Thursday, December 29, 2022

Medicaid Estate Recovery and Trusts

Overview

When a Medicaid beneficiary dies, a state might seek recovery of the Medicaid benefits paid during the beneficiary’s life from the deceased beneficiary’s estate.  Part of estate planning to protect assets from being depleted during life and limit or eliminate a state’s right to recover benefits post-death involves transferring property to a trust with the appropriate terms.  Known as a Medicaid Asset Protection Trust (MAPT), it’s a part of estate planning that is very important to many farm and ranch families that desire to keep the farm in the family for multiple generations.  It’s also a topic that I started lecturing on nationally over 30 years ago after I wrote one of the very first law review articles ever published on the topic.  Roger A. McEowen, et al., “Estate Planning for the Elderly and Disabled: Organizing the Estate to Qualify for Federal Medical Extended Care Assistance,” 24 Ind. L. Rev. 1379 (1991).  I then followed that up with another article three years later.  Roger A. McEowen, “Estate Planning for Farm and Ranch Families Facing Long-Term Health Care,” 73 Neb. L. Rev. 104 (1994).

An MAPT was involved in a recent Iowa case.  Unfortunately for the estate, the court’s suspect reasoning resulted in the trust not operating to protect the decedent’s assets from the state seeking reimbursement.  A dissenting opinion, however, pointed out the majority’s flawed rationale.

Medicaid asset protection trusts – it’s the topic of today’s post.

Medicaid Basics

For many persons, estate planning also includes planning for the possibility of long-term health care.  Nursing home care is expensive and can require the liquidation of assets to generate the funds necessary to pay the nursing home bill unless appropriate planning has been taken.  Medicaid is a joint federal/state program that pays for long-term health care in a nursing home.  To be able to receive Medicaid benefits, an individual must meet numerous eligibility requirements but, in short, must have a very minimal level of income and assets.  States set their own asset limits and determine what assets count toward the limit.  Assets exceeding the limit must be spent on the applicant’s nursing home care before Medicaid eligibility can be established. 

There are also rules that can apply to help protect certain assets from being depleted to pay for a long-term care bill, and different rules apply when the Medicaid applicant/beneficiary is married, and the spouse is not applying for or receiving Medicaid.   However, the overriding public policy concern is that private assets are primarily used to pay for care before taxpayer dollars are utilized. 

While some states set different timeframe for the “look-back” period, the general rule is that the value of any non-exempt asset owned by a Medicaid applicant or applicant’s spouse that is disposed of for less than fair market value within five years of an application for Medicaid is treated as an available asset for purposes of Medicaid eligibility. That is the rule for outright transfers as well as transfers to or from a trust.  If such a transfer occurs, a penalty period is triggered that could further delay Medicaid eligibility.  The penalty period is determined by dividing the uncompensated value of the transfer by the average monthly cost of nursing home care in the individual’s state.  The resulting figure is the number of months the individual’s penalty period will last.  The penalty period begins on the date on which the individual has applied and is otherwise eligible for Medicaid. 

Asset Sheltering Trusts

An asset sheltering trust (also known as an MAPT) is a trust designed to enable the grantor to be eligible for public assistance benefits (Medicaid) for long-term health care costs that would be incurred if the grantor entered a nursing facility.  The rules surrounding these types of trusts are quite complex and are constantly changing given the public policy concerns that surround the creation of these types of trusts.

In general, these trusts contain language explicitly evidencing the grantor’s intent to give the trustee complete discretion (a “fully discretionary” trust) to distribute trust income and principal.  Similar language might also be used to assure that the grantor’s intent was to supplement rather than supplant public benefits that might be otherwise available.  The purpose of these types of provisions is that if the beneficiary ever is in need of long-term medical assistance in a nursing facility, then the trustee has the discretion to withhold the payment of funds from the grantor’s property contained in the trust to permit the beneficiary to receive public assistance (Medicaid) benefits at taxpayer expense and preserve the grantor’s assets for the heirs. They also operate to not create any interest in the trust corpus that the state can attach to seek reimbursement from after the beneficiary dies. 

Recent Iowa case.  In In re Trust Under the Will of Riessen, No. 22-0048, 2022 Iowa App. LEXIS 925 (Iowa Ct. App. Dec. 7, 2022), the court faced the issue of whether a trust effectively barred the state from seeking post-death reimbursement for Medicaid benefits paid to a trust beneficiary during life.  The trust grantor died in 1972 with a will that established a trust to hold an equal share of his farm for a daughter, with his son serving as trustee.  The trust authorized the son to pay the net income and principal of the trust to the daughter at his complete discretion – he was not obligated in any way to provide trust funds to his sister as the beneficiary.  The trust also stated that the grantor’s reason for giving the complete discretionary power to the trustee was because it was the grantor’s “hope and desire to keep the entire property in the family.”  The trust specified that the son had the right to rent the land in the trust and farm it as the tenant. The trust also stated that it was the grantor’s intent that the son, as trustee, buy certain adjacent tracts of land to help maintain the family farming operation.

The daughter died in 2020 and during her lifetime the trust didn’t provide any funds for her medical care, but the state did provide Medicaid benefits for her.  After she died, the state sought reimbursement from the trust for the Medicaid benefits provided to the daughter during her life.  The probate court ordered the trust to reimburse the state and the trustee appealed.  The state based its reimbursement claim on Iowa Code §249A.53(2), which provides that when Medicaid funds care for an individual 55 or older that is a resident of a care facility, the debt can be collected from any trust in which the individual had an interest.  However, the trustee asserted that the trust was a fully discretionary trust and that he had the complete discretion to ignore the beneficiary’s medical needs if he so desired – there was no standard set in the trust that he had to follow in providing trust funds for his sister’s care.  As such, the trustee asserted that the beneficiary had no interest in the trust to which the state’s claim could attach. 

The state claimed that the trust language meant that the trust gave the trustee the discretion to use trust funds for his sister’s care for that he deemed “advisable and beneficial” and that discretion meant that the trustee couldn’t completely ignore the beneficiary’s medical needs.  But the trustee pointed out that Iowa Code § 633A.4702 stated that, “in the absence of clear and convincing evidence to the contrary, language in a governing instrument granting a trustee discretion to make or withhold a distribution shall prevail over any language governing instrument indicating that the beneficiary may have a legally enforceable right to distributions or indicating a standard of payments or distributions.”  The appellate court, however, noted that the statute was inapplicable to trusts effective before 2004.  The appellate court also determined (with not much analysis (the entire majority opinion, including a recitation of the facts) is only eight pages (double-spaced)) that the grantor’s intent to maintain the farm in the family did not negate or outweigh the grantor’s desire that his daughter medical needs be met from the trust. 

The appellate court also reasoned that the trust language meant that the trustee could invade the corpus of the trust for the benefit of the sister when necessary and that the grantor preferred for the trust to be used to provide for the sister instead of protect family land.  Consequently, the appellate court determined that the beneficiary had an interest - portions of the trust were to be used for her care and the trustee was instructed to invade the corpus of the trust to make distributions in the sister’s support. This meant that the state had a right to the sister’s interest in the trust for reimbursement of past Medicaid benefits that were paid on her behalf and affirmed the probate court’s determination.

The dissenting judge, a senior judge sitting by designation and who had written a prominent court opinion on the issue in the past, disagreed that the trust language could be interpreted to identify any type of ascertainable or measurable standard that could give the daughter any interest in the trust that would allow the state to have a legitimate reimbursement claim.  Indeed, the trust granted the trustee the “sole and absolute discretion” to invade the trust corpus when the trustee deemed it “necessary for the benefit” of the grantor’s daughter.  That language did not reference any particular standard that could measure the daughter’s interest in the trust.  He noted that the term “benefit,” as used in the trust, is simply not a distributional, ascertainable standard. To read it as one as the majority did, meant that the majority was judicially rewriting the terms of the trust.

Conclusion

Medicaid asset and trust planning can be a complex part of estate planning.  But it can be a very important aspect of protecting farm assets from being depleted paying a long-term health-care bill.  The facts of the Riessen case as stated in the opinion were insufficient to be able to determine whether the trust was drafted with the intent of protecting assets from being depleted to pay for the beneficiary’s long-term health care.  However, as the dissent points out, and as I have written and lectured on this topic for years concerning MAPT language, the trust language at issue comported with that of a properly drafted as a fully discretionary MAPT to accomplish that goal.  The dissent properly pointed out that the majority’s opinion essentially rewrote the trust to give the state a reimbursement claim.   

If the case is appealed, it is likely that the Iowa Supreme Court, based on past precedent, will overturn the appellate court’s judgment.  It’s simply inappropriate for a court to essentially rewrite the terms of a trust to accomplish an outcome it desires.  If the decision is not appealed or is not overturned on appeal, the Iowa legislature will need to determine what it desires from a public policy standpoint concerning the breadth of the state’s ability to be reimbursed from a decedent’s estate for past Medicaid benefits paid. 

December 29, 2022 in Estate Planning | Permalink | Comments (0)

Saturday, December 24, 2022

Recent Cases Involving Decedents' Estates

Overview

Unfortunately, litigation sometimes occurs after death and can involve family members.  The issues can be unique and may also be the result of misunderstandings, the lack memorializing understandings, or simply family members not getting along. 

In today’s post, I highlight three recent cases involving the estate of a decedent.  Hopefully, a review of these cases will provide some insight as to the issues that can arise at deaths in hopes of avoiding them in the future.

A look at recent cases involving estates – it’s the topic of today’s post.

Government Agency’s Interest in Estate Attaches Before Nursing Home’s Judgment Lien. A nursing home sought to recover fees from a decedent’s estate that the decedent incurred while a resident.  The Iowa Department of Health and Human Services (Department) had paid the deceased’s medical fees to the nursing home and filed a claim in probate seeking to recover $395,612.12. The estate executor filed a report and inventory showing the gross value of probate assets as $51,016.20, with $45,000.00 of the value attributed to the decedent’s home. The nursing home claimed it had a right to the value of the home to pay for the debt owed to it via a judicial secured lien, but the Department claimed it had a priority position.  The trial court agreed with the Department.  The nursing home argued on appeal that its secured lien was not subject to the probate code’s classification of debts and charges statutory provision, claiming instead that its judicial lien was on the real estate the decedent owned.  However, the appellate court pointed out that the real estate was a homestead to which the judgment lien did not attach and would not attach upon the decedent’s death merely because the decedent had no heirs.  The appellate court determined that the Department could recover from the decedent’s estate as it existed immediately before death, including her home with the homestead exception still in effect because the nursing’s home judgment would not attach until after the death. The appellate court affirmed the trial court’s grant of summary judgment for the Department.  In re Estate of Rice, No. 21-1868, 2022 Iowa App. LEXIS 936 (Iowa Ct. App. Dec. 7, 2022).

Economic Benefit Not Required for Trust Funds to Pay Attorney’s Fees. The grantor created a trust naming his three daughters as beneficiary.  However, before death, the grantor agreed to give one of his daughters the homestead in return for helping him on the homeplace during his life.  However, this agreement was not memorialized in the trust due to a drafting error.  One of the daughters objected to the alleged pre-death agreement and also objected to part of the trust being used to pay off debts immediately.  The trial court determined that the evidence was sufficient as to the grantor’s intent to respect the pre-death agreement, but did not allow that daughter use funds from the trust to pay attorney fees on the basis that the litigation did not benefit the trust.  On appeal, the appellate court reversed in part.  The appellate court noted that state law allows a court to award “attorney’s fees from trusts administered through the court as well as in probate and guardianship proceedings” when the litigation benefits the decedent’s estate and when the litigation resulted from the executor’s negligence, fraud, or inactivity.  The appellate court determined that an economic benefit was not necessary to award fees, but that other non-economic benefits were sufficient.  Consequently, the appellate court determined that the litigation involving the trust resulted in the trust being administered in the way intended the grantor intended and that this was sufficient to be considered beneficial. In addition, the court found that the fact that the daughter to receive the homestead was a beneficiary of the trust had no bearing on the attorney fee issue.  The appellate court reasoned that to not allow beneficiaries to use trust funds to litigate issues would discourage strong claims from being brought. Ultimately, the appellate court held that the trial court abused its discretion by denying the motion for attorney fees based on its erroneous view that an attorney fees award "required" an economic benefit to the trust and that fulfilling the intent of the settlor was not a basis for awarding attorney fees.  The appellate court held that the trial court should not have discounted the efforts to reform the trust to align with the settlor's undisputed intent simply because the daughter benefitted from the successful outcome of the litigation.  The appellate court, however, determined that the trial court did not err when it determined that the litigation on the issue of mortgage payments did not provide the trust with an economic benefit because the successful litigation did not provide the estate with income it could not have otherwise obtained from a different renter.  In re Petersen Land Trust, No. 29745, 2022 S.D. LEXIS 139 (S.D. Sup. Ct. Nov. 23, 2022).

