency.”  This is a big change in the definition of “adjacency.”  It doesn’t mean simply “abutting.”  Instead, “adjacent” includes a “significant nexus” and a “significant nexus” can be established by “shallow hydrologic subsurface connections” to the “waters of the United States.  A “shallow subsurface connection,” the Final Rule states, may be found below the ordinary root zone (below 12 inches), where other wetland delineation factors may not be present.  Frankly, that means farm field drain tile.      

Note:  Farmers needs to pay attention to this, despite what USDA will undoubtedly say about it – the USDA’s Natural Resource Conservation Service (NRCS) is now completely under the thumb of the EPA and the COE (particularly because the practice of mitigation banking under the CWA will cease).  Practically every tile for every tile-drained farmed wetland connects to an open ditch which is a WOTUS.  This effectively disqualifies farmed wetland from being an isolated wetland –[these terms means specific things under the regulations].  The only wetland that will qualify as an isolated wetland (no hydrological connection to a WOTUS) will be those that don’t overflow and don’t have drain tile. 

Specifically, the Final Rule sets forth two kinds of adjacency: 1) the traditional “relatively permanent” standard; and 2) the “significant nexus” standard.  The EPA and the COE say the agencies will not assume that all wetlands in a specific geographic area are similarly situated and can be assessed together on a watershed basis in a significant nexus analysis.  But it is clear from the Final Rule that the agencies intend to expand jurisdiction over isolated prairie pothole wetlands using the “significant nexus” standard. 

Note:  The “significant nexus” can be established via a connection to downstream waters by surface water, shallow subsurface water, and groundwater flows and through biological and chemical connections.  The Final Rule states that adjacency can be supported by a “pipe, non-jurisdictional ditch,… or some other factors that connects the wetland directly to the jurisdictional water.”  This appears to be the basis for overturning the NWPR.  Consequently, the prairie pothole region is directly in the “bullseye” of the Final Rule.

Prior Converted Cropland.  The agencies say the final rule increases “clarity” on which waters are not jurisdictional – including prior converted cropland.  This doesn’t make much sense.  Supposedly, the agencies are “clarifying” that prior converted cropland, (which is not a water), is not a water, but it somehow could be a water if the agencies had not clarified it?  In addition, the burden is placed on the landowner to prove that prior converted cropland is actually prior converted cropland and therefore not a water.

Ditches and drainage devices.  The Final Rule is vague enough to give the government regulatory authority over non-navigable ponds, ditches, and potholes.  On the ditch/drainage device maintenance issue, there is also no recognition that the agencies will follow the opinion of the U.S. Circuit Court of Appeals for the Eighth Circuit in Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999).  In Barthel, the court ruled that a landowner can do whatever is necessary with respect to an existing drainage device to maintain the “historic wetland and farming regime” for the farm.  While Barthel is a Swampbuster case, it is relevant with respect to the Final Rule given that the USDA is now basically subservient to the EPA and the COE.  

The U.S. Supreme Court

It is rather presumptuous of the CWA and the COE to develop a Final Rule before the U.S. Supreme Court issues its opinion in a case presently pending involving the definition of a WOTUS.  In Sackett v. Environmental Protection Agency, 8 F.4th 1075 (9th Cir. 2021), cert, granted, 142 S. Ct. 896 (2022).  The issue in the case is whether the U.S. Circuit Court of Appeals for the Ninth Circuit used the proper test for determining whether wetlands are “waters of the United States” under the CWA.  The plaintiffs bought a .63-acre lot in 2004 on which they intended to build a home.  The lot is near numerous wetlands the water from which flows from a tributary to a creek, and eventually runs into a lake approximately 100 yards from the lot.  The lake is 19 miles long and is a navigable water subject to the CWA.  The plaintiffs began construction of their home, and the Environmental Protection Agency (EPA) issued a compliance order notifying the plaintiffs that their lot contained wetlands due to adjacency to the lake and that continuing to backfill sand and gravel on the lot would trigger penalties of $40,000 per day.  The plaintiffs sued and the EPA claimed that its administrative orders weren’t subject to judicial review. 

Ultimately the U.S. Supreme Court unanimously rejected the EPA’s argument and remanded the case to the trial court for further proceedings.  The EPA withdrew the initial compliance order and issued an amended compliance order which the trial court held was not arbitrary or capricious.  The plaintiffs appealed and the EPA declined to enforce the order, withdrew it and moved to dismiss the case.  However, the EPA still maintained the lot was a jurisdictional wetland subject to the CWA and reserved the right to bring enforcement actions in the future.  In 2019, the plaintiffs resisted the EPA’s motion and sought a ruling on the motion to bring finality to the matter.  The EPA claimed that the case was moot, but the appellate court disagreed, noting that the withdrawal of the compliance order did not give the plaintiffs final and full relief.  On the merits, the appellate court noted that the lot contained wetlands 30 feet from the tributary, and that under the “significant nexus” test of Rapanos v. United States, 547 U.S. 715 (2006), the lot was a regulable wetland under the CWA as being adjacent to a navigable water of the United States (the lake). 

The U.S. Supreme Court agreed to hear the case and oral argument occurred in early October of 2022.  The Court’s opinion is anticipated sometime before mid-March of 2023, but the issuance of the Final Rule may cause that to be delayed.  In any event, the Supreme Court will have the final say on what a WOTUS rather than the COE or the EPA.

Note:  EPA says the Final Rule reflects prior Supreme Court decisions and will provide “clarity” on which waters are jurisdictional and which ones are not.  How can EPA provide “clarity” when the Supreme Court hasn’t yet said what a WOTUS is?  The role of an administrative agency is to take a statute, or a court decision construing a statute and then write a rule defining the boundaries of the definition - in this instance, that of a WOTUS. 

Conclusion

The definition of a WOTUS has become a political football.  This constant flip-flopping of definitions lends a lack of credibility to the COE and the EPA on the issue.  Didn’t these same agencies believe the 2019 NWPR was good?  The Final Rule represents the agencies’ stealth techniques to extend the government’s reach over wetlands on private property.  There is absolutely no chance that the Final Rule is fair to farmers. 

January 2, 2023 in Environmental Law | Permalink | Comments (0)

Monday, December 5, 2022

Ag Law Developments in the Courts

Overview

It’s been a while since I did a blog article on recent court developments involving farmers, ranchers rural landowners and agribusinesses.  I have been on the road just about continuously for the last couple of months and nine more events remain between now and Christmas.  But, let me take a moment today (and later this week) to provide a summary of some recent court cases involving agriculture.

Recent court opinions involving agriculture – it’s the topic of today’s post.

Jumping Mouse Habitat Designation Upheld

Northern New Mexico Stockman’s Association, et al. v. United States Fish and Wildlife Service, 494 F.Supp.3d 850 (D. N.M. 2020), aff’d., 30 F.4th 1210 (10th Cir. 2022)

In 2014, the U.S. Fish and Wildlife Service (USFWS) listed the New Mexico Meadow Jumping Mouse as an endangered species based on substantial habitat loss and fragmentation from grazing, water management, drought and wildfire.  Accordingly, in 2016, the USFWS designated 14,000 acres along 170 miles of streams and waterways in New Mexico, Arizona and Colorado as critical habitat for the mouse.  The U.S. Forest Service erected fencing around some streams and watering holes in the Santa Fe and Lincoln National Forests that were in the designated area   The plaintiffs, two livestock organizations, with members that graze cattle in those national forests, sued in 2018 claiming that the USFWS failed to sufficiently consider the economic impact of the critical habitat designation.  The trial court dismissed the case, finding that the USFWS was justified in its decision.  The trial court also determined that the USFWS need not compensate the plaintiffs for the reduction in value of the plaintiffs’ water rights.  The trial court reasoned that the USFWS need not consider all of the economic impacts associated with the mouse’s listing when designating critical habitat, only the incremental costs of the designation itself.  The court cited the nine-month annual hibernation period of the mouse giving it only a short time to breed and gain weight for the winter and, as such, the mouse’s habitat needed to remain ideal with tall, dense grass and forage around flowing streams in the designated area.  On appeal, the appellate court affirmed.  The appellate court held that the assessment method of the USFWS for determining the economic impacts of the critical habitat designation on the water rights of the plaintiffs’ members was adequately considered, and that the USFWS had reasonably supported its decision not to exclude certain areas from the critical habitat designation.  

Court Reduces Dicamba Drift Damage Award; Case Continues on Punitive Damages Issue

Hahn v. Monsanto Co., 39 F.4th 954 (8th Cir. 2022)

The plaintiff claimed that his peach orchard was destroyed after the defendants (Monsanto and BASF) conspired to develop and market dicamba-tolerant seeds and dicamba-based herbicides. The plaintiff claimed that the damage to the peaches occurred when dicamba drifted from application to neighboring fields.  The plaintiff claimed that the defendants released the dicamba-tolerant seed with no corresponding dicamba herbicide that could be safely applied.  As a result, farmers illegally sprayed an old formulation of dicamba herbicide that was unapproved for in-crop, over-the-top, use and was "volatile," or prone to drift.  While many cases had previously been filed on the dicamba drift issue, the plaintiff did not join the other litigation because it focused on damages to soybean crops.  Monsanto moved to dismiss the claims for failure to warn; negligent training; violation of the Missouri Crop Protection Act; civil conspiracy; and joint liability for punitive damages.  BASF moved to dismiss those same counts except the claims for failure to warn. The trial court granted the motion to dismiss in part.  Monsanto argued that the failure to warn claims were preempted by the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), but the plaintiff claimed that no warning would have prevented the damage to the peaches. The trial court determined that the plaintiff had adequately plead the claim and denied the motion to dismiss this claim.  Both Monsanto and BASF moved to dismiss the negligent training claim, but the trial court refused to do so. However, the trial court did dismiss the claims based on the Missouri Crop Protection Act, noting that civil actions under this act are limited to “field crops” which did not include peaches.   The trial court did not dismiss the civil conspiracy claim based on concerted action by agreement but did dismiss the aiding and abetting portion of the claim because that cause of action is no recognized under Missouri tort law.  The parties agreed to a separate jury determination of punitive damages for each defendant.  Bader Farms, Inc. v. Monsanto Co., et al., No. MDL No. 1:18md2820-SNLJ, 2019 U.S. Dist. LEXIS 114302 (E.D. Mo. July 10, 2019).  The jury found that Monsanto had negligently designed or failed to warn for 2015 and 2016 and the both defendants had done so for 2017 to the present.  The jury awarded the plaintiff $15 million in compensatory damages and $250 million in punitive damages against Monsanto for 2015 and 2016.  The jury also found that the defendants were acting in a joint venture and in a conspiracy.  The plaintiff submitted a proposed judgment that both defendants were responsible for the $250 million punitive damages award.  BASF objected, but the trial court found the defendants jointly liable for the full verdict in light of the jury’s finding that the defendants were in a joint venture.  Bader Farms, Inc. v. Monsanto Co., et al., MDL No. 1:18-md-02820-SNJL, 2020 U.S. Dist. LEXIS 34340 (E.D. Mo. Feb. 28, 2020).  BASF then moved for a judgment as a matter of law on punitive damages or motion for a new trial or remittitur (e.g., asking the court to reduce the damage award), and Monsanto moved for a judgment as a matter of law or a new trial.  The trial court, however, found both defendants jointly liable, although the court lowered the punitive damages to $60 million after determining a lack of actual malice.  The trial court did uphold the $15 million compensatory damage award upon finding that the correct standard under Missouri law was applied to the farm’s damages.  Bader Farms, Inc. v. Monsanto Co, et al., MDL No. 1:18md2820-SNLJ, 2020 U.S. Dist. LEXIS 221420 (E.D. Mo. Nov. 25, 2020).  The defendants filed a notice of appeal on December 22, 2020.     

On appeal, the appellate court affirmed the trial court on the causation issue noting that the defendant retained direct contact with the farmers and exercised some degree of control over their actions.  As such, the defendant was aware of the foreseeable consequences that could come from not controlling the farmers’ actions more closely. On the compensatory damage issue, the defendant argued that compensatory damages should be measured by the difference in the value of the orchard before and after the damage.  The appellate court disagreed, noting that such a calculation only applied when the victim is the owner of the land and not a tenant as was the plaintiff.  Thus, compensatory damages were properly measured by lost profits.   The defendant argued the damages were speculative, but the court found that Bader Farms had provided years of financial statements to show the usual costs and profits associated with farming the orchard. The appellate court determined that there was no doubt the defendant had full control over the critical aspects of the project. In 2007, BASF had relinquished their rights to the seed technology to the defendant, so they could not control something they had no rights to. The appellate court also affirmed the finding that BASF and Monsanto had engaged in a civil conspiracy by agreeing to sell products unlawfully and enabling the widespread use of a product that was illegal to spray during the growing season. As members of the civil conspiracy, BASF was correctly found to be severally liable for the damages. The appellate court also found that Bader Farms provided clear and convincing evidence that the companies had acted with reckless indifference, but the two had different degrees of culpability. The trial court should have assessed the punitive damages of the Monsanto and BASF separately. Thus, the appellate court affirmed in part and reversed and remanded the punitive damages judgment to the trial court.

Court Decides to Resolve Property Dispute by Requiring Parties to Use the Existing Property Line

Barlow v. Saxon Holdings Trust, No. SD37361, 2022 Mo. App. LEXIS 657 (Mo. Ct. App. Oct. 21, 2022)

The plaintiff and her husband purchased land in 1987 by warranty deed that included the language, “running thence Southwesterly along the fence 40 rods.” At the time the plaintiff purchased the property, a fence that ran north to south existed and the plaintiff believed and acted like she owned the land up to that fence. The defendant purchased the neighboring land in 2011 and executed a warranty deed that included the language, “beginning at the NE corner of the NE ¼ of said Section 23 and running SW 40 rods.” In the spring of 2020, the defendant hired a surveyor who informed the defendant that his property extended onto the plaintiff’s property to the “40-rod line.” The defendant put up an electric fence on the disputed property to claim it.  In response the plaintiff hired a surveyor who determined the property line was on the original fence line. The plaintiff sued to quiet title. The trial court found ambiguity between the deeds and resolved the ambiguity in favor of the plaintiff and held the plaintiff had adversely possessed the land. The defendant appealed. The appellate court recognized that the deeds individually did not show patent ambiguity, but the difference between the two on the location of property line did create an ambiguity. The appellate court determined that one way to resolve the ambiguity would be to have the parties continue to occupy the land the way they had in accordance with one of the deeds or constructions. This was the trial court’s approach, and the appellate court affirmed the trial court on this point.  The appellate court also noted that the trial court had found the plaintiff’s surveyor credible, and that credibility of a witness was a determination to be left to the trial court’s discretion that the appellate court would not disturb.  The appellate court affirmed the trial court’s resolution of the deed in favor of the plaintiff and determined it need not address the adverse possession claim.

