Sunday, November 21, 2021

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


Last week, the IRS published guidance on two items of interest to many tax practitioners and clients.  One item concerned clarification on the tax treatment of Paycheck Protection Program (PPP) loan forgiveness.  The other item involved whether per diem meal reimbursements are 100 percent deductible or are limited to 50 percent.  Also, the newly enacted “infrastructure” bill has a couple of tax provisions of relevance to many tax preparers and clients.

On another note, I will be teaching a two-hour tax ethics course on December 10.

IRS guidance, new law and tax ethics – it’s the topic of today’s post.

PPP Loan Forgiveness

In Rev. Proc. 2021-48, 2021-49 I.R.B., the IRS noted that while PPP loan forgiveness is excluded from gross income, as “tax-exempt” income it can be included in a taxpayer’s gross receipts for other purposes of the Code.  For example, the IRS noted that “tax-exempt” income is included in the gross receipts test for purposes of determining whether a taxpayer qualifies to use cash accounting as a “small business taxpayer.”  I.R.C. §448(c).  The IRS also stated in the Notice that tax-exempt income is also counted for purposes of certain return filing requirement thresholds including that for tax-exempt organizations.  See I.R.C. §6033.

The IRS also stated in Rev. Proc. 2021-48 that a taxpayer in receipt of PPP forgiveness can treat the income as received or accrued when the expenses that are eligible for forgiveness are paid or incurred, or an application for loan forgiveness is filed, or the loan forgiveness is granted.  If the loan is only partially forgiven, the IRS stated that adjustments are to be made on an amended return, information return or as an administrative adjustment request. 

Note:   To the extent that PPP loan forgiveness is treated as gross receipts, the rules of Rev. Proc. 2021-48 apply for purposes of determining the timing and reporting those gross receipts. 

Rev. Proc. 2021-48 is effective for any tax year that a taxpayer pays or incurs eligible expenses, as well as for any tax year that a taxpayer applies for or is granted PPP loan forgiveness.

The IRS also issued Rev. Proc. 2021-49, 2021-49 IRB, in which it provided guidance on the manner in which partners and partnerships allocate among partners in accordance with I.R.C. §704(b) each partner’s distributive share of loan forgiveness and associated deductions.  Relatedly, the IRS noted how a partner’s basis adjustment in the partner’s interest is to occur under I.R.C. §705. 

In Rev. Proc. 2021-50, 2021-50 I.R.B., the IRS provided guidance on the filing of amended returns by partnerships (Form 1065 and K-1) for tax years ending after March 27, 2020, which must be filed by the end of 2021 with the “Amended Return” box checked.  An eligible partnership must have filed Form 1065 and issued K-1s for the partnership tax year ending after March 27, 2020, and before the IRS issued Rev. Procs. 2021-48 and 2021-49 (and satisfy certain other requirements). 

Note:   Only a partnership that is an “eligible BBA partnership” can utilize the provisions of Rev. Proc. 2021-50 for purposes of amending returns.  Such a partnership is one that is subject to the Centralized Partnership Audit Regime that is effective for tax years beginning after 2017.  The new audit process was created under the Bi-Partisan Budget Act (BBA) that was signed into law in late 2015. A partnership is subject to BBA unless it has 100 or fewer partners, all of whom are either individuals, C corporations, foreign entities that would be treated as a C corporation if it were domestic, S corporations or estates of deceased partners, partnership and makes an annual election out of the BBA on a timely filed Form 1065.

Deductible Meals

Under the Tax Cuts and Jobs Act (TCJA), business meal expenses are only fifty-percent deductible (with some limited exceptions) if they are not lavish or extravagant, are incurred when the taxpayer (or an employee of the taxpayer) is present and are for the taxpayer or business associate.  Business meals include meals incurred during travel away from home, including meal per diem expenses. In addition, deductible meals include the cost of meals for a sole proprietor or business associate that are ordinary and necessary expenses paid or incurred in carrying on a trade or business.

Business meals or snacks provided in a restaurant or at the business premises would are 50 percent deductible under the TCJA.  Likewise, food and beverage expenses provided on the business premises primarily for the convenience of the employer are typically 50 percent deductible. The same is true for meal expenses for employees or other attendees at a business meeting in a hotel, or when traveling away from home on business.

In late 2020, the Consolidated Appropriations Act (CAA) became law.  The CAA included a provision making all business meals that a restaurant provides to be fully (100 percent) deductible.  A restaurant is defined as having a primary business of preparing meals for consumption either on site or off.  That definition eliminates grocery stores as well as convenience stores. 

In Notice 2021-63, 2021-49 I.R.B., the IRS indicated that a business that reimburses employees for meals via per diem qualifies for the 100 percent meal deduction for 2021 and 2022.  The employee need not show that the meal was from a restaurant.

Infrastructure Investment and Jobs Act (IIJA)

Cryptocurrency.  In the recently enacted IIJA, an information reporting requirement for cryptocurrency was added.  The bill amends I.R.C. §6045 by creating an information reporting requirement for “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”  A “digital asset” is “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.”  These assets are now defined as “securities” that trigger the information reporting requirements of I.R.C. §6045 and a Form 1099-B.  IIJA, Title V, §80603.

The information reporting applies to businesses receiving at least $10,000 in digital assets.  How the information is to be acquired that needs to be reported is not certain.  Presently, a group of Senators is working on additional legislation designed to provide greater clarity.

Employee Retention Credit (ERC).  The IIJA repeals the ERC effective for the fourth quarter of 2021 – except for a “recovery startup business” - a business that began operations on or after February 15, 2020, and has average annual gross receipts of $1 million or less.  IIJA, Title V, §80604.

The retroactive (at least partially) repeal of the ERC for the fourth quarter will impact employers that were anticipating receiving the ERC during the last quarter of 2021.  Those employers likely reduced tax deposits and may have accounted for the ERC in their budget projections.  Any underpaid payroll taxes and associated employment tax compliance issues will need to be determined. It remains to be seen whether the IRS will grant relief on this issue. 

Tax Ethics Seminar/Webinar

On December 10, I will be teaching a 2-hour tax ethics course.  The session will originate from the law school and there is limited seating available for in-person attendance.  The class will also be available online.  I will be focusing on the practical application of the ethical rules to tax practice – a scenario-based approach to looking at how the ethical rules apply to various client situations.  If you are in need of two hours of ethics, I encourage you to attend – either in-person or online.  You can learn more about the event and register here:


The tax mill never seems to stop churning out more developments.  If the Senate and House reach an agreement over the “porkulus” bill, there will be more “tax stuff” to write and talk about. 

November 21, 2021 in Income Tax | Permalink | Comments (0)

Friday, November 19, 2021

Self-Employment Taxation of CRP Rents – Part Three


Today’s article is the last in a three-part series on the self-employment taxation of Conservation Reserve Program (CRP) payments.   In Part One, I set forth the background of the CRP and the history of the self-employment tax treatment of government payments that farmers receive.  I then covered the significant IRS private rulings on the tax treatment of CRP payments, a Tax Court case in 1996 and another Tax Court decision a couple of years later that was subsequently reversed by the U.S. Court of Appeals for the Sixth Circuit.  The IRS then announced that its historic position on the self-employment tax treatment of CRP payments was going to change (for the worse), but failed to formalize that change in policy.  Next, the Congress provided partial relief in the 2008 Farm Bill, but the larger issue remained. 

In Part Two, I discussed the litigation on the issue including a major federal appellate court decision in 2014 that wiped out the IRS position on the issue. 

In today’s Part Three, I address the proper income tax reporting of CRP payments based on the taxpayer’s facts and circumstances.

Proper tax reporting of CRP payments – it’s the topic of today’s post.

The Morehouse Decision

As noted in Part Two, in 2014, the U.S. Court of Appeals for the Eighth Circuit reversed the Tax Court and held that CRP payments paid to non-farmers are rents from real estate that are excluded from self-employment tax under I.R.C. §1402(a)(1).  Morehouse v. Comr., 769 F.3d 616 (8th Cir. 2014). In so holding, the court gave no deference to an IRS Notice of Proposed Revenue Ruling IRS Notice 2006-108, IRB 2006-51.  Had the IRS formally adopted the Revenue Ruling it would have reversed the longstanding IRS position that land conservation payments paid to non-farmers are not subject to self-employment tax.  See, e.g., Rev. Rul. 60-32, 1960-1 CB 23.  

IRS non-acquiescence.  In reaction to the Eighth Circuit’s Morehouse decision, the IRS did not appeal but instead issued a non-acquiescence, sticking to its (unofficial) position on the self-employment taxability of CRP payments.  In its non-acquiescence, the IRS announced that audits would continue unabated – even in the Eighth Circuit. A.O.D. 2015-002, I.R.B. 2015-41 (Oct. 13, 2015).  The IRS asserted that the Eighth Circuit “misinterprets” Rev. Rul. 60-32 and Rev. Rul. 65-149.  Of course, Rev. Rul. 60-32 is a major obstacle to the IRS position on the self-employment taxability of CRP payments in the hands of a non-farmer.  The IRS, in the A.O.D., claimed that Rev. Rul. 60-32 only applies in the context of landlords who do not materially participate in a farming operation on their land.  Since Morehouse was not a landlord, IRS claimed that Rev. Rul. 60-32 didn’t apply to shield the CRP payments from self-employment tax.  Under the IRS rationale, Morehouse was an “operator” of his CRP land which doesn’t require material participation to trigger self-employment tax.  The IRS claimed to base its position on the exception to the rental real estate exception of I.R.C. §1402(a)(1) that is contained in I.R.C. §1402(a)(1)(a).  That provision subjects income to self-employment tax that is derived under an arrangement between a farm owner or tenant and another individual which provides that the other individual will produce agricultural or horticultural commodities on the land and provides that there shall be material participation by the owner or tenant in the production or the management of the production of the commodities, and that there actually is material  participation by the owner or tenant in the production of the commodities on the land.  The IRS made no mention of the fact that the statute (I.R.C. §1402(a)), the U.S. Supreme Court (Comr. v. Groetzinger, 480 U.S. 23 (1987)) and the Eighth Circuit (at least during oral arguments in Morehouse), require income to be derived from the taxpayer’s trade or business for the income to be subject to self-employment tax.

To put it bluntly, the IRS position in the non-acquiescence is absurd.  Rev. Rul. 60-32 states that payments and benefits attributable to the acreage reserve program (a.k.a. the Soil Bank – the precursor to the CRP) are includible in determining the recipient’s net earnings from self-employment if the taxpayer operates his farm personally or through agents or employees but if “. . . he does not so operate or materially participate, payments received are not to be included in determining net earnings from self-employment.” (Emphasis added).  Notice that it says “personally” and “he does not so operate.”  Thus, Rev. Rul. 60-32 is not limited in its application to landlords, it includes “operators” and it is directly applicable to the facts of Morehouse (and countless other non-farmers with CRP income), and remains a major obstacle to the changed position of the IRS first announced in 2003.

The IRS, in the A.O.D. also claimed that Rev. Rul. 65-149 merely elaborated the point made in Rev. Rul. 60-32 that the only situation addressed was that non-materially participating landlords would not have self-employment tax on their Soil Bank payments, but that non-landlord investors or non-farmer estate beneficiaries would.  Again, that is a mischaracterization of Rev. Rul. 65-149.  In that Revenue Ruling, the IRS stated that annual payments under farm programs comparable to the CRP are not subject to self-employment tax if the taxpayer was not materially participating in farming operations (either personally or via a lease) on land not in the government land diversion program.  “Personally” refers to being the “operator.” 

Note:  The key to understanding the IRS position is that, with respect to the CRP, a recipient of CRP payments is either a farm landlord or a farmer.  There is no room, in the IRS view, for a non-farmer who is not a landlord.  A non-farmer is an “operator” for which the material participation requirement doesn’t apply.  Thus, the CRP income is subject to self-employment tax without any requirement that the income be derived from the taxpayer’s conduct of a trade or business. 