Surviving Spouse Removed as Co-Trustee. The decedent established a revocable living trust in 2000 to continue his farming operation and benefit his wife as the primary beneficiary and his two sons as the other beneficiaries.  Effective upon the grantor’s death, the trust named the surviving wife as a co-trustee and the decedent’s cousin as an independent co-trustee.  The trust specified that the independent trustee could distribute income and principal to any of the beneficiaries at the independent trustee’s discretion.  Upon the wife’s subsequent death, the trust was to be divided into two separate shares, one for each son, and funded with the remaining trust undistributed income and principal.  Upon the decedent’s death in 2014 the trust contained about $2,385,000 in assets, most of which were nonliquid. Most of the assets had to be liquidated to pay debts that the decedent incurred during life, including part of the decedent’s farm that was sold in 2018.  After payment of debts $112,048.34 remained in the trust. The trust was divided into a marital and a nonmarital share and at the time of the decedent’s death only the nonmarital half was funded.  Without the cousin’s knowledge, the wife withdrew $104,161.34 of the $112,048.34 for her own personal expenses. This amount was more than the wife had a right to receive that year from the trust. In addition, the Farm Service Agency (FSA) deposited farm-related funds directly into the wife’s account instead of the trust account. The cousin requested that the FSA deposit the funds into the trust instead of the wife’s account, but the FSA refused citing the wife’s name as the first named trustee and the only one with the right to change where the funds should be sent. Soon after this, the cousin filed an action to remove the wife as a trustee for mishandling the funds.  The trial court removed the wife as a co-trustee. The wife appealed. The Kansas Uniform Trust Code (KUTC) specifies that a court may remove a trustee if “the trustee has committed breach of trust.” A breach of trust is a violation of the trustee’s duty to the beneficiaries. To determine if the wife committed a breach, the appellate court looked to the decedent's intent for management of the trust. The language of the trust gave the exclusive discretion over distribution of the trust’s income and principal to the cousin as the independent trustee.  The trust stated that, “whenever a power of discretion is granted exclusively to my Independent Trustee, then any Interested Trustee who is then serving as my Trustee is prohibited from participating in the exercise of the power of discretion.” The appellate court found the wife was an interested trustee because she was both a trustee and beneficiary, so she should not have exercised any discretion over the distribution of the funds of the trust. The appellate court agreed with the trial court that the wife repeatedly disregarded the terms of the trust and tried to take advantage of being a co-trustee. The language of the trust agreement was clear that the wife’s discretion should have been restricted and her acts prohibited. The wife failed to show the trial court abused its discretion by removing her as a co-trustee and affirmed the trial court’s decision. In re Link Zweygardt Trust No. 1., No. 124,760, 2022 Kan. App. Unpub. LEXIS 616 (Kan. Ct. App. Dec. 2, 2022).   

Conclusion

The issues that can arise post-death are numerous.  These cases are merely a sample of what can happen. 

December 24, 2022 in Estate Planning | Permalink | Comments (0)

Wednesday, December 7, 2022

How NOT to Use a Charitable Remainder Trust

Overview

A charitable remainder trust can be a useful estate planning tool for a farmer or rancher, particularly one that is ready to retire from farming or ranching.  Instead of selling the last crop and reporting the income along with the income from the previous year’s crop that has been deferred to the current year, the crop can be transferred to a charitable remainder trust.  Doing so avoids having to report the sale of the crop and the associated self-employment tax that would be triggered.  But, a charitable remainder trust is a complex estate planning device that should only be utilized by professionals the understand the rules.  A recent Tax Court case involving an Indiana farm couple illustrates how badly things can turn out with a charitable remainder trust if the rules aren’t closely followed.

Charitable remainder trusts – it’s the topic of today’s post.

Background

A charitable remainder trust is an irrevocable trust to which you can donate property, cash or other property.  The trust takes a carryover income tax basis in the transferred asset(s).  The trust then sells the transferred assets (the sale is not taxable because the seller is a charity) and uses the income from the sale to pay the donor (or other designated person(s)).  The payments continue for a specific term of up to 20 years of the life of one or more beneficiaries (typically the transferor).  At the end of the term, the remainder of the trust passes to at least one designated charity.  The remainder donated to the charity must be at least 10 percent of the initial net fair market value of all of the property placed in the trust. 

Types.  There are two types of charitable remainder trusts.  The type of trust is tied to how payment from the trust is made.  A charitable remainder unitrust (CRUT) pays a percentage of the trust value annually to noncharitable beneficiaries.  The payments must be at least five percent and not exceed 50 percent of the fair market value of the trust’s assets, valued annually.  A charitable remainder annuity trust (CRAT) pays a specific dollar amount each year.  The amount is at least 5 percent and no more than 50 percent of the value of the trust’s property, valued as of the date the trust was established. 

Tax on payments.  Payments from a charitable remainder trust are taxed to the non-charitable beneficiaries.  The non-charitable beneficiaries report the income on Schedule K-1 (Form 1041) as distributions of the trust’s income and gains. 

The distributions are reported in a particular order. 

  • Payments are considered to be ordinary income first to the extent the trust had ordinary income for the year and undistributed ordinary income from prior years. This means that if the trust had enough ordinary income to cover all of the payments, all of the payments are taxed as ordinary income.  As a result, it is not advisable to transfer ordinary income property to the trust – particularly not ordinary income property with low or no income tax basis. 
  • Once the trust’s ordinary income is exhausted, payments are taxed as capital gains based on the sale or disposition of the trust’s capital assets. The payments are taxed as capital gain to the extent of the trust’s capital gain for the current year and any undistributed capital gain income from prior years.
  • After all of the trust’s ordinary income and capital gain have been distributed, any additional payments are then characterized as other income to the extent of the trust’s current year and accumulated other income.
  • Finally, after the first three-tiers of distributions have been made, any further payments are considered to be from the “principal” of the trust and are not taxable.

Charitable deduction.  The contribution to a charitable remainder trust will qualify for a partial charitable deduction.  The deduction is partial because it is limited to the present value of the charitable organization’s remainder interest calculated as the value of the donated property minus the present value of the annuity that the trust pays to the non-charitable beneficiary (or beneficiaries).  Treas. Reg. §1.664-2(c).  The deduction is also subject to adjusted gross income and other limits set forth in I.R.C. §170(e). 

Tax filing requirements.  A charitable remainder trust must file Form 5227 every year.  A beneficiary must report any payments received from the trust on Schedule K-1 of Form 1041. 

IRS concerns.  The IRS closely monitors the use of charitable trusts.  It is critical to not inflate the basis of assets transferred to the trust as well as failing to account for the transfer of any assets to the trust.  It’s also important to not mischaracterize the distributions of ordinary or capital gain income as distributions of corpus.  The ordering rules must be closely followed.  There can also be no self-dealing, making an upfront cash payment to a charitable beneficiary in lieu of the remainder interest, or a transfer of the trust’s remainder interest to a non-qualified organization.  Also, personal expenses can’t be paid with trust funds, and funds can’t be borrowed from the trust.  It’s also prohibited to use loans or forward sales of assets or other financial schemes to hid capital gains or income in the trust. 

The Furrer Case

If there ever was a case that provides a roadmap for farmers as to how not to use a charitable remainder, Furrer v. Comr., T.C. Memo. 2022-100 is that case.  Indeed, it is almost inconceivable that the farmer couple involved in the case were represented by legal counsel.  The arguments made on behalf of the Furrers were that bad.    

The Tax Court began its opinion by noted that the Furrers, “after seeing an advertisement in a farm magazine” formed a CRAT.  The opinion goes downhill quickly from there for the Furrers.  The Furrers raised corn and soybeans on their Indiana farm. In July of 2015, they formed the first of two CRATs, naming their son as trustee. The Furrers were the life beneficiaries, and three qualified charities were designated as remaindermen. They transferred 100,000 bushels of corn and 10,000 bushels of soybeans from their farm to the first CRAT, which then sold the grain for $469,003. The CRAT distributed $47,000 to the charities and used the balance to purchase a Single Premium Immediate Annuity (SPIA), which made annual payments to the Furrers of $84,369 in 2015, 2016 and 2017.  The SPIA issued a Form 1099-R to the trustee listing the annuity payments as “gross distributions” and showed a small amount of interest as the “taxable amount.”  The Furrers claimed a $47,000 charitable deduction.

The Furrers created a second CRAT in 2016 naming themselves as the lie beneficiaries and seven qualified charities as the remainder beneficiaries. and also funded that trust with grain that they raised.  The CRAT sold the grain for $691,827 and distributed $69,294 to the charities.  The annuity from this trust was payable over 2016 and 2017 in the amount of $124,921 each year.  The SPIA also issued Form 1099-R to the trustee listing the annuity payments as “gross distributions” and showing a small amount of interest as the “taxable amount.”  They claimed a charitable deduction of $69,294.

On their 2015 and 2016 returns, they did not claim charitable deductions for their transfers to the CRATs, but reported only the interest income from the SPIA, which was reported to them by the life insurance company providing the annuity.  They treated the balance of the annuity distributions that they received as a nontaxable return of corpus under I.R.C. §664(b)(4). They also reported their transfers of crops to the CRATS on Forms 709 for 2015 and 2016, which reflected the fair market value of the crops with a cost basis of zero. The CRATs reported the sales of crops as sales of business property on Form 4797, inexplicably treating the crops as having substantial basis (derived from the purported purchase of the grain at fair market value) that generated a small loss for 2015 and a small gain for 2016. Their son (as trustee) prepared the CRATs’ returns.  

On audit, the Furrers claimed they should be entitled to charitable deductions for the in-kind transfers of the crops that were ultimately destined for the charitable remaindermen, which were not claimed on their return. They made this claim even though they had no income tax basis in the grain that was transferred to the CRATs.  Incredibly, and despite not including the proper documentation, the IRS Revenue Agent allowed the charitable deductions. But the IRS still issued a notice of deficiency for each year because of the omitted income from the annuity and increased their Schedule F income by $83,440 in 2015, and by $206,967 in 2016 and also in 2017.  This resulted in tax deficiencies of $55,040 for 2015, $56,904 for 2016 and $95,907 for 2017.  The IRS also tacked on an accuracy-related penalty for each year.

Note:  For gifts of property (other than publicly traded securities) valued in excess of $5,000, the taxpayer generally must (1) obtain a qualified appraisal of the property and (2) attach to the return on which the deduction is claimed a fully completed appraisal summary on Form 8283.  I.R.C. §170(f)(11)(C). A “qualified appraisal” must be prepared by a “qualified appraiser” no later than the due date of the return, including extensions.  I.R.C. §170(f)(11)(E); Treas. Reg. §1.170A-13(c)(3). The taxpayer must also maintain records substantiating the deduction. Treas. Reg. § 1.170A-13(b)(2)(ii)(D).   At no time did the Furrers secure an appraisal (“qualified” or otherwise) of the crops they transferred to the CRATs. They also did not attach to their 2015 or 2016 return a completed Form 8283 substantiating the gifts, and they did not maintain the written records that the regulations required. But, even had they done so, they would not have been entitled to any charitable deduction because of the lack of an income tax basis in the grain transferred to the trusts.

After the Furrers filed the Tax Court petition, the IRS conceded the accuracy-related penalties for lack of the immediate supervisor’s approval.    But, the IRS attorneys also requested leave to amend its answer to disallow the charitable deductions that the Revenue Agent allowed.  The Tax Court held that the IRS carried its burden of proof on the charitable deduction disallowance issue – the Furrers did not substantiate the in-kind donations and they had no income tax basis in the crops.  Thus, any charitable deduction was limited to zero regardless of whether they would have satisfied the substantiation requirements.  The IRS also maintained that the annuity distributions were fully taxable as ordinary income on the basis that the grain was inventory that the Furrers held for sale to customers in the ordinary course of their farming business.  The Tax Court agreed and noted that the Furrers violated the ordering rules for income tax treatment of distributions from the CRATs.  The Trusts’ sale of the grain involved a sale of ordinary income property (raised grain).  As a result, the annuity was purchased with the proceeds of ordinary income property and any distributions from the trust to the Furrers retained that same ordinary income character.  While the Furrers tried to apply the rules of I.R.C. §72 to the annuity distributions, the Tax Court noted that I.R.C. §664 provides a special rule for annuity distributions from CRATS that was not in their favor. In addition, even if I.R.C. §72 applied, the Tax Court noted that the Furrers would not have been able to use the exclusion rule because they had no “investment in the contract” – the funds used to purchase the contract had never been taxable.

Comment:  I have no answer as to why this case ended up in the Tax Court.  The Furrers were represented by counsel, but there appears to have been some very poor choices made on their behalf.  The counsel of record is from California and the Furreres, as mentioned, farm in Indiana.  I have no explanation as to how that happened. Many aspects of the set-up of the CRATs was wrong, and by not accepting the adjustment made by the IRS Revenue Agent and filing a Tax Court petition, the Furrers ended up losing the charitable deductions that the Revenue Agent had (mistakenly) allowed!  Granted, the Furrers got the accuracy-related penalty to go away, but that was achieved at the price of losing substantial charitable deductions.  I also wonder whether the IRS should have conceded on the penalty issue. The Tax Court’s approach to IRS supervisory approval as a prerequisite to applying penalties has been disregarded by two Circuit Courts of Appeal.  According to the 11th and 9th Circuits, supervisor approval at any time before assessment is enough to satisfy the statute.  See, e.g., Kroner v. Comr., 48 F.4th 1272 (11th Cir. 2022) and Laidlaw’s Harley Davidson Sales, Inc. v. Comr., 29 F.4th 1066 (9th Cir. 2022).  Hopefully the Tax Court’s decision will not be appealed to the Seventh Circuit.  If it is, the prospect for a favorable outcome for the Furrers is slim to none. 

Conclusion

The Furrer case illustrates that the rules surrounding the use of charitable remainder trusts are very complex.  Only competent professionals that are experienced in the rules and use of such trusts should be engaged in utilizing them on behalf of clients.  While the Tax Court said that the Furrers created the trusts after reading an ad in a farm magazine, I do not know the nature and extent of legal and tax advice they received (if any) in advance. If they were guided by tax counsel in setting up the trusts, the counsel was woefully inadequate.  To add insult to injury, as noted, the decision to petition the Tax Court rather than accepting the Revenue Agent’s adjustments put the Furrers in a worse position. 

The Tax Court has not yet officially entered its decision in the Furrer case.  The 90-day timeframe for appeal does not start until the decision document (which is separate from the court’s opinion) has been entered.  Presently, the parties must submit their Tax Court Rule 155 calculations by December 21, 2022.  Those calculations will form the basis of the decision document. 

December 7, 2022 in Estate Planning, Income Tax | Permalink | Comments (0)

Sunday, November 6, 2022

Social Security Planning for Farmers and Ranchers

Overview

Many farmers and ranchers are reaching retirement age for Social Security benefit purposes.  That raises numerous questions involving such things as benefits, earnings, what counts as “wages” and the cash renting of farmland.  These are all important questions for farmers and ranchers to have answers to so that appropriate planning can be engaged in and expectations realized.