Oil and Gas Lease on Disputed Property Invalidates Adverse Possession

Cottrill v. Quarry Enterprises, LLC, No. 2022 CA 00011, 2022 Ohio App. LEXIS 3191 (Ohio Ct. App. Sept. 27, 2022)

The plaintiff claimed that she had successfully adversely possessed the defendant’s property by receiving title to the property in 1971 from her mother and caring for the land by mowing and maintaining it and using it for recreational events for herself and family. The trial court granted summary judgment for the defendant, finding that the plaintiff failed to establish exclusive possession over the land due to an existing oil and gas lease that the defendant had executed. The plaintiff appealed, claiming that the lease did not invalidate her exclusive use. To show exclusive use, the plaintiff did not have to be the only person who used the land but needed to be the only person who asserted their right to possession over the land. The appellate court found that the oil and gas that existed on the property began in 1958. For the entirety of the time that the plaintiff claimed she had adversely possessed the property, the oil and gas company had the right of possession over the land in dispute, invalidating the plaintiff’s claim.

December 5, 2022 in Civil Liabilities, Environmental Law, Real Property, Regulatory Law | Permalink | Comments (0)

Wednesday, October 12, 2022

Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland

Overview

An issue that troubles many farmers and ranchers is the federal government’s regulation of farmland and farming activities.  Two primary regulatory agencies are the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE).  They have jurisdiction to regulate the “waters of the United States” (WOTUS) and the scope of that jurisdiction has been a big issue for many years and has generated innumerable court decisions. 

A recent case involved the issue of the COE deciding not to regulate a wet area on a farm and whether the decision not to exercise jurisdiction was done properly.  The court’s decision is instructive on the procedure for determining the existence of a wetland, what “prior converted cropland is” and how the agency should properly decline to regulate

The COE’s regulation of farmland - it’s the topic of today’s post.

Background

Facts of the case.  In Hoosier Environmental Council, et al. v. Natural Prairie Indiana Farmland Holdings, LLC, et al., 564 F. Supp. 3d 683 (N.D. Ind. 2021), the defendant acquired farmland to build and operate a concentrated animal feeding operation (CAFO) with over 4,350 dairy cows.  The COE inspected the property and concluded that much of the land was not subject to the Clean Water Act. The plaintiffs, two environmental groups sued alleging that the defendant violated the Clean Water Act (CWA) and that the COE’s administrative jurisdictional determination violated the Administrative Procedures Act (APA).  The land at issue was drained in the early 1900's via the creation of several large ditches and drainage canals to move surface water into the Kankakee River 9.5 miles downstream.  The CAFO was constructed on what had been a lakebed over a century ago, and two of the drainage ditches are on the defendant’s land. 

Note:  The lake was totally drained in the early 1990s to make farmland.  Vested with that is the right to maintain the drain.  See, e.g., Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999).  It is immaterial what the size of the lake was or whether it was where a marsh was at some time in the past.  The land at issue was completely transformed to farmland long before the defendant acquired the land at issue. 

The plaintiffs claimed that the defendant filled nearly half a mile of one ditch and installed drainage tile to drain excess water, filled and tiled various lateral ditches attached or near both ditches.  After the alterations the plaintiffs contacted the COE to determine if the ditches, lateral ditches and land were subject to federal regulation.  The COE investigated and determined that neither the defendant’s land nor the lateral ditches were jurisdictional wetlands but did conclude that the two drainage ditches were jurisdictional.  

The plaintiffs sought judicial review of the COE’s determination to not regulate the defendant’s land or lateral ditches.  The plaintiff asserted that the defendant’s filling and tiling activities required CWA permits for dredged or fill material, and a pollution discharge permit.  The plaintiffs claimed that the manipulation of the hydrology and drainage at the CAFO site would degrade the nature and wildlife areas and waters and diminish their ability to continue using and enjoying them.  The plaintiffs also claimed that the COE’s wetland determination was arbitrary and capricious because the agency made its conclusion without relying on the relevant wetland factors articulated in the COE’s technical guidance manuals. The COE asserted that its guidance’s procedures weren’t applicable and that the administrative record supported its decision.

Standing.  The court determined that the plaintiffs had standing to sue because their members have been and would continue to be injured by the defendant’s activities, and that the plaintiffs’ restorative activities on an adjacent downstream tract that the plaintiffs’ members use for various recreational activities would be harmed.  The court also pointed out that at least three members got their water from downstream private wells.  The plaintiffs’ “wetland scientist and drainage expert” provided an opinion that the COE’s decision to not assert jurisdiction and the defendant’s continued hydrological changes to the property would “result in a loss of stream and wetland functions on the dairy’s property that would alter hydrology and water quality downstream within Kankakee Sands.” 

The court’s opinion gave no indication of the COE’s response to the opinion of the plaintiffs’ expert.  Given the recited facts of the case, hydrologic changes by the dairy’s activities would have no impact on the Kankakee Sands, a nearby 10,000-acre restored tallgrass prairie.  The topography shows that the site does not drain onto the Kankakee Sands.  Instead, the area drains into the Bogus Island Ditch which is well downstream from the dairy.  In addition, state law waste management plans protect the drinking water wells at issue from contamination.   Also, there is no public access to the ditches.  A “wetland and erosion scientist” directly attributed the consequences of the COE’s decision and the prior and ongoing activities of the dairy to “a loss of stream and wetland functions on the dairy’s property that will alter hydrology and water quality downstream within Kankakee Sands.”   But this assertion seems far-fetched.  Filling a small ditch that doesn’t drain into the Kankakee Sands will have no material effect. 

Note:  If the Congress intended this result, then a court could extend standing to environmental groups for drainage improvement projects on agricultural land.  However, the Congress did not intend that to occur. 

The court stated that the plaintiffs had explained that the dairy’s discharges created “reasonable concerns” and that were “fairly traceable” to the dairy’s actions.  However, what the plaintiffs complained about was the filling of a ditch and the replacement of its function with a tile.  “Reasonable concerns” are not relevant for a jurisdictional determination.  The issue is whether there is a hydrological connection between Kankakee Sands and the ditch fill at the dairy.  

What is a “Wetland”?

Before diving into the court’s “analysis,” a brief sidestep is necessary.  When the Congress created the CWA, it failed to provide a definition of a “wetland,” instead leaving the matter up to the administrative agencies responsible for implementing the law.  Under the COE’s rules, a wetland requires a finding of the presence of hydrophytic vegetation, hydric soil and wetland hydrology under a subject tract’s “normal circumstances.”  Under the COE’s initial procedures for delineating a wetland, it must determine that a site has been altered, and determine when the alteration occurred and characterize the land as it existed before the alterations. 

“Prior converted cropland” is wetland that was manipulated and cropped before December 23, 1985, which no longer contains key wetland indicators.  33 C.F.R. § 328.3(a)(8); 7 C.F.R. § 12.2(a)(8); COE Regulatory Guidance Letter 90-07 ¶5(a).  A “farmed wetland” is a wetland that was manipulated and cropped before December 23, 1985, but which still contains key wetland indicators.  7 C.F.R. § 12.2(a)(4); COE Regulatory Guidance Letter 90-07 ¶5(b). A farmed wetland could still be a jurisdictional wetland, but prior converted cropland is non-jurisdictional. 33 C.F.R. § 328.3(a)(8).  Thus, when recent alterations are present on agricultural land, before the COE can decide which delineation methodology to use, a detailed assessment of the changes in the hydrology, vegetation, and soil must occur.  However, in this instance, the COE noted that the land in question had been drained nearly 100 years ago and continuously row cropped since 1939 (well before the effective date of the 1985 Farm Bill), its normal circumstance was as farmland that did not contain wetland indicators and was, therefore, non-jurisdictional prior converted cropland.  While hydric soil was present, to find a jurisdictional wetland, all three indicators must be present. 

Note:  In its original version, the COE’s 1987 Manual defined “normal circumstances” as what vegetation is commonly present, not what would exist if the land was not disturbed.  This was later changed by “notes” added to the 1987 Manual when the Congress outlawed the 1989 Manual.  Those explanatory notes changed “normal circumstances” to mean vegetation that would exist if the land was not disturbed and planted.  The COE uses reference sites with similar hydrology and soils.  If wetland vegetation exists, the COE assumes that it exists on the disturbed tract.  However, hydrology still must be present for a wetland to be deemed to exist (as much as the bureaucracy wishes it did not).  B & D Land and Livestock Co. v. Veneman, 231 F. Supp. 2d 895 (N.D. Iowa 2002).

The Court’s Analysis

The primary issue before the court was whether the COE’s determination that the land was prior converted wetland (and therefore not subject to COE regulation) was arbitrary and capricious.  The court examined the record to determine if the COE followed its own guidance for delineating wetlands.  The court noted that the administrative record lacked any description of the prior drainage system (the series of medial and lateral ditches transecting the property before defendant’s alterations), the defendant’s new drainage system, how these systems were designed to function, and whether they were effective in removing wetland hydrology from the area.  

Note:  While the plaintiffs made much ado about the COE’s lack of consideration of the hydrology of the land before the farm’s alterations, that is largely an irrelevant point.  Famers are entitled to maintain the “wetland and farming regime” on the land and may engage in whatever drainage activities necessary to keep that historic farming activity and production.  The land in question had been converted to farmland many decades earlier and had been constantly maintained in that status.

The court examined aerial photographs, noting that there was an absence of data identified in the COE’s “Midwest Supplement” to assess the relevant drainage factors, including how the existing and current drainage systems were designed to function, whether they were effective in removing wetland hydrology from the area, and when any conversion occurred.  The absence of these sources, coupled with an absence of any meaningful discussion of the hydrology of the site before the defendant’s alterations, led the court to believe that the COE failed to follow the procedures outlined in its own guidance in deciding the land was prior converted cropland.  The COE also reviewed 14 aerial photographs that spanned from 1938 to 2017.  Those photos showed the presence of row cropping and offered no evidence of potential wetlands.  Relying on aerial photographs, the COE expert’s determination and a determination of the Natural Resources Conservation Service to conclude that wetlands did not exist was certainly appropriate. 

Note:  In addition, the court’s analysis on this point is suspect.  The COE did not need to find and document all three factors.  The hydrology had been materially altered to enable consistent row crop farming.  In that situation wetland hydrology is not present, and the area in question is not a wetland.  As a result, other levees, systems or dams do not alter area hydrology because there is not wetland hydrology present to alter.  The court referred to the COE’s 1987 Manual for its conclusion that the COE didn’t follow its own procedures.  However, the 1987 Manual was established to evaluate recent alterations to undisturbed wetland.  The court incorrectly applied this standard to materially hydrologically altered wetland where the alteration had occurred a century earlier.  As such, the land in issue was prior converted wetland.  The court incorrectly applied the standards of the 1987 Manual to the facts before it involving alterations that occurred over 100 years ago.    

The court also determined that there was no indication in the record that the aerial photographs were used to assess hydrology characteristics of the defendant’s land before alterations were made, how the drainage systems were designed to function, and how effectively and efficiently they could convert land from wetland to upland.  Further, the court noted there was also no explanation why the COE skipped these steps.  The COE took the position that its review of aerial photographs was sufficient to determine the land’s normal circumstances. The court disagreed, determining that the evidence did not support the COE’s claim that its decision was based on identified relevant factors.  Instead, the court concluded that the COE made impermissible post hoc justifications.  If reliance on its own manuals was not warranted in this situation, the court stated, the COE needed to provide a rationale.  As such, the court determined that the evidence did not support the COE’s argument that its decision was rationally based on the relevant wetland hydrological factors before concluding the land was prior converted cropland.  Absent that rationale, the COE’s determination of wetland status of the defendant’s farmland was arbitrary and capricious. 

Note:  The COE followed its correct procedure in this case contained in the Midwest Supplement and also accepted a prior USDA determination as to the land’s status for federal farm program purposes.  The ditches and drains that were legally installed successfully removed wetland hydrology.  The COE did not deviate from its own regulatory guidance and procedures, but the court assumed that it did.  There was no need for the COE to find and document all three wetland characteristic factors.  The elimination of wetland hydrology eliminates the possibility that the land was a wetland. 

Concerning the lateral ditch, the plaintiffs claimed that the record did not support the COE’s conclusion that the lateral ditches were irrigation canals that drained uplands and lacked relatively permanent flow.  The plaintiffs pointed to a lack of administrative record and the claimed failure of the COE to follow the relevant factors that it lists in its Approved Jurisdictional Determination Form.   The court also held that the COE’s finding of non-jurisdiction over the lateral ditches was arbitrary and capricious. 

The court remanded the case to the COE conduct a more thorough investigation of the defendant’s tract.

Conclusion

The court’s decision correctly points out that administrative agencies must follow their own rules and procedures in delineating wetlands.  Even a finding of non-jurisdiction based on prior converted cropland status must be supported by the administrative record and be sufficient to allow a court to determine that the agency followed the proper process.  That much is certainly true.  The COE did follow the correct procedure in this case or declined to assert jurisdiction.  Unfortunately, the court’s opinion reveals a lack of understanding of the process for delineating wetlands and wetland hydrology.  As part of its finding that the COE acted in an arbitrary and capricious manner in reaching its conclusion that the land in issue was prior converted wetland, the court stated that ditches and drainage tile impact hydrology in different ways.  This is not correct, and it influenced the court’s conclusion that the COE used an inappropriate delineation methodology without explanation, which was arbitrary.  However, ditches and drainage tile lines affect groundwater drawdowns identically based upon depth.  Once the COE determined that wetland hydrology wasn’t present, the matter was over.  There was no wetland.    

Aside from the questionable grant of standing, the court waded deep into a subject that is highly technical and which it did not understand sufficiently to be able to sort out proper wetland delineation procedures. Perhaps the same can be said for the dairy’s lawyers – it’s difficult to imagine how the briefs filed on behalf of the dairy didn’t provide some sort of an indication in the court’s opinion of guidance on how the COE delineates wetlands and that the COE’s decision-making process was not arbitrary and capricious.