Also, the Eighth Circuit did not, as the IRS claims in the A.O.D., assert that either Rev. Rul. 60-32 or Rev. Rul. 65-149 support the conclusion that the CRP payments in Morehouse constituted rents from real estate.  Instead, the Eighth Circuit opinion was two-pronged:  (1)  the CRP, as the modern-day version of the Soil Bank, resulted in payments that should be treated the same for self-employment tax purposes as Soil Bank Payments were under the Revenue Ruling that IRS had not obsoleted – not subject to self-employment tax in the hands of a non-farmer; and (2) the CRP payments in the hands of a non-farmer are real estate rentals that are statutorily excluded from self-employment tax under I.R.C. §1402(a)(1). 

The IRS also claimed in the A.O.D. that the 2008 Farm Bill amendment to I.R.C. §1402(a)(1), by implication, meant that CRP payments paid before 2008 were not covered by the rental real estate exception of I.R.C. §1402(a)(1), and that for those payments made after 2007 are subject to self-employment tax unless the recipient is also receiving social security retirement or disability payments.  However, as pointed out above, the dissent’s point in Morehouse that the court’s rent analysis was inapplicable to post-2007 payments seems to indicate that the dissenting judge believes that the statutory change to I.R.C. §1402(a)(1) means that CRP payments paid post-2007 are “rents” that are statutorily exempt from self-employment tax.  That conclusion is precisely the opposite of the IRS statement in the A.O.D.

Proper Tax Reporting of CRP Payments

Inside the Eighth Circuit (AR, IA, MN, MO, NE, ND and SD).  The effect of the Morehouse decision is that non-farmers do not have to pay self-employment tax on CRP payments. That is certainly the result within the Eighth Circuit. Active farmers still have self-employment tax to pay on CRP payments unless the 2008 Farm Bill provision applies to them.

Note.  The 2008 Farm Bill provision excludes CRP payments from self-employment tax in the hands of an individual that is collecting retirement or disability benefits from the Social Security Administration, even though they would otherwise report CPR income on Schedule F due to other active farming activities.  The exclusion is tied to receipt of benefits, not mere eligibility.  If a taxpayer that is engaged in the trade or business of farming chooses to delay receipt of Social Security payments until age 70, any CRP payments received must be reported on Schedule F. 

Even though the Morehouse opinion technically applies only to CRP rents paid before 2008, the opinion stands for the proposition that a non-farmer does not materially participate with respect to land in the CRP.  In addition, for taxpayers in the Eighth Circuit, the court’s expansive view of the term "rent" provides authority for asserting that any taxpayer’s receipt of CRP is not self-employment taxable, since it is a receipt from real estate rental.  Also, the dissent’s point that the court’s rent analysis was inapplicable to post-2007 payments seems to indicate that the dissenting judge believes that the statutory change to I.R.C. §1402(a)(1) means that CRP payments paid post-2007 are “rents” that are statutorily exempt from self-employment tax.

Inside the Sixth Circuit (KY, MI, OH and TN).  For practitioners representing taxpayers in the Sixth Circuit (where the Wuebker matter arose), CRP payments are considered farm income rather than rents from real estate if there is a “nexus” with the taxpayer’s farming operation.  The facts of Wuebker involved taxpayer’s that were engaged in the trade or business of farming and the CRP payments were from ground that had a nexus with their farming business.  Thus, a taxpayer receiving CRP payments but who is not engaged in the trade or business of farming could reasonably take the position on the return that CRP payments are not subject to self-employment tax due to a lack of nexus with a farming operation.  Likewise, a farmer with, for example, a hunting property or other farmland in the CRP with no nexus to the trade or business of farming would produce CRP rental income not be subject to self-employment tax.

Outside the Sixth and Eighth Circuits.  For taxpayers in neither the Sixth nor Eighth Circuits, CRP payments could be treated as real estate rents that are excludible from self-employment tax under I.R.C. §1402(a)(1).  This position is based on the full Tax Court opinion in Wuebker that CRP payments are “rents.” Also, all taxpayers (regardless of location) receiving Social Security retirement or disability payments can exclude CRP payments from self-employment income.

What To Do Now

Given the IRS non-acquiescence to Morehouse, what is a practitioner to do?  In the A.O.D., the IRS said it will continue to audit returns where CRP income is not reported as subject to self-employment tax, and will maintain its position that all CRP income is subject to self-employment tax unless the 2008 Farm Bill provision applies.  That position is certainly on display in the 2021 IRS Pub. 225.  However, I don’t have any personal evidence that the IRS has the courage to follow through with its threats to enforce its flawed CRP self-employment tax theories.  It appears that IRS is simply relying on misinformation in Pub. 225 to generate more revenue than it is legally entitled to.

Given that the IRS position is wholly without support, and substantial authority exists for excluding CRP rental income from self-employment tax in the hands of a non-farmer, or even in the hands of a farmer where the CRP land has no nexus with the farming operation, the guidance mentioned earlier still applies.  The IRS still has no substantial authority for its position that CRP payments are subject to self-employment tax except for the application of the 2008 Farm Bill provision.    

Given all of this, it’s important to point out that the IRS computers are programmed to look for CRP rental income on Schedule F in all situations. Thus, to avoid receiving a CP2000 Notice, CRP rents should be reported on Schedule F and then, in appropriate situations consistent with the analysis above, backed out via Schedule SE so that self-employment tax doesn’t apply.


It’s frustrating when a government agency continues to stick to its judicially-rejected position against citizens and taxpayers.  It’s similarly frustrating when a government agency issues publications to provide education and guidance that deliberately misstates applicable law.

The three-part series is over.  I rest…

November 19, 2021 in Income Tax | Permalink | Comments (0)

Sunday, November 14, 2021

Self-Employment Taxation of CRP Rents – Part Two


As noted in Part 1, the IRS continues to hold to its incorrect position on the self-employment tax treatment of Conservation Reserve Program (CRP) payments.  In its 2021 version of Publication 225, the “Farmer’s Tax Guide,” the IRS states incorrectly with respect to Conservation Reserve Program (CRP) payments that, “You must include the annual rental payments…on the appropriate lines of Schedule F.”  Of course, by reporting CRP rents on Schedule F the payments are subjected to self-employment tax. 

In Part One of this three-part series, I set forth the background of the CRP and the history of the self-employment tax treatment of government payments that farmers receive.  I then covered the significant IRS private rulings on the tax treatment of CRP payments, a Tax Court case in 1996 and another Tax Court decision a couple of years later that was subsequently reversed by the U.S. Court of Appeals for the Sixth Circuit.  The IRS then announced that its historic position on the self-employment tax treatment of CRP payments was going to change (for the worse), but then failed to formalize that change in policy.  Next, the Congress provided partial relief in the 2008 Farm Bill, but the larger issue remained. 

This leads up to today’s discussion – further litigation leading up to a major federal appellate court decision in 2014.  Part Two of the self-employment tax treatment of CRP payments – it’s the topic of today’s post.

The Intervening Years – The Storm Brews

Based on the court rulings, IRS Revenue Rulings and Private Letter Rulings, the IRS has always had significant support for its position that an active farmer is subject to self-employment tax on CRP income. As a result, many practitioners took the conservative approach of reporting CRP income as Schedule F income subject to self-employment tax on the tax returns of active farmers. The Ray case (Ray v. Comr., T.C. Memo. 1996-436) and Sixth Circuit’s Wuebker opinion (Wuebker v. Comr., 205 F.3d 897 (6th Cir. 2000)) represent strong authority for treating CRP income in the hands of an active farmer as business-related income subject to self-employment tax.

However, some practitioners, particularly those representing clients not within the Sixth Circuit (the Sixth Circuit is comprised of Kentucky, Michigan, Ohio and Tennessee) took a more aggressive approach, on a case-by-case basis, by advising active farmers of the controversy and continuing to report CRP income as non-SE income based on the Tax Court’s Wuebker opinion. (Wuebker v. Comr., 110 T.C. 431 (1998)).   

For taxpayers who are not actively involved in farming (and not receiving Social Security benefits) the IRS position that CRP rents in the hands of these taxpayers are self-employment taxable is not correct.   As noted in Part One, the IRS had always held that Soil Bank and CRP payments are not subject to self-employment tax in the hands of a non-farmer, and the courts had confirmed that view.

The Key Case - Morehouse

In 2013, the U.S. Tax Court released its opinion in Morehouse v. Comr140 T.C 350 (2013).  In Morehouse, the taxpayer was a non-farmer that lived in Texas and worked for the University of Texas. In 1994, he inherited farmland in South Dakota and bought other farmland from his family members. He never personally farmed the land, but rented it out. In 1997, he put the bulk of the property in the CRP while continuing to rent-out the non-CRP land. He hired a local farmer to maintain the CRP land consistent with the CRP contract (e.g., plant a cover crop and maintain weed control).  In 2003, the petitioner moved to Minnesota, but still never personally engaged in farming activities. Consequently, the petitioner reported his CRP income on Schedule E where it was not subject to self-employment tax.

The IRS took the position that the CRP rents were subject to self-employment tax, based on its administrative change of position that it first asserted in 2003.  The Tax Court, in a full Tax Court opinion (Judge Paris not participating), agreed. 140 T.C. 350 (2013).  The Tax Court found the existence of a trade or business based on either the petitioner’s personal involvement with the CRP contract or through the local farmer that he hired to maintain the land. The Tax Court noted that the CRP contract required seeding of a cover crop and maintenance of weed control.  The Tax Court also found important that the taxpayer visited the properties on occasion to ensure that the CRP contract requirements were being satisfied, and participated in emergency haying programs, requested cost-sharing payments, and made the decision as to whether to re-enroll the properties in the CRP upon contract expiration.

The Tax Court cited the Sixth Circuit’s decision in Wuebker as controlling even though the taxpayer in that case was an active farmer and Morehouse had never been engaged in farming. Thus, Wuebker was factually distinguishable. However, the court stated that the petitioner was in the business of maintaining “an environmentally friendly farming operation.”

Note:  While, as the Tax Court ruled in Morehouse, CRP payments may not constitute “rents from real estate” that are thereby exempt from self-employment tax under the exception of I.R.C. §1402(a)(1), that determination has no bearing on the issue of whether the taxpayer is engaged in a trade or business as required by I.R.C. §1402(a). That question can only be answered by examining the facts pertinent to a particular taxpayer. Mere signing of a CRP contract and satisfying the contract terms via an agent is insufficient to answer that question.

The Tax Court’s opinion was appealed to the U.S. Court of Appeals for the Eighth Circuit. The majority opinion, issued by Judge Beam, noted that the CRP is the current federal program in a long line of conservation programs and is similar to the old Soil Bank program – even noting that the CRP program has been referred to as the “Son of Soil Bank.” Based on that close tie, the court noted that the IRS, in Rev. Rul. 60-32, 1960-1 C.B. 23. said that Soil Bank payments paid to non-farmers were not subject to self-employment tax, but they were subject to self-employment tax if they were paid to materially participating farmers. The IRS again restated that position in Rev. Rul. 65-149, 1965-1 C.B. 434.  The appellate court found those rulings to be persuasive and binding on the IRS given the similarities between the CRP and the Soil Bank program.  Thus, the court held that “CRP payments made to non-farmers constitute rentals from real estate for purposes of I.R.C. §1402(a)(1) and are excluded from the self-employment tax.”

The court also pointed out that IRS issued Notice 2006-108, I.R.B. 2006-51 (Dec. 18, 2006), and “with little analysis, the proposed revenue ruling concluded CRP payments to non-farmers were not rentals from real estate and should be treated as income from self-employment.” IRS said in that Notice that the proposed Revenue Ruling would make obsolete Rev. Rul. 60-32, but the IRS never formally adopted the proposed revenue ruling, and the court refused to give it any deference.