Details on Social Security benefits - it's the topic of today’s post.

Full Retirement Age

Once a person reaches “full retirement age” (according to the Social Security Administration) earnings don’t impact Social Security benefits.  The full retirement age used to be 65 for those born in 1937 or earlier. Those born between 1943 and 1954 have a full retirement age of 66. The full retirement age further increases in two-month increments each year to 66 and 10 months for those born in 1959.  For those who turned 62 in 2022, the full retirement age is 67.

During the calendar year in which an individual reaches age 66, an earnings limit applies for the months before the individual reaches full retirement age.  For example, for an individual who turns age 66 during 2022, there is a monthly earnings limit of $4,330 ($51,960 ¸ 12 months) for the months before full retirement age is reached.  Excess earnings for this period result in a $1 reduction in benefits for each $3 of excess earnings received before attaining the age of 66 years and four months.  But, for a person who hasn’t reached full retirement age, benefits are reduced by $1 for every $2 of earnings over the annual limit of $19,560 (for 2022).  As noted above, for those drawing benefits after reaching full retirement age, there is no limit on earnings – benefits are not reduced.

Drawing Benefits

An individual can receive full Social Security benefits if they aren’t drawn until full retirement age is achieved.  Another way to state it is that if an individual delays taking Social Security benefits until reaching full retirement age, the individual receives additional benefits for each year of postponement until reaching age 70.  The rate of increase is a fraction of one percent per month.  In essence, the impact of drawing Social Security benefits before reaching full retirement age is that such a person must live longer to equalize the amount of benefits received over their lifetime compared to waiting until full retirement age to begin drawing benefits.   

Taxability of Benefits

Federal.  About 20 million people each year, some who are undoubtedly farmers and ranchers, pay tax on their Social Security benefits.  These people are commonly in the 62-70 year age range.  Taxing Social Security benefits seems harsh, inasmuch as the person has already paid income tax and Social Security payroll taxes on the earnings that generated the benefits.   But not every dollar of benefits is taxed.  What matters is a person’s total income from non-Social Security sources such as wages and salaries, investment income (and capital gains on those investments), and pension income.  To that amount is added one-half of the person’s Social Security income.  The total amount then is measured against a limit.  For example, a person who files as married-filing-jointly (MFJ) will subject 50 percent of their Social Security benefits subject to tax if the total amount exceeds a base amount - $32,000 for 2022 (it’s $25,000 for a single filer).  The 50 percent changes to 85 percent once the total amount exceeds $44,000 (MFJ) or $34,000 (single) for 2022.  Those are the maximum percentages in theory.  In reality, however, there is a complex formula that often results in less Social Security benefits being taxed than that maximum percentage.  For instance, for taxpayers that fall in the 50 percent taxability range, the amount of Social Security benefits that are included in income is the lesser of one-half of the Social Security benefits for the year or one-half of the difference between combined income and the base amount.  The formula is more complex for those who trigger the 85 percent test. 

Note:  The IRS provides a worksheet to calculate Social Security tax liability in IRS Publication 915.  The formula often results in about 20 percent of Social Security benefits being taxed once the total amount threshold is exceeded. 

State.  The following states tax Social Security benefits to some extent:  Colorado; Connecticut; Kansas; Minnesota; Missouri; Montana; Nebraska; New Mexico; Rhode Island; Utah; Vermont and West Virginia.  The taxability of benefits varies from state to state.  In Kansas, for example, Social Security benefits are exempt if federal AGI is $75,000 or less. Above that threshold, Social Security benefits are taxed to the same extent they are taxed at the federal level.  By comparison, Nebraska, for 2021, did not tax Social Security for joint filers with a federal AGI of $59,960 or less and other taxpayers with a federal AGI of $44,460 or less (the 2022 threshold is not available yet).  For taxpayers exceeding these thresholds, Social Security benefits are taxed to the same extent they are taxed at the federal level.  For 2022, taxpayers can choose to deduct 40% of Social Security benefits on the state return that are included in federal AGI instead of having them taxed in accordance with the above rule.  The optional deduction percentage increases to 60% for 2023, 80% for 2024, and 100% for 2025 and thereafter.

Special Considerations

The “donut” hole.    The computation of Social Security retirement benefits is based on an individual’s earnings record.  That record can include 40-plus years of earnings up to age 62 when eligibility for benefits begins.  Earnings are adjusted based on wage inflation to equivalent dollars when an individual turns 60.  That is the last year earnings are indexed for wage inflation.  Earnings after age 60 are added to the earnings record but are not adjusted for inflation.

A cost-of-living adjustment (COLA) kicks in each year starting at age 62.  The two-year gap where there is neither a wage inflation adjustment nor a COLA is particularly evident this year because of an inflation rate not seen in over 40 years.  Presently this affects people born in 1960 and 1961.  There is nothing that can be done about this; it’s simply tied to when an individual turns age 62. 

Wages in-kind.  Some farmers receive wages in-kind rather than in cash.  In-kind wages such as crops or livestock, count toward the earnings limitations test.  The earnings limit test includes all earnings, not just those that are subject to Social Security (FICA/Medicare) tax.  But, employer-provided health insurance benefits are not considered to be “earnings” for purposes of the earnings limitation test.  They are not taxed as wages.  I.R.C. §3121; SSA Program Operations Manual System, §§RS 01402.040; 01402,048.

Farm programs.  Federal farm program payments that a farmer receives are not deemed to be “earnings” when calculating each calendar year's earnings limitation.  SSA Program Operations Manual System §RS 02505.115.  That is the case except for the initial year of Social Security benefit application.  In that initial year, all FSA program payments are counted along with other earned income and earnings for purposes of the annual earnings limitation test.

Cash rent.  For farmers who cash rent farm ground to their employer, the cash rental income that the farmer receives will likely be treated as “earnings” even though the farmer is getting a wage from the employer.  This is particularly the case if the farmer is farming the ground on the employer’s behalf.  The result would be a “doubling-up” of the wage income and the cash rent income for purposes of the age 62-66 earnings test. 

CRP payments.  For a farmer who is drawing Social Security benefits, whether retired or not, Conservation Reserve Program Payments received are not subject to Social Security tax.  I.R.C. §1402(a)(1). 

Conclusion

Social Security benefit planning is an item that is often overlooked by farmers and ranchers.  However, it is useful to know how such planning may fit into the overall retirement plan.  It is just one piece of the retirement, succession, estate plan that should be considered in terms of how it fits in with other strategies.  While a farmer or rancher may never actually “retire,” there is a benefit to properly timing the drawing of Social Security benefits.  In addition, as noted above, there are some special situations that a farmer or rancher should be aware of.

Also, the Social Security Administration website (ssa.gov) has some useful online calculators that can aid in estimating retirement benefits.  It may be worth checking out. 

November 6, 2022 in Estate Planning, Income Tax | Permalink | Comments (0)

Saturday, September 24, 2022

Farm and Ranch Estate Planning In 2022 (and 2023)

Overview

The Tax Cuts and Jobs Act (TCJA) has made estate planning much easier for most farm and ranch families.  Much easier, that is, with respect to avoiding the federal estate tax.  Indeed, under the TCJA, the exemption equivalent of the unified credit (i.e., the “basic exclusion amount”) was doubled from its prior level of $5 million and then indexed for inflation.  For deaths in 2022, it is is $12.06 million per decedent.  When that is combined with the unlimited marital deduction and the ability to “port” over the unused exclusion (if any) at the death of the first spouse to the surviving spouse, very few estates will incur federal estate tax.  Indeed, according to the IRS, there were 3,441 federal estate tax returns filed in 2020, and only 1,275 of those represented returns where federal estate tax was due.   

The TCJA also retains the basis “step-up” rule.  That means that property that is included in the decedent’s estate at death for tax purposes gets an income tax basis in the hands of the recipient equal to the property’s fair market value as of the date of death.  I.R.C. §1014. 

But, with the slim chance that federal estate tax will apply, should estate planning be ignored?    What are the basic estate planning strategies for 2022 (and into 2023), and for the life of the TCJA through 2025? 

Married Couples (and Singles) With Wealth Less Than $12.06 Million. 

Most people will be in this “zone.”  For these individuals, the possibility and fear of estate tax is largely irrelevant.  But, there is a continual need for the guidance of estate planners.  The estate planning focus for these individuals should be on basic estate planning matters.  Those basic matters include income tax basis planning – utilizing strategies to cause inclusion of property in the taxable estate so as to get a basis “step-up” at death. 

Existing plans should also focus on avoiding common errors and look to modify outdated language in existing wills and trusts.  For example, many estate plans utilize "formula clause" language.  That language divides assets upon the death of the first spouse (regardless of whether it is the husband or the wife) between a "credit shelter trust," which utilizes the remaining federal estate tax exemption amount, and a "marital trust," which qualifies for the (unlimited) federal estate tax marital deduction.  The intended result of the language is to cause that trust’s value to be taxed in the first spouse’s estate where it will be covered by the exemption and create a life estate in the credit shelter trust property for the surviving spouse that will “bypass” the surviving spouse’s estate upon death.  As for the martial trust assets, tax on those assets is postponed (if it is taxed at all) until the surviving spouse dies.

But, here’s the rub.  As noted above, the TCJA’s increase in the exemption could cause an existing formula clause to “overfund” the credit shelter trust with up to the full federal exemption amount of $12.06 million. This formula could potentially result in a smaller bequest for the benefit of the surviving spouse to the marital trust than was intended, or even no bequest for the surviving spouse at all.  It all depends on the value of assets that the couple holds.  The point is that couples should review any existing formula clauses in their current estate plans to ensure they are still appropriate given the increase in the federal exemption amount.  It may be necessary to have an existing will or trust redrafted to account for the change in the law and utilize language that allows for flexibility in planning.   

In addition, for some people, divorce planning/protection is necessary.  Also, a determination will need to be made as to whether asset control is necessary as well as creditor protection.  Likewise, a consideration may need to be made of the income tax benefits of family entities to shift income (subject to family partnership rules of I.R.C. §704(e)) and qualifying deductions to the entity.  The entity may have been created for estate and gift tax discount purposes, but now could provide income tax benefits.  In any event, family entities (such as family limited partnerships (FLPs) and limited liability companies (LLCs)) will continue to be valuable estate planning tools for many married couples in this wealth range.

Most persons in this zone will likely fare better by not making gifts and retaining the ability to achieve a basis step-up at death for the heirs.  That means income tax basis planning is far more important for most people.    Also, consideration should be made to determine whether insurance is still necessary to fund any potential estate tax liability   It also may be possible to recast insurance to fund state death taxes (presently, 11 states retain an estate tax and five states have an inheritance tax (one state (Maryland) has both)) and serve investment and retirement needs, minimize current income taxes, and otherwise provide liquidity at death.

Note:  In those states that have either an inheritance tax or an estate tax (or both in the case of Maryland), the exemption from tax is typically much lower than the federal exemption.  This fact requires additional planning for decedents in these states. 

Other estate planning points for moderate wealth individuals include:

  • For life insurance, it’s probably not a good idea to cancel the policy before having that move professionally evaluated. That’s particularly the case for trust-owned life insurance.  For pension-owned life insurance, for those persons that are safely below the exemption, adverse tax consequences can likely be avoided.
  • For durable powers of attorney, examine the document to see whether there are caps on gifted amounts (the annual exclusion is now $16,000) and make sure to not have inflation adjusting references to the annual exclusion.

Note:  The present interest annual exclusion for federal gift tax purposes is projected to be $17,000 per donee for gifts made in 2023. 

  • For qualified personal residence trusts (QPRTs) that were created when the estate tax exemption was $2 million, the conventional advice was to deed the house from the QPRT to the children or a remainder trust (which might have been a grantor trust), with a written lease agreement in favor of the parent/donor who would continue to live in the house. Now, it may be desired to have the home included in the estate for basis step-up purposes and the elimination of gain on sale.
  • While FLPs and LLCs may have been created to deal with an estate tax value-inclusion issue, it may not be wise to simply dismantle them because estate tax is no longer a problem for the client. Indeed, it may be a good idea to actually cause inclusion of the FLP interest in the estate.  This can be accomplished by revising the partnership or operating agreement and having a parent document control over the FLP.  Then, an I.R.C. §754 election can be made which can allow the heirs to get a basis step-up.

Other Planning Issues

While income tax basis planning (using techniques to cause inclusion of asset value in the estate at death) is now of primary importance for most people, asset protection may also be a major concern.  Pre-nuptial agreements have become more common in recent decades, and marital trusts are also used to ultimately pass assets to the heirs of the first spouse to die (who may not be the surviving spouse’s heirs) at the death of the surviving spouse.  A “beneficiary-controlled” trust has also become a popular estate planning tool.  This allows assets to pass to the beneficiary in trust rather than outright.  The beneficiary can have a limited withdrawal right over principal and direct the disposition of the assets at death while simultaneously achieving creditor protection.  In some states, such as Nebraska, the beneficiary can be the sole trustee without impairing creditor protection. 

Powers of attorney for both financial and health care remain a crucial part of any estate plan.  For a farm family, the financial power should be in addition to the FSA Form 211 and give the designated agent the authority to deal with any financial-related matter that the principal otherwise could. 

Impact of Inflation

The rampant inflation in the economy caused by numerous bad political choices over the past 20 months means that the inflation adjustment for the basic exclusion amount is projected to be $12.920,000 per decedent for deaths in 2023.  That is a significant increase, and it is likely that the basic exclusion amount will be in the $14 million range for 2025 (the last year of the TCJA).  On the flip side, the same disastrous political choices have caused the stock market to drop significantly.  So, not only are retirement savings being lost, but the remaining dollars are also being devalued by inflation.  However, for the few with significant wealth that would potentially be subjected to federal estate tax at death, it is imperative to not waste the higher exemption. This is particularly true given that the IRS has taken the position that gifts made during a year when the unified credit is high will not be clawed back into the donor’s estate at death if the credit is lower at that time.