For farmers, the case is a frustrating one.  At issue was land that had been farmed for over 80 years and the right to continue to farm consistent with the historic drainage of the property was caught up in bureaucratic red tape.  The court’s expansive view of standing and lack of understanding of the actual science behind the hydrology and geographic facts of the case created a problem for a dairy operation that should have never happened.  What was involved in the case were shallow ditches dug into prior converted wetland.  That is an activity that the CWA does not regulate. 

October 12, 2022 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Thursday, October 6, 2022

More Ag Law Developments – Potpourri of Topics

Overview

The courts have continued to issue decisions of relevance to farmers, ranchers and rural landowners.  In today’s post, I take a look at some of them from around the country.  From property rights to income tax to bankruptcy to herbicide crop damage and landowners disputing over drainage – it’s covered below.

Court Says Public Has Right to Use Private Riverbeds

Adobe Whitewater Club of N.M. v. N.M. State Game Comm'n., No. S-1-SC-38195, 2022 N.M. LEXIS 34 (N.M. Sup. Ct. Sept. 1, 2022)

 The plaintiffs, various environmental and recreation groups, sued the New Mexico State Gaming Commission (Commission), claiming a regulation of the Commission violated the public’s right to use parts of New Mexico’s rivers.  In 2017, the Commission, promulgated a regulation that outlined a process for landowners to obtain a certificate allowing them to close public access to segments of public water flowing over private property.  The plaintiffs challenged the regulation as unconstitutional. Article XVI, Section 2 of the New Mexico state constitution states, “the unappropriated water of every natural stream, perennial or torrential, within the state of New Mexico, is hereby declared to belong to the public.” The issue was whether the public’s right to use the public waters included the right to use the privately owned waterbeds. The New Mexico Supreme Court determined that riverbeds were considered navigable waterways and were subject to the “public trust doctrine.”  The private landowners along the riverbed intervened in the lawsuit and claimed the public would be considered trespassers on their land and they could exclude the trespassers. The Court disagreed, finding that the public has the right to use private land when reasonably necessary to gain access to or enjoy public rivers. The Court stated, “A determination of navigability only goes to who has title to the bed below the public water, not to the scope of the public use.”  As such the court concluded that the public had access to such rivers to float, wade, fish and engage in other recreational activities that would have a minimal impact on the rights of private property owners.   In addition, the Court held that such waters are and always have been public.  Accordingly, the Court invalidated the Commission’s regulation. 

Retained Ownership of Minable Surface Negates Conservation Easement Deduction.

C.C.A. 202236010 (Sept. 9, 2022)

The Chief Counsel’s office of IRS has taken the position that a conservation easement donation is invalid if the donor owns both the surface estate of the land burdened by the easement as well as a qualified mineral interest that has never been separated from the surface estate, and the deed retains any possibility of surface mining to extract subsurface minerals.  In that instance, the conservation easement doesn’t satisfy I.R.C. §170(h).  The IRS said the result would be the same even if the donee would have to approve the surface-mining method because the donated easement would not be donated exclusively for conservation purposes in accordance with I.R.C. §170(h)(5).  The IRS pointed out that Treas. Reg. §1.170A-14(g)(4) states that a donated easement does not protect conservation purposes in perpetuity if any method of mining that is inconsistent with the particular conservation purposes of the contribution is permitted at any time.  But, the IRS pointed out that a deduction is allowed if the mining method at issue has a limited, localized impact on the real estate and does not destroy significant conservation interests in a manner that can’t be remedied.  Surface mining, however, is specifically prohibited where the ownership of the surface estate and the mineral interest has never been separated.  On the specific facts involved, the IRS determined that the donated easement would not be treated at being made exclusively for conservation purposes because the donee could approve surface mining of the donor’s subsurface minerals.  

Family Farms Not Part of Bankruptcy Estate.

Ries v. Archer (In re Archer), Nos. 17-20045-RLJ-7, 19-02001, 2022 Bankr. LEXIS 2250 (Bankr. N.D. Tex. Aug. 12, 2022)

A chapter 7 trustee sought a declaration that certain farm ground was a part of the bankrupt estate. The debtors, a married couple, had eight children, who all but one became medical doctors. The debtors had funded their children’s education throughout their lives with funds derived from the family farm. They owned 14 sections of land in Moore County, Texas, (northwest Texas) comprising what was referred to as the “Moore County Farm.”  Although, the deed from 1988 for the land listed the defendant’s children’s IRA as the grantee-buyer of the land, the children did not have IRAs at the time or played any part in purchasing the land. The children were not given any right to manage or operate the Moore County Farm so long as the debtors were mentally competent. Beginning in 1998, the USDA and CRP program began making payments to some of the defendant’s children and in 2007 farmers who rented land from the Moore County Farm began to pay some of the children. The children began to open accounts and lines of credit associated with the expenses of the Moore County Farm. From 2005 to 2017, the debtors instructed some of their children to apply as “New Producers” to the Federal Crop Insurance Program. Through this program they were provided with favorable crop insurance as “managers” of a farm, but none of the children had managerial control. Ultimately, the children were charged with and convicted of insurance fraud. Along with the 1988 deed, the debtors executed a warranty deed for the Moore County Farm to some of the children in 2006 and later transferred the farm to the children’s IRAs. In 2008, one of the defendant’s children purchased 670 acres in Randall County, referred to as the “Randall County Farm”. The debtors ultimately had primary authority and control of the farming operations of the Randall County Farm along with the Moore County Farm and had full control over the finances and accounting of the farms. The children did pay for some of the expenses on the Randall County Farm, but overall, the debtors operated the two farms as one entity.  There were no further legal issues until 2011 when one of the debtors’ cows was hit by a motorist who sustained serious injuries because of the accident and filed suit. The court awarded the man $8.95 million in damages to be paid by the debtors. The debtors then filed Chapter 7 bankruptcy. The bankruptcy court noted that the children had shared significant responsibilities over the Moore County Farm with their father and that their father wanted to pass the property to his children through the deeds. The court concluded that just because the debtors continued to run the farm did not mean they did not want to ultimately gift the land to the children. The bankruptcy trustee argued this was another scam set up by the family, but the court was not convinced given the common desire of parents to devise property to their children. The evidence showed that the debtors’ intent was for the children to own the farms and operate them for enjoyment.  Based on these considerations, the court concluded that the Moore County Farm was not part of the bankruptcy estate. The trustee claimed that the Randall County Farm should have been a part of the estate. Because one of the children who purchased the land negotiated a conservation plan with the USDA, received CRP payments, and paid for the farm expenses, the child was the true owner of the Randall County Farm and could not be considered part of the bankruptcy estate. 

FIFRA Doesn’t Preempt State-Based Warranty Claims

Kissan Berry Farm v. Whatcom Farmers Cooperative, et al., No. 82774-0-I, 2022 Wash. App. LEXIS 1766 (Wash. Ct. App. Sept. 6, 2022)

The plaintiffs, five state of Washington red raspberry farms, claimed that the use of herbicide Callisto in 2012 killed their berry plants causing more than $2.5 million in lost production for 2012 and two following crop years.  Callisto’s use was recommended by an agronomist working on behalf of. the defendant. Callisto’s maker, Syngenta was also named in the suit.  Callisto’s label stated that it was safe for use on red raspberries. The label also indicated that usage could result in some crop damage and that compensation for crop damage was limited to the price of the herbicide.  The plaintiffs asserted that Syngenta and the agronomist had made various warranties that Callisto was safe for use on red raspberries.  Syngenta’s position that the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) preempted the farmers’ claims.  The trial court agreed on the basis that the plaintiffs’ claims would have required Syngenta to change the product label due to state law.  The appellate court reversed based on Bates v. Dow Agrosciences LLC, 544 U.S. 431 (2005). Under Bates, state law cannot require a change to a federally approved label, but state-based claims for breach of warranty are not preempted.   the Supreme Court found that a pesticide manufacturer who is found liable for state law breach of express warranty claims is not then induced to change their federally registered pesticide label.

Comparative Fault for Unmaintained Waterway

Watters v. Medinger, No. 21-1076, 2022 Iowa App. LEXIS 667 (Iowa Ct. App. Aug. 31, 2022)

The parties had been in various legal spats involving farmland for over a decade.  The plaintiff owned farmland adjacent to the defendant that contained waterways.  The plaintiff sued the defendant claiming the defendant altered his land in various ways causing extreme degradation and erosion along the plaintiff’s waterways.  The trial court determined that the plaintiff was contributorily negligent for failing to maintain or mow around the waterways, which allowed for ragweed to grow. The ragweed destroyed the grass along the waterway, which meant the water would flood quicker than it would have if grass could absorb some of the moisture. The trial court found that the defendant’s construction of a new cattle shed and addition of drain tiles did cause damage to the plaintiff’s property, but the at that time the plaintiff had already stopped properly maintaining the waterway. The trial court awarded the plaintiff $2,000 in damages to repair the damage caused by the erosion. The plaintiff appealed claiming that the damage award was insufficient.  The appellate court reviewed the plaintiff’s argument that the jury instruction was improper regarding comparative fault. The plaintiff tried to argue that he could not repair any part of the erosion until the drainage issues were solved. The appellate court held the plaintiff failed to address the failure to maintain the waterway before the draining issues arose. A farm tenant testified that the plaintiff’s property was already in “tough shape” before the defendant made any changes to his property. The appellate court held the comparative fault instruction was proper, because there was “a causal connection between the plaintiff’s fault and the claimed damages.”  Further, the appellate court held the award of damages was sufficient because the jury settled on an amount within the range of evidence based on expert testimony. Just because the amount was at the low end of the range did not mean the amount was insufficient. The appellate court affirmed the trial court’s decision to deny the plaintiff’s motion for a new trial.

Conclusion

Agricultural law and taxation is a very dynamic discipline.  There is never a dull moment -more fodder for my radio shows and TV interviews, and content for my books and seminars.

October 6, 2022 in Bankruptcy, Civil Liabilities, Environmental Law, Income Tax, Real Property, Water Law | 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)

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

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-8-and-7.html

Other Important Developments in Agricultural Law and Taxation

https://lawprofessors.typepad.com/agriculturallaw/2022/01/other-important-developments-in-agricultural-law-and-taxation.html

Recent Court Cases of Importance to Agricultural Producers and Rural Landowners

https://lawprofessors.typepad.com/agriculturallaw/2022/06/recent-court-cases-of-importance-to-agricultural-producers-and-rural-landowners.html

Business Planning

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

https://lawprofessors.typepad.com/agriculturallaw/2022/03/summer-2022-farm-income-taxestate-and-business-planning-conferences.html

Should An IDGT Be Part of Your Estate Plan?

https://lawprofessors.typepad.com/agriculturallaw/2022/03/should-an-idgt-be-part-of-your-estate-plan.html

Farm Wealth Transfer and Business Succession – The GRAT

https://lawprofessors.typepad.com/agriculturallaw/2022/03/farm-wealth-transfer-and-business-succession-the-grat.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/04/pork-production-regulations-fake-meat-and-tax-proposals-on-the-road-to-nowhere.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/04/intergenerational-transfer-of-the-farmranch-business-the-buy-sell-agreement.html

IRS Audit Issue – S Corporation Reasonable Compensation

https://lawprofessors.typepad.com/agriculturallaw/2022/04/irs-audit-issue-s-corporation-reasonable-compensation.html

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

https://lawprofessors.typepad.com/agriculturallaw/2022/05/summer-2022-farm-income-taxestate-and-business-planning-conferences.html

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

https://lawprofessors.typepad.com/agriculturallaw/2022/06/wisconsin-seminar-anderp-not-wyatt-and-elrp.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-two-divisive-reorganization-alternative.html

Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)

https://lawprofessors.typepad.com/agriculturallaw/2022/07/farmranch-tax-estate-and-business-planning-conference-august-1-2-durango-colorado-and-online.html

Durango Conference and Recent Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/07/durango-conference-and-recent-developments-in-the-courts.html

Civil Liabilities

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-8-and-7.html

Agritourism

https://lawprofessors.typepad.com/agriculturallaw/2022/03/agritourism.html

Animal Ag Facilities and the Constitution

https://lawprofessors.typepad.com/agriculturallaw/2022/03/animal-ag-facilities-and-the-constitution.html

When Is an Agricultural Activity a Nuisance?

https://lawprofessors.typepad.com/agriculturallaw/2022/04/when-is-an-agricultural-activity-a-nuisance.html

Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues

https://lawprofessors.typepad.com/agriculturallaw/2022/06/ag-law-related-updates-dog-food-scam-oil-and-gas-issues.html

Durango Conference and Recent Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/07/durango-conference-and-recent-developments-in-the-courts.html

Dicamba Spray-Drift Issues and the Bader Farms Litigation

https://lawprofessors.typepad.com/agriculturallaw/2022/07/dicamba-spray-drift-issues-and-the-bader-farms-litigation.html

Tax Deal Struck? – and Recent Ag-Related Cases

https://lawprofessors.typepad.com/agriculturallaw/2022/07/tax-deal-struck-and-recent-ag-related-cases.html

 

Contracts

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-6-and-5.html

What to Consider Before Buying Farmland

https://lawprofessors.typepad.com/agriculturallaw/2022/02/what-to-consider-before-buying-farmland.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/05/ag-law-and-medicaid-planning-court-developments-of-interest.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/03/animal-ag-facilities-and-the-constitution.html

Is Your Farm or Ranch Protected From a Warrantless Search?

https://lawprofessors.typepad.com/agriculturallaw/2022/04/is-your-farm-or-ranch-protected-from-a-warrantless-search.html

Durango Conference and Recent Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/07/durango-conference-and-recent-developments-in-the-courts.html

Environmental Law

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-6-and-5.html

“Top Tan” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-2-and-1.html

The “Almost Top Ten” (Part 3) – New Regulatory Definition of “Habitat” under the ESA

https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-ten-new-regulatory-definition-of-habitat-under-the-esa.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/07/constitutional-limit-on-government-agency-power-the-major-questions-doctrine.html

Estate Planning

Other Important Developments in Agricultural Law and Taxation

https://lawprofessors.typepad.com/agriculturallaw/2022/01/other-important-developments-in-agricultural-law-and-taxation.html

Other Important Developments in Agricultural Law and Taxation (Part 2)

https://lawprofessors.typepad.com/agriculturallaw/2022/01/other-important-developments-in-agricultural-law-and-taxation-part-2.html

The “Almost Top Ten” (Part 4) – Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-ten-part-4-tax-developments.html