The appellate court distinguished the Sixth Circuit’s opinion in Wuebker on the basis that the taxpayer in Morehouse was not a farmer and that the taxpayer in Wuebker was an active farmer. On that point, the appellate court noted that the Sixth Circuit “neither recognized nor rejected the IRS’s position in Rev. Rul. 60-32 that similar payments [i.e., Soil Bank payments] to non-farmers were not self-employment income.”

The appellate court also viewed the CRP payments that the taxpayer received as being for the use and occupancy of his land, noting that the CRP contract reserves the government’s right of entry on the land. The court also found it important that the IRS had represented that if the taxpayer had not fulfilled the contractual requirements, “the USDA could arrange for any needed work to complete ‘on his behalf.’ ” Similarly, the appellate court noted that, via a CRP contract, the government is using the taxpayer’s land for the government’s own purpose of removing sensitive cropland from production and other environmental purposes for the benefit of the public. Accordingly, the appellate court held that “the 2006 and 2007 CRP payments were “consideration paid [by the government] for use [and occupancy] of [Morehouse’s property]” and thus constituted rentals from real estate fully within the meaning of I.R.C. §1402(a)(1).

Because the appellate court determined that CRP payments paid to non-farmers are rentals from real estate that are not subject to self-employment tax under the statutory exclusion of I.R.C. §1402(a)(1), the appellate court did not analyze the trade or business issue.  However, during oral argument, both justices Beam and Loken noted that if the CRP payments were not “rents” the CRP payments must still be derived from the taxpayer’s trade or business to be subject to self-employment tax.  The appellate court clearly did not agree with the IRS argument that all arrangements entered into for profit, regardless of the level of the taxpayer’s involvement, are automatically deemed to constitute a trade or business.  There is absolutely no support for that position.

The bottom line is that the Eighth Circuit reversed the Tax Court and distinguished the Sixth Circuit’s Wuebker opinion by holding that CRP payments in the hands of a non-farmer are not subject to self-employment tax. The court also held that CRP payments at issue (paid before 2008) qualify as “rentals from real estate” because they were payments for the government’s use and occupancy of the taxpayer’s land.

Note:  However, because of the statutory change to I.R.C. §1402(a)(1) by virtue of the 2008 Farm Bill, CRP payments paid after 2007 are “rentals from real estate” for taxpayers receiving Social Security or disability payments. The dissent made this point clear when it stated, “whether CRP payments that the government made after December 31, 2007 or currently makes to a non-farmer qualify as rentals from real estate under amended §1402(a)(1) is a question that the court’s decision does not resolve.” This seems to indicate that this judge views CRP payments to be “rentals from real estate” in every situation when they are paid after 2007.  If this is true,  the differing holdings of the Eighth Circuit and the Sixth Circuit on this particular point were rendered meaningless by the 2008 amendment to I.R.C. §1402(a)(1), and CRP payments paid after 2007 are “rentals from real estate.”


The appellate court’s decision in Morehouse smashed the IRS position that all CRP payments must be reported on Schedule F.  In Part Three, I will discuss the tax reporting implications of the Morehouse decision.

November 14, 2021 in Income Tax | Permalink | Comments (0)

Friday, November 12, 2021

Self Employment Taxation of CRP Rents – Part One


In its 2021 version of Publication 225, the “Farmer’s Tax Guide,” the IRS states with respect to Conservation Reserve Program (CRP) payments that, “You must include the annual rental payments…on the appropriate lines of Schedule F.”  Of course, by reporting CRP rents on Schedule F the payments are subjected to self-employment tax.  However, the IRS statement in Pub. 225 is an incorrect statement of the applicable law.  Not all CRP rental payments are subject to self-employment tax.

In Part One of this three-part series, I lay out the background of the CRP and the history of the self-employment tax treatment of government payments that farmers receive.  In Part Two, I get into the tax reporting of CRP payments before a significant federal court decision on the issue in 2014.  In Part Three, I discuss the current rules for the proper reporting of CRP payments.  By explaining the historical context of the CRP program, past IRS rulings and court cases, the proper tax reporting of the payments can be clearly understood and the IRS statement concerning the reporting of CRP rents in Pub. 225 will be thoroughly disembowled.

The background of the CRP and the history of the self-employment tax treatment of CRP payments – it’s the topic of today’s post.  Part One of the three-part series.


The CRP, originally enacted in 1985, is an agricultural program administered by the U.S. Department of Agriculture (USDA).  Under the program, the program participant agrees to remove the land from active farming, implement a conservation plan, and seed the tract to permanent grass or other vegetative cover to prevent erosion and improve soil and water resources.  The USDA, in exchange, generally shares the initial cost of the conservation measures and makes an annual rental payment (reported on a Form 1099) to the owner of the land.

History of SE Tax Treatment of Government Payments

1960s IRS rulings.  In 1965, the IRS ruled that grain storage fees paid under a price support loan program of the Commodity Credit Corporation (CCC) were self-employment (SE) income if they were paid to an active farm operator, but excludable from SE income if they were paid to a taxpayer who did not materially participate in the farming operation.  Rev. Rul. 65-149, 1965-1 C.B. 434.  That ruling followed-up on and is consistent with another ruling that IRS had released in 1960 in which the IRS took the position that payments received for acres idled under the Soil Bank program were SE income "if he operates his farm personally … or … if his farm is operated by others and he participates materially in the production of commodities."  Rev. Rul. 60-32, 1960-1 C.B. 23.

When the CRP was created with the 1985 Farm Bill (the CRP has been termed the “son of Soil Bank”), the IRS maintained that its rulings from the 1960s applied and that CRP rents were not SE taxable in the hands of a non-farmer.  CRP rents, according to the IRS, would only be SE taxable if the recipient was a farmer.  For example, in Ray v. Comr., T.C. Memo. 1996-436, an active farmer who received income from CRP was required to pay SE tax on the CRP rents, because the farmer was found to already be in the business of farming and the CRP had a direct relationship (nexus) to the farming business. While the farmer was required to care for and conserve the acreage, he was required not to farm or graze the land.

Note.  The Tax Court’s Ray decision reinforced the conclusion that a farmer actively involved in the business of farming who receives CRP income for not farming the acreage is still subject to SE tax on the CRP rents.

The Wuebker Case 

In 1998, the Tax Court held that CRP payments in the hands of an active farmer were not subject to SE tax.  Under the facts of the case, an active farmer received about $18,000 of CRP program payments in 1992 and 1993. The payments were reported on Schedule E as land rents. At the same time, the taxpayer was reporting other farming activity on Schedule F subject to SE tax. The IRS assessed SE tax on the CRP income. However, the Tax Court concluded that the CRP payments were rental income, and accordingly exempt from SE tax under I.R.C. §1402(a)(1). Wuebker v. Comr., 110 T.C. No. 31 (1998). The Tax Court noted that both the federal legislation authorizing the CRP program and the CRP contractual terms described the payments as “rental income.” Further, the court noted that the farmer’s service requirements with respect to the land (implementing a conservation plan and establishing ground cover) were incidental, particularly after the first year. Thus, the court concluded that the CRP payments represented rental for the use of land rather than payment for services, and excluded the payments from SE income as rentals from real estate. Having determined that CRP income qualifies as rental from real estate under I.R.C. §1402(a)(1), the Tax Court pointed out that, based on Treas. Reg. §1.1402(a)-4(d), the CRP income is exempt from SE tax even if the payments are associated with a taxpayer’s active farming operation. That regulations states that where an individual or partnership is engaged in a business and the income is classifiable in part as rental from real estate, only that portion of the income that is not classifiable as rental from real estate is subject to SE tax.

Note:  The Tax Court, in Wuebker, distinguished its findings from its earlier opinion in Ray, noting that the issue of equating the CRP program payments with rental income had not been raised by the taxpayer in that case. The Ray case had focused exclusively on the nexus between the CRP payments and the taxpayer’s farming business, but the Tax Court stated that its determination of CRP income as rental income made that issue moot.

The IRS appealed the Tax Court’s decision, and the Sixth Circuit reversed in a split decision. Wuebker v. Comr., 205 F.3d 897 (6th Cir. 2000).  In reaching its decision, the Sixth Circuit noted that the taxpayer was actively engaged in farming prior to and during the term of the CRP contract, and that the CRP payments were “in connection with” and had a “direct nexus to” the taxpayer’s ongoing farming business.  The Sixth Circuit concluded that the key to the SE tax analysis was the substance, rather than the form, of the transaction. Even though the USDA program labeled the CRP payments as “rent,” the court reasoned that this fact alone was not determinative of the tax issue, given the connection of the CRP income to the active farm business.  However, the Sixth Circuit did not clearly analyze where the line is between activity that constitutes a trade or business for purposes of self-employment tax and activity that does not rise to that level. 

The Sixth Circuit also differed with the Tax Court on the basic issue of whether CRP income was rent. Noting that rent is defined as payment “for the use or occupancy of property,” the Sixth Circuit observed that the U.S. Department of Agriculture (the payor of the CRP revenue) was not using or occupying the farmland. The Wuebkers, the court noted, continued to have control over and access to their property, despite the CRP restrictions on the agricultural use of the land.

Observation.  This split between the Tax Court and the Sixth Circuit appears to be a classic judicial difference in approach. The Tax Court took the more literal interpretation, considering CRP income to be exempt from SE tax because of its plain equivalence to cash rental income. On the other hand, the Sixth Circuit disregarded the rental terminology of the CRP program, and considered the revenue to be a USDA subsidy in lieu of active farming income.

IRS Announcement

In 2003, the IRS signaled that it was changing its position on the self-employment taxability of CRP payments.  In a Chief Counsel Memo., the IRS took the position that a taxpayer’s mere signature on a CRP contract was sufficient to constitute a trade or business which would then make the CRP payments subject to self-employment tax. C.C.M. 200325002 (Jun. 20, 2003). 

Note:   There is absolutely zero authority for the position that a taxpayer’s signature on a document, by itself, is sufficient to constitute a trade or business triggering SE tax. The determination of SE tax is based on the totality of the facts and circumstances of each particular situation.  See Comr. v. Groetzinger, 480 U.S. 23 (1987).   

In late 2006, the IRS announced a proposed Revenue Ruling in which it would officially take the position of the 2003 Chief Counsel Memo, revoke the prior Revenue Rulings to the contrary, and thereby make official the government’s position that CRP payments are always subject to SE tax, whether received by an active farmer or an inactive landlord/investor.  IRS Notice 2006-108. Thus, the IRS was announcing that it planned to change its official, long-held position that such payments were not subject to self-employment tax. 

The proposed Revenue Ruling (which was never made final) contained two situations to illustrate its potential holdings:

  • In the first situation, an individual actively engaged in the business of farming enrolled a portion of his land in the CRP program. The proposed ruling held that the individual would be subject to SE tax on the CRP income.
  • In the second situation, individual B, a landowner, ceased all activities related to the business of farming in the year before entering into a CRP contract. In that subsequent year, B rented out a portion of his land to another farmer and entered into a 10-year CRP contract with respect to the remaining portion of his land. A third party performed the seeding and weed control required under the CRP contract. The proposed ruling held that the individual must treat the CRP rental income as subject to SE tax. This second situation relied on the Sixth Circuit’s Wuebker decision, and focused on the activities required under the CRP contract (tilling, seeding, fertilizing and weed control).

2008 Farm Bill Provision

As a result of a provision included in the 2008 Farm Bill effective for CRP payments made after tax years after 2007, individuals receiving benefits under Section 202 (i.e., retirement) or Section 223 (i.e., disability) of the Social Security Act are exempt from the payment of self-employment tax on CRP income. The provision amended I.R.C. §1402(a)(1). For other taxpayers, no change was made in the SE tax treatment of CRP payments.  Indeed, the Committee Report to the 2008 Farm Bill states that “the treatment of conservation reserve payments received by other taxpayers is not changed.”  The 2008 amendment applies even though the taxpayer begins receiving Social Security benefits before reaching full retirement age.  