Conclusion

While estate planning has been made easier by the TCJA, that doesn’t mean that it is no longer necessary.  Reviewing existing plans with an estate planning professional is important.  Also, the TCJA is only temporary.  The estate and gift tax provisions expire at the end of 2025. When that happens, the exemption reverts to what it was under prior law and then is adjusted for inflation.  For deaths in 2026, the federal estate and gift tax exemption is estimated to be somewhere between $7 and $8 million dollars.  While those numbers are still high enough to cover the vast majority of people, they are a far cry from the present $12.06 million amount.  One thing is for sure – a great deal of wealth is going to transfer in the coming decades.  One estimate is that approximately $30 trillion in asset value will transfer over the next 30-40 years.  That’s about a trillion per year over that timeframe.  A chunk of that will involve farm and ranch real estate, livestock, equipment and other personal property.

September 24, 2022 in Estate Planning | Permalink | Comments (0)

Sunday, September 18, 2022

Modifying an Irrevocable Trust – Decanting

Overview

Trusts are a popular part of an estate plan for many people.  Trusts also come in different forms.  Some take effect during life and can be changed whenever the trust grantor (creator or settlor) desires.  These are revocable trusts.  Other trusts, known as irrevocable trusts, also take effect during life but can’t be changed when desired.  Or, at least not as easily.  That’s an issue that comes up often.  People often change their minds and circumstances also can change.  In addition, the tax laws surrounding estates and trust are frequently modified by the Congress as well as the courts.  Also, sometimes drafting errors occur and aren’t caught until after the irrevocable trust has been executed.

So how can a grantor of an irrevocable accomplish a “do over” when circumstances change?  It involves the concept of “decanting” and it’s the topic of today’s post.

Decanting 101

Why decant?  Attempting to change the terms of an irrevocable trust is not a new concept.  “Decanting” involves pouring one trust into another trust with more favorable terms. To state it a different way, decanting involves distributing the assets of one trust to another trust that has the terms that the grantor desires, with the terms that the grantor no longer wants remaining in the old trust.  The reasons to decant a trust can be numerous.  For instance, decanting can be done to change a trust’s situs or trustee powers.  It can also be used to change the number of trustees or to consolidate different trusts.  Decanting can also be used to change the distributional scheme to provide greater asset protection and to better address the needs of a special needs beneficiary.     

Authority to decant.  The ability to “decant” comes from either an express provision in the trust, or a state statute or judicial opinions (common law).  Presently, 12 states have adopted the Uniform Trust Decanting Act (UTDA).  Those states are AL, CO, IL, ME, MA, MT, NE, NM, NC, VA, WA and WV.  24 other states have not adopted the UTDA but have their own specific decanting statutes.  These states are AL, AZ, CA, DE, FL, GA, IN, IA, KY, MI, MN, MO, NV, NH, NY, ND, OH, RI, SC, SD, TN, TX, WI and WY.  In these states, a key question is whether the statute allow the trustee to make the changes that the grantor desires.  If not, a determination must be made as to what the state courts have said on the matter, if anything.  But that could mean that litigation involving the changes is a more likely possibility with a less than certain outcome. 

Other states, such as Kansas, allow trust modification under common law.  In some of these states, courts have determined that decanting is allowed based upon the notion that the trustee’s authority to distribute trust corpus means that the trustee has a special power of appointment which allows the trustee to transfer all (or part) of the trust assets to another irrevocable trust for the same beneficiaries. Thus, a trustee attempting to decant a trust must do so consistent with the fiduciary obligations that govern a trustee – reasonableness and good faith. 

Note:  With respect to fiduciary duties, because some beneficiaries might be disaffected by decanting, it may be wise for the trustee to obtain consents or releases from trust beneficiaries.  But, if such consent is deemed to be a right to control property in the hands of the beneficiary, gift tax could be triggered.  This is a particular likelihood if the beneficiary causes or permits the beneficiary’s interest in the trust to pass to a different beneficiary, or if the beneficiary releases a general power of appointment. 

Ascertainable standard.  Many trusts have “ascertainable standard” provisions that direct the trustee to make distributions to a beneficiary in an accordance with certain standards typically tied to the beneficiary’s living conditions and needs.  If the trustee is also a beneficiary, any ascertainable standards established in the trust should not be changed by decanting.  Indeed, state law might require the ascertainable standards in the new trust to be either more restrictive or at least as restrictive as the prior trust if the trustee having the power to appoint trust property is also a beneficiary. 

Grantor’s rights.  Care should be taken to not change the grantor’s rights and interests in trust principal.  Likewise, the ability of the trustee to decant should not involve the grantor or be contingent upon the grantor’s consent so as to avoid the decanting process being deemed as a right to control property under I.R.C. §§2036 or 2038 that would cause inclusion of the trust corpus in the grantor’s gross estate upon death.  Similar issues can arise with respect to beneficiaries.  Decanting can create an estate tax issue for a beneficiary if the decanted trust (new trust) provides a beneficiary with a general power of appointment that wasn’t present in the original trust, or the property included in the beneficiary’s gross estate is treated as a gift by the beneficiary due to decanting, or the power to decant is deemed a general power of appointment, or decanting makes an incomplete gift a complete gift when the beneficiary dies. 

Note:  The decanting process cannot add beneficiaries without express authority in the original trust instrument.  Even then, only a non-beneficiary trustee may engage in the decanting process. 

GSTT.  Also, if assets are added (even indirectly) to a grandfathered generation-skipping transfer trust (GSTT), the grandfathered status is lost, and the trust is exposed to the GSTT. In 2011, the IRS announced that it was studying the implications of decanting that result in a change in the beneficial interest in the trust.  IRS requested comments regarding when (and under what circumstances) such transfers are not subject to the GSTT.  Notice 2011-101, 2011-52 IRB 932.

Trust protector.  If conditions are not favorable for decanting in a particular jurisdiction, it may be possible under the trust’s terms, or a “trust protector” provision, to shift the trust to a different jurisdiction where the desired changes will be allowed.  Absent favorable trust terms, it might be possible to petition a local court for authority to modify the trust to allow the governing jurisdiction of the trust to be changed.

Document preparation.  If decanting can be done, the process of changing the trust terms requires document preparation that will result in the pouring of the assets of the trust into another trust with different terms. Throughout the process, it is important to follow all applicable statutory rules.  Care must be taken when preparing deeds, beneficiary forms, establishing new accounts and conducting any other related business to complete the change. 

IRS Private Ruling – Judicial Reformation

In the fall of 2015, the IRS released a Private Letter Ruling that dealt with the need to change an error in the drafting of an irrevocable trust in order to repair tax issues with the trust. Priv. Ltr. Rul. 201544005 (Jun. 19, 2015).  The private ruling involved an irrevocable trust that had a couple of flaws.  The settlors (a married couple) created the trust for their children, naming themselves as trustees.  One problem was that the trust terms gave the settlors a retained power to change the beneficial interests of the trust.  That resulted in an incomplete gift of the transfer of the property to the trust.  In addition, the retained power meant that I.R.C. §2036 came into play and would cause inclusion of the property subject to the power in the settlors’ estates.  The couple intended that their transfers to the trust be completed gifts that would not be included in their gross estates, so they filed a state court petition for reformation of the trust to correct the drafting errors.  The drafting attorney submitted an affidavit that the couple’s intent was that their transfers of property to the trust be treated as completed gifts and that the trust was intended to optimize their applicable exclusion amount.  The couple also sought to resign as trustees.   The court allowed reformation of the trust.  That fixed the tax problems.  The IRS determined that the court reformation would be respected because the reformation carried out the settlors’ intent.

When to Decant

So, it is possible that an irrevocable trust can be changed to fix a drafting error and for other reasons if the law and facts allow.

What are common reasons decant an irrevocable trust?  Some of the most common ones include the following:

  • To achieve greater creditor protection by changing, for example, a support trust to a discretionary trust (this can be a big issue, for example, with respect to long-term health care planning);
  • To change the situs (jurisdiction where the trust is administered) to a location with greater pro-trust laws;
  • To adjust the terms of the trust to take into account the relatively larger federal estate exemption applicable exclusion and include power of appointment language that causes inclusion of the trust property in the settlor’s estate to achieve an income tax basis “step-up” at death (this has become a bigger issue as the federal estate tax exemption has risen substantially in recent years);
  • To provide for a successor trustee and modify the trustee powers;
  • To either combine multiple trusts or separate one trust into a trust for each beneficiary;
  • To create a special needs trust for a beneficiary with a disability;
  • To permit the trust to be qualified to hold stock in an S corporation and, of course;
  • To correct drafting errors that create tax problems and, perhaps, in the process of doing so create a fundamentally different trust.

Conclusion

The ability to modify an irrevocable trust is critical.  This is particularly true with the dramatic change in the federal estate and gift tax systems in recent years.  Modification may also be necessary when desires and goals change or to correct an error in drafting.  Fortunately, in many instances, it is possible to make changes even though the trust is “irrevocable.” 

September 18, 2022 in Estate Planning | 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)

Saturday, July 16, 2022

IRS Modifies Portability Election Rule

Overview

With the increase in the exemption equivalent of the unified credit to $12.06 million per person for deaths in 2022, very few estates have any federal estate tax liability.  That means it is often the case that there is a “leftover” (unused) exemption amount at death.  Normally, that unused amount would simply be lost.  However, starting in 2011, upon the death of the first to die of a married couple the estate of the first spouse to die can elect to “port” (transfer) the unused exclusion amount to the surviving spouse.  The amount ported over is added to the existing exclusion amount of the surviving spouse for the surviving spouse to use to either offset lifetime gifts (the federal estate tax and gift tax are “coupled”) or offset estate tax at death. 

Often, the amount ported over is the full $12.06 million that can be ported to the surviving spouse, either because the estate was unplanned and everything automatically passes to the surviving spouse (and is covered by the marital deduction), or because the first spouse’s estate has been intentionally planned with that result in mind.  But, sometimes there are larger estates where some of the first-spouse’s exemption is used to offset federal estates tax.  The unused balance can be ported to the surviving spouse and added to the surviving spouse’s exemption.

But the “porting” of the deceased spouse’s unused exclusion amount (DSUEA) is not automatic.  As indicated above, an election must be made in the deceased spouse’s estate to transfer the DSUEA to the surviving spouse.  The timeframe for making the portability election had been two years from the date of the first spouse’s death.  Now, the IRS has changed that two-year timeframe to five.

The IRS modification of the timeframe for filing a portability election – it’s the topic of today’s post.

The DSUEA Election

Two-year rule.  The Treasury Regulations set the rules for making the DSUEA portability election.  The executor of the estate of the first spouse to die must make the election on a timely-filed federal estate tax return (Form 706).  Treas. Reg. §20.2010-2(a).  To make the election, the deceased spouse must be a U.S. citizen or resident as of the date of death; a federal estate tax return is not required to be filed (because the estate is not large enough to have federal estate tax liability); and no federal estate tax return was filed.  If no Form 706 is filed, the portability election cannot be made.  Treas. Reg. §20.2010(a)(3).  For larger estates that trigger an estate tax liability and the filing of Form 706, any unused DSUEA is automatically ported to the surviving spouse.

As for the portability election, “timely-filed” means nine months after death or, by extension, 15 months after death.  The IRS can grant extensions of time from those deadlines and has done so on numerous occasions by issuing private letter rulings.  Indeed, the IRS grew weary of granting so many extensions that it issued Rev. Proc. 2017-34 in 2017 providing a simplified method for estates to get an automatic extension of time to make the portability election.  2017-26, I.R.B. 1282. With Rev. Proc. 2017-34, the IRS also granted an automatic two-year “grace” period to make the portability election – two years from the date of the decedent’s death.

Note:  If a portability election is not desired upon the death of the first spouse, the executor must state affirmatively on a timely filed Form 706 (or attachment) that the estate is not electing portability under I.R.C. §20.10(c)(5).  For larger estates where there is a Form 706 filing requirement, a box on part 6, section A of Form 706 can be checked if the executor does not want to port over the DSUEA. 

Five-year rule.  Even with the two-year “grace” period provided in Rev. Proc. 2017-34, the IRS still received many requests for an extension of time to make the election.  Those requests, coupled with the shortage of IRS personnel in the Estate and Gift Tax branch has led IRS to supersede Rev. Proc. 2017-34 with Rev. Proc. 2022-32, 2022-30 I.R.B. ___.   Under Rev. Proc. 2022-32, the timeframe for making the portability election is extended to five years from the date of the decedent’s death.  Rev. Proc. 2022-32 is effective for estates of decedents dying on or after July 8, 2022. 

Note:  It continues to be the case that the Form 706 that is filed to make the DSUEA election for a non-taxable estate is a simplified Form 706.  There is no need for any appraisals, and amounts can be rounded down to the nearest $250,000.   Also, the requirement for making the electing referenced above that were contained in Rev. Proc. 2017-34 remain unchanged. 

Conclusion

The DSUEA election is an important part of estate planning for a surviving spouse.  While the federal estate tax exclusion amount is schedule to drop to $5 million (adjusted for inflation in 2011 dollars) for deaths after 2025, any amount ported over presently would remain.  That could be a big deal for a surviving spouse with a sizable estate that dies in a year when the applicable exclusion amount is lower than it is now.  It can also be important when a surviving spouse comes into unexpected wealth that substantially increases the size of the taxable estate.  In any event, the DSUEA portability election is an election that should be made in practically every estate of the first spouse to die of a married couple.  While it may ultimately prove to have been unnecessary, it is always better to be safe than sorry.  Now, IRS has provided a five-year period from the death of the first spouse to make the election.  That’s good news for many estates, farm and non-farm.      

July 16, 2022 in Estate Planning | Permalink | Comments (0)

Sunday, July 3, 2022

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

Details

This summer’s second premier national ag income tax and estate/business planning conference will be in Durango, Colorado on August 1 and 2 at Fort Lewis College.  The first conference was held at the Wisconsin Dells in mid-June.  If you aren’t able to attend in-person, the conference will be live-cast on the web. 