The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]

https://lawprofessors.typepad.com/agriculturallaw/2022/02/the-almost-top-10-of-2021-part-7-medicaid-recovery-and-tax-deadlines.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/02/tax-consequences-when-farmland-is-partitioned-and-sold.html

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

https://lawprofessors.typepad.com/agriculturallaw/2022/03/summer-2022-farm-income-taxestate-and-business-planning-conferences.html

Should An IDGT Be Part of Your Estate Plan?

https://lawprofessors.typepad.com/agriculturallaw/2022/03/should-an-idgt-be-part-of-your-estate-plan.html

Farm Wealth Transfer and Business Succession – The GRAT

https://lawprofessors.typepad.com/agriculturallaw/2022/03/farm-wealth-transfer-and-business-succession-the-grat.html

Family Settlement Agreement – Is it a Good Idea?

https://lawprofessors.typepad.com/agriculturallaw/2022/03/family-settlement-agreement-is-it-a-good-idea.html

Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

https://lawprofessors.typepad.com/agriculturallaw/2022/03/registration-open-for-summer-2022-farm-income-taxestate-and-business-planning-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/04/pork-production-regulations-fake-meat-and-tax-proposals-on-the-road-to-nowhere.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/04/proposed-estate-tax-rules-would-protect-against-decrease-in-estate-tax-exemption.html

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

https://lawprofessors.typepad.com/agriculturallaw/2022/05/summer-2022-farm-income-taxestate-and-business-planning-conferences.html

Ag Law (and Medicaid Planning) Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2022/05/ag-law-and-medicaid-planning-court-developments-of-interest.html

Joint Tenancy and Income Tax Basis At Death

https://lawprofessors.typepad.com/agriculturallaw/2022/05/joint-tenancy-and-income-tax-basis-at-death.html

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)

https://lawprofessors.typepad.com/agriculturallaw/2022/07/farmranch-tax-estate-and-business-planning-conference-august-1-2-durango-colorado-and-online.html

IRS Modifies Portability Election Rule

https://lawprofessors.typepad.com/agriculturallaw/2022/07/irs-modifies-portability-election-rule.html

Income Tax

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 10 and 9

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-10-and-9.html

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-8-and-7.html

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-2-and-1.html

The “Almost Top Ten” (Part 4) – Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-ten-part-4-tax-developments.html

The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]

https://lawprofessors.typepad.com/agriculturallaw/2022/02/the-almost-top-10-of-2021-part-7-medicaid-recovery-and-tax-deadlines.html

Purchase and Sale Allocations Involving CRP Contracts

https://lawprofessors.typepad.com/agriculturallaw/2022/02/purchase-and-sale-allocations-involving-crp-contracts.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2022/02/whats-the-character-of-the-gain-from-the-sale-of-farm-or-ranch-land.html

Proper Tax Reporting of Breeding Fees for Farmers

https://lawprofessors.typepad.com/agriculturallaw/2022/02/proper-tax-reporting-of-breeding-fees-for-farmers.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/02/tax-consequences-when-farmland-is-partitioned-and-sold.html

Expense Method Depreciation and Leasing- A Potential Trap

https://lawprofessors.typepad.com/agriculturallaw/2022/02/expense-method-depreciation-and-leasing-a-potential-trap.html

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

https://lawprofessors.typepad.com/agriculturallaw/2022/03/summer-2022-farm-income-taxestate-and-business-planning-conferences.html

income Tax Deferral of Crop Insurance Proceeds

https://lawprofessors.typepad.com/agriculturallaw/2022/03/income-tax-deferral-of-crop-insurance-proceeds.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/03/registration-open-for-summer-2022-farm-income-taxestate-and-business-planning-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/04/pork-production-regulations-fake-meat-and-tax-proposals-on-the-road-to-nowhere.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/04/irs-audit-issue-s-corporation-reasonable-compensation.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/05/summer-2022-farm-income-taxestate-and-business-planning-conferences.html

Joint Tenancy and Income Tax Basis At Death

https://lawprofessors.typepad.com/agriculturallaw/2022/05/joint-tenancy-and-income-tax-basis-at-death.html

Tax Court Caselaw Update

https://lawprofessors.typepad.com/agriculturallaw/2022/05/tax-court-caselaw-update.html

Deducting Soil and Water Conservation Expenses

https://lawprofessors.typepad.com/agriculturallaw/2022/05/deducting-soil-and-water-conservation-expenses.html

Correcting Depreciation Errors (Including Bonus Elections and Computations)

https://lawprofessors.typepad.com/agriculturallaw/2022/05/correcting-depreciation-errors-including-bonus-elections-and-computations.html

When Can Business Deductions First Be Claimed?

https://lawprofessors.typepad.com/agriculturallaw/2022/05/when-can-business-deductions-first-be-claimed.html

Recent Court Decisions Involving Taxes and Real Estate

https://lawprofessors.typepad.com/agriculturallaw/2022/05/recent-court-decisions-involving-taxes-and-real-estate.html

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

https://lawprofessors.typepad.com/agriculturallaw/2022/06/wisconsin-seminar-anderp-not-wyatt-and-elrp.html

Tax Issues with Customer Loyalty Reward Programs

https://lawprofessors.typepad.com/agriculturallaw/2022/06/tax-issues-with-customer-loyalty-reward-programs.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-two-divisive-reorganization-alternative.html

Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)

https://lawprofessors.typepad.com/agriculturallaw/2022/07/farmranch-tax-estate-and-business-planning-conference-august-1-2-durango-colorado-and-online.html

What is the Character of Land Sale Gain?

https://lawprofessors.typepad.com/agriculturallaw/2022/07/what-is-the-character-of-land-sale-gain.html

Deductible Start-Up Costs and Web-Based Businesses

https://lawprofessors.typepad.com/agriculturallaw/2022/07/deductible-start-up-costs-and-web-based-businesses.html

Using Farm Income Averaging to Deal with Economic Uncertainty and Resulting Income Fluctuations

https://lawprofessors.typepad.com/agriculturallaw/2022/07/using-farm-income-averaging-to-deal-with-economic-uncertainty-and-resulting-income-fluctuations.html

Tax Deal Struck? – and Recent Ag-Related Cases

https://lawprofessors.typepad.com/agriculturallaw/2022/07/tax-deal-struck-and-recent-ag-related-cases.html

Insurance

Tax Deal Struck? – and Recent Ag-Related Cases

https://lawprofessors.typepad.com/agriculturallaw/2022/07/tax-deal-struck-and-recent-ag-related-cases.html

Real Property

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-4-and-3.html

Ag Law and Tax Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html

What to Consider Before Buying Farmland

https://lawprofessors.typepad.com/agriculturallaw/2022/02/what-to-consider-before-buying-farmland.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/03/animal-ag-facilities-and-the-constitution.html

Recent Court Decisions Involving Taxes and Real Estate

https://lawprofessors.typepad.com/agriculturallaw/2022/05/recent-court-decisions-involving-taxes-and-real-estate.html

Recent Court Cases of Importance to Agricultural Producers and Rural Landowners

https://lawprofessors.typepad.com/agriculturallaw/2022/06/recent-court-cases-of-importance-to-agricultural-producers-and-rural-landowners.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/06/ag-law-related-updates-dog-food-scam-oil-and-gas-issues.html

Tax Deal Struck? – and Recent Ag-Related Cases

https://lawprofessors.typepad.com/agriculturallaw/2022/07/tax-deal-struck-and-recent-ag-related-cases.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/03/animal-ag-facilities-and-the-constitution.html

Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere

https://lawprofessors.typepad.com/agriculturallaw/2022/04/pork-production-regulations-fake-meat-and-tax-proposals-on-the-road-to-nowhere.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/05/ag-law-and-medicaid-planning-court-developments-of-interest.html

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

https://lawprofessors.typepad.com/agriculturallaw/2022/06/wisconsin-seminar-anderp-not-wyatt-and-elrp.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/06/ag-law-related-updates-dog-food-scam-oil-and-gas-issues.html

Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine

https://lawprofessors.typepad.com/agriculturallaw/2022/07/constitutional-limit-on-government-agency-power-the-major-questions-doctrine.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-6-and-5.html

Water Law

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3

https://lawprofessors.typepad.com/agriculturallaw/2022/01/top-ten-agricultural-law-and-tax-developments-of-2021-numbers-4-and-3.html

Durango Conference and Recent Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/07/durango-conference-and-recent-developments-in-the-courts.html

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)

Monday, July 11, 2022

Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine

Overview

In late June, the U.S. Supreme Court issued an opinion in a case involving the Environmental Protection Agency’s (EPA’s) regulatory authority under the Clean Air Act (CAA).  The Court, as it has in several recent cases, invoked the “major question” doctrine to pair back unelected bureaucratic agency authority and return policy-making power to citizens through their elected representatives. 

The Court’s decision is important to agriculture.  Many government agencies regulate agricultural activities.  When federal regulations amount to setting nationwide policy and when state regulations do the same at the state level, the regulatory bodies may be successfully challenged in court. 

The scope of government agency regulatory authority – it’s the topic of today’s post. 

Background

Government regulation.  A significant amount of governmental regulation of economic activity is conducted by and through administrative agencies that promulgate regulations and make decisions.  This is particularly true concerning the regulation of agricultural activities.  This form of regulation occurs outside both the legislatures and the courts, where most of conventional lawmaking occurs.  Consequently, with much of administrative law, the administrative agency that writes the regulation at issue serves as judge and jury over disputed matters involving those same regulations via the administrative review process – a process that must reach a final determination before judicial review is available.  This raises fundamental questions of fairness.  In exercising their rule-making power, agencies of government cannot go beyond the authority provided by the legislative body.  This is the precise point that the U.S. Supreme Court recently dealt with.

At the federal level, the Congress enacts basic enabling legislation, but leaves the particular administrative agency (such as the USDA, EPA or FDA, for example) to implement and administer congressionally created programs.  As a result, the enabling legislation tends to be vague with the administrative agencies (such as the USDA) needing to fill in the specific provisions by promulgating regulations.  The procedures that administrative agencies must follow in promulgating rules and regulations, and the rights of individuals affected by administrative agency decisions are specified in the Administrative Procedures Act (APA). 5 U.S.C. §§ 500 et seq. (2008).  The APA constitutes the operative law for many of the relationships between farmers and ranchers and the government.

Standard of review and deference.  Courts generally consider only whether the administrative agency acted rationally and within its statutory authority.  Consequently, a particular farmer or rancher bears the burden of insuring that the record is adequate for the appeal of the issues involved before the matter leaves the administrative process.  Otherwise, an appeal of an administrative agency's decision must be based solely on arguments that the agency acted arbitrarily, capriciously, beyond legal authority or that it abused its discretion.  Prevailing in court on this type of a claim can be quite difficult. However, in Christensen v. Harris County, 529 U.S. 576 (2000), the U.S. Supreme Court ruled that statutory interpretations made by governmental agencies in pronouncements that do not have the force of law, such as opinion letters, policy statements, agency manuals, and enforcement guidelines, are not entitled to such great deference.  This is a significant case for the agricultural sector because the USDA often interpretates the laws they administer in formats that do not have the force of law.

Similarly, in another case the court noted than an agency is not entitled to deference simply because it is a governmental agency.  Meister v. United States Department of Agriculture, 623 F.3d 363 (6th Cir. 2010). involved a claim that the U.S. Forest Service had failed to comply with its own regulations and a federal statute in developing its 2006 management plan for national forests in northern Michigan.  The court specifically noted that agency deference was not automatic.  Instead, the agency must apply the relevant statutory and regulatory authority.

The “major questions” doctrine.  In several decisions, the U.S. Supreme Court has held that if a government agency is, in essence, setting national policy via regulation, the “arbitrary and capricious” level of deference normally accorded to the agency under the rule of Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), will not apply.  Instead, the agency’s action must be supported by clear statutory authorization from the Congress.  See Utility Air Regulatory Group v. Environmental Protection Agency, 573 U.S. 302 (2014).  This is known as the “major questions” doctrine.  It’s a doctrine that has been around for about 30 years and has been utilized in numerous cases involving the Federal Communication Commission, the Food and Drug Administration, the IRS, the Centers for Disease Control, the Occupational Safety and Health Administration, the conduct of the U.S. Attorney General as well as the EPA.  Each case involves the Court determining that agency action involves a matter significant enough on a national scale for the Court to invoke the doctrine, either on the basis that the Congress had not given the agency the authority to regulate the particular matter at issue, or because the agency’s interpretation was unreasonable due to lack of clear authority from the Congress.

Recent U.S. Supreme Court Opinion

In West Virginia, et al. v. Environmental Protection Agency, et al., No. 20-1530, 2022 U.S. LEXIS 3268 (U.S. Jun. 30, 2022), the U.S. Supreme Court was asked to review the EPA’s authority to regulate greenhouse gas emissions from existing power plants under the CAA. The case arose from the EPA’s regulatory development of the Clean Power Plan (CPP) in 2015 which, in turn, stemmed from then-President Obama’s 2008 promise to establish policy that would bankrupt the coal industry.  The EPA claimed it had authority to regulate CO2 emissions from coal and natural-gas-fired power plants under Section 111 of the CAA.  Under that provision, the EPA determines emission limits.  But EPA took the position that Section 111 empowered it to shift energy generation at the plants to “renewable” energy sources such as wind and solar.  Under the CPP, existing power plants could meet the emission limits by either reducing electricity production or by shifting to “cleaner” sources of electricity generation.  The EPA admitted that no existing coal plant could satisfy the new emission standards without a wholesale movement away from coal, and that the CPP would impose billions in compliance costs, raise retail electricity prices, require the retirement of dozens of coal plants and eliminate tens of thousands of jobs.  In other words, the CPP would keep President Obama’s 2008 promise by bypassing the Congress through the utilization of regulatory rules set by unelected, unaccountable bureaucrats. 

The U.S. Supreme Court stayed the CPP in 2016 preventing it from taking effect.  The EPA under the Trump Administration repealed the CPP on the basis that the Congress had not clearly delegated regulatory authority “of this breadth to regulate a fundamental sector of the economy.”  The EPA then replaced the CPP with the Affordable Clean Energy (ACE) rule.  Under the ACE rule, the focus was on regulating power plant equipment to require upgrades when necessary to improve operating practices.  Numerous states and private parties challenged the EPA’s replacement of the CPP with the ACE.  The D.C. Circuit Court vacated the EPA’s repeal of the CPP, finding that the CPP was within the EPA’s purview under Section 7411 of the CAA – the part of the CAA that sets standards of performance for new sources of air pollution.  American Lung Association v. Environmental Protection Agency, 985 F.3d 914 (D.C. Cir. 2021).  The Circuit Court also vacated the ACE and purported to resurrect the CPP.  In the fall of 2021, the U.S. Supreme Court agreed to hear the case.