This statutory change clearly exempts individuals from SE tax imposition on CRP income, for those who are collecting retirement or disability benefits from the Social Security Administration, even though they might be reporting the CRP income on Schedule F due to other active farming activities. 

Note:   Railroad Retirement benefits Tier III is not a retirement benefit from the Social Security Administration. A person that receives Railroad Retirement and no Social Security benefit is not protected from self-employment tax on CRP payments. 

For taxpayers covered by the 2008 amendment, the Schedule SE instructions note that CRP payments are included on Schedule F, line 4b or listed on Schedule K-1 (Form 1065), box 20, Code AH.  If the taxpayer is receiving Social Security benefits at the time of receipt of CRP payments, the CRP payment amount is then to be subtracted on line 1(b) of Schedule SE. Instructions, 2021 Schedule SE.

Note:   In its 2021 Pub. 225, the IRS correctly states that, “Individuals who are receiving social security retirement or disability benefits may exclude CRP payments when calculating self-employment tax.”


In Part Two, I will continue the discussion by diving deeper into the tax reporting of CRP payments leading up to a major federal appellate court opinion in 2014.

November 12, 2021 in Income Tax | Permalink | Comments (0)

Sunday, October 31, 2021

The Tax Rules Involving Prepaid Farm Expenses


A common year-end tax strategy for farmers is to pre-pay input expenses by the end of the current tax year.  Pre-paying for next year’s seed, feed, fertilizer and chemicals, for a farmer on the cash method of farming, can reduce a current years’ tax burden.  But, if those deductions could be better utilized in the next tax year, pre-paying may not be the best strategy.   

Also, there have been several prominent cases in recent years involving the pre-paying of farming expenses by farmers on the cash method of accounting.  One avenue of attack has been its attempt to deny the use of pre-paid expenses.  Thus, it’s imperative for a farmer to properly pre-pay expenses to be able to claim the deduction in the year of the pre-payment.  As we get closer to the end of the year, and the timeframe during which many pre-payments occur, it’s a good idea to review the rules and get pre-payment arrangements properly structured so that deductions can be taken in the year of the payment, favorable prices can be received for input supplies and planting can be made more efficient due to having adequate input supplies on hand. 

The pre-paid expense rules.  That’s the topic of today’s post.

Basic Rules

The IRS issued a revenue ruling in 1979 that identified three conditions that must be satisfied for pre-paid expenses for inputs such as fertilizer, seed and chemicals to successfully generate a deduction in the year of pre-payment.  Rev. Rul. 79-229, 1979-2 C.B. 210.  Failure to meet any one of these conditions results in an allowable deduction only when the input is used or consumed.

Binding contract.  The first condition requires the pre-purchase to be an actual purchase evidenced by a binding contract for specific goods (of a minimum quantity) that are deductible items that will be used in the taxpayer’s farming business over the next year.  An absence of specific quantities or a right to a refund of any unapplied credit are indicative of a deposit. Likewise, if the farmer retains the right to substitute other goods or services for those denoted in the purchase contract, a deposit is indicated.  For example, a 1982 case from the Fifth Circuit Court of Appeals involved a Texas farmer who went to the local elevator near year's end, wrote a check for $25,000, and told the elevator operator that he would be back sometime in the following year to pick up $25,000 worth of supplies.  The farmer then deducted those expenses for that tax year and the IRS challenged the deductions.  The farmer lost because the transaction looked like a mere deposit.  Schenk v. Comr., 686 F.2d 315 (5th Cir. 1982).

While the IRS thinks that how the seller of the inputs characterizes the transaction on its books matters, that should be immaterial as to the characterization of the transaction for the farmer’s tax purposes.  That’s particularly the case because of Treas. Reg. §1.451-5(c) which allows the seller to treat the transaction as a deposit without affecting the farmer’s ability to deduct for the amount of the pre-paid expenses.  In addition, the farmer has no control over how an input seller treats the transaction on its books and deductibility should not turn on the seller’s characterization.

So, if a written contract is entered into for specific goods that are otherwise deductible items that will be used in the farming business within the next year, and the payment does not exceed (in total) the price and quantity established in the contract, the first condition is satisfied, and the transaction is a pre-payment rather than a deposit.

Business purpose.  The second IRS condition that is used to determine whether pre-purchased items are deductible is whether the transaction has a business purpose or was entered into solely for tax avoidance purposes.  This is the easiest of the three tests because if a taxpayer is not pre-purchasing to assure the taxpayer a set price, the taxpayer is pre-purchasing to assure supply availability.  Another legitimate business purpose associated with pre-purchasing include avoiding a feed shortage.  Thus, in practically all conceivable transactions, it is fairly easy to think of a business reason for what the taxpayer is doing.  But see, Peterson v. United States, 6 Fed. Appx. 547 (8th Cir. 2001). 

Material distortion of income.  The third condition requires that the transaction must not materially distort income.  While pre-purchasing distorts income, the key is whether the distortion is “material.” There is no bright-line test to determine whether income has been materially distorted in any particular case.  The IRS, however, gets most upset when a taxpayer's pattern of pre-purchases bears a suspicious tandem relationship to income.  For example, if a taxpayer's income goes up in one year and the level of pre-purchases also rises, and in a subsequent year, income goes down along with the level of pre-purchases, the IRS could question the transaction.  In addition, the IRS will likely examine the relation of the purchase size to prior purchases and the time of year payment was made.  Thus, it’s important for a farmer to stay consistent with their customary business practices in buying supplies and the business purpose(s) for the pre-payment.  Also, the pre-payment transaction should not provide a tax benefit that extends longer than 12 months.  See Treas. Reg. §1.162-3(c)(1)(iii).     

Some courts have approved deductions for prepaid inputs if the expenditure was made in the course of prudent business practice unless a gross distortion of income resulted.  However, recent cases have found material distortion of income and disallowed the deduction even though a legitimate purpose existed.  In any event, a survey of the decisions indicates that for year-end purchases of the next year's supplies, a taxpayer should try to take delivery or at least enter into a binding, no refund, no substitutes contract.  Likewise, it appears that if a taxpayer stays within the confines of the IRS rulings, the deduction will be allowed.  See, e.g., Comr. v. Van Raden, 650 F.2d 1046 (9th Cir. 1981).   


There is an overall limitation on the amount of deduction for pre-paid expenses.  The limit is 50 percent of total deductible farming expenses excluding prepaid expenses.  This is largely drawn right off of Schedule F (including current year depreciation expense).  The taxpayer simply takes into account all of the expenses and is eligible to deduct up to 50 percent on a prepaid basis.  Thus, if a taxpayer has total deductible farming expenses for the year of $80,000, and has prepaid an additional $50,000, the most the taxpayer could deduct would be $40,000 which means the other $10,000 is carried over and deducted the following year. 

Exceptions.  There are two exceptions to the 50 percent test.  One of these exceptions is for a change in business operations caused by extraordinary circumstances.  A farmer is permitted to continue to deduct prepaid expenses even though the prepaid expenses exceed 50 percent of the deductible farming expenses for that year if the failure to meet the 50 percent test was because of a change in business operations directly attributable to extraordinary circumstances. If the reason for a taxpayer's reduced level of inputs was because of something extraordinary such as a major change in federal farm programs, like a 1983-style payment-in-kind program that idled a lot of land, or because of a big casualty loss, or because of a disease outbreak in livestock or something of that nature, that constitutes an extraordinary circumstance and removes the taxpayer from the 50 percent rule.

The second exception permits a “qualified farm-related taxpayer” to meet the 50 percent test over the last three years (computed on an aggregate basis) rather than the last one year.  A “qualified farm-related taxpayer” is a taxpayer whose principal residence is on a farm or whose principal occupation is farming or who is a member of the family of a taxpayer whose principal residence is on a farm or who has a principal occupation of farming.  A corporation carrying on farming operations can qualify as a “farm-related taxpayer.”  See Golden Rod Farms, Inc. v. United States, 115 F.3d 897 (11th Cir. 1997)   

If the aggregate prepaid farm supplies for the three taxable years preceding the taxable year are less than 50 percent, then there is no limitation on deductibility of prepaid expenses.  There is a question, however, concerning how the expenses over the past three years are to be aggregated.  Guidance is needed as to whether carry-over expenses to or from the three-year period are ignored, or whether the 50 percent test applies each year with the excess carried over to the following year.


The ability of a cash method farmer to pre-pay and deduct expenses is a critical tax management tool.  A typical famer’s amount of pre-payments can easily exceed $100,000.  In addition, it should be noted that rent can also be pre-paid (and currently deducted) if it doesn’t extend beyond 12 months.  Treas. Reg. §1.263(a)-4(f)(8), Example 10.  But, for pre-paid rent, the potential application of §467 will need to be considered. 

Make sure to follow the rules and structure pre-payment transactions properly.

October 31, 2021 in Income Tax | Permalink | Comments (0)

Wednesday, October 27, 2021

Tax Reporting of Sale Transactions By Farmers


Famers engage in numerous types of sales transactions.  Of course, common sales involve sales of harvested crops and raised livestock.  But, a farmer or rancher can receive income from other types of sales and for services rendered.   Each of these transactions has its own income tax reporting requirements.

Income from sales of unique items and services by farmers and ranchers – it’s the topic of today’s post.

Breeding Fees

Amounts that a farmer or rancher receives as breeding fees are includible in gross income.  If part or all of the fee is later refunded because the animal did not produce live offspring, you still report the breeding fees as income in the year received, but then you take a deduction when the refund is made.

Soil and Mineral Sales

Soil, sod and other minerals that are sold on a regular basis supports the characterization as sales of assets held primarily for sale to customers which would be reported as ordinary income. Indeed, the activity of growing and selling sod has been held to constitute the trade or business of farming for purposes of I.R.C. §180(a).  Priv. Ltr. Rul. 8440003 (May 22, 1984).  The U.S. Tax Court, in 1976, held that the proceeds from the sale of sod are subject to an allowance for depletion because sod is a “natural deposit.”  Myers v. Comm’r, 66 T.C. 235 (1976), acq., 1977-2 C.B. 1. 

For mineral deposits, the disposition could be held to be a sale that would be reported as capital gain.  But, that probably is not going to be the case in most situations.  It’s more likely that a lease is involved which produces ordinary gain. Whether a sale or lease takes place depends upon whether an economic interest was retained in the deposits in question.  The answer to that question will depend on the facts of each situation.  Regardless of whether the transaction is a sale or a lease, it is important for the taxpayer to determined income tax basis in the minerals. 

Crop Share Rents

Crop share rents received by a farm landlord under a crop share or livestock share lease are included in income in the year the crop or livestock is reduced to money (or its equivalent), fed to livestock or donated to charity, whether the taxpayer is on the cash or accrual method of accounting.  If crop share rents are received in one taxable year and fed to livestock in a later taxable year, the landlord includes in income an amount equal to the fair market value of the share rents at the time the crop share amounts are fed to livestock.  An offsetting deduction is available at the same time.

Sale of Livestock

For livestock, the amount of cash and the value of other merchandise or other property received during the tax year from the sale of livestock (and other produce) is included in gross income.  Raised livestock (and crops) typically have a zero basis, which will result in the entire amount of the cash and the value of other merchandise or other property received being reported in gross income.

Section 1231 Assets

In general, for gains and losses arising from the sale of certain capital assets - farmland, depreciable assets used in the farm business, livestock (held for draft, breeding, dairy and or sporting purposes), unharvested crops sold with the land, and some other transactions - a special form of tax treatment applies.  I.R.C. §1231.  For these assets, if the aggregation of these transactions produces a net gain, it is treated as long-term capital gain provided the assets were held for the requisite time period unless in the prior five years, there were net losses from such aggregation.  If there were net losses, then the net gain for the year is treated as ordinary income to the extent of the prior losses.  For this purpose, a net loss of a prior year is disregarded after it has once been used to convert a capital gain to ordinary income in a prior year.  If aggregation of these transactions for the year produces a loss, the loss is deducted as an ordinary loss.  For capital assets not used in the business, gains are capital gains and losses are capital losses.  For individuals, capital losses offset capital gains and up to $3,000 of ordinary income each year.  Corporations are not eligible for the $3,000 deduction against ordinary income.