Day 1 Itinerary

  • I will start off Monday August 1 with a tax update covering key rulings and cases of recent vintage. This session will keep you updated on what the tax issues are in the courts and with the IRS. 
  • Paul Neiffer with CliftonLarsonAllen will take us through the tax reporting issues with various federal farm programs and the options for deferring crop insurance.
  • I will then have a session on correcting depreciation errors. When can an amended return be filed and when is Form 3115 required?
  • Paul will then cover research and development credits and how to claim them on an amended return. He will follow this session with another session on farm net operating losses – a tax technique that has been modified several times in recent years.  Making and revoking elections will be addressed.
  • During the last morning session, I will cover taxation of retailer reward programs from the perspective of both the retailer and the customer. These programs are popular among many ag retailers.  I will also address the proper tax treatment of demolishing structures on the farm.
  • After the luncheon, Tiffany Robinson of the Criminal Investigation Division of IRS will provide insight from the Division’s perspective on how a business can identify data breaches, how the “Dark Web” is utilized for cyber-crimes, and crypto crimes.
  • The afternoon session involves myself and Paul covering numerous farm tax topics from machinery trades to inventory accounting, to early termination of CRP contracts, weather-related livestock sales and contribution margin analysis.

Day 2 Itinerary

  • Tuesday August 2 opens with my update of cases and rulings pertaining to farm business structures and estate planning.
  • I will follow my opening session with a discussion of succession planning strategies with intentionally defective grantor trusts and grantor-retained annuity trusts.
  • After the morning break, Tim O’Sullivan of the Foulston firm in Wichita, Kansas, will address income and estate planning techniques for estates of all sizes and how to fit those techniques with your client’s particular goals and objectives.
  • The final morning session will involve Mary Ellen Denomy, a nationally known speaker on oil and gas issues and CPA addressing how to report oil and gas royalties and working interest payments on the tax return; estate plans for clients with oil and gas interests; whether clients are being paid according to their agreements; and the role of the CPA in these situations.
  • After the luncheon, Mark Dikeman of the Kansas State University Farm Management Association will provide a session on farm economics and how to analyze the economic health of a client’s farming/ranching business. What is the true financial health of the business as opposed to what the tax return might say?
  • The next session is an absolute must if you represent clients with water rights. This panel session will involve three practitioners (one from Kansas (Mike Ramsey) and two from Colorado (Andy Morehead and John Howe) that will cover water rights in the context of income tax and estate/business planning.  How do water rights impact sale and transition transactions? 
  • Shawn Leisinger and I will close out the day with an hour of ethics focusing on asset protection planning - the right way to do it and the potential ethical violations if it is not done properly. This will be an eye-opening session.

Attend Online

If you can’t attend in person, attendance may be virtually. 

Accreditation

Washburn Law School is an NASBA certified CPE provider. For accountants, the conference qualifies as GIB, but is also offered in GL format.  The conference also qualifies for CLE credit for attorneys. 

Additional Information

More information about the conference and how to register can be found at this link:  https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html

Conclusion

If you have a rural practice or represent farm and ranch clients on their tax or estate/business planning issues, this conference is a “must attend” conference.  I hope to see you there or online.

July 3, 2022 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Wednesday, June 29, 2022

S Corporation Dissolution – Part Two; Divisive Reorganization Alternative

Overview

In Part One earlier this week, the focus was on the tax issues associated with liquidating an S corporation.  In Part One, I noted that the same general liquidation rules apply to an S corporation as to a C corporation.  However, the tax cost is significantly smaller unless the S corporation is subject to built-in gains taxation.  One other point to note is that an S corporation must be liquidated in the same tax year as the sale/distribution of assets to produce the desired tax result.  If a sale/distribution of assets is accomplished in one tax year and the liquidation of the corporation in the following year, the capital loss produced upon liquidation would not offset the capital gain generated by the sale of assets.  In such a case, the capital loss produced upon liquidation would only offset other long-term capital gains for the tax year of the liquidation, plus $3,000 of ordinary income.  The remaining long-term capital loss would be carried forward to subsequent tax years.

An alternative to liquidating an S corporation is a divisive reorganization – and it’s the topic of today’s post.

Alternative to Liquidation – Divisive Reorganization

An alternative to liquidating an S corporation at the death of the surviving spouse is a divisive reorganization under I.R.C. §355.  This can be an option where heirs exist that are interested in continuing the farming/ranching business.  In a divisive reorganization, part of the assets of a parent corporation are split-off to one or more (former) shareholders through a new corporation.  A divisive reorganization typically involves three major steps:

  • Formation of a new subsidiary corporation;
  • Transfer of part of the parent corporation’s assets to the subsidiary (usually tax-free); and
  • Distribution of the stock in the subsidiary to some of the parent corporation’s shareholders in exchange for their stock in the parent corporation.

A divisive reorganization can be used to divide a single, functionally integrated business (e.g. farming operation) into two separate businesses and will allow surviving shareholders to postpone income recognition that would otherwise occur through corporate liquidation at the death of the first generation shareholders.  Treas. Regs. §§1.355-1(b) & 1.355-3(c), Examples 4 & 5.  See also, Rev. Rul. 75-160, 1975-1 CB 112; Coady v. Com’r., 33 T.C. 771 (1960), acq., 1965-2 C.B. 4, non. acq., 1960-2 C.B. 8 (withdrawn), aff’d., 289 F.2d 490 (6th Cir. 1961); United States v. Marett, 325 F.2d 28 (5th Cir. 1963).

For a divisive reorganization to be tax-free, five tests under IRC §355 must be met:

  • Control test;
  • Active conduct of a business” test;
  • Distribution of “solely stock or securities”;
  • Parent corporation must distribute all of the stock in the subsidiary (or enough for control); and
  • Reorganization must not be used “primarily as a device for distribution of earnings and profits.”

While, technically, these five tests must be satisfied for a divisive reorganization to be tax-free, in reality, only two of the tests generally create issues that could prevent a reorganization from being utilized.  The two problematic requisites/tests are the active conduct of trade or business requirement and the trade or business requirement. 

Active conduct of trade or business.  For purposes of I.R.C. §355, a trade or business must have been actively conducted by the distributing parent corporation throughout the five-year period ending on the date of distribution.  The regulations under I.R.C. §355 expand this requirement and require continued operation of the business or businesses existing before the implementation of the divisive reorganization. Accordingly, a transitory continuation of one of the active businesses would not satisfy the active trade or business test provided by these regulations.  I.R.C. §355(b)(1)(A); Treas. Reg. §1.355-3(a)(1).

Guidance on the active trade or business requirement:

  • The holding of stock and securities for investment purposes will not constitute the active conduct of a trade or business. Also, the ownership and rental of real or personal property (e.g., farm real estate) will not constitute the active conduct of a trade or business unless the owner performs significant services with respect to the operation and management of the property. Treas. Reg. §1.355-3(b)(2)(iv).
  • Rul. 73-234, 1973-1 CB 180 involved a corporate farming operation where the active conduct of a trade or business test was satisfied. The facts involved a livestock share lease with active involvement.  The IRS states, “the fact that a portion of a corporation’s business activities is performed by independent contractors will not preclude the corporation from being engaged in the active conduct of a trade or business if the corporation itself directly performs active and substantial management and operational functions.” 
  • The active conduct of a trade or business test was not met in Rev. Rul. 86-126,1896-2 CB 158. The facts involved a corporation that cash rented farmland.  There was a sharing of expenses.  The tenant planted, raised, harvested and sold the crops using the tenant’s equipment.  The activities of the corporate officers in leasing the land, providing advice and reviewing accounts were determined to not be substantial enough to meet the active trade or business requirement. 

Note.  It does not appear that the use of a farm manager (agent) to perform these services for the corporation necessarily impairs the active conduct of a trade or business requirement.  Webster Corp. v. Comr., 25 T.C. 55 (1955), acq. 1960-2 C.B. 4,.7, aff’d., Comr. v. Webster Corp., 240 F 2d 164 (2d Cir. 1957).  However, the officers and directors must be active in directing the activities of the agent, not mere spectators.

Caution - Tax Planning:  The corporation’s officers and directors’ activities for the pre-distribution (5 yr.) and post-distribution (suggested as 2 years or more) time frames should be well documented before a divisive reorganization is undertaken.  Also, payment of at least nominal officer/director salaries for services performed should be considered.

Trade or business purpose.  Treas. Reg. §1.355-2(b)(2) provides that a corporate business purpose must be a real and substantial non-federal tax purpose germane to the business of the distributing corporation, as well as the controlled corporation.  A shareholder purpose (e.g. accomplishing personal estate planning objectives) by itself, is not a corporate business purpose.  However, the regulations go on to explain that a shareholder purpose may be so nearly co-extensive with a corporate business purpose as to preclude any distinction between them, in which case the transaction meets the corporate business purpose requirement.  A transaction motivated in substantial part by a corporate business purpose will not fail the business purpose requirement merely because it is motivated in part by non-federal tax shareholder purposes.

Note.  According to the Treasury Regulation, the whether the business purpose test has been satisfied is generally readily ascertainable (e.g. shareholder disputes or potential therefore, etc.). 

Examples.  Rev. Rul. 2003-52, 2003-1 C.B. 960 involved a family farming corporation that the parents and their two adult children owned.  The children provided active management.  One child intended to focus on the livestock side of the business while the other child preferred to operate the grain farming operation.  The corporation reorganized into two corporations, with one child receiving the stock of the livestock business and the other child receiving the stock of the grain enterprise.  The IRS approved the reorganization on the basis that it was motivated by a substantial non-tax business purpose even though the reorganization advanced the personal estate planning goals of the parents and promoted family harmony. 

Private Letter Ruling 200323041 (Mar. 11, 2003) involved the separation of a grain farming business between siblings after their father’s death.  The IRS concluded that a corporate split-off that is undertaken to avoid shareholder disputes in a family-owned grain farming corporation (engaged in a single line of business) will constitute a divisive reorganization under I.R.C. §368(a)(1)(D) and the stockholders of the split-off corporation would not recognize gain or loss under I.R.C. §355.  See also Priv. Ltr. Rul. 200425033 (Mar. 4, 2004) and Priv. Ltr. Rul. 200422040 (Feb. 13, 2004)(same).  

Note.  The IRS has ruled that the post-distribution business purpose requirement of I.R.C. Reg. §1.355-2(b) remained satisfied even though the business purpose could not be achieved due to an unexpected change in circumstances following the divisive reorganization. In so ruling, the IRS noted that the “regulations do not require that the corporation in fact succeed in meeting its corporate business purpose, as long as, at the time of the distribution, such a purpose exists and motivates, in whole or substantial part, the distribution.”  Rev. Rul. 2003-55, 2003-1 C.B. 961.

Other considerations.  While I.R.C. §355 requires that the corporation seeking a divisive reorganization be engaged in the active conduct of a trade or business it does not require that all of the assets of the corporation be devoted to or used in an active trade or business.  The corporation may hold non-qualifying assets (generally less than 5% of total) as long as it is engaged in the active conduct of a trade or business. Treas. Reg. §1.355-(3)(a)(ii).

Planning recommendation.  It may be advisable to have all shareholders enter into an agreement providing that any shareholder who violates the post-distribution active trade or business rule agrees to pay all taxes incurred by all shareholders if the divisive reorganization fails to pass IRS scrutiny. 

Note:  In Rev. Proc. 2003-48, 2003-2 C.B. 86, the IRS stated that, for ruling requests after August 8, 2003, it would no longer rule on whether (1) a distribution of stock of a controlled corporation is carried out for business purposes, (2) the transaction is used principally as a device, or (3) a distribution and an acquisition are part of a plan under IRS §355(e).  Rather, taxpayers seeking a ruling under IRS §355 must submit representations on these issues for review and determination by IRS.

Conclusion

Tax issues do arise when an S Corporation is dissolved.  Fortunately, certain planning steps can be taken to avoid the heirs being denied the benefit of a basis increase in the corporate assets to fair market value at death.  A reorganization is one possible tax-efficient planning step that could be utilized.  Other planning options (not discussed in this two-part series) include liquidating the S corporation via a merger, and conversion of the S corporation to a partnership. 

June 29, 2022 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Monday, June 27, 2022

S Corporation Dissolution – Part 1

Overview

The S corporation as an entity choice for the operating part of a farming or ranching business has waned over the years in favor of the general partnership (for larger operations) or the limited liability company (LLC).  While it can provide self-employment tax savings, those savings may also be achieved by using a different entity form.  Also, an S corporation requires a lot of administrative “maintenance” that some might find too cumbersome.  But, an S corporation does avoid the corporate level tax as a “flow-through” entity and is generally easy to switch to a different entity form (depending on the facts). 

While an S corporation might be an acceptable entity choice for professional service businesses such as law firms and accounting firms, it tends not to work as well as the operating entity for a farm or ranch.  The S corporation can also present some tricky issues upon liquidation.

Part one of a two-part series – tax (and income tax basis) issues upon liquidation of an S corporation.  It’s the topic of today’s post. 

For farm businesses large enough to qualify for more than one government farm program payment limit, a partnership will allow qualification.  An S corporation will be limited to a single payment limit. Another drawback of the S corporation is the adverse impact upon death of a shareholder.  That adverse impact is shown in the fact that the heirs of the deceased shareholder do not get the benefit of a step-up in basis in the underlying corporate assets to fair market value as of the date of the shareholder’s death.  Unlike a partnership where the heirs receive a full income tax basis increase for all of the underlying partnership assets, an heir of an S corporation shareholder only receives a basis increase in the corporate stock equal to the fair market value of the S corporation at death. 