The Supreme Court reversed, framing the issue as whether the EPA had the regulatory authority under Section 111 of the CAA to restructure the mix of electricity generation in the U.S. to transition from 38 percent coal to 27 percent coal by 2030.  The Supreme Court said EPA did not, noting that the case presented one of those “major questions” because under the CPP the EPA would tremendously expand its regulatory authority by enacting a regulatory program that the Congress had declined to enact.  While the EPA could establish emission limits, the Supreme Court held that the EPA could not force a shift in the power grid from one type of energy source to another.  The Supreme Court noted that the EPA admitted that did not have technical expertise in electricity transmission, distribution or storage.  Simply put, the Supreme Court said that devising the “best system of emission reduction” was not within EPA’s regulatory power. 

Conclusion

Clearly, the Congress did not delegate administrative agencies the authority to establish energy policy for the entire country.  While the Supreme Court has never precisely defined the boundaries and scope of the major question doctrine, when the regulation is more in line with what should be legislative policymaking, it will be struck down.  The Supreme Court’s decision is also broad enough to have long-lasting consequences for rulemaking by all federal agencies including the USDA/FSA.  The decision could also impact the Treasury Department’s promulgation of tax regulations. 

The Supreme Court’s decision returns power to the Congress that it has ceded over the years to administrative agencies and the Executive branch concerning matters of “vast economic and political significance.”  But, it’s also likely that the Executive branch and the unelected bureaucrats of the administrative state will likely attempt to push the envelope and force the courts to push back.  It’s rare that the Executive branch and administrative agencies voluntarily return power to elected representatives as was done in numerous instances from 2017 through 2020. 

July 11, 2022 in Environmental Law, Regulatory 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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/04/whats-an-asset-for-purposes-of-a-debtors-insolvency-computation.html

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)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)

https://lawprofessors.typepad.com/agriculturallaw/2021/10/farm-bankruptcy-stripping-claw-back-and-the-tax-collecting-authorities-update.html

BUSINESS PLANNING

For Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

Agricultural Law Online!

https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html

Recent Happenings in Ag Law and Ag Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/01/recent-happenings-in-ag-law-and-ag-tax.html

C Corporate Tax Planning; Management Fees and Reasonable Compensation – A Roadmap of What Not to Do

https://lawprofessors.typepad.com/agriculturallaw/2021/02/c-corporate-tax-planning-management-fees-and-reasonable-compensation-a-roadmap-of-what-not-to-do.html

Will the Estate Tax Valuation Regulations Return?

https://lawprofessors.typepad.com/agriculturallaw/2021/02/will-the-estate-tax-valuation-regulations-return.html

June National Farm Tax and Estate/Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2021/03/june-national-farm-tax-and-estatebusiness-planning-conference.html

August National Farm Tax and Estate/Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2021/03/august-national-farm-tax-and-estatebusiness-planning-conference.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/05/planning-for-changes-to-the-federal-estate-and-gift-tax-system.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

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-mis-step-act-what-it-means-to-your-estate-and-income-tax-plan.html

Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance

https://lawprofessors.typepad.com/agriculturallaw/2021/05/intergenerational-transfer-of-family-businesses-with-split-dollar-life-insurance.html

Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?

https://lawprofessors.typepad.com/agriculturallaw/2021/05/ohio-conference-june-7-8-ag-economics-whats-going-on-in-the-ag-economy.html

Montana Conference and Ag Law Summit (Nebraska)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/08/the-illiquidity-problem-of-farm-and-ranch-estates.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-entity-interests-part-two.html

Gifting Pre-Death (Partnership Interests) – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-pre-death-partnership-interests-part-three.html

The Future of Ag Tax Policy – Where Is It Headed?

https://lawprofessors.typepad.com/agriculturallaw/2021/09/the-future-of-ag-tax-policy-where-is-it-headed.html

Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud

https://lawprofessors.typepad.com/agriculturallaw/2021/09/estate-planning-to-protect-assets-from-creditors-dancing-on-the-line-between-legitimacy-and-fraud.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/10/corporate-owned-life-insurance-impact-on-corporate-value-and-shareholders-estate-.html

Caselaw Update

https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html

S Corporations – Reasonable Compensation; Non-Wage Distributions and a Legislative Proposal

https://lawprofessors.typepad.com/agriculturallaw/2021/10/s-corporations-reasonable-compensation-non-wage-distributions-and-a-legislative-proposal.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020-part-three.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-tax-developments-of-2020-part-three.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/03/damaged-andor-destroyed-trees-and-crops-how-is-the-loss-measured.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/12/statutory-immunity-from-liability-associated-with-horse-related-activities.html

CONTRACTS

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020-part-three.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

Agricultural Law Online!

https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html

Deed Reformation – Correcting Mistakes After the Fact

https://lawprofessors.typepad.com/agriculturallaw/2021/05/deed-reformation-correcting-mistakes-after-the-fact.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/12/the-potential-peril-associated-with-deferred-payment-contracts.html

COOPERATIVES

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

Final Ag/Horticultural Cooperative QBI Regulations Issued

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/09/estate-planning-to-protect-assets-from-creditors-dancing-on-the-line-between-legitimacy-and-fraud.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

Agricultural Law Online!

https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html

Recent Happenings in Ag Law and Ag Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/01/recent-happenings-in-ag-law-and-ag-tax.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

Valuing Ag Real Estate With Environmental Concerns

https://lawprofessors.typepad.com/agriculturallaw/2021/05/federal-estate-tax-value-of-ag-real-estate-with-environmental-concerns.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/06/no-expansion-of-public-trust-doctrine-in-iowa-big-implications-for-agriculture.html

Key “Takings” Decision from SCOTUS Involving Ag Businesses

https://lawprofessors.typepad.com/agriculturallaw/2021/06/key-takings-decision-from-scotus-involving-ag-businesses.html

Montana Conference and Ag Law Summit (Nebraska)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/07/navigable-waters-protection-rule-whats-going-on-with-wotus.html

ESTATE PLANNING

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020-part-two.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/02/will-the-estate-tax-valuation-regulations-return.html

June National Farm and Tax and Estate/Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2021/03/june-national-farm-tax-and-estatebusiness-planning-conference.html

August National Farm Tax and Estate/Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2021/03/august-national-farm-tax-and-estatebusiness-planning-conference.html

Farmland in an Estate – Special Use Valuation and the 25 Percent Test

https://lawprofessors.typepad.com/agriculturallaw/2021/03/farmland-in-an-estate-special-use-valuation-and-the-25-percent-test.html

The Revocable Living Trust – Is it For You?

https://lawprofessors.typepad.com/agriculturallaw/2021/04/the-revocable-living-trust-is-it-for-you.html

Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)

https://lawprofessors.typepad.com/agriculturallaw/2021/04/summer-conferences-nasba-certification-and-some-really-big-estate-planning-issues-including-basis.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

Planning for Changes to the Federal Estate and Gift Tax System

https://lawprofessors.typepad.com/agriculturallaw/2021/05/planning-for-changes-to-the-federal-estate-and-gift-tax-system.html

The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-mis-step-act-what-it-means-to-your-estate-and-income-tax-plan.html

The Revocable Trust – What Happens When the Grantor Dies?

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-revocable-trust-what-happens-when-the-grantor-dies.html

Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance

https://lawprofessors.typepad.com/agriculturallaw/2021/05/intergenerational-transfer-of-family-businesses-with-split-dollar-life-insurance.html

Ohio Conference –June 7-8 (Ag Economics) What’s Going On in the Ag Economy?

https://lawprofessors.typepad.com/agriculturallaw/2021/05/ohio-conference-june-7-8-ag-economics-whats-going-on-in-the-ag-economy.html

Reimbursement Claims in Estates; Drainage District Assessments

https://lawprofessors.typepad.com/agriculturallaw/2021/07/reimbursement-claims-in-estates-drainage-district-assessments.html

Montana Conference and Ag Law Summit (Nebraska)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/08/the-illiquidity-problem-of-farm-and-ranch-estates.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-entity-interests-part-two.html

The Future of Ag Tax Policy – Where Is It Headed?

https://lawprofessors.typepad.com/agriculturallaw/2021/09/the-future-of-ag-tax-policy-where-is-it-headed.html

Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud

https://lawprofessors.typepad.com/agriculturallaw/2021/09/estate-planning-to-protect-assets-from-creditors-dancing-on-the-line-between-legitimacy-and-fraud.html

Tax Happenings – Present Status of Proposed Legislation (and What You Might Do About It)

https://lawprofessors.typepad.com/agriculturallaw/2021/09/tax-happenings-present-status-of-proposed-legislation-and-what-you-might-do-about-it.html

Corporate-Owned Life Insurance – Impact on Corporate Value and Shareholder’s Estate

https://lawprofessors.typepad.com/agriculturallaw/2021/10/corporate-owned-life-insurance-impact-on-corporate-value-and-shareholders-estate-.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/11/selected-tax-provisions-of-house-bill-no-5376-and-economic-implications.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020-part-two.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-ag-tax-developments-of-2020-part-one.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-tax-developments-of-2020-part-four.html

Final Ag/Horticultural Cooperative QBI Regulations Issued

https://lawprofessors.typepad.com/agriculturallaw/2021/01/final-aghorticultural-cooperative-qbi-regulations-issued.html

Agricultural Law Online!

https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html

Recent Happenings in Ag Law and Ag Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/01/recent-happenings-in-ag-law-and-ag-tax.html

Deducting Start-Up Costs – When Does the Business Activity Begin?

https://lawprofessors.typepad.com/agriculturallaw/2021/01/deducting-start-up-costs-when-does-the-business-activity-begin.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/02/c-corporate-tax-planning-management-fees-and-reasonable-compensation-a-roadmap-of-what-not-to-do.html

Where’s the Line Between Start-Up Expenses, the Conduct of a Trade or Business and Profit Motive?

https://lawprofessors.typepad.com/agriculturallaw/2021/02/wheres-the-line-between-start-up-expenses-the-conduct-of-a-trade-or-business-and-profit-motive.html

June National Farm Tax and Estate/Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2021/03/june-national-farm-tax-and-estatebusiness-planning-conference.html

Selling Farm Business Assets – Special Tax Treatment (Part One)

https://lawprofessors.typepad.com/agriculturallaw/2021/03/selling-farm-business-assets-special-tax-treatment-part-one.html

Tax Update Webinar

https://lawprofessors.typepad.com/agriculturallaw/2021/03/tax-update-webinar.html

Selling Farm Business Assets – Special Tax Treatment (Part Two)

https://lawprofessors.typepad.com/agriculturallaw/2021/03/selling-farm-business-assets-special-tax-treatment-part-two.html

Selling Farm Business Assets – Special Tax Treatment (Part Three)

https://lawprofessors.typepad.com/agriculturallaw/2021/03/selling-farm-business-assets-special-tax-treatment-part-three.html

August National Farm Tax and Estate/Business Planning Conference

https://lawprofessors.typepad.com/agriculturallaw/2021/03/august-national-farm-tax-and-estatebusiness-planning-conference.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

C Corporation Compensation Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/03/c-corporation-compensation-issues.html

Tax Considerations When Leasing Farmland

https://lawprofessors.typepad.com/agriculturallaw/2021/04/tax-considerations-when-leasing-farmland.html

Federal Farm Programs and the AGI Computation

https://lawprofessors.typepad.com/agriculturallaw/2021/04/federal-farm-programs-and-the-agi-computation.html

Tax Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2021/04/tax-potpourri.html

What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?

https://lawprofessors.typepad.com/agriculturallaw/2021/04/whats-an-asset-for-purposes-of-a-debtors-insolvency-computation.html

Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)

https://lawprofessors.typepad.com/agriculturallaw/2021/04/summer-conferences-nasba-certification-and-some-really-big-estate-planning-issues-including-basis.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

The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-mis-step-act-what-it-means-to-your-estate-and-income-tax-plan.html

The Revocable Trust – What Happens When the Grantor Dies?

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-revocable-trust-what-happens-when-the-grantor-dies.html

Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?

https://lawprofessors.typepad.com/agriculturallaw/2021/05/ohio-conference-june-7-8-ag-economics-whats-going-on-in-the-ag-economy.html

What’s the “Beef” With Conservation Easements?

https://lawprofessors.typepad.com/agriculturallaw/2021/05/whats-the-beef-with-conservation-easements.html

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)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/07/tax-developments-in-the-courts-the-tax-home-sale-of-the-home-and-gambling-deductions.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/08/livestock-confinement-buildings-and-se-tax.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-pre-death-partnership-interests-part-three.html

The Future of Ag Tax Policy – Where Is It Headed?

https://lawprofessors.typepad.com/agriculturallaw/2021/09/the-future-of-ag-tax-policy-where-is-it-headed.html

Tax Happenings – Present Statute of Proposed Legislation (and What You Might Do About It)

https://lawprofessors.typepad.com/agriculturallaw/2021/09/tax-happenings-present-status-of-proposed-legislation-and-what-you-might-do-about-it.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/09/extended-livestock-replacement-period-applies-in-areas-of-extended-drought-irs-updated-drought-areas.html

Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)

https://lawprofessors.typepad.com/agriculturallaw/2021/10/farm-bankruptcy-stripping-claw-back-and-the-tax-collecting-authorities-update.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/10/s-corporations-reasonable-compensation-non-wage-distributions-and-a-legislative-proposal.html

Tax Reporting of Sale Transactions By Farmers

https://lawprofessors.typepad.com/agriculturallaw/2021/10/tax-reporting-of-sale-transactions-by-farmers.html

The Tax Rules Involving Prepaid Farm Expenses

https://lawprofessors.typepad.com/agriculturallaw/2021/10/the-tax-rules-involving-prepaid-farm-expenses.html

Self Employment Taxation of CRP Rents – Part One

https://lawprofessors.typepad.com/agriculturallaw/2021/11/self-employment-taxation-of-crp-rents-part-one.html

Self-Employment Taxation of CRP Rents – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2021/11/self-employment-taxation-of-crp-rents-part-two.html

Self-Employment Taxation of CRP Rents – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2021/11/self-employment-taxation-of-crp-rents-part-three.html