For long-term capital gain treatment in general, assets must be held for more than one year.  However, cattle and horses must be held for 24 months or more.  For other livestock, they must be held for 12 months or more.  An important point to remember is that the sale of animals that qualify for I.R.C. §1231 treatment is not reported on Schedule F.  Instead, these transactions are reported on Form 4797 where the gains are not subject to self-employment tax and, as noted, a net gain is taxed at favorable capital gain rates. 

Land Sales

Gains from the sale of land are taxed as long-term capital gain (e.g., preferential tax rate) if the land has been held for at least a year before the sale.  The gain that is taxed is the difference between the selling price and the seller’s basis in the land. 

Crops and Feed

Standing crops that are sold with the underlying land are taxed as capital gain.  Harvested crops that are sold as inventory, however, are taxed as ordinary income.  From a planning standpoint if farmland on which crops are growing is going to be sold in the fall and it has a crop on it that would be harvested in the fall, it might be better from a tax standpoint to sell the growing crop with the land rather than harvesting the crop and then selling it.  Crops that are harvested and sold as feed should be accompanied by a bill of sale denoting the price that was paid for the crop. 


These are just a few of the common sale transactions that farmers and ranchers enter into.  This article is also not a deep dive into the details of each type of transaction.  There are additional technical rules that might also be involved in some situations.

October 27, 2021 in Income Tax | Permalink | Comments (0)

Tuesday, October 19, 2021

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


Operating a small business means, in part, paying business taxes.  But, business taxes for many small businesses are different than those that are taken out of an employee’s paycheck.  Under current law, there can be an advantage for many small businesses, particularly those engaged in professional services, to operate in the form of an S corporation.  But, that advantage could be eliminated under a proposal that is under consideration in the Congress.

S corporation tax treatment and a current legislative proposal – it’s the topic of today’s post.

S Corporation Tax Treatment

Many small businesses are subject to the Self-Employment Contributions Act (SECA), and self-employment tax must be paid.  But S corporation shareholders are not subject to SECA tax because the S corporation is treated as separate from the shareholders – its activities are not attributed to its shareholders.  An S corporation must pay its owner-employees “reasonable compensation” for services rendered to the corporation.  That compensation is subject to Federal Insurance Contributions Act (FICA) tax.  But any non-wage distributions to S corporation shareholders are not subject to either FICA or SECA taxes.  Therein lies the “rub.”  Salary that is too low in relation to the services rendered results in the avoidance of payroll taxes.  So, when shareholder-employees take flow-through distributions from the corporation instead of a salary, the distributions are not subject to payroll taxes (i.e., the employer and employee portions of FICA taxes and the employer Federal Unemployment Tax Act (FUTA) tax. 

Note:  FICA requires employers to withhold a set percentage of each employee’s paycheck to cover the Social Security tax, Medicare tax and other insurance costs.  Employer’s must also equally match those withholdings, with the total amount being 15.3 percent of each employee’s net earnings.  Under SECA, a small business owner is deemed to be both the employer and the employee and is, therefore, responsible for the full 15.3 percent “self-employment tax” that is paid out of net business earnings

In accordance with Rev. Rul. 59-221, S corporation flow-through income is taxed at the individual level and is (normally) not subject to self-employment tax.  Also, in addition to avoiding FICA and FUTA tax via S corporation distributions, the 0.9% Medicare tax imposed by I.R.C. §3101(b)(2) for high-wage earners (but not on employers) is also avoided by taking income from an S corporation in the form of distributions.  These are the tax incentives for S corporation shareholder-employees to take less salary relative to distributions from the corporation.  With the Social Security wage base set at $142,800 for 2011, setting a shareholder-employee’s compensation beneath that amount with the balance of compensation consisting of dividends can produce significant tax savings.    

Note:  It is currently projected that the Social Security wage base will be $146,700 for 2022.

Who’s an “Employee”?

Most S corporations, particularly those that involve agricultural businesses, have shareholders that perform substantial services for the corporation as officers and otherwise.  In fact, the services don’t have to be substantial.  Indeed, under a Treasury Regulation, the provision of more than minor services for remuneration makes the shareholder an “employee.”  Once, “employee” status is achieved, the IRS views either a low or non-existent salary to a shareholder who is also an officer/employee as an attempt to evade payroll taxes and, if a court determines that the IRS is correct, the penalty is 100 percent of the taxes owed.   Of course, the burden is on the corporation to establish that the salary amount under question is reasonable.  

Determining Reasonableness

Before 2005, the court cases involved S corporation owners who received all of their compensation in form of dividends.  Most of the pre-2005 cases involved reclassifications on an all-or-nothing basis.  In 2005, the IRS issued a study entitled, “S Corporation Reporting Compliance.”  Now the courts’ focus is on the reasonableness of the compensation in relation to the services provided to the S corporation.  That means each situation is fact-dependent and is based on the type of business the S corporation is engaged in and the amount and value of the services rendered. 

So what are the factors that the IRS examines to determine if reasonable compensation has been paid?  Here’s a list of some of the primary ones:

  • The employee’s qualifications;
  • the nature, extent, and scope of the employee’s work;
  • the size and complexities of the business; a comparison of salaries paid;
  • the prevailing general economic conditions;
  • comparison of salaries with distributions to shareholders;
  • the prevailing rates of compensation paid in similar businesses;
  • the taxpayer’s salary policy for all employees; and
  • in the case of small corporations with a limited number of officers, the amount of compensation paid to the particular employee in previous years.

According to the IRS, the key to establishing reasonable compensation is determining what the shareholder/employee did for the S corporation.  That means that the IRS looks to the source of the S corporation’s gross receipts. If they came from services of non-shareholder employees, or capital and equipment, then they should not be associated with the shareholder/employee’s personal services, and it is reasonable that the shareholder would receive distributions as well as compensation.  Alternatively, if most of the gross receipts and profits are associated with the shareholder’s personal services, then most of the profit distribution should be allocated as compensation. In addition to the shareholder/employee’s direct generation of gross receipts, the shareholder/employee should also be compensated for administrative work performed for the other income-producing employees or assets.  As applied in the ag context, for example, this means that reasonable compensation for a shareholder/employee in a crop farming operation could differ from that of a shareholder-employee in a livestock operation.

Recent Cases

For those interested in digging into the issue further, I suggest reading the following cases:

  • Watson v. Comr., 668 F.3d 1008 (8th Cir. 2012)
  • Sean McAlary Ltd., Inc. v. Comr., T.C. Sum. Op. 2013-62
  • Glass Blocks Unlimited v. Comr., T.C. Memo. 2013-180
  • Scott Singer Installations, Inc. v. Comr., T.C. Memo. 2016-161

Each of these cases provides insight into the common issues associated with the reasonable compensation issue.  The last two also address distributions and loan repayments in the context of reasonable compensation of unprofitable S corporations with one case being a taxpayer victory and the other a taxpayer loss. 

Legislative Proposal

A current proposal, effective for tax years beginning after December 31, 2021, that would change the tax rules applicable to S corporations is being considered as part of the massive spending bills that are currently before the Congress.  The proposal is an attempt to ensure that all of the pass-through business income that an individual receives that has more than $400,000 of adjusted gross income for the tax year is subject to the 3.8 percent Medicare tax – either through the tax on net investment income (I.R.C. §1411) or through the SECA tax.  This outcome would be accomplished by the legislation amending the definition of “net investment income” so that it includes an individual’s gross income and gain from a pass-through business that is not otherwise subject to employment taxes.  That means it would apply to S corporation shareholders who are active in the corporation’s business, but don’t receive a “sufficient” level of compensation.  The proposal would also apply SECA tax to the distributive share of the business income that an S corporation shareholder receives who materially participates in the entity’s business

Note:  The proposal would also apply SECA tax (above a threshold amount) to the distributive shares of partners in limited partnerships and limited liability company (LLC) members that provide services to the entity and materially participate.


If the legislative proposal is enacted into law, it would significantly change the taxation of pass-through entities and owners that have AGI above the $400,000 threshold.  The technique of reducing employment tax by managing compensation levels withing the boundaries set by the IRS and the courts would no longer be a viable strategy.  Also, if enacted, the proposal could incentivize the revocation of the S election in favor of C corporate status.  But, that move depends, at least in part, on where the C corporate tax rate turns out to be  - that’s under consideration in the Congress also. 

Stay tuned. 

October 19, 2021 in Business Planning, Income Tax | Permalink | Comments (0)

Thursday, October 14, 2021

Tax Issues Associated With Easements


Rural landowners often receive payment from utility companies, oil pipeline companies, wind energy companies and others for rights-of-way or easements over their property.  The rights acquired might include the right to lay pipeline, construct aerogenerators and associated roads, electric lines and similar access rights.  Payments may also be received for the placement of a “negative” easement on adjacent property so that the neighboring landowner is restricted from utilizing their property in a manner that might decrease the value of nearby land.

Tax issues with easement payment – it’s the topic of today’s post.

Characterizing the Transaction

The receipt of easement payments raises several tax issues.  The payments may trigger income recognition or could be offset partially or completely by the recipient’s income tax basis in the land that the easement impacts.  Also, a sale of part of the land could be involved.  In addition, a separate payment for crop damage could be involved.

A sale or exchange triggers gain or loss for income tax purposes.  I.R.C. §1001.  Is the grant of an easement a taxable event?  It depends.  In essence, a landowner’s grant of an easement amounts to a sale of the land if after the easement grant the taxpayer has virtually no property right left except bare legal title to the land.  For instance, in one case, the grant of an easement to flood the taxpayer’s land was held to be a sale.  Scales v. Comr., 10 B.T.A. 1024 (1928), acq., 1928-2 C.B. 35.  In another situation, the IRS ruled that the grant of an easement for air rights over property adjoining an air base with the result that the property was rendered useless was a sale.  Rev. Rul. 54-575, 1954-2 C.B. 145.  The grant of a perpetual easement on a part of unimproved land to the state for a highway, as well as the grant of a permanent right-of-way easement for use as a highway have also been held to be a sale.  Rev. Rul. 72-255, 1972-1 C.B. 221; Wickersham v. Comr., T.C. Memo. 2011-178.  Also, the IRS has determined that the grant of a perpetual conservation easement on property in exchange for “mitigation banking credits” was held to be a sale or exchange.  Priv. Ltr. Rul. 201222004 (Nov. 29, 2011).  Under the facts of the ruling, the taxpayer acquired a ranch for development purposes, but did not develop it due to the presence of two endangered species.  The taxpayer negotiated a Mitigation Bank Agreement with a government agency pursuant to which the taxpayer would grant a perpetual conservation easement to the government in return for mitigation banking credits to allow the development of other, similarly situated, land.  The IRS determined that the transaction constituted a sale or exchange. 

If the payments for the grant of an easement are, in effect, rents for land use the characterization of the payments in the hands of the landowner is ordinary income.  For example, in Gilbertz v. United States, 574 F. Supp. 177 (D. Wyo. 1983), aff’d., and rev’d. by, 808 F.2d 1374 (10th Cir. 1987), the taxpayers, a married couple, raised cattle on their 6,480-acre ranch.  They held title to the surface rights and a fractional interest in the minerals.  The federal government reserved most of the mineral rights.  In 1976 and 1977, the taxpayers negotiated more than 50 contracts with oil and gas lessees and pipeline companies to receive payments for anticipated drilling activities on the ranch.  The taxpayers reported the payments as non-taxable recovery of basis in the entire ranch with any excess amount reported as capital gain.  The IRS disagreed, asserting that the payments taxable as ordinary income.  The taxpayers paid the asserted deficiency and sued for a refund.