Shareholder Death and Corporate Liquidation

Upon the death of an S corporation shareholder, the decedent’s stock ownership interest receives a step-up in basis to fair market value.  This basis adjustment coupled with the basis increase that results from gain recognition inside the corporation upon liquidation of corporate assets (e.g. sale/distribution of assets, real estate, etc.) and the pass-through of the taxation of this gain to the shareholder (on Schedule K-1), results in only one level of taxation being incurred on liquidation, and that is at the shareholder level. 

Since stock basis has been increased by death and pass-through of income, no gain recognition results when cash or property is distributed to the decedent’s estate/heirs (in exchange for stock) to complete the liquidation, since the pass-through gain (Schedule K-1) to the estate/heirs will be offset by a matching loss from liquidation of the stock.

Property Distributions

Distributions of property (other than cash) are treated as though the corporation sold the property to the shareholder for its fair market value, pursuant to I.R.C. §311(b).  The corporation recognizes gain to the extent the property’s fair market value exceeds its adjusted basis.  When appreciated property is distributed to an “S” corporate shareholder in exchange for stock, the gain recognized at the corporate level passes through to all shareholders (via Schedule K-1) based on their percentage ownership in the corporation. 

If the “S” corporation only had one shareholder whose interest is liquidated at death, gain recognition does not cause taxation problems due to a matching loss offset resulting from the stock basis adjustments discussed above.  In other words, when the S corporation recognizes table gain, that gain increases the estate’s basis in the stock in an amount equal to the taxable gain that the S corporation recognizes.  This taxable gain is reported to the estate on the corporation’s final Schedule K-1 (Form 1120S).  The estate’s tax basis in its S corporation stock is increased to the fair market value of the S corporation’s stock upon the shareholder’s death and is further increased as a result of the deemed sale of the S corporation stock upon liquidation.  Simultaneously, the estate recognizes a taxable loss equal to the gain reported to the estate on the corporation’s final Schedule K-1.  The loss on the deemed sale of the S corporation stock in the liquidation is reported on the estate’s or heir’s Schedule D (Form 1040 or Form 1041).  Typically, the S corporation gain on the Schedule K-1 (Form 1120S) reported on Schedule E (Form 1040 or Form 1041) and the loss on the Schedule D will net out with no tax due by the estate or the heirs for the S corporation gain on liquidation. 

Caution.  In some instances, a farming S corporation may have one spouse as a shareholder and own ordinary income assets such as grain and equipment.  Upon the shareholder’s death with the corporate stock passing to the surviving spouse, the sale of those assets by the surviving spouse will trigger ordinary income to the surviving spouse that will be taxed at the highest rate.  If the surviving spouse then liquidates the S corporation, a capital loss will be triggered in a like amount that will be reported at $3,000 per year (or offset against other capital gains). 

Note.  The business will now have a new step-up in basis in all of its asset which the heirs can contribute tax-free to a new partnership. 

However, if the “S” corporation has more than one shareholder, a distribution of property to a single shareholder (deceased or otherwise) in liquidation of their stock interest will result in a taxation event for all corporate shareholders.

Example:  Assume that Farm Corp. has four equal shareholders.  Mary, a shareholder who owns 25 percent of the S corporation’s stock dies.  The corporation distributes farm real estate to Mary’s estate in liquidation of her stock interest.  Mary’s estate would report 25 percent of any gain at distribution and would be able to offset this taxable gain through a matching capital loss created by the liquidation of her stock in Farm Corp.  Unfortunately, the other shareholders would be responsible for paying tax on the remaining 75 percent of any gain.

Note:  An alternative to avoid this taxation problem when there are multiple shareholders in an S corporation is to simply have the remaining shareholders purchase the stock of the deceased shareholder.  Implementing a corporate buy-sell agreement among the shareholders might be advantageous to accomplish the desired result.

A shareholder’s income tax basis in distributed property distributed by the corporation is the property’s fair market value at the date of distribution.  But the distributee shareholder’s holding period begins when the shareholder actually or constructively receives the property, because the distribution is treated as if the property were sold to the shareholder at its fair market value on that date.  Since the shareholder’s basis in the property is its fair market value (rather than a carryover of the corporation’s basis), the corporation’s holding period does not tack on to the shareholder’s holding period.  Thus, the redeeming shareholder would need to hold distributed property for one year after distribution prior to sale to achieve capital gain income tax treatment on a subsequent sale.

Conclusion

In Part Two, I will take a look at some alternatives for avoiding the negative tax consequences associated with liquidating an S corporation.

June 27, 2022 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Sunday, June 12, 2022

More Ag Law Court Developments

 Overview

Three recent court opinions from Kansas illustrate the diverse ways that the law is involved in ag-related activities.  Two of the cases involve ag real estate, with one of those having estate planning implications.  The other case involves rules involving showing animals at the State Fair. 

More ag-related court cases and their implications – it’s the topic of today’s post.

Irrigation System Value Included in Land Valuation in Partition Action 

Claeys v. Claeys, No. 124,032, 2022 Kan. App. LEXIS 16 (Kan. Ct. App. May 6, 2022)

Two brothers each inherited an undivided one-third interest in farmland, and the wife of a deceased brother owned the other one-third interest via a trust created for her benefit.  The brothers obtained a water permit, installed and $83,000 ten-tower irrigation system to convert the dryland to irrigation crop farming, and spent over $10,000 on piping and a water meter.  The irrigation system was one brother’s personal property.  The sister in-law did not contribute to the cost of these improvements. She filed a partition action seeking to sever the co-ownership. The brothers counterclaimed, asserting they improved the value of the land and that her share should be offset to account for the improvements.  Three commissioners were appointed to appraise the land and valued the dryland at $390,000 and the irrigated land at $2,065,000, not including the irrigation equipment.  The sister-in-law chose to buy the smaller, non-irrigated tract.  The commissioners determined that because her tract was less valuable, the brothers owed her $428,333 to account for her one-third interest, with $50,000 of that amount placed in escrow pending the outcome of the brothers’ counterclaim. The trial court determined that the definition of “improvements” should be limited to physical structures and equipment.  The trial court ruled for the sister-in-law on the brothers’ counterclaim, find that the brothers had not shown that they receive a credit for the irrigation-driven value increase.  According to the trial court, the irrigation equipment was personal property of one of the brothers and was not an “improvement.”  Hence, the trial court awarded the $50,000 to the sister-in-law.  On appeal, the appellate court held the trial court erred when it found the brothers did not improve the land.  The appellate court determined that Kansas law requires a “broader inquiry” into possible improvements to the land other than just physical structures and equipment, and that the trial court erred when it found that the brothers did not improve the land when they installed the irrigation system.  Changing the land’s status from dry to irrigated and obtaining a water right improved the value of the land.  “Improvements,” the appellate court determined, are not simply limited to physical additions.  The personal property (irrigation system) improved the property and should have been included in the land valuation.  The water permit was not the sole source of the higher land value for the irrigated ground – the irrigation system was necessary to make the water permit “operative.”  Accordingly, the appellate court held that the trial court erred in denying the brothers’ counterclaim and remanded the case to the trial court to determine whether to award credit for the value of the irrigation equipment based on an assessment of the evidence previously presented at trial. 

Comment:  The case points out the possible peril of leaving property to the children in co-equal undivided interests.  What often happens is that a child (or multiple children) will want to "cash-out" by filing a partition action.  That happened in this case, and then the issue of valuation came up to balance out the economics of the partition.  In determining value, "improvements" had to be dealt with. A change from dryland to irrigation farming increases the value of the land and must be accounted for in a partition action. 

Grand Champion Lamb Properly Stripped of State Fair Title

Gilliam v. Kansas State Fair Board, No. 122, 254, 2022 Kan. App. LEXIS 18 (Kan. Ct. App. May 6, 2022)

The plaintiff’s lamb was crowned grand champion of the market-lamb competition at the 2016 Kansas State Fair. State Fair rules bar exhibitors from treating any part of an animal’s body, internally or externally, with a substance to alter conformation.  Regulations also prohibit changing an animal's natural contours or appearance of an animal’s body or inserting a foreign material under the skin – known as "unethical fitting."   Before the Fair was over, the lamb was removed from display, slaughtered and its meat was sold to market.  After the lamb was processed, a veterinarian analyzed the lamb’s carcass and observed multiple injection marks on the back of both hind legs with associated swelling and discoloration in the muscle and fat and abnormal reddening of the skin over those areas.  The veterinarian concluded that multiple recent injections had likely caused the abnormalities.   Lab tests did not identify any drugs in the lamb’s system leading the veterinarian to conclude that a natural substance had been injected.  These finding led the veterinarian to conclude that injections were used to alter the lamb’s appearance, rather than treat the lamb for any illness. Consequently, the defendant (State Fair Board) determined that the plaintiff had engaged in an “unethical fitting,” and stripped the plaintiff of her title along with her championship belt buckle and her $4,000 cash prize. The plaintiff appealed to two State Fair committees with no success and then filed suit.  The trial court determined that the veterinarian’s findings did not provide “substantial evidence” as to unethical fitting.  While the veterinarian confirmed his findings of injections, the trial court noted that he did not find that the lamb’s appearance had been altered and never used the term “unethical fitting.”  Thus, the trial court held that the plaintiff had sustained her burden of proving the invalidity of the defendant’s action.  On appeal, the defendant asserted that “unethical fitting” was its determination to make, not that of a veterinarian, and that the trial court erred in basing its determination on the veterinarian’s conclusion which it found unsupported by the evidence.  The appellate court noted that state law vested in the defendant the authority to adopt rules and regulations governing the State Fair.  Those rules provided non-exhaustive examples of what could be considered unethical fitting and the appellate court determined that the defendant could consider injections to be an “unethical fitting” even though not listed in the examples.  Thus, the appellate court reversed the trial court and held that substantial evidence supported the defendant’s decision to disqualify the plaintiff’s lamb in accordance with the defendant’s rules and that a finding of “unethical fitting” need not be made nor attested to by a veterinarian.  

Comment:      The facts of the case seem to indicate that the practice of “airing” was engaged in with respect to the lamb.  Airing occurs most frequently with market animals such as steers and lambs and is a practice that injects air into the animal’s muscle.  The fat content of the animal’s feed is increased with the intent of the fat filling the “aired” area. When the practice occurs, it is possible that the animal owner does not know that it has happened.  Many animals are sent to professional “fitters” and the owner merely shows the animal. 

Landowner Establishes Adverse Possession Through “Tacking.”

Shelton v. Chacko, 501 P.3d 909 (Kan. Ct. App. 2022)

The parties owned adjacent tracts. A fence existed between the properties on the assumed boundary.  The plaintiff had a survey completed which indicated that the fence was on the plaintiff’s land inside the surveyed boundary.  The plaintiff sued to have the surveyed line established as the boundary, and the defendant counterclaimed to establish the fence line as the boundary via adverse possession.  The trial court held the appellee had established adverse possession over the property through “tacking.”  While the defendant had only possessed the strip in controversy for eight years, the defendant claimed that the evidence showed that the prior owner of the defendant’s tract had owned it and used it up to the fence for at least seven years which meant that the 15-year requirement for adverse possession was satisfied under Kansas law.  The trial court ruled that the defendant had satisfied the requirements for adverse possession via tacking because there was no interruption in possession and no abandonment for at least 15 years, and the defendant had a continual good-faith belief of ownership.  On appeal, the appellate court affirmed, noting that the defendant provided credible testimony of his belief of ownership up to the fence.  The appellate court noted that the fence was in place when the defendant bought his tract and was not repositioned when it was rebuilt. 

Note:   I often get the question of whether the 15-year requirement (Kansas) for adverse possession “resets” when there is a change in ownership.  The answer is “not necessarily so.”  Here the defendant had a good faith belief of ownership for seven years and his predecessor in interest had also treated it as the boundary, as did the adjacent owner. 

June 12, 2022 in Estate Planning, Real Property, 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)

Friday, May 6, 2022

Joint Tenancy and Income Tax Basis At Death

Overview

Given the current level of the federal estate and gift tax applicable exclusion amount set at $12.06 million for decedent’s dying in 2022 and gifts made in 2022, the prospect of a taxable estate at death is a concern for very few.  What is much more important for most people, however, is income tax basis planning.  That’s because property that is included in a decedent’s estate at death receives an income tax basis equal to the property’s fair market value as of the date of death.  I.R.C. §1014.  As a result of this rule, much of current estate planning involves techniques to cause inclusion of property in a decedent’s estate at death.  Even though the property will be subjected to federal estate tax, the value will be excluded from tax by virtue of the unified credit that can offset up to $12.06 million of taxable estate.

Joint Tenancy Basics

Joint forms of property holding between husband and wife have been widely used among farm families because of certain supposed advantages, one of which is the simplicity of transferring property upon death.  A distinguishing characteristic of joint tenancy is the right of survivorship.  That means that the surviving joint tenant or tenants become the full owner(s) of the jointly held property upon the death of a fellow joint tenant regardless of the terms of the deceased joint tenant’s will. 

Upon a conveyance of real property to two or more persons, a tenancy-in-common is generally creates a tenancy in common unless it is clear in the deed or other conveyancing document that a joint tenancy is intended. 

Example:  Alec Trician conveys Blackacre is conveyed to “Michael and Kelsey, husband and wife.” Michael and Kelsey own Blackacre as tenants-in-common.  To own Blackacre as joint tenants, Blackacre needed to be conveyed to them as required by state law.  The typical language for creating a joint tenancy is to “Michael and Kelsey, husband and wife, as joint tenants with right of survivorship and not as tenants in common.”

Estate Tax Treatment of Joint Tenancy Property  

Non-spousal rule.  For joint tenancies involving persons other than husbands and wives, property is taxed in the estate of the first to die except to the extent the surviving owner(s) prove contribution for its acquisition. I.R.C. § 2040(a).  This is the “consideration furnished” rule.  As a result, property could be taxed fully at the death of the first joint tenant to die (if that person provided funds for acquisition) and again at the death of the survivor.  Whatever portion is taxed in the estate of the first to die also receives a new income tax basis based on the fair market value of that portion at the date of death.