Recent IRS Guidance, Tax Legislation and Tax Ethics Seminar/Webinar

https://lawprofessors.typepad.com/agriculturallaw/2021/11/recent-irs-guidance-tax-legislation-and-tax-ethics-seminarwebinar.html

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

 https://lawprofessors.typepad.com/agriculturallaw/2021/11/selected-tax-provisions-of-house-bill-no-5376-and-economic-implications.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

https://lawprofessors.typepad.com/agriculturallaw/2021/12/the-potential-peril-associated-with-deferred-payment-contracts.html

Inland Hurricane – 2021 Version; Is There Any Tax Benefit to Demolishing Farm Buildings and Structures?

https://lawprofessors.typepad.com/agriculturallaw/2021/12/inland-hurricane-2021-version-is-there-any-tax-benefit-to-demolishing-farm-buildings-and-structures.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/12/the-home-sale-exclusion-rule-how-does-it-work-when-land-is-also-sold.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/12/livestock-indemnity-payments-what-are-they-what-are-the-tax-reporting-options.html

Commodity Credit Corporation Loans and Elections

https://lawprofessors.typepad.com/agriculturallaw/2021/12/commodity-credit-corporation-loans-and-elections.html

INSURANCE

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020-part-three.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/05/deed-reformation-correcting-mistakes-after-the-fact.html

Valuing Ag Real Estate With Environmental Concerns

https://lawprofessors.typepad.com/agriculturallaw/2021/05/federal-estate-tax-value-of-ag-real-estate-with-environmental-concerns.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)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/12/the-home-sale-exclusion-rule-how-does-it-work-when-land-is-also-sold.html

REGULATORY LAW

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-almost-top-ten-ag-law-and-ag-tax-developments-of-2020-part-two.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-ag-tax-developments-of-2020-part-one.html

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-tax-developments-of-2020-part-two.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-tax-developments-of-2020-part-four.html

Agricultural Law Online!

https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html

Recent Happenings in Ag Law and Ag Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/01/recent-happenings-in-ag-law-and-ag-tax.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/02/packers-and-stockyards-act-amended-additional-protection-for-unpaid-cash-sellers-of-livestock.html

Federal Farm Programs and the AGI Computation

https://lawprofessors.typepad.com/agriculturallaw/2021/04/federal-farm-programs-and-the-agi-computation.html

Regulation of Agriculture – Food Products, Slaughterhouse Line Speeds and CAFOS

https://lawprofessors.typepad.com/agriculturallaw/2021/04/regulation-of-agriculture-food-products-slaughterhouse-line-speeds-and-cafos.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/06/the-flsa-and-ags-exemption-from-paying-overtime-wages.html

The “Dormant” Commerce Clause and Agriculture

https://lawprofessors.typepad.com/agriculturallaw/2021/06/the-dormant-commerce-clause-and-agriculture.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/06/no-expansion-of-public-trust-doctrine-in-iowa-big-implications-for-agriculture.html

Key “Takings Decision from SCOTUS Involving Ag Businesses

https://lawprofessors.typepad.com/agriculturallaw/2021/06/key-takings-decision-from-scotus-involving-ag-businesses.html

Reimbursement Claims in Estates; Drainage District Assessments

https://lawprofessors.typepad.com/agriculturallaw/2021/07/reimbursement-claims-in-estates-drainage-district-assessments.html

Mailboxes and Farm Equipment

https://lawprofessors.typepad.com/agriculturallaw/2021/07/mailboxes-and-farm-equipment.html

Montana Conference and Ag Law Summit (Nebraska)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

California’s Regulation of U.S. Agriculture

https://lawprofessors.typepad.com/agriculturallaw/2021/08/californias-regulation-of-us-agriculture.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/08/checkoffs-and-government-speech-the-merry-go-round-revolves-again.html

Is There a Constitutional Way To Protect Animal Ag Facilities

https://lawprofessors.typepad.com/agriculturallaw/2021/08/is-there-a-constitutional-way-to-protect-animal-ag-facilities.html

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?

https://lawprofessors.typepad.com/agriculturallaw/2021/12/livestock-indemnity-payments-what-are-they-what-are-the-tax-reporting-options.html

SECURED TRANSACTIONS

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

Agricultural Law Online!

https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html

Cross-Collateralization Clauses – Tough Lessons For Lenders

https://lawprofessors.typepad.com/agriculturallaw/2021/03/cross-collateralization-clauses-tough-lessons-for-lenders.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/12/the-potential-peril-associated-with-deferred-payment-contracts.html

WATER LAW

Continuing Education Events and Summer Conferences

https://lawprofessors.typepad.com/agriculturallaw/2021/01/continuing-education-events-and-summer-conferences.html

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

https://lawprofessors.typepad.com/agriculturallaw/2021/01/the-top-ten-agricultural-law-and-tax-developments-of-2020-part-three.html

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)

https://lawprofessors.typepad.com/agriculturallaw/2021/07/montana-conference-and-ag-law-summit-nebraska.html

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)

Saturday, April 9, 2022

Farm Economic Issues and Implications

Overview

A firm understanding of the economic context within which the farmers and ranchers operate is necessary for both tax planning and financial planning.  The creation and dissolution of legal entities, the restructuring of debt, and the use of various legal devices for the protection of assets from creditors and preserving inheritances cannot successfully be accomplished without knowledge of agriculture that transcends the applicable legal rules. 

Crop production, energy issues, monetary policy, issues in the meat sector and unanticipated outside shocks have farm-level impacts that professional advisors and counselors need to account for when representing farm and ranch clients.

Current economic issues impacting ag – it’s the topic of today’s post.

Projected Plantings (and Implications)

On March 31, the USDA released its “prospective plantings” report for the 2022 crops. https://www.nass.usda.gov/Publications/Todays_Reports/reports/pspl0322.pdf  The report projects farmers planting 91 million acres of soybeans and 89.5 million acres of corn.  The corn planting number is down 4 percent from last year, and is the lowest acreage estimate over the last five years.  The soybean projection is up four percent from 2021.  Total planted acres are projected to remain about the same as 2021.

Note:  The shift from corn acres to soybean acres was very predictable.  Farmers have calculators and can run the numbers with higher input costs (such as fertilizer).  Corn, as compared to soybeans, requires a greater amount of inputs which have risen in price substantially. 

Projected wheat planted acres is up one percent from 2021, but still is projected to be the fifth lowest total wheat planted acres since 1919.  Grain sorghum is projected to be down 15 percent (1.4 million acres) from 2021, with significant declines projected in Kansas and Texas.  Conversely, barley and sunflower planted acres is projected to increase 11 percent and 10 percent respectively from 2021.  With respect to sunflowers, however, the 2022 projection is still the fifth lowest planted area on record.  Cotton acreage is projected to be up about 800,000 acres.

Implication:  The projected planting numbers indicate that higher protein prices can be expected in the future.

Global Crops

The Russian war with Ukraine will have impacts on global grain trade and create additional issues for U.S. farmers and ranchers.  Russia and Ukraine are leading exporters of food grains.  But, Ukraine ports are closed and Russian imports are being avoided causing rising food prices. In the U.S., the rise is in addition to existing inflationary price increases for most good products.  Russia and Ukraine produce 19 percent of the world’s barley; 14 percent of the world’s wheat; and four percent of the world’s maize.  They also produce 29 percent of total world wheat exports and 19 percent of total world corn exports.  Those numbers are particularly important to countries that depend on imported grain from Russia and Ukraine, with a major issue being the loss of corn exports from Ukraine. 

Note:  U.S. corn exports are projected to rise, but U.S. wheat exports are not.

If the war triggers a global food crisis, the least developed countries that are also likely to be low-income or food-deficit countries are the most vulnerable to food shortages.  This would create a surge in malnutrition in these countries.  Presently, 50 countries rely on Russia and Ukraine for 30 percent of their wheat supply (combined), and 26 countries source at least 50 percent of their wheat needs from Russia/Ukraine.  Egypt and Turkey get over 70 percent of their wheat from Russia/Ukraine.  Russia supplies 90 percent of Lebanon’s wheat and cooking oil.  Grain shortages will hit the poorer African countries particularly hard.  These countries rely on imported bread to feed their expanding populations.  As a whole, in 2020, the  continent of Africa imported $4 billion worth of ag products from Russia (which supplied the majority of the continent’s wheat consumption. 

This combined data indicates an escalation of global food insecurity.  One estimate is that worldwide food and feed prices could rise by 22 percent which could, in turn, cause a surge in malnutrition in developing nations.  Since the war started, total world food output has decreased, resulting in a sharp drop in food exports from exporting countries.  Other food exporting countries have announced new limitations on food exports (or are exploring bans) to preserve domestic supplies.  This will have an impact on international grain markets and will likely have serious implications for the world’s wheat supply.  The extent of such disruptions is unknown at the present time. 

Note:  Russia is also a major fertilizer exporter, supplying 21 percent of world anhydrous exports, 16 percent of world urea exports and 19 percent of world potash exports.  Combined, Russia and Belarus provide 40 percent or world potash exports.  The Russia/Ukraine war will likely have long term impacts on fertilizer prices in the U.S. and elsewhere.  This will have impact crop planting decisions by farmers. 

Energy Policy

Incomprehensible energy policy in the U.S. since late January of 2021 and in Europe have been a financial boon to Russia.  The policy, largely couched in terms of ameliorating “climate change,” has resulted in the U.S. from being energy independent to begging foreign countries to produce more.  The restriction in U.S. production and distribution of oil has occurred at a time of increasing demand coming out of state government mandated shutdowns as a result of the China-originated virus.  The resulting higher energy prices have caused the prices of many products and commodities to increase. 

Monetary Policy

The U.S. economy is incurring the highest inflation in 40 years.  While the employment numbers are improving coming out of virus-related shutdowns, the labor force participation rate is not.  A higher rate of employment coupled with a decrease in the labor force participation rate may mean that workers are taking on multiple (lower paying) jobs in an attempt to stay even with inflation. 

The last time the government attempted to dig itself out of a severe inflationary situation the Federal Reserve raised interest rates substantially to “wring inflation out of the economy.”  The result for agriculture was traumatic, bringing on the farm debt crisis of the 1980s.  The current situation is similar with the Federal Reserve having backed itself into a corner with prolonged, historic low interest rates coupled with an outrageous increase in the money supply caused by massive government spending.  If the Federal Reserve attempts to get out of the corner by just raising interest rates, the end result will likely not be good.  The money supply must be reduced, or worker productivity gains must be substantial.  Higher interest rates are a means to reducing the money supply. 

Meat Sector

In the meat sector, the demand for beef remains strong.  Beef exports are steadily growing.  The current major issue in the sector is the disconnect between beef demand and the beef producer.  Currently, the large meat packers are enjoying record-wide margins.  Cattle producers are being signaled to decrease herd sizes because of the disconnect.  Legislation is being considered in the Congress with the intent of providing more robust and transparent marketing of live cattle.

On the pork side, demand is not as impressive but is improving.

For poultry, demand remains strong and flock sizes are decreasing largely because of the presence of Avian Flu. 

Some states have enacted labeling laws designed to protect meat consumers from deceptive and misleading advertising of “fake meat” products.  The Louisiana law has been held unconstitutional on free speech grounds. Turtle Island Foods SPC v. Strain, No. 20-00674-BAJ-EWD, 2022 U.S. Dist. LEXIS 56208 (M.D. La. Mar. 28, 2022).  Much of the advertising of “fake meat” products is couched not in terms of health benefits, but on reducing/eliminating “climate change.”  Government mandates have been imposed for the sake of “climate change” – a certain amount of ethanol blend in fuel; a certain amount of “renewable” energy to generate electricity, etc.). Could that also happen to the meat industry, but in a negative way?  A concern for the meat industry is whether the government will try to mandate that a certain percentage of meat cuts in a meat case consist of “fake meat” products based on a claim that doing so would further the “save the planet” effort. 

Water Issues

West of the Sixth Principal Meridian, access to water is critical for the success of many farming and ranching operations.  A dispute is brewing between Colorado and Nebraska over water in northeast Colorado that Nebraska lays claim to under a Compact entered into almost 100 years ago.  In the fertile Northeastern Colorado area, the State Engineer has shut-in almost 4,000 wells over the past two decades to maintain streamflow and satisfy downstream priority claims.  A similar number of wells have had their pumping rights limited in some way.  While this is a very diverse agricultural-rich area, water is essential to maintain production.  Given the rapid urban development in this area, the need for water for new subdivisions along the front range will trigger major political ramifications if there are any further reductions in agriculture’s water usage. 

The economic impact of water issues in Northeastern Colorado is already being felt.   The Colorado-Big Thompson Project collects, stores and delivers more than 200,000 acre-feet of supplemental water annually. Melting snowpack in the Colorado River headwaters on the West Slope is diverted through a tunnel beneath the Continental Divide to approximately 1,021,000 million residents and 615,000 acres of irrigated farmland in Northeastern Colorado. A unit (acre-foot) of Colorado Big Thompson water storage is presently selling for approximately $65,000.  Fifteen years ago, it was priced in the $6,000 range.  All other water shares are priced accordingly.  This dramatic increase in price has implications for the structure of farming operations, succession planning and estate valuation. 

Water access and availability will continue to be key to profitability of farms and ranches in the Plains and the West.

Tax Policy

In late March, the White House release its proposed 2023 fiscal year budget (October 1, 2022 – September 30, 2023).  At the same time, the Treasury release its “Greenbook” explanation of the tax provisions contained in the budget proposal.  Many of the proposals are the same as or similar to those included in bills in 2021 that failed to become law. 

Here’s a brief list of some of the proposals:

  • Top individual rate to 39.6 percent on income over $400,000 ($450,000 for married couples;
  • Corporate rate goes to 28 percent (87 percent increase on many farm corporations);
  • Raise capital gain rate to 39.6 percent on income over $1 million;
  • Capital gain tax on any transfer of appreciated property either during life or at death;
  • Partial elimination of stepped-up basis – if to spouse, then carryover; transfer of appreciated property to CRAT would be taxable;
  • Trust assets must be “marked-to-market” every 90 years beginning with any new trust after 1940. The rule would be the same for partnerships or any other non-corporate owned entity.  In addition, no valuation discount for partial interests, and a transfer from a trust would be a taxable event.  Exclusion of $1 million/person would apply.  Any tax on illiquid assets could be paid over 15 years or the taxpayer could elect to pay the tax when the property is sold or is no longer used as a farm (in that event, there would be no 15-year option);
  • All farm income (including self-rents) would be subject to the net investment income tax of 3.8 percent;
  • A minimum tax would apply to those with a net worth over $100 million;
  • Grantor-Retained Annuity Trusts (GRATs) must have minimum term of 10 years. This would essentially eliminate the use of a “zeroed-out” GRAT;
  • Any sale to a grantor trust is taxable and any payment of tax of the trust is a taxable gift;
  • Limitation on valuation discounts (related party rules);
  • R.C. §2032A maximum reduction would increase to $11.7 million
  • Trust reporting of assets would be required if the trust corpus is over $300,000 (or $10,000 of income);
  • Elimination of dynasty trusts;
  • Carried interest income would become ordinary income;
  • R.C. §1031 exchange tax deferral would be limited to $1 million;
  • Depreciation recapture would be triggered on the sale of real estate, which would eliminate the maximum 25% rate.