The trial court dissected the types of payments involved concluding that the “Release and Damage Payments” were not rents taxable as ordinary income.  The payments from pipeline companies for rights-of-ways and damage to the land involved a sale or exchange and were taxable as capital gain – the pipeline companies had obtained a perpetual right-of-way.  On further review, the appellate court held that the “Release and Damage Payments” were not a return of capital to the taxpayers that qualified for capital gain treatment to the extent the amount received exceeded their basis in the land.  However, the appellate court affirmed the trial court’s holding that the amounts received from the pipeline companies were properly characterized as the sale of a capital asset and constituted a recovery of basis with any excess taxable as capital gain. 

Limited Easements.  The grant of a limited easement is treated as the sale of a portion of the rights in the land impacted by the easement, with the proceeds received first applied to reduce the basis in the land affected.  Thus, if the grant of an easement deprives the taxpayer of practically all of the beneficial interest in the land, except for the retention of mere legal title, the transaction is considered to be a sale of the land that the easement covers.  That means that gain or loss is computed in the same manner as in the case of a sale of the land itself under I.R.C. §1221 or §1231.  In addition, only the basis of the land that is allocable to that portion is reduced by the amount received for the grant of the easement.  Any excess amount received is treated as capital gain.  The allocation of basis does not require proration based on acreage.  Instead, basis allocation is to be “equitably apportioned” based likely on fair market value or assessed value at the time the easement is acquired. 

In rare situations where the entire property is impacted by the easement, the entire basis of the property can be used to offset the amount received for the easement.  This might be the situation where severance damage payments are received.  These types of payments may be made when the easement bisects a landowner’s property with the result that the property not subject to the easement can no longer be put to its highest and best use.  This is more likely with commercial property and agricultural land that has the potential to be developed.  Severance damages may be paid to compensate the landowner for the resulting lower value for the non-eased property.  If severance damages exceed the landowner’s basis in the property not subject to the easement, gain is recognized. 

Types of Payments

Damage payments.  As noted above, an initial payment made to a landowner for acquisition of an easement could result in income to the landowner or a reduction of the landowner’s basis in the land, or both.  That means that a lump sum payment for the right to lay a pipeline across a farm may result in income, a reduction in basis of all or part of the land or both.  An amount for actual, current damage to the property caused by construction activities on the property subject to the easement may be able to be offset by basis in the affected property.  Examples of this type of payment would be payments for damage to the property caused by environmental contamination and soil compaction. A payment for damage to growing crops, however, is treated as a sale of the crop reported on line 2 of Schedule F (landlord or tenant) or line 1 of Form 4835 for a non-material participation crop-share landlord.  Any payment for future property damage (e.g., liquidated damages), however, is generally treated as rent. 

Severance damages.  Under I.R.C. §1033, it is possible for the landowner to defer gain resulting from the payment of severance damages by using the severance damages to restore the property that the easement impacts or by investing the damages in a timely manner in other qualified property.  There is no requirement that the landowner apply the severance damages to the portion of the property subject to the easement.  Also, if the easement so impacts the remainder of the property where the pre-easement use of the property is not possible, the sale of the remainder of the property and use of the sale proceeds (plus the severance damages) to acquire other qualified property can be structured as a deferral transaction under I.R.C. §1033.

Temporary easements.  Some easements may involve an additional temporary easement to allow the holder to have space for access, equipment and material storage while conduction construction activities on the property subject to the easement.  A separate designation for a temporary easement for these purposes will generate rental income for allocated amounts.  As an alternative, it may be advisable to include the temporary space in the perpetual easement which is then reduced after a set amount of time.  Under this approach, it is possible to apply the payment attributable to the temporary easement to the tract subject to the permanent easement.  Alternatively, it may be possible, based on the facts, to classify any payments for a temporary easement as damage payments.

Negative easements.  A landowner may make a payment to an adjacent or nearby landowner to acquire a negative easement over that other landowner’s tract.  A negative easement is a use restriction placed on the tract to prevent the owner from specified uses of the tract that might diminish the value of the payor’s land.  For instance, a landowner may fear that their property would lose market value if a pipeline, high-power transmission line or wind aerogenerator were to be placed on adjacent property.  Thus, the landowner might seek a negative easement over that adjacent property to prevent that landowner from granting an easement to a utility company for that type of activity from being conducted on the adjacent property.  The IRS has reached the conclusion that a negative easement payment is rental income in the hands of the recipient.  F.S.A. 20152102F (Feb. 25, 2015).  It is not income derived from the taxpayer’s trade or business.  In addition, the IRS position taken in the FSA could have application to situations involving the government’s use of a taxpayer’s property to enhance wildlife and conservation. 

Lease Payments

A right of use that is not an easement generates ordinary income to the landowner and is, potentially, net investment income subject to an additional 3.8 percent tax.  Thus, transactions that are a lease or a license generate rental income with no basis offset.  For example, when a landowner grants surface rights for oil and gas exploration, the transaction is most likely a lease.  Easements for pipelines, roads, surface sites and similar interests that are for a definite term of years are leases.  Likewise, if the easement is for “as long as oil and gas is produced in paying quantities,” it is lease. 

The IRS has ruled that periodic payments that farmers received under a “lease” agreement that allowed a steel company to discharge fumes without any liability for damage were rent.  In Rev. Rul. 60-170, 1960-1 C.B. 357, the payments from the steel company were to compensate the farmers for damages to livestock, crops, trees and other vegetation because of chemical fumes and gases from a nearby plant.  The IRS determined that the payments were rent and, as such, were not subject to self-employment tax.

Some other points on lease payments should be made.  A lease is characterized by periodic payments.  A lease is also indicated when failure to make a payment triggers default procedures and potential forfeiture.    In addition, lease payments are not subject to self-employment tax in the hands of the recipient regardless of the landowner’s participation in the activity.  Accordingly, the annual lease payment income would be reported on Schedule E (Form 1040), with the landowner likely having few or no deductible rental expenses. 

Eminent Domain

Proposed easement acquisitions can be contentious for many landowners.  Often, landowners may not willingly grant a pipeline company or a wind energy company, for example, the right to use the landowners’ property.  In those situations, eminent domain procedures under state law may be invoked which involves a condemnation of the property.  The power of eminent domain is the right of the state government (it’s called the “taking power” for the federal government) to acquire private property for public use, subject to the constitutional requirement that “just compensation” be paid.  While eminent domain is a power of the government, often developers of pipelines and certain other types of energy companies are often delegated the authority to condemn private property.  The condemnation award (the constitutionally required “just compensation”) paid is treated as a sale for tax purposes. 

Note:  The IRS view is that a condemnation award is solely for the property taken.  But, if the condemnation award clearly exceeds the fair market value of the property taken, a court may entertain arguments about the various components of the award.  Thus, it’s important for a landowner to preserve any evidence that might support allocating the award to various types of damages. 

Involuntary conversion.  While a condemnation award that a landowner receives is treated as a sale for tax purposes, it can qualify for non-recognition treatment under the gain deferral rules for involuntary conversions contained in I.R.C. §1033.  Rev. Rul. 76-69, 1976-1 C.B. 219; Rev. Rul. 54-575, 1954-2 C.B. 145.  I.R.C. §1033 allows a taxpayer to elect to defer gain realized from a condemnation (and sales made under threat of condemnation) by reinvesting the proceeds in qualifying property within three years.  See, e.g., Rev. Rul. 72-433, 1972-2 C.B. 470

The election to defer gain under I.R.C. §1033 is made by simply showing details on the return about the involuntary conversion but not reporting the condemnation gain realized on the return for the tax year the award is received.  A disclosure that the taxpayer is deferring gain under I.R.C. §1033, but not disclosing details is treated as a deemed election. 

Note:  If the taxpayer designates qualified replacement real estate on a return within the required period and purchases the property at the anticipated price within three years of the end of the gain year, a valid election is complete. If the purchase price of the replacement property is lower than anticipated, the resulting gain should be reported by amending the return for the election year. If qualified replacement property within the required three-year period, the return for the year of the election must be amended to report the gain.


Rural landowners are facing easement issues not infrequently.  Oil and gas pipelines, wind energy towers, and high voltage power lines are examples of the type of structures that are associated with easements across agricultural land.  Seeking good tax counsel can help produce the best tax result possible in dealing with the various types of payments that might be received.

October 14, 2021 in Income Tax | Permalink | Comments (0)

Monday, October 11, 2021

Caselaw Update


It’s been a while since I highlighted a few recent cases for the blog.  Today is that day.  Recently, the court have decided cases about a packing plant’s potential liability exposure to employee claims about the virus; a legal challenge to the beef checkoff; C corporation distributions; and whether a trade or business existed in a rather unique setting.

Caselaw update – it’s the topic of today’s post.

Meat-Packing Plant Employees Can’t Sue Over Virus Claims 

Fields v. Tyson Foods, Inc., No. 6:20-cv-00475, 2021 U.S. Dist. LEXIS 181083 (E.D. Tex. Sept. 22, 2021).

The plaintiffs were defendant’s employees. They sued for negligence and gross negligence, alleging that the defendant failed to take adequate safety measures, such as not providing personal protective equipment and not implementing social-distancing guidelines, which caused them to contract COVID-19. The plaintiffs argued that the defendant failed to satisfy a duty of care to keep its premises in a reasonably safe condition, and that it failed to exercise ordinary care to reduce or eliminate the risk of employees being exposed to COVID-19. The defendant filed a motion to dismiss for a failure to state a claim upon which relief can be granted. The defendant argued that the Poultry Products Inspection Act (PPIA) as promulgated by the Food Safety and Inspection Service (FSIS) of the Department of Agriculture contained an express-preemption clause that foreclosed the plaintiffs’ claims. Additionally, the defendant argued that the recently passed Pandemic Liability Protection Act (PLPA) provided the defendant retroactive protection against damages lawsuits that alleged exposure to COVID-19. The trial court agreed and noted that the PPIA’s express-preemption clause overrode state requirements that are different than the regulations. The trial court noted that although the plaintiffs argued that the defendant failed to impose adequate safety measures to reduce the spread of COVID-19 in its facility, the FSIS promulgated a number of regulations under the PPIA that directly addressed the spread of disease. The trial court held that the duty of care alleged by the plaintiffs’ negligence claim would require the defendant to utilize additional equipment, therefore the plaintiffs’ claims were preempted by federal law. The trial court next addressed the PLPA, which generally shields corporations from liability if an individual suffers injury or death as a result of exposure to COVID-19. The trial court noted that the plaintiffs needed to allege that the defendant either knowingly failed to warn them or remedy some condition at the facility that the defendant knew would expose the plaintiffs to COVID- 19, or that the defendant knowingly contravened government-promulgated COVID-19 guidance. Further, the plaintiffs must allege reliable scientific evidence that shows that the defendant’s conduct was the cause-in-fact of the plaintiffs’ contracting COVID-19. The trial court noted that the plaintiffs failed to provide any reliable scientific evidence that showed that the defendant was the cause-in-fact of the plaintiffs’ contracting COVID-19. Because the plaintiffs merely made conclusory statements that they contracted COVID-19 due to unsafe working conditions, without alleging how or when they contracted COVID-19, the trial court held the plaintiffs’ complaint failed to satisfy the PLPA. Upon granting the defendant’s motion to dismiss, the trial court noted that even if the plaintiffs amended their complaint to satisfy the causation prong, the PPIA preemption clause would still foreclose the plaintiffs’ claims. 

Lawsuit Challenging Changes to Beef Checkoff Continues

Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. United States Department of Agriculture, et al., NO. 20-2552 (RDM), 2021 U.S. DIST. LEXIS 187182 (D. D.C. Sept. 29, 2021).