Example:  Bob and Bessie Black, brother and sister, purchased a 1,000-acre Montana ranch in 1970 for $1,000,000.  Bob provided $750,000 of the purchase price and Bessie the remaining $250,000.  At all times since 1970, they have owned the ranch in joint tenancy with right of survivorship.  Bob died in 2022 when the ranch had a fair market value of $2,500,000.  Seventy-five percent of the date of death value, $1,875,000 will be included in Bob’s estate.

Bessie, as the surviving joint tenant will now own the entire ranch.  Her income tax basis in the ranch upon Bob’s death is computed as follows:

       $1,875,000 (Value included in Bob’s estate)

        + 250,000  (Bessie’s contribution toward purchase price)

       $2,125,000

Thus, if Bessie were to sell the ranch soon after Bob’s death for $2,500,000, she would incur a federal capital gain tax of $75,000, computed as follows:

       $2,500,000 (Sale price)

       - 2,125,000 (Bessie’s income tax basis)

          $375,000   Taxable gain

                    x.20    (Capital gain tax rate)

            $75,000  (Tax due)

Note:  While property held in joint tenancy is not be included in the “probate estate” for probate purposes, the value of the decedent’s interest in jointly held property is potentially subjected to federal estate tax and state inheritance or state estate tax to the extent the decedent provided the consideration for its acquisition. 

Martial joint tenancies.  For joint tenancies involving only a husband and wife, the property is treated at the first spouse’s death as belonging 50 percent to each spouse for federal estate tax purposes. I.R.C. § 2040(b).  This is known as the “fractional share” rule.  Thus, only one-half of the value is taxed at the death of the first spouse to die.  Although no federal estate tax is incurred on the property passing to the surviving spouse, only one-half receives a new income tax basis equal to fair market value at the death of the deceased spouse in the hands of the surviving spouse. It does not matter which spouse provided the consideration for the spousal joint property.  I.R.C. §1014.

Observation:  An estate planner should carefully analyze the effect of joint property holding on basis adjustment at the death of one of the joint owners.  Generally, only a one-half interest in qualified joint interests will receive a step-up in basis.  However, if the first spouse to die had owned all the property, a full step-up would have been obtained. 

If inception of the tenancy involved a gift by the decedent to the surviving spouse, the survivor’s basis in the property will equal the original transferred basis.  As a result, the sale of the property by the surviving spouse could result in a capital gain. 

Special rule.  In 1992, the Sixth Circuit Court of Appeals applied the consideration furnished rule to a husband-wife joint tenancy in farmland with the result that the entire value of the jointly held property was included in the gross estate of the husband, the first spouse to die. Gallenstein v. United States, 975 F.2d 286 (6th Cir. 1992).     The full value was subject to federal estate tax but was covered by the 100 percent federal estate tax marital deduction, eliminating federal estate tax.  In addition, the entire property received a new income tax basis which was the objective of the surviving spouse.  The court reached this result because of statutory changes to the applicable Internal Revenue Code sections that were made in the late 1970s.  To take advantage of those changes, the court determined, it was critical that the jointly held property at issue was acquired before 1977. 

Under the facts of the case, the farmland was purchased in 1955 for $38,500 exclusively with the husband’s funds.  The surviving wife sold the farmland in 1988 for $3,663,650 after her husband’s death in late 1987.  Under the pre-Tax Reform Act of 1976 rules on joint tenancy contribution, a decedent’s gross estate included all of the value of property held in joint tenancy with another expect the portion of that value contributed by the other person, instead of arbitrarily including one-half of the value of the joint tenancy property.  The surviving wife argued that there was nothing in any legislation that applied the 50 percent inclusion rule to pre-1977 joint interests, but that such interests were still subject to the full marital deduction under the 1981 Act.   

The Gallenstein court reasoned that the 1976 Act applied only to joint interests created after December 31, 1976, and that the 1981 amendments which resulted in the one-half taxability expressly applied to decedents dying after December 31, 1981.  The 1981 amendments did not repeal the January 1, 1977, effective date of the 1976 amendments, which did not apply to joint interests created before 1977.  Because the surviving spouse as joint tenant had made no contribution to the property, she was entitled to a full step-up in basis.  The result was that the entire gain on sale was eliminated because of the full basis step-up. 

In 1996 and 1997, the federal district court for Maryland reached a similar conclusion. Anderson v. United States, 96-2 U.S. Tax Cas. (CCH) ¶60,235 (D. Md. 1996); Wilburn v. United States, 97-2 U.S. Tax Cas. (CCH) ¶50,881 (D. Md. 1997).  Also, in 1997, the Fourth Circuit Court of Appeals followed Gallenstein as did a federal district court in Florida.  Patten v. United States, 116 F.3d 1029 (4th Cir. 1997), aff’g, 96-1 U.S. Tax Cas. (CCH) ¶ 60,231 (W.D. Va. 1996); Baszto v. United States, 98-1 U.S.Tax Cas. (CCH) ¶60,305 (M.D. Fla. 1997). 

In 1998, the Tax Court agreed with the prior federal court opinions.  Under the Tax Court’s reasoning, the fractional share rule cannot be applied to joint interests created before 1977.  Hahn v. Comm’r, 110 T.C. 140 (1998).  This is a key point.  If the jointly held assets had declined in value, such that death of the first spouse would result in a lower basis, the fractional share rule would result in a more advantageous result for the survivor in the event of sale if the survivor could not prove contribution at the death of the first to die. In late 2001, the IRS acquiesced in the Tax Court’s opinion.  Acq, 2001-42, I.R.B. 319.

Conclusion

While there are estate planning drawbacks for owing property in joint tenancy at death, particularly in estates with values greater than the unified credit exemption equivalent.  It also presents challenges where qualification for certain post-mortem estate planning techniques is critical, and because of it is an inflexible ownership structure.  However, as the unified credit exemption equivalent has increased dramatically since 2017, joint tenancy has gained popularity.  Also, for pre-1977 marital joint tenancies where one spouse provided all of the funds to acquire the property and that spouse dies, the full value of the property will be included in the decedent’s gross estate.  But, in many of these estates, the full value will be excluded from federal estate tax.    More importantly, the surviving spouse will receive an income tax basis equal to the value of the property at the time of the first spouse’s death.   In agricultural, many pre-1977 marital joint tenancies involving farmland exist. 

May 6, 2022 in Estate Planning, Income Tax | Permalink | Comments (0)

Wednesday, May 4, 2022

Ag Law (and Medicaid Planning) Court Developments of Interest

Overview

Agricultural law is a dynamic area of the law.  There is always something going on in the courts, with the IRS and in the economy that has relevance to legal issues.  With today’s post I look at some recent developments of importance to farmers and ranchers, including an interesting Texas case involving Medicaid planning.

Recent court developments involving agricultural producers and farm/ranch families. 

Hog is a “Good” Potentially Subject to State Product Liability Law 

Tyson Fresh Meats, Inc. v. Dykhuis Farms, Inc., et al., No. 3:21-CV-90 RLM-MGG, 2022 U.S. Dist. LEXIS 59710 (N.D. Ind. Mar. 31, 2022)

The plaintiff claimed it bought hogs from a company that subcontracted with the defendant to raise the hogs.  The defendant delivered 267 hogs to the plaintiff which processed the hogs and commingled the meat with other meat at its plant.  Two days later, the defendant told the plaintiff that the hogs hadn’t gone through a required withdrawal period for a certain supplement.  As a result, the plaintiff had to dispose more than 1.7 million pounds of “contaminated” fresh meat.  The plaintiff sued for negligence and breach of state (Indiana) product liability law.  The defendant claimed that it provided a service rather than a product and that hogs were not “products” subject to product liability law.  The defendant motioned for dismissal of the case, but the court held that the service-product distinction couldn’t be resolved on a motion to dismiss. 

On appeal, the appellate court held that “goods” under the Indiana Product Liability Law covered “all things” that are “movable” when contracted for, including “the unborn young of animals” and adult animals.  On the negligence claim, however, the appellate court determined that the plaintiff failed to adequately allege that the defendant owed the plaintiff a duty of care.  Thus, the plaintiff was not allowed to proceed with the negligence claim. 

No Standing to Challenge Hog Operation Permits 

Sierra Club v. Stanek, No. 123,023, 2022 Kan. App. Unpub. LEXIS 193 (Kan. Ct. App. Apr. 1, 2022)

The defendant granted four swine facility permits over the plaintiff’s objection. The plaintiff sought review under the Kansas Judicial Review Act (KJRA), claiming that the defendant misinterpreted the relevant statutes and regulations. The trial court agreed and reversed the defendant’s decision.  On appeal, the permittees requested that the defendant grant modified permits so that they could continue operations.  The defendant issued modified permits and the plaintiff sued.    The appellate court held that the plaintiff lacked standing to petition for judicial review, reversed the trial court’s decision and remanded the case with directions to dismiss the plaintiff’s petition and reinstate the original permits. 

Supreme Court Won’t Hear Kansas Case Involving Secret Filming. 

Kelly v. Animal Legal Defense Fund, cert. den., No. 21-760, 2022 U.S. LEXIS 2153 (U.S. Sup. Ct. Apr. 25, 2022)

In 2021, the U.S. Court of Appeals for the Tenth Circuit, held that a Kansas law making it a crime to take pictures or record videos at a covered facility (primarily a slaughterhouse) “without the effective consent of the owner and with the intent to damage the enterprise” was unconstitutional.  The plaintiffs claimed that the law violated their First Amendment free speech rights.  The State claimed that what was being barred was conduct rather than speech and that, therefore, the First Amendment didn’t apply.  But the court tied conduct together with speech to find a constitutional violation – it was necessary to lie to gain access to a covered facility and consent to film activities.  As such, the law regulated protected speech (lying with intent to cause harm to a business) and was unconstitutional.  The court determined that the State failed to prove that the law was narrowly tailored to a compelling state interest in suppressing the “speech” involved.  The dissent pointed out (consistent with the Eighth Circuit) that “lies uttered to obtain consent to enter the premises of an agricultural facility are not protected speech.”  According to the Eighth Circuit, the First Amendment does not protect a fraudulently obtained consent to enter someone else’s property.  The Tenth Circuit disagreed and held the Kansas law unconstitutional.  Animal Legal Defense Fund, et al. v. Kelly, 9 F.4th 1219 (10th Cir. 2021).  The state of Kansas sought U.S. Supreme Court review. Pet. for cert. filed, (U.S. Sup. Ct. Nov. 17, 2021).  On April 25, 2022, the U.S. Supreme Court declined to hear the case. 

Prior Occupancy of Home Not Required For Exclusion Under Medicaid Rules 

Texas Health & Human Services Commission v. Estate of Burt, No. 03-20-00462-CV, 2022 Tex. App. LEXIS 2556 (Tex. Ct. App. Apr. 21, 2022)

The decedent and his wife bought a home in 1974 and lived there until late 2010 when they sold it to their daughter.  They then moved into a rental property that the daughter owned.  In early 2017, the couple entered a skilled nursing facility and shortly thereafter bough a one-half interest in their original home to “secure home equity in a home that they could return to if one or both of them should be able to leave the nursing home.”  The same day, they filled out the plaintiff’s form designating the home as their place of residence and indicating an intent to return.  After the purchase, they had about $2,000 remaining in their bank accounts.  They then sought Medicaid benefits, effective immediately. 

After both the decedent and his wife died shortly thereafter, the application was denied due to a finding of “resources in excess of program limits” because the plaintiff included the couple’s interest in the home as an available countable resource for Medicaid purposes. After the last of them to die, a debt of $23,479.35 was left owing to the nursing facility.  Their daughter appealed the plaintiff’s decision to deny Medicaid benefits, but a hearing officer and the plaintiff’s Legal Services Attorney upheld the denial due to the couple’s inability to establish prior occupancy of the home as a principal place of residence.  As such, the plaintiff determined, none of the equity value of the home could be excludible for Medicaid eligibility purposes. 

The daughter sought judicial review, claiming that the home should have been excluded from her parent’s countable resources for Medicaid eligibility purposes under 42 U.S.C. §1382b(a)(1).  This statute provides that a Medicaid applicant’s home is not an available asset for Medicaid eligibility purposes and is defined as any personal residence in which the applicant has an ownership interest.  State (Texas) law contains an identical definition.  1 Tex Admin. Code §§358.103(38), (69).  Under federal regulations, “place of residence” is defined as “the dwelling the individual considers his or her established or principal home and to which, if absent, he or she intends to return.”  Program Operations Manual System, SI 01130.100A.2.  Again, state law on this point is identical, defining a home as the “place of residence of the applicant or applicant’s spouse if the applicant “occupies or intends to return to the home.”  1 Tex. Admin. Code §358.348(a)(1) mirroring 20 C.F.R. §416.1212.  The plaintiff adopted an identical regulation requiring prior occupancy consistent with the Texas statutory provision.  Accordingly, the plaintiff asserted that because the decedent and wife did not have any ownership interest in a home at the time they entered the nursing home, they had no excludible home to which they could intend to return to at that time.  In other words, the plaintiff’s subjective intent was to be ignored and the plaintiff read a “prior occupancy” requirement into the applicable regulations construing 42 U.S.C. §1382b(a)(1) and the comparable Texas provision.

The trial court ruled that the plaintiff’s interpretation was unreasonable and not supported by substantial evidence, reversed the plaintiff’s decision and remanded the case.  The plaintiff appealed, but the appellate court determined that the plaintiff’s interpretation requiring prior occupancy of a home was incorrect. While the plaintiff argued that because the couple bought their interest in the home after entering the nursing facility, they could not be viewed as “intending to return” to it and, as a result, it could not be considered their “home.”  The appellate court noted that “intent to return” in the federal regulation applied only to the continued exclusion of the home before the time the applicant left the property, and that the federal regulation specified that an applicant’s principal place of residence is the place the person considers to be the person’s established home – the subjective intent of the applicant(s). 