Note:  The provisions have little to no chance of becoming law, but if some or all were to become law, there would be significant implications for farm and ranch businesses.  Many of those implications would be negative for farming and ranching operations.

Conclusion

Farmland values remain strong.  Indeed, input, machinery costs and land values are outpacing inflation.  For those farmers that were able to pre-pay input expenses in 2021 for 2022 crops, the perhaps much of the price increase of inputs will be blunted until another round of inputs are needed in late 2022 for the 2023 crop.  Also, short-term loans were locked in before interest rates began rising.  That story will also likely be different in early 2023 when those loans are redone. 

The biggest risks to agriculture will continue to be from outside the sector.  Unexpected catastrophic events such as the Russian war with Ukraine, whether (or when) China will invade Taiwan, domestic monetary and fiscal policy, political developments at home and abroad, and regulation of agricultural activities remain the biggest unknown variables to the profitability of farming and ranching operations and agribusinesses. 

An awareness of the economic atmosphere in which farmers and ranchers operate is important to understand for practitioners to provide fully competent advice and counsel with respect to income tax, estate, business and succession planning for farmers and ranchers.

April 9, 2022 in Business Planning, Environmental Law, Estate Planning, Income Tax, Regulatory Law | Permalink | Comments (0)

Wednesday, February 9, 2022

Ag Law and Tax Potpourri

Overview

I haven’t done a “potpourri” topic for a couple of months, so it is time for one.  There are always interesting developments happening in the courts and with the IRS.  Today’s edition of the “potpourri” is no different.

Recent miscellaneous developments in the courts and with the IRS – it’s the topic of today’s post.

No WOTC For “Weed” Business 

C.C.A. 202205024 (Nov. 30, 2021)

The taxpayer is a business that is engaged in the trade or business of trafficking marijuana.  Under federal law, marijuana is a Schedule I controlled substance under the Controlled Substances Act.  The taxpayer hires and pays wages to employees from one or more targeted groups provided under I.R.C. §51, and is otherwise eligible for the Work Opportunity Tax Credit (WOTC).  The IRS noted that I.R.C. §280E bars a deduction or credit for a business that traffics in controlled substances as defined by state or federal law.  Thus, the taxpayer was not eligible for any WOTC attributable to wages paid or incurred in carrying on a business of trafficking in marijuana. 

Note:  The IRS position is correct, based on the statute.  But, the discrepancy between federal law and the law of some states creates confusion and inconsistency.

IRS Email Approval of Supervisor Penalty Approval

C.C.A. 202204008 (Sept. 13, 2021)

Under I.R.C. §6751(b)(1), when an IRS agent makes an initial determination to assess penalties against a taxpayer, the agent must obtain “written supervisory approval” before informing the taxpayer of the penalties via a “30-day” letter.  Here, the IRS agent received written supervisory approval of the penalty recommendation via an email from his supervisor before issuing the 30-day letter to the taxpayer. The taxpayer sought to have the IRS remove the tax lien securing penalties imposed for his failure to furnish information on reportable transactions on the basis that IRS had failed to comply with I.R.C. §6751.  The taxpayer claimed that such failure made the penalties invalid and required the lien to be released.  The IRS Chief Counsel’s Office disagreed, finding that the IRS had complied with I.R.C. §6751.  The Chief Counsel’s Office noted that the U.S. Tax Court has held that compliance with the supervisory approval requirement doesn’t require written supervisory approval to be given on a specific form and that an email satisfied the statute, if not the Internal Revenue Manual. 

Low Soil Quality Doesn’t Reduce Assessment Value 

Reichert v. Scotts Buff County Board of Equalization, No. 20A 0061, (Neb. Tax Equal. And Rev. Com. Jan. 31, 2022)

The petitioner owned low soil quality farmland in western Nebraska and challenged the assessed value of the land of $312,376 for 2020 as determined by the county assessor.  The value had been set at $289,186 for 2020. The petitioner sought a value of $269,595 for 2020 in accordance with the land’s lower 2019 classification. The County Board of Equalization (CBOE) determined the taxable value of the property was $289,186 for tax year 2020.  The petitioner’s primary issue with the county’s valuation was that the county had upgraded the soil quality of the land from 2019 to 2020 to justify the higher valuation.  The petitioner provided a Custom Soil Resource Report conducted by the Natural Resources Conservation Service (NRCS) showing that the soil had a farmland classification of “not prime farmland” and should be put back to its prior classification at the lower valuation.    The CBOE determined that the value should be $289,186 for 2020.  The petitioner appealed. 

On review, the Nebraska Tax Equalization and Review Commission (Commission) affirmed the CBOE’s valuation.  The Commission noted that the CBOE’s valuation was based on state assessment standards that became law in 2019 as a result of LB 372 that amended Neb. Rev. Stat. §77-1363.  Under the revised law, the Land Capability Group (LCG) classifications must be based on land-use specific productivity data from the NRCS.  The Nebraska Dept. of Revenue Property Assessment Division used the NRCS data to develop a new LCG structure to comply with the statutory change.  Each county received the updated LCG changes and applied them to the land inventory in the 2020 assessment year.  The Commission noted that the petitioner’s NRCS report did not show the classification that each soil type should receive under the LCG system and, thus, did not rebut the reclassifications of the soil types for his farmland under an arbitrary or unreasonable standard. 

Note:  The case points out that the burden is in the taxpayer to establish that the assessed value is incorrect.  To rebut the presumption, the evidence provided must be specific as to soil type.  The Nebraska farmland tax valuation system is a frustration for many farmers and ranchers despite the change in the system made with the 2019 legislation. 

ESOP Didn’t Shield Taxpayer From Income 

Larson v. Comr., T.C. Memo. 2022-3

The petitioner, a CPA and an attorney, was also the fiduciary of an Employee Stock Ownership Plan (ESOP).  He placed restricted S corporate stock in the ESOP for his own benefit.  The petitioner claimed that the ESOP met the requirements of I.R.C. §401(a) such that the related trust was exempt from income tax under I.R.C. §501(a).    The IRS claimed that the stock value was to be included in his income because he (and the other control person) failed to enforce employment performance restrictions, and “grotesquely” failed to perform fiduciary duties associated with the ESOP.  The petitioner testified that he was not aware of his duties as a fiduciary, but the court didn’t believe the testimony.  The court noted that the petitioner waived the stock restrictions and breached his fiduciary duties which revealed an effort to avoid enforcement of the restrictions.  As such, there was no way he could lose control over the S corporation.  As a result, there was no substantial risk of forfeiture associated with the stock, and the value of the stock was properly included in the petitioner’s income in accordance with Treas. Reg. §1.83-3(a)-(b).  The court also upheld the denial of deductions for claimed business expenses incurred and paid by the S corporation. 

New ESA Policy for ESA Consultations 

EPA Announcement, January 11, 2022.  Effective upon announcement   

The Environmental Protection Agency (EPA) has announced a change in policy regarding Endangered Species Act (ESA) consultations (to determine the impact on endangered or threatened species in light of critical habitat) for newly registered pesticide active ingredients being registered under the Federal Insecticide, Fungicide, Rodenticide Act (FIFRA) for the first time.  Pesticides already registered under FIFRA or that have active ingredients already registered by EPA may not be subject to the same policy, but may still require ESA consultation but not under the ESA’s new policy. The EPA will determine whether formal or informal consultation is necessary on a case-by-case basis. 

Court Says Animal Chiropractic is Veterinary Medicine 

McElwee v. Bureau of Professional and Occupational Affairs, No. 1274 C.D. 2020, 2022 Pa. Commw. LEXIS 9 (Pa. Commw. Ct. Jan. 18, 2022)

The plaintiff is a licensed chiropractor that holds herself out to the public as an “animal chiropractor.”  She treats animals in her practice.  She is not a veterinarian and does not hold herself out as a veterinarian.  She is certified in veterinary chiropractic by the International Veterinary Chiropractic Association.  She receives medical records or x-rays when necessary from a treating veterinarian and reviews them to find infusions of the spine, breaks or fracturs of the spine, misalignments of the spine or any disk space between the vertebrae.  She then makes a treatment and care plan for the animal with or without the veterinarian’s input.  She also practices on animals of veterinarians, and requires animal owners to complete a consultation form granting authorization for her to provide chiropractic care to the animal’s owner.  All animals in her care must have a veterinarian before she will work with the animals. 

The defendant filed an order to show cause alleging that the plaintiff was subject to disciplinary action under state law because the services she performed in her practice constituted the unlicensed practice of veterinary medicine.  The plaintiff sought a hearing on the matter and the hearing examiner issued a proposed adjudication and order concluding that the plaintiff was engaged in the unlicensed practice of veterinary medicine.  The State Board of Veterinary Medicine issued a final adjudication finding the plaintiff, and the plaintiff appealed.  The court rejected the plaintiff’s claim that animal chiropractic was unregulated not subject to the Board’s authority.  The court held that even though animal chiropractic was not specifically regulated under the Veterinary Medicine Practice Act, it was regulated by the Board. 

Note:  Occupational licensure is highly questionable.  In this case, there was no allegation that the plaintiff was not performing as an animal chiropractor in any manner other than with professional competence. 

February 9, 2022 in Environmental Law, Income Tax, Real Property, Regulatory Law | Permalink | Comments (0)

Saturday, January 22, 2022

The “Almost Top Ten” (Part 3) - New Regulatory Definition of “Habitat” under the ESA

Overview

As readers of this blog will note, I recently concluded a five-part series on what I viewed as the “Top Ten” agricultural law and agricultural tax developments of 2021.  There were many “happenings” in ag law and tax in 2021 which meant that there were still some significant developments that didn’t make the “Top Ten.”  So far, those development that didn’t make the “Top Ten, but are still very significant as to their impact on the ag sector and those that represent farmers and ranchers involve, whether a bankruptcy trustee can retain the trustee’s fee in certain situations; improper set-up of an LLC that caused significant gifts to be recharacterized for tax purposes; and a case involving a huge estate planning mistake that cost the family a $2.5 million charitable deduction.   

In today’s article I continue with another important development in agricultural law during 2021 that just wasn’t quite big enough to make the “Top Ten” list, but is still very significant – a change in the way “habitat” is defined for species listed as “endangered” under federal law.

A change is the way the feds define “habitat” for endangered species – it’s the topic of today’s post.

Background.  The Endangered Species Act (ESA) establishes a regulatory framework for the protection and recovery of endangered and threatened species of plants, fish and wildlife. 16 U.S.C. § 1531 et seq (2002). The U.S. Fish and Wildlife Service (USFWS), within the Department of the Interior, is the lead administrative agency for most threatened or endangered species.

The ESA has the potential to restrict substantially agricultural activities because many of the protections provided for threatened and endangered species under the Act extend to individual members of the species when they are on private land. For example, in People for the Ethical Treatment of Property Owners v. United States Fish and Wildlife Service, 852 F.3d 990 (10th Cir. 2017), a USFWS rule concerning the “taking” of a Utah prairie dog on private property was  upheld on basis that the Congress has the power to regulate purely local activities that are part of an economic class of activities that have a substantial economic effect on interstate commerce.  Ts is because the court determined that the Commerce Clause authorized the regulation of noncommercial purely intrastate activity that is an essential part of a broader regulatory scheme.  As such, the “take” regulation at issue was constitutional.  The court noted that approximately 68 percent of ESA-protected species have habitats that do not cross state borders and, as such, the ESA could be severely undercut if the ESA only allowed protection to those species whose habitats were in multiple states.

The ESA prohibits individuals from “taking” a listed species. To take a species is to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect or attempt to engage in any such conduct with a listed species.  When a species is listed as endangered or threatened, the Secretary of the Interior must consider whether to designate “critical habitat” for the species.  Once a habitat designation is made, land use activities on private land designated as habitat can be severely restricted. Critical habitat must first be habitat.  It must be an area that is essential for conservation of the species.  See, e.g., Weyerhauser Co. v. United States Fish and Wildlife Service, 139 S.Ct. 361 (2018). But, it need not include the entire geographical range which the species could potentially occupy.  That was federal government’s position until the U.S. Supreme Court in Weyerhauser determined otherwise.  That decision was a major victory for farmers and ranchers and other private property owners because about half of the species listed as endangered or threatened have approximately 80 percent of their habitat on privately owned land. 

Note:  In late August of 2021 an appeal was filed in a case from New Mexico by ranchers on their assertion that USFWS acted in an arbitrary and capricious manner when it ignored the costs and benefits of designating critical habitat for the New Mexico Meadow Jumping Mouse.  In 2016, the U.S. Fish and Wildlife Service issued a final rule designating critical habitat for the rodent across 14,000 acres and 170 miles of streams in Arizona, Colorado, and New Mexico. The USWFS asserted that the regulatory costs to the ranchers would not exceed $100 million, with $15 million of that cost imposed on grazing activities of the ranchers by regulating grazing activities. The disaffected ranchers claim that the cost is grossly underestimated and that their water rights would not be adequately protected under law by the actions of the USFWS.  The trial court determined that the USFWS’ incremental effects approach to considering economic impacts was consistent with the ESA, and excluding compensation for impacts on water rights was proper as the claim was speculative.  Northern New Mexico Stockman’s Association v. United States Fish and Wildlife Service, 494 F. Supp. 3d 850 (D. N.M. 2020).  The U.S. Circuit Court of Appeals for the Tenth Circuit heard oral arguments in the case on appeal on January 21, 2022. 