The plaintiff, a cattle grower association, sued the United States Department of Agriculture (USDA) claiming that the USDA made substantive changes to the Beef Checkoff Program in violation of the Administrative Procedure Act (APA) by entering into memorandums of understanding (MOUs) with various state beef councils. The plaintiff asserted that such amendments should have been subject to public notice-and-comment rulemaking. The MOUs gave the USDA more oversight authority over how the state beef councils could use the funds received from the checkoff. In other litigation, the USDA has been claiming oversight authority (even though not exercised) over state beef councils to argue that the beef checkoff is government speech rather than private speech in order to defeat First Amendment claims. In the present litigation, the USDA motioned to dismiss the case for lack of standing. The court denied the USDA’s motion on the basis that the plaintiff, on the face of its claim, had established sufficient elements of associational standing – that at least one of the plaintiff’s members had suffered a diminished return on investment as a result of the MOUs. The court did not address the factual question of the plaintiff’s standing. The USDA’s had also asserted a defense of claim preclusion but the court postponed examining that issue until additional evidence was submitted allowing the court to fully address the issue of jurisdiction.

Lack of Documentation Leads to Receipt of Constructive Dividends

Combs v. Comr., No. 20-70262, 2021 U.S. App. LEXIS 28875 (9th Cir. Sept. 23, 2021), aff’g., T.C. Memo. 2019-96.

The petitioner was the sole shareholder of a C corporation in which he housed his motivational speaking business. The fees he earned were paid to the corporation. The corporation paid him a small salary which he instructed the corporation not to report as income to him. In addition, he also paid many personal expenses from a corporate account. The IRS claimed that the distributions from the corporation to the petitioner constituted dividends that the petitioner should have included in gross income. The Tax Court noted that if the corporation has sufficient earnings and profits that the distribution is a dividend to the shareholder receiving the distribution, but that if the distribution exceeds the corporation’s earnings and profits, the excess is generally a nontaxable return of capital to the extent of the shareholder’s basis in the corporation with any remaining amount taxed to the shareholder as gain from the sale or exchange of property. The Tax Court noted that the petitioner’s records did not distinguish personal living expenses from legitimate business expenses and did not provide any way for the court to estimate or determine if any of the expenses at issue were ordinary and necessary business expenses. Thus, the court upheld the IRS determination that the petitioner received and failed to report constructive dividends. The appellate court affirmed noting that there was ample evidence to support the Tax Court’s constructive dividend finding and that the petitioner had failed to rebut any of that evidence. 

Suing Ex-Wife Not a Trade or Business

Ray v. Comr., No. 20-6004, 2021 U.S. App. LEXIS 27614 (5th Cir. Sept. 14, 2021).

The petitioner divorced his wife in 1977 and then sued her in state court in 1998 over debts she owed associated with two real estate purchases and credit cards, as well as penalties she owed the petitioner for not providing him with financial statements in a timely manner. During the pendency of the lawsuit in 2020, he sued her two more times in state court and sued her attorneys in federal court. The federal litigation involved losses from trading agreements the petitioner entered into with her involving a futures and options trading method she created. Ultimately, she owed the petitioner about $384,000 for trading losses incurred with funds he deposited into a commodities brokerage account. The petitioner deducted $267,000 in legal fees on his 2014 return and the IRS rejected the deduction, tacking on an accuracy-related penalty. In 2019, the Tax Court disallowed the legal expenses under I.R.C. §162(a), but allowed a deduction for legal costs incurred that were associated with trading agreement losses as production of income expenses under I.R.C. §212(1). The Tax Court also upheld the accuracy-related penalties. On appeal the appellate court largely affirmed the Tax Court, find that the petitioner didn’t prove that his lawsuit to recover the trading agreement losses was related to his work with a trade or business. Also, the appellate court upheld the Tax Court finding that the petitioner didn’t have a profit motive in suing his ex-wife which was required for a deduction under I.R.C. §212(1). However, the appellate court held that the Tax Court erred in concluding that the petitioner lacked some justification for claiming deductions under I.R.C. §162(a) for legal fees relating to the trading agreement losses. As such, the appellate court remanded the penalty issue to the Tax Court. 


Expect challenges to the beef checkoff to continue.  Many livestock ranchers and farmers that also have cattle and pay the checkoff have been irritated about the use of their checkoff dollars and the conduct of state beef councils for many years.  Also, the constructive dividend issue is a big one.  Compensation arrangements for corporate officers/shareholders must be structured properly to avoid the constructive dividend issue.  The IRS does examine that issue.  In addition, the trade or business issue often arises in the context of agricultural activities – particularly when rental arrangements are involved.  Remember, under IRS rules a cash lease is not a farming trade or business – it’s a rental activity.  That can have implications in numerous settings.  But, I have never seen the argument come up before the Ray case in the context of suing an ex-spouse!  That’s an interesting twist.    

October 11, 2021 in Business Planning, Income Tax, Regulatory Law | Permalink | Comments (0)

Friday, October 8, 2021

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

Note:  This article is an update to my blog article of May 4, 2020 that can be accessed here:


As originally enacted, Chapter 12 did not create a separate tax entity for Chapter 12 bankruptcy estates for purposes of federal income taxation.  That shortcoming precludes debtor avoidance of potential income tax liability on disposition of assets as may be possible for individuals who file Chapter 7 or 11 bankruptcy.  But, an amendment to Chapter 12 enacted 19 years after Chapter 12 was established made an important change.  As modified, tax debt associated with the sale of an asset used in farming can be treated as unsecured debt that is not entitled to priority and ultimately discharged.  Without this modification, a farmer faced with selling assets to come up with funds to satisfy creditors could trigger substantial tax liability that would impair the chance to reorganize the farming business under Chapter 12.  Such a farmer could be forced into liquidation.

If taxes can be treated as unsecured debt how are taxes that the debtor has already paid to be treated?  Can those previously paid or withheld taxes be pulled back into the bankruptcy estate where they are “stripped” of their priority? 

Chapter 12 bankruptcy and priority “stripping” of taxes – it’s the topic of today’s post.

2005 Modified Tax Provision

The 2005 Bankruptcy Code allows a Chapter 12 debtor to treat claims arising out of “claims

owed to a governmental unit” as a result of “sale, transfer, exchange, or other disposition of any farm asset used in the debtor’s farming operation” to be treated as an unsecured claim that is not entitled to priority under Section 507(a) of the Bankruptcy Code, provided the debtor receives a discharge.  11 U.S.C. §1222(a)(2)(A).  The amendment attempted to address a major problem faced by many family farmers filing Chapter 12 bankruptcy where the sale of farm assets to make the operation economically viable triggered gain which, as a priority claim, had to be paid in full before payment could be made to general unsecured creditors.  Even though the priority tax claims could be paid in full in deferred payments under prior law, in many instances the debtor did not have enough funds to allow payment of the priority tax claims in full even in deferred payments.  That was the core problem that the 2005 provision was attempting to address.

Nothing in the 2005 legislation specified when the property can be disposed of to have the associated taxes be eligible for unsecured claim status. Of course, to confirm a Chapter 12 plan the taxing agencies must receive at least as large an amount as they would have received had the claim been a pre-petition unsecured claim.  On this issue, the United States Court of Appeals for the Eighth Circuit has ruled that a debtor’s pre-petition sale of slaughter hogs came within the scope of the provision, and that the provision changes the character of the taxes from priority status to unsecured such that, upon discharge, the unpaid portion of the tax is discharged along with interest and penalties.  In re Knudsen, et al. v. Internal Revenue Service, 581 F.3d 696 (8th Cir. 2009).   The court also held the statute applies to post-petition taxes and that those taxes can be treated as an administrative expense.  Such taxes can be discharged in full if provided for in the Chapter 12 plan and the debtor receives a discharge. Upon the filing of a Chapter 12, a separate taxpaying entity apart from the debtor is not created. 

That is an important point in the context of the 2005 amendment.  The debtor remains responsible for tax taxes triggered in the context of Chapter 12.  The amendment, however, allows non-priority treatment for claims entitled to priority under 11 U.S.C. §507(a)(2).  That provision covers administrative expenses that are allowed by 11 U.S.C. §503(b)(B) which includes any tax that the bankruptcy estate incurs.  Pre-petition taxes are covered by 11 U.S.C. §507(a)(8).  But, post-petition taxes, to be covered by the amendment, must be incurred by the bankruptcy estate such as is the case with administrative expenses.  Indeed, the IRS position is that post-petition taxes are not "incurred by the estate" as is required for a tax to be characterized as an administrative expense in accordance with 11 U.S.C. § 503 (b)(1)(B)(i), and that post-petition taxes constitute a liability of the debtor rather than the estate.  See ILM 200113027 (Mar. 30, 2001). The U.S. Circuit Courts of Appeal for the Ninth and Tenth Circuits agreed with the IRS position, as did the U.S. Supreme Court.  Hall v. United States, 132 S. Ct. 1882 (2012).   

2017 Legislation

H.R. 2266, signed into law on October 26, 2017, contains the Family Farmer Bankruptcy Act (Act). The Act adds 11 U.S.C. §1232 which specifies that, “Any unsecured claim of a governmental unit against the debtor or the estate that arises before the filing of the petition, or that arises after the filing of the petition and before the debtor's discharge under section 1228, as a result of the sale, transfer, exchange, or other disposition of any property used in the debtor's farming operation”… is to be treated as an unsecured claim that arises before the bankruptcy petition was filed that is not entitled to priority under 11 U.S.C. §507 and is deemed to be provided for under a plan, and discharged in accordance with 11 U.S.C. §1228. The provision amends 11 U.S.C. §1222(a)(2)(A) to effectively override the U.S. Supreme Court decision in Hall.  As noted above, in Hall the U.S. Supreme Court held that tax triggered by the post-petition sale of farm assets was not discharged under 11 U.S.C. §1222(a)(2)(A). The Court held that because a Chapter 12 bankruptcy estate cannot incur taxes by virtue of 26 U.S.C. §1399, taxes were not “incurred by the estate” under 11 U.S.C. §503(b) which barred post-petition taxes from being treated as non-priority.   The 2017 legislation overrides that result.  The provision was effective for all pending Chapter 12 cases with unconfirmed plans and all new Chapter 12 cases as of October 26, 2017.

Computational Issues

The 2005 provision also makes no mention of how the amount of priority and non-priority tax claims is to be computed.  Operationally, if a Chapter 12 bankruptcy filer has liquidated assets used in the farming operation within the tax year of filing or liquidates assets used in the farming operation after Chapter 12 filing as part of the Chapter 12 plan, and gain or depreciation recapture income or both are triggered, the plan should provide that there are will be no payments to unsecured creditors until the amount of the tax owed to governmental bodies for the sale of assets used in the farming operation is ascertained. The dischargeable tax claims are then added to the pre-petition unsecured claims to determine the percentage distribution to be made to the holders of pre-petition unsecured claims as well as the claims of the governmental units that are being treated as unsecured creditors not entitled to priority.  That approach assures that all claims that are deemed to be unsecured claims would be treated equitably.

Methods of computation.  To accurately determine the extent of the priority tax claim under the non-priority provision, it is necessary to directly relate the priority tax treatment to the income derived from sources that either satisfy the non-priority provision or do not satisfy it.  There are two basic approaches for computing the priority and general dischargeable unsecured tax claims – the proportional method or the marginal allocation method.  The proportional method (which is the IRS approach) divides the debtor’s ordinary farming income by the debtor’s total income and then multiplies the total tax claim by the resulting fraction.  That result is then subtracted from the debtor’s total tax liability with the balance treated as the non-priority part of the tax obligation.  Conversely, under the marginal approach, the debtor prepares a pro-forma tax return that omits the income from the sale of farm assets.  The resulting tax liability from the pro forma return is then subtracted from the total tax due on the debtor’s actual return.  The difference is the tax associated with the sale of farm assets that is entitled to non-priority treatment. 

A shortfall of the IRS’ proportional method is that it merely divides the debtor’s tax obligation by applying the ratio of the debtor’s priority tax claim to the debtor’s total income and then divides the total tax claim.  That mechanical computation does not consider any deductions and/or credits that impact the debtor’s final tax liability, and which are often phased out based on income.  Instead, the proportional method simply treats every dollar of income the same.  The result is that the proportional method, as applied to many debtors, significantly increases the debtor’s adjusted gross income and the priority non-dischargeable tax obligation.  The proportional method makes no attempt to measure the type of income, or what income “causes” any particular portion of the tax claim.    