While there were no prior Texas appellate decisions directly on point, the appellate court did cite a local county district court opinion in a letter ruling where the court stated, “if Congress had intended to require prior occupancy, it would have been simple to state it.”  That appellate court went on to reason the purpose of Medicaid is better served by allowing an applicant to claim the home exemption for a home that a Medicaid recipient buys or inherits while in a nursing facility, as long as the recipient intends (subjectively) to return to the home upon discharge from the facility.  The appellate court found this reasoning persuasive, found a contrary Arkansas court opinion on the issue that held the opposite to be unpersuasive (Groce v. Director, Arkansas Department of Human Services, 82 Ark. App. 447, 117 S.W.3d 618 (Ark. Ct. App. 2003)), and concluded that there was no “prior actual residence requirement” under Medicaid.  Thus, the plaintiff’s regulatory interpretation was an improper reading of the statute.  As a result, the appellate court affirmed the trial court’s decision. 

Conclusion

The legal issues keep on rolling involving agriculture.  It will be interesting to see if the Texas Medicaid court decision is appealed.  As noted, there is a split of authority on that issue that has implications for long-term care planning.  I will do another recent development blog soon. 

May 4, 2022 in Contracts, Estate Planning, Regulatory Law | Permalink | Comments (2)

Sunday, May 1, 2022

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

Overview

The Washburn Law School Summer 2022 national conferences on ag income tax and ag estate and business planning are approaching.  The first one will be June 13-14 at the Chula Vista Resort near the Wisconsin Dells.  The second conference will be in Durango, Colorado, at Fort Lewis College on August 1-2.

Registration is now open for both the Wisconsin event in mid-June and the Colorado event in early August. 

Wisconsin Dells, Wisconsin

Here’s the link to the online brochure and registration for the event at the Chula Vista Resort on June 13-14:  https://www.washburnlaw.edu/employers/cle/farmandranchtaxjune.html

A block of rooms is available for this seminar at a rate of $139.00 per night plus taxes and fees. To make a reservation call (855) 529-7630 and reference booking ID "#i60172 Washburn Law School." Rooms can be reserved at the group rate through May 15, 2022. Reservations requested after May 15 are subject to availability at the time of reservation.

An hour of ethics is provided at the end of Day 2.

The conference will also be broadcast live online for those that cannot attend in person.  Online attendees will be able to interact with the presenters, if desired. 

Here’s a rundown of the topics by day, for more detail see the registration at the link provided above:

Day 1 (at both Wisconsin and Durango)

  • Tax Update: Key Rulings and Cases
  • Reporting of WHIP and Other Government Payments
  • Fixing Bonus Elections and Computations
  • Research and Development Credits
  • Farm NOLs
  • The Taxability of Retailer Reward Programs; Tax Rules Associated with Demolishing Farm Structures
  • IRS-CI: Emerging Cyber Crimes and Crypto Tax Compliance
  • Reporting of machinery trade transactions
  • Inventory accounting issues
  • Early termination of CRP contracts;
  • Partnership reporting;
  • Weather-related livestock sales; and
  • Contribution margin analysis

Day 2 (Wisconsin)

  • Estate and Business Planning Caselaw and Ruling Update
  • The Use of IDGTs (and other strategies) For Succession Planning
  • Anticompetitive Conduct in Agriculture
  • Post-Death Dissolution of S Corporation Stock and Stepped-Up Basis; Last Year of Farming; Deferred Tax liability and Conversion to Form 4835
  • Agricultural Finance and Land Situation
  • Post-Death Basis Increase: Is GallensteinStill in Play?; Using an LLC to Make an S Election
  • Getting Clients Engaged in the Estate/Business Planning Process
  • Ethical Problems in Estate and Income Tax Planning 

Day 2 (Durango)

  • Estate and Business Planning Caselaw and Ruling Update 
  • The Use of IDGTs (and other strategies) For Succession Planning 
  • Estate Planning to Minimize Income Taxation: From the Mundane to the Arcane
  • Oil and Gas Royalties and Working Interest Payments: Taxation, Planning and Oversight
  • Economic Evaluation of a Farm Business 
  • Appropriation Water Rights - Tax and Estate Planning Issues
  • Ethically Negotiating End of Life Family Issues 

Here’s the link to the online brochure and registration for the event in Durango at Fort Lewis College on August 1-2:  https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html

Online Attendance

Both the Wisconsin and Colorado conferences will also be broadcast live online for those that cannot attend in person.  Online attendees will be able to interact with the presenters, if desired. For those attending online, please indicate on your registration whether you would like to have a hardcopy of the conference materials sent to you.

Other Points

There are many other important details about the conferences that you can find by reviewing the online brochures. 

Looking forward to seeing you there or having you participate online.  If you do tax, estate planning or business succession planning work for clients or are involved in production agriculture in any way, this conference is for you.  Each event will also have a presentation involving the farm economy that you won’t want to miss.  Also, if you aren’t needing to claim continuing education credits, you qualify for a lower registration rate.

I am looking forward to seeing you there. 

May 1, 2022 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Thursday, April 28, 2022

Proposed Estate Tax Rules Would Protect Against Decrease in Estate Tax Exemption

Overview

The Treasury has proposed regulations that would prevent certain decedents’ estate from being subject to federal estate tax if the federal estate and gift tax applicable exclusion amount drops to $5 million (adjusted for inflation) for deaths after 2025 as it is set to do so under current law.  The Tax Cuts and Jobs Act enacted in late 2017 set the applicable exclusion amount at $10 million for deaths occurring and taxable gifts made after 2017 (adjusted for inflation).  I.R.C. §2010(c)(3).  The amount, for 2022, is $12.06 million per person/estate. 

A proposed estate/gift tax regulation on the applicable exclusion amount – it’s the topic of today’s post.

Background

Historical.  Estate and gift taxes were unified into a single system in 1976 and remained unified through 2003. The systems are re-unified for transfers occurring after 2010. Under this unified system, gift taxes are calculated based on accumulated taxable gifts made by an individual during life. Estate taxes are calculated on the decedent’s taxable estate at death, reduced by gift taxes paid on post-1976 taxable gifts (except for gift taxes paid within three years of death). A “unified” estate and gift tax credit is available to offset estate tax liability and is a function of the amount of applicable exclusion available at death.  In other words, the credit will be an amount that offsets the tax liability to the extent of the applicable exclusion available to the decedent’s estate at death. 

Computation of federal estate tax.  A decedent’s taxable estate is determined by subtracting from the decedent’s gross estate (adjusted for gifts and gift tax within three years of death except for amounts covered by the federal gift tax annual exclusion), costs of estate administration, allowable losses, the marital deduction, and charitable deduction. Taxable gifts after 1976 (those not covered by the federal gift tax annual exclusion, marital deduction or charitable deduction) are included in the taxable estate for purposes of determining the amount of prior use of the unified credit and the point to begin figuring federal estate tax on the graduated tax schedule.

Potential problem.  Based on this manner of calculating a decedent’s taxable estate, a question arises if the applicable exclusion amount that applies at the time of a decedent’s death is different from the amount that applied with respect to any post-1976 taxable gifts made by the decedent during life.  For example, assume a donor made a large taxable gift in 2020 what was completely offset by the unified credit.  If the donor died in 2026 (under current law) when the applicable exclusion amount is lower, would those prior gifts now be deemed to be taxable gifts that are pulled back into the estate for estate tax purposes?  In other words, would those prior taxable gifts be “clawed back” and treated as includible in the decedent’s estate under I.R.C. §2001(b)? 

2019 final regulations.  In 2019, final regulations were issued specifying that gifts made at a time when the applicable exclusion exceeded the amount of the exclusion at death would not be pulled back into the estate at death.  84 Fed. Reg. 64995 (Nov. 26, 2019) creating Treas. Reg. §20.2010-1(c).  The regulations addressed the situation of persons that make lifetime gifts after 2017 and before 2025.  The basic idea of the final regulations is that a donor’s estate is not to be taxed on completed gifts that were not subject to gift tax when made because of a higher applicable exclusion amount than applies at the time of death.  In other words, if a person makes a $12.06 million gift in 2022 (the full exclusion amount) and dies after 2025, the applicable exclusion amount will be $12.06 million rather than $5 million (adjusted for inflation from 2011 to the year of death). 

Note:  Specifically, the final regulations specify that the portion of the unified credit allowed in computing estate tax that is attributable to the applicable exclusion amount is the sum of the amounts attributable to the exclusion amount that is allowed as a credit when computing the gift tax payable on gifts the decedent made during life. 

If a person makes a lifetime gift that is less than the full applicable exclusion amount for the year of the gift, but the gifted amount exceeds the exclusion amount for the year of death, there is no recapture. Instead, the exclusion for computing estate tax at death will be the amount of the exclusion for the year of death.  For example, if an individual makes a $5 million gift in 2022 (when the applicable exclusion amount for estate and gift tax purposes is $12.06 million) and dies after 2025 when, under current law, the exemption will be $5 million (adjusted for inflation from 2011), the individual’s estate tax liability will get the benefit of the exclusion as of the date of the gift.  In the example, that would be $12.06 million and a taxable gift amount of the difference between the exclusion at the time of the gift and the exclusion as of date of death will not be pulled back into the estate for estate tax purposes.

Note:  Under current law, the applicable exclusion amount is a “use it or lose it” concept.  It works to the benefit of a person that lives beyond 2025 to the extent gifts made after 2018 and before 2026 exceed the applicable exclusion amount at the time of death. 

The final regulations also clarify that the rule allowing the surviving spouse to “port” any unused amount of the applicable exclusion at the first spouse’s death (known as the deceased spouse unused exclusion amount (DSUEA) to be added to the surviving spouse’s exclusion amount is retained.  This means that the applicable exclusion amount for the first spouse to die will increase the exclusion available to the surviving spouse.  For instance, assume Mary dies in 2022.  The applicable exclusion amount for 2022 is $12.06 million. Assume that her husband, Dave, elects portability.  If Dave dies after 2025, his applicable exclusion will be the exclusion amount for the year of death (assume $5 million plus an inflation adjustment) plus the $12.06 million DSUEA from Mary’s estate.  If Dave were to make taxable gifts, any DSUEA is deemed to be applied to those gifts before his exclusion amount is applied.  If Dave dies after 2025, the DSUEA applied to his taxable gifts isn’t reduced.  The total amount of applicable credit that was used in computing Dave’s gift tax based on the DSUEA, plus the credit determined without claw-back would be available for computing estate tax in Dave’s estate.  Treas. Reg. §20.2010-1(c).

The 2019 regulations, however, didn’t address the issue of how to treat incomplete gifts such as retained life estates or transfers subject to powers of appointment.  These testamentary transfers are also included in the decedent’s gross estate at death (as “includable gifts”) and could be “clawed-back” into the estate at death if the applicable exclusion amount were lower at that time than it was at the time of the transfer. 

Note:  The 2019 regulations also didn’t address whether the post-2025 reduction in the applicable exclusion amount will impact allocations of the generation-skipping exemption made during 2018-2025.

Proposed Regulations

The proposed regulations remove these “includable gifts” from the estate tax computation.  NPRM Reg-118913-21 (Apr. 26, 2022); 87 Fed. Reg. 24918 (Apr. 27, 2022).  Specifically, the proposed regulation would remove from being clawed back into the decedent’s estate, the value of: (1) gifts that were subject to a retained life estate or subject to other powers or interests (See I.R.C.§§2035-2038 and I.R.C. §2042); (2) gifts made by enforceable promise to the extent unsatisfied at death; (3) transfers of certain applicable retained interests in corporations, partnerships or trusts. (I.R.C. §§2701-2702); and (4) transfers that would have been include in (1)-(3) above but for the transfer, relinquishment or elimination of an interest, power or property within 18 months of the decedent’s death by the decedent alone or in conjunction with any other person, or by any other person.  Prop. Treas. Reg. §20.2010-1(c)(3).  These transfers are removed from the possibility of claw back to the extent the taxable amount is 5 percent or less of the total amount of the transfer (as of the date of the transfer).   

The proposed regulations contain numerous explanatory examples.  Example 1, Prop. Treas. Reg. §20.2010-1(c)(3)(iii) is reproduced below and is based on the assumption that “the basic exclusion amount on the date of the gift was $11.4 million, the basic exclusion amount on the date of death is $6.8 million, and both amounts include hypothetical inflation adjustments. The donor's executor does not elect to use the alternate valuation date and, unless otherwise stated, the donor never married and made no other gifts during life.”

Example 1:

“Individual A made a completed gift of A's promissory note in the amount of $9 million. The note remained unpaid as of the date of A's death. The assets that are to be used to satisfy the note are part of A's gross estate, with the result that the note is treated as includible in the gross estate for purposes of section 2001(b) and is not included in A's adjusted taxable gifts. Because the note is treated as includible in the gross estate and does not qualify for the 5 percent de minimis rule in paragraph (c)(3)(ii)(A) of this section, the exception to the special rule found in paragraph (c)(3) of this section applies to the gift of the note. The credit to be applied for purposes of computing A's estate tax is based on the $6.8 million basic exclusion amount as of A's date of death, subject to the limitation of section 2010(d). The result would be the same if A or a person empowered to act on A's behalf had paid the note within the 18 months prior to the date of A's death.”

The Proposed Regulations also include examples of gifts to a grantor-retained annuity trust and a grantor retained income trust. 

Effective Date

The proposed regulation, once finalized, is applicable to estates of decedent’s dying on or after April 27, 2022.  The proposed rules are open for comments and requests for a public hearing for the 90-day period beginning April 27, 2022. 

Conclusion

The proposed regulation is an important one for larger estates that face potential estate tax liability because of prior taxable gifts.  If the applicable exclusion amount does drop after 2025, the IRS position will result in these estates not having an estate tax burden caused by prior tax-free gifts made when the exclusion was higher being pulled back into the estate and taxed at death because of a lower exclusion amount at that time.  Certain “includable gifts” may also escape claw back.

April 28, 2022 in Estate Planning | 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)