2019 regulations.  In 2019, the USFWS published final rules entitled, “Endangered and Threatened Wildlife and Plants; Revision of the Regulations for Listing Species and Designating Critical Habitat.” 83 Fed. Reg. 35,193 (Aug. 12, 2019).  The final rules clarified the procedures and criteria that are used to add or remove species from the endangered and threatened species lists and how their critical habitat is designated. The new rules also eliminate the rule that, by default, extended many prohibitions on endangered species to those species that only had threatened status. In addition, the final rules further defined the procedures for interagency cooperation.

Importantly, the 2019 final rules modified the ESA listing process, and allowed for economic impacts of the potential listing, delisting or reclassifying of a species to be accounted for. The findings of anticipated economic impact must be publicly disclosed. In addition, the Secretary was required to evaluate areas occupied by the species, with unoccupied areas only being considered “essential” where a critical habitat designation that is limited only to the geographical areas that a species occupies would be inadequate to ensure conservation of the species. In addition, for an unoccupied area to be designated as critical habitat, the Secretary had to determine that there is a reasonable certainty that the area will contribute to the conservation of the species and that the area contains one or more physical or biological features essential to the conservation of the species. Also, a “threatened” listing for a species was to be evaluated in accordance with whether the species is likely to become endangered in the “foreseeable future” (as long as a threat is probable).

2021 developments.  Additional final rules were published in December of 2020 that became effective in mid-January of 2021.  These rules modified the definition of “habitat” to make habitat designations less burdensome on private property owners, and clarifying when the USFWS may exclude certain areas from designation as critical habitat by confining the definition to simply the ecosystem that a species presently occupied rather than the historical range of the species. The final rules became effective January 19, 2021.  85 FR 8237 (eff. Jan. 19, 2021).

The very next day, the new White House Administration indicated that it would be reviewing the ESA rules pursuant to Executive Order 13990 (86 Fed. Reg. 7037, Jan. 20, 2021).  On October 27, 2021, the USFWS published proposed rules that would rescind the Trump Administration’s critical habitat rule.  50 C.F.R. Part 17, RIN 1018-BD84 (Oct. 27, 2021).  Prompted by the Administration, the USFWS then said it did not agree that areas must be excluded from designation when the costs exceed the benefits if it will not result in the extinction of a species.    The USFWS now claims that it should retain discretion to make those decisions on excluded areas. 

Conclusion

The issues involved with respect to the ESA and “habitat” designation are important to those agriculture and other private landowners that could be financially impacted by the new regulation.  A new, expanded, definition of “critical habitat” would pose greater land use restrictions on private property, much of it farm and ranch land.  That will likely lead to more court battles over the property regulation and whether a compensable taking has occurred. 

I will continue the journey through other significant 2021 developments in ag law and tax next time.

January 22, 2022 in Environmental Law | Permalink | Comments (0)

Thursday, January 13, 2022

“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1

Overview

The time has come to “unveil” the two biggest two developments in agricultural law and taxation for 2021.  As I have been pointing 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 fifth and final 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 Second and First most important agricultural law and tax developments of 2021 – it’s the topic of today’s post.

2.    Developments Involving “Waters of the United States” (WOTUS).

Background.  The scope of the federal government’s regulatory authority over wet areas on private land, streams and rivers under the Clean Water Act (CWA) has been controversial for more than 40 years. Many court opinions have been filed attempting to define the scope of the government’s jurisdiction.  On two occasions, the U.S. Supreme Court attempted to clarify the 1986 regulatory definition of a WOTUS, but in the process of rejecting the regulatory definitions of a WOTUS developed by the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE), the Court didn’t provide clear direction for the lower courts.  See Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers, 531 U.S. 159 (2001); Rapanos v. United States, 547 U.S. 175 (2006).  The lower courts have also had immense difficulties in applying the standards set forth by the U.S. Supreme Court. 

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

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

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

The “Clean Water Rule.”  The Obama Administration attempted take advantage of the lack of clear guidance on the scope of federally jurisdictional wetland by issuing an expansive WOTUS rule.  The EPA/COE regulation was deeply opposed by the farming/ranching and rural landowning communities, and triggered many legal challenges.   The courts were, in general, highly critical of the regulation, invalidating it in 28 states by 2019. The CWR became a primary target of the Trump Administration.

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

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

A primary aspect of the litigation involving the NWPR is whether it should apply retroactively or whether it is limited in its application on a prospective basis.  For example, in United States v. Lucero, 989 F.2d 1088 (9th Cir. 2021), the defendant, in 2014, operated a business that charged construction companies for the dumping of soil and debris on dry lands near San Francisco Bay. The Environmental Protection Agency (EPA) later claimed that the dry land was a “wetland” subject to the dredge and fill permit requirements of Section 404 of the Clean Water Act (CWA). As a result, the defendant was charged with (and later convicted of) violating the CWA without any evidence in the record that the defendant knew or had reason to know that the dry land was a wetland subject to the CWA.

On further review, the appellate court noted that the CWA prohibits the “knowing” discharge of a pollutant into covered waters without a permit. At trial, the jury instructions did not state that the defendant had to make a “knowing” violation of the CWA to be found guilty of a discharge violation. Accordingly, the appellate court reversed on this point. However, the appellate court ruled against the defendant on his claim that the regulation defining “waters of the United States” was unconstitutionally vague, and that the 2020 Navigable Waters Protection Rule should apply retroactively to his case. 

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

Most recently, a federal district court in South Carolina remanded the NWPR to the EPA. South Carolina Coastal Conservation League, et al. v. Regan, No. 2:20-cv-016787-BHH, 2021 U.S. Dist. LEXIS 132031 (D. S.C. Jul. 15, 2021).  The NWPR was being challenged on the scope issue.  Even though the NWPR was remanded, the court left the rule intact.  That fit with the strategy of present Administration.  If the court had invalidated the NWPR, then the Administration would have had to defend the Obama-era rule in court.  By not vacating the NWPR allows the current administration to proceed in trying to write a new rule without bothering to defend the Obama-era rule in court.

In Pasqua Yaqui Tribe v. United States Environmental Protection Agency, No. CV-20-TUC-RM, 2021 U.S. Dist. LEXIS 163921 (D. Ariz. Aug. 30, 2021). the court vacated the NWPR.  The court’s order did not specify the scope of the vacatur, but the EPA and the COE soon announced that neither agency would implement the NWPR on a nationwide basis, and will rely on the pre-2015 regulatory definition of a WOTUS until a new rule is developed.  This all means that projects that have already received a CWA permit based on the NWPR can continue to rely on the permit until it expires.  If a project has received an approved jurisdictional determination based on the NWPR may rely on it for five years from the date of issuance regardless of whether the project has already received a CWA permit based on the jurisdictional determination.  For projects that have received a preliminary jurisdictional determination after the date of the court’s opinion may continue to rely on it. 

New proposed rule.  On December 7, 2021, the EPA and the COE published a proposed rule redefining a WOTUS in accordance with the pre-2015 definition of the term. 86 FR 69372 (Dec. 7, 2021).  Under the proposed rule, EPA states its intention to define a WOTUS in accordance with the 1986 regulations as further defined by the courts since that time. In addition, the proposed rule would base the existence of a WOTUS on the “significant nexus” standard set forth in prior Supreme Court decisions. As such, a WOTUS would include traditional navigable waters; territorial seas and adjacent wetlands; most impoundments of a WOTUS and wetlands adjacent to impoundments or tributaries that meet either the relatively permanent standard or the significant nexus standard; all waters that are currently used or were used in the past or may be susceptible to use in interstate or foreign commerce, including all waters that are subject to the ebb and flow of the tide. The proposed rule defines “interstate waters” as “all rivers, lakes, and other waters that flow across, or form a part of State boundaries” regardless of whether those waters are also traditionally navigable. A “tributary” is also defined as being a WOTUS if it fits in the “other waters” category via a significant nexus with covered waters or if it is relatively permanent. The EPA and COE further define the “relatively permanent standard” as “waters that are relatively permanent, standing or continuously flowing and waters with a continuous surface connection to such waters.” The “significant nexus standard” is defined as “waters that either alone or in combination with similarly situated waters in the region, significantly affect the chemical, physical, or biological integrity of traditional navigable waters, interstate waters, or the territorial seas (the "foundational waters").” The comment period on the proposed rule expires on February 7, 2022. 

Related WOTUS issue.  During 2021 another significant case with WOTUS-related issues continued to wind its way through the court system.  In Sackett v. Environmental Protection Agency, 8 F.4th 1075 (9th Cir. 2021), the plaintiffs bought a .63-acre lot in 2004 on which they intended to build a home. The lot is near numerous wetlands the water from which flows from a tributary to a creek, and eventually runs into a lake approximately 100 yards from the lot. The lake is 19 miles long and is a WOTUS subject to the CWA which bars the discharge of a pollutant, including rocks and sand into it. The plaintiffs began construction of their home, and the EPA issued a compliance order notifying the plaintiffs that their lot contained wetlands due to adjacency to the lake and that continuing to backfill sand and gravel on the lot would trigger penalties of $40,000 per day. The plaintiff sued and the EPA claimed that its administrative orders weren’t subject to judicial review. Ultimately the U.S. Supreme Court unanimously rejected the EPA’s argument and remanded the case to the trial court for further proceedings. The EPA withdrew the initial compliance order and issued an amended compliance order which the trial court held was not arbitrary or capricious. The plaintiffs appealed and the EPA declined to enforce the order, withdrew it and moved to dismiss the case. However, the EPA still maintained the lot was a jurisdictional wetland subject to the CWA and reserved the right to bring enforcement actions in the future. In 2019, the plaintiffs resisted the EPA’s motion and sought a ruling on the motion to bring finality to the matter. The EPA claimed that the case was moot, but the appellate court disagreed, noting that the withdrawal of the compliance order did not give the plaintiffs final and full relief. On the merits, the appellate court noted that the lot contained wetlands 30 feet from the tributary, and that under the “significant nexus” test of Rapanos v. United States, 547 U.S. 715 (2006), the lot was a regulable wetland under the CWA as being adjacent to a navigable water of the United States (the lake). 

Note:  On September 22, 2021, the plaintiffs filed a petition with the U.S. Supreme court asking the Court to review the case.  The Supreme Court set January 14, 2022, as the conference date to determine whether it will accept the case for review and decision.

Update:  On January 24, 2022, the U.S. Supreme Court granted certiorari. The Court will be deciding whether the Ninth Circuit used the proper test to decide whether the wetlands at issue are “waters of the United States” for purposes of the CWA.  The Sacketts are asking the Court to use the four-justice plurality in Rapanos v. United States, 547 U.S. 175 (2006).  Under that test, wetlands are only subject to the CWA when they have a continuous surface water connection to regulated waters. 

1.    The Failure of “Build Back Better” to Become Law.

Without doubt, the biggest development of 2021 was the failure of H.R. 5376, known as “Build Back Better” (BBB) to become law. The BBB would have also been the biggest development had it also become law.  There are numerous provisions in the BBB that would have impacted farmers and ranchers significantly.  While the bill did pass the U.S. House on November 19, the version that passed was a “slimmed-down” version that did not contain many of the more onerous (as viewed by agriculture) provisions that were originally included.  The Senate failed to take up the legislation before the end of 2021.

The following are some of the more significant provisions that were originally included in H.R. 5376 that didn’t make it into the House passed version:

  • Increase in corporate tax rate to 26.5 percent;
  • Modifications to the “stepped-up” basis rule at death;
  • Increase in top individual marginal rate to 39.6 percent;
  • A phase-out or elimination of the 20 percent qualified business income deduction;
  • Increase in top capital gain rate to 25%;
  • Reduction in the federal estate/gift tax unified credit exemption equivalent;
  • Change in the grantor trust rules;
  • Change in the present interest annual exclusion rule;
  • Increase in the top federal estate/gift tax marginal rate;
  • Valuation discounting rules; and
  • Increase in value reduction for land in decedent’s estate under Sec. 2032A

But, there remained certain provisions in H.R. 5376 of relevance to agricultural producers.  Those include the following:

  • An increase in the state and local tax deduction (SALT) from the present $10,000 amount to $80,000 (MFJ);
  • A surcharge on high income earners;
  • Expansion of the NIIT (3.8 percent) to trade or business income for taxpayers with taxable income exceeding $400,000 (single); $500,000 (MFJ), and application of the NIIT to trade or business income of estates/trusts;
  • Limit on contributions to traditional or Roth IRAs for persons with combined IRA and defined contribution account balances exceeding $10 million and adjusted taxable income exceeds the $400,000/$500,000 thresholds; required distributions for accounts where owner has combined values exceeding $10 million; no “backdoor” Roths;
  • Expansion of Medicare to cover dental, hearing and vision care;
  • No oil and gas drilling on non-wilderness portion or ANWR; and
  • Moratorium on offshore oil and gas leasing in Eastern Gulf of Mexico, Atlantic and Pacific federal waters.

Going forward into 2022, Democrats are expected to make efforts to advance their priorities in a filibuster-proof reconciliation bill containing the White House economic recovery “blueprint.”  Disputes over the structure of several tax incentives remain at the center of bicameral talks aimed at clearing the way for the Senate to pass and the House to clear a revised version of H.R. 5376.  The House appears to be focused on implementing H.R. 5376 and salvaging parts of it if the bill does not pass the Senate in the same form it passed the House.  Democrats also are pushing to double the current IRS budget and are pitching the move as a revenue raiser by virtue of increased revenue from audits. 

On the other side of the aisle, Republicans are pushing to make the point that temporary tax breaks followed by extensions would further fuel already high inflation and add to the deficit.  Senate Republicans appear to be focused on keeping the corporate tax rate at 21 percent, the top individual rate at 37 percent and top capital gains rate at 20 percent. 

As of today, there is no clear sign about how a deal will be cut on a fiscal 2022 omnibus spending deal before the February 18 expiration of the current stopgap spending law.  There is no current ongoing negotiation with respect to H.R. 5376,  Another issue for 2022 is what the Congress might do with respect to extending tax provisions that have currently expired.  There are about two dozen provisions that expired at the end of 2021.  Perhaps there will be a push for a separate extender bill for renewal of popular provisions such as a tax break for mortgage insurance premiums, the ($300/$600) above-the-line deduction for charitable deductions, and an increase to age 75 for the start of required minimum distributions from retirement plans.

Conclusion

So there you have it - five articles discussing the ten biggest developments in agricultural law and taxation for 2021.  What else was the law concerned with involving agriculture in 2021 that didn’t make the “Top Ten” list?  Next, I will start looking at those issues.

January 13, 2022 in Environmental Law, Income Tax | 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)