The marginal approach was adopted by Eighth Circuit in the Knudsen case as well as the Bankruptcy Court in In re Ficken, 430 B.R. 663 (Bankr. D. Colo. 2009).  The appropriate tax allocation method was not at issue in either of the cases on appeal.  The Kansas bankruptcy court also rejected the IRS approach in favor of the marginal method.   The most recent court decision on the issue has, like earlier cases, rejected the proportional method in favor of the marginal method.  In re Keith, No. 10-12997, 2013 Bankr. LEXIS 2802 (Bankr. D. Kan. Jul. 8, 2013).

What About Withheld Tax?

Under the 2005 amendment (and the 2017 legislation) taxes triggered by the sale, exchange, etc., of assets used in farming can be stripped of there priority status in a Chapter 12 farm bankruptcy.  However, the debtor’s method for computing the taxes not entitled to priority involves utilization of the debtor’s total tax claim.  That means that taxes that have already been withheld or paid through estimated payments should be refunded to the debtor’s bankruptcy estate, where it becomes subject to the priority/non-priority computation, rather than being offset against the debtor’s overall tax debt (with none it subject to non-priority treatment).  Of course, the IRS and state taxing authorities object to this treatment.

Iowa bankruptcy case.  The issue of how to handle withheld taxes was at issue in a recent case.  In In re DeVries, No. 19-0018, 2020 U.S. Bankr. LEXIS 1154 (Bankr. N.D. Iowa Apr. 28, 2020), the debtors, a married couple, filed an initial Chapter 12 reorganization plan that the bankruptcy court held to be not confirmable.  The debtors filed an amended plan that required the IRS and the Iowa Department of Revenue (IDOR) to refund to the debtors’ bankruptcy estate withheld income taxes.  The taxing authorities objected, claiming that the withheld amounts had already been applied against the debtor’s tax debt as 11 U.S.C. §553(a) allowed.  The debtors claimed that the 2017 legislation barred tax debt arising from the sale of assets used in farming from being offset against previously collected tax.  Instead, the debtors argued, the withheld taxes should be returned to the bankruptcy estate.  If withheld taxes weren’t returned to the bankruptcy estate, the debtors argued, similarly situated debtors would be treated differently. 

The debtors sold a significant amount of farmland and farming machinery in 2017, triggering almost a $1 million of capital gain income and increasing their 2017 tax liability significantly.  The tax liability was offset to a degree by income tax withholding from the wife’s off-farm job.  Their amended Chapter 12 plan called for a refund to the estate of withheld federal and state income taxes.  In the fall of 2019, the debtors submitted pro forma state and federal tax returns as well as their traditional tax returns for 2017 to the bankruptcy court in conjunction with the confirmation of their amended Chapter 12 plan.  The pro-forma returns showed what the debtors’ tax liability would have been without the sale of the farmland and farm equipment.  The pro-forma returns also showed, but for the capital gain, the debtors would have been entitled to a full tax refund of the taxes already withheld from the wife’s off-farm job. 

The court was faced with the issue of whether 11 U.S.C. §1232(a) entitled the bankruptcy estate to a refund of the withheld tax.  The IRS and IDOR claimed that 11 U.S.C. §553(a) preserved priority position for tax debt that arose before the bankruptcy petition was filed.  The court disagreed, noting that 11 U.S.C. §1232(a) deals specifically with how governmental claims involving pre-petition tax debt are to be treated – as unsecured, non-priority obligations.  But the court noted that 11 U.S.C. §1232(a) does not specifically address “clawing-back” previously withheld tax.  It merely referred to “qualifying tax debt” and said it was to be treated as unsecured and not entitled to priority.  Referencing the legislative history behind both the 2005 and 2017 amendments, the court noted that the purpose of the priority-stripping provision was to help farmers have a better chance at reorganization by de-prioritizing taxes, including capital gain taxes.  The court pointed to statements that Sen. Charles Grassley made to that effect.  The court also noted that the 2017 amendment was for the purpose of strengthening (and clarifying) the original 2005 de-prioritization provision by overturning the result in Hall to allow for de-prioritization of taxes arising from both pre and post-petitions sales of assets used in farming.  Accordingly, the court concluded that 11 U.S.C. §1232(a) overrode a creditor’s set-off rights under 11 U.S.C. §553(a) in the context of Chapter 12.  The debtors’ bankruptcy estate was entitled to a refund of the withheld income taxes. 

On appeal, the bankruptcy appellate panel for the Eighth Circuit reversed.  In re DeVries, 621 B.R. 445 (8th Cir. B.A.P. 2020).  The appellate panel determined that 11 U.S.C. §1232(a) is a priority-stripping provision and not a tax provision and only addresses the priority of a claim and does not establish any right to or amount of a refund. As such, nothing in the statue authorized a debtor’s Chapter 12 plan to require a taxing authority to disgorge, refund or turn-over pre-petition withholdings for the benefit of the bankruptcy estate. The statutory term “claim,” the court reasoned, cannot be read to include withheld tax as of the petition date. Accordingly, the statute was clear and legislative history purporting to support the debtor’s position was rejected.

Indiana bankruptcy case.  In re Richards, 616 B.R. 879 (Bankr. S.D. Ind. 2020) was decided the day after DeVries.  In re Richards involved debtors, a married farm couple, who filed Chapter 12 bankruptcy in 2018 after suffering losses from negative weather events and commodity market price declines during 2013 through 2015.  The primary lender refused to renew the loan which forced liquidation of the farm’s assets in the spring of 2016.  During 2016, the debtors sold substantially all of the farm equipment, vehicles and other personal property assets as well as grain inventory.  The proceeds were paid to the primary lender as well as other lenders with purchase money security interests in relevant assets.  After filing Chapter 12, the debtors sold additional farmland.  The asset sales triggered substantial income tax obligations for 2016, 2017 and 2018 tax years.  The debtors Chapter 12 plan made no mention concerning whether off-farm earnings, tax withholdings or payments the debtors voluntarily made to the IRS, or a claim or refund would remain property of the bankruptcy estate after Plan confirmation.  The plan did, however, divide the debtors federal tax obligations into 1) tax liabilities for income arising from the sale, transfer, exchange or other disposition of any property used in the debtors’ farming operation “Section 1232 Income”; and 2) tax liabilities arising from other income sources – “Traditional income.”  Tax liabilities associated with Traditional Income would retain priority status, but taxes associated with Section 1232 Income would be de-prioritized (regardless of when the liability was incurred) and treated as general unsecured claims that would be discharged upon Plan completion if not paid in full.  The debtors would pay directly the tax liability associated with Traditional Income incurred after the Chapter 12 filing date.  Under the Plan, unsecured claims would be paid on a “pro rata” basis using the “marginal method” along with other general unsecured claims.  The Section 1232 taxes would be computed by excluding the taxable income from the disposition of assets used in farming from the tax return utilizing a pro forma tax return. 

The Plan was silent concerning how the Debtors’ withholding payments and credits for each tax year were to be applied or allocated between any particular tax year’s income tax return and the corresponding pro forma return.  The IRS filed a proof of claim for the 2016 and 2017 tax years in the amount of $288,675.43.  The debtors objected to the IRS’s claim, but did seek to reclassify $5,681 of the IRS claim as general unsecured priority status.  The IRS failed to respond, and the court granted the debtors approximately $280,000 in tax relief for 2016 and 2017.  The debtors then submitted their 2018 federal and state returns showing a tax liability of $58,380 and their pro forma return for 2018 excluding the income from the sale of farm assets which showed a tax liability of $3,399. 

The debtors, due to withholding and estimated tax, inadvertently paid $9,813 to the IRS during 2018.  The claimed $6,414 was an overpayment and listed that amount on the Pro Forma return as a refund.  The IRS amended its proof of claim and asserted a general unsecured claim of $42,200 for the 2018 tax year (excluding penalties and interest).  The IRS claimed that none of the debtors’ tax liability qualified for non-priority treatment under 11 U.S.C. §1232, and that it had a general unsecured claim for $42, 220 for the 2018 tax year.  To reach that amount, the IRS allocated tax withholdings and credits of $9,813 to the assessed tax due on the debtors’ pro forma return which reduced that amount to zero, and then allocated the remaining $6,414 of withholdings, payments and credits to the outstanding tax liability of $48,634.  IRS later added $6,347 of net investment income tax that the debtors had reported on their return but IRS had excluded due to a processing error.  The debtors objected to the IRS’s claim and asserted it should not be increased by neither the $6,414 overpayment or the $6,347 of net investment income tax.  The debtors sought to adjust the IRS claim to $54,981 and have the court issue a refund to them of $6,414 or reduce distributions to the IRS until the refund obligation had been satisfied.  The IRS objected on the basis that the court lacked jurisdiction to compel the issuance of a refund or credit of an overpayment, and that the debtors were not entitled to the refund or credit of the overpayment shown on the pro forma return as a matter of law. 

The court sustained the debtors’ objection to the extent the 2018 refund was applied to the IRS’s claim in a manner other than provided for under the confirmed plan.  Specifically, the court held that the IRS has exercised a setoff that was not permitted under 11 U.S.C. §553 which violated the plan’s bar against any creditor taking any action “to collect on any claim, whether by offset or otherwise, unless specifically authorized by this Plan.”  But, the court held that it lacked jurisdiction to compel the issuance of a refund or credit of an overpayment and that the debtors were not entitled to the refund or credit of overpayment as a matter of law.  This was because, the court determined, the refund was not “property of the estate” under 11 U.S.C. § §542 and 541(a).

Note:  While the Indiana bankruptcy court claimed it lacked authority to force the IRS to issue a refund based on a “property of the estate” argument, that argument leads to a conclusion that is counter to the intent and purpose of I.R.C. §1232.  How is 11 U.S.C. §1232 to be operative if a court says it can’t enforce it?  Certainly, filing a Notice of intent concerning the priority stripping of 11 U.S.C. §1232 taxes with the court asserting the debtors’ right to receive the tax refund would have teed-up the issue more quickly, one wonders whether a judge intent on negating the impact of 11 U.S.C. §1232 would have decided differently.

Later, the court held that the overpayment reflected on the pro forma return was “property of the estate” and withdrew its prior analysis of 11 U.S.C. §§542 and 505(a)(2)(B).  Thus, the court allowed the IRS’s 2018 general unsecured tax claim in the amount of $54,981 and ordered the Trustee to pay distributions to the debtors until the overpayments had been paid to the debtors.

The IRS appealed, claiming that the bankruptcy court erred in allowing the IRS’s proof of claim in the amount of $54,981 rather than $48,567, and ordering the IRS to issue the debtors a refund or credit of any overpayment in the amount of $6,414.  Specifically, the IRS asserted that 11 U.S.C. §1232 did not provide the debtors any right to an “overpayment” or “refund” because it only applies to “claims” - tax liability after crediting payments and withholdings.  The IRS based its position on DeVries.  However, the appellate court in In re Richards, No. 1:20-cv-027030SEB-MG, 2021 U.S. App. LEXIS 188154 (7th Cir. Sept. 30, 2021), noted distinctions with the facts of DeVries.  Here, the sale of property at issue occurred post-petition and involved a claim objection after the Plan had already been confirmed.  The appellate court noted that the IRS did not object to the terms of the Plan, and under 11. U.S.C. §1232 the debtors were entitled to deprioritize all post-petition Sec. 1232 liabilities, not just a portion.  The application of the marginal method resulted in a tax liability of $54,981 to be paid in accordance with Sec. 1232.  The non-Sec. 1232 tax liability was $3,399.  The debtors inadvertently paid $9,813 to the IRS and were entitled to a refund of $6,414 which the IRS could not apply against the Sec. 1232 liabilities in calculating its proof of claim. 

The appellate court also determined that the refund amount was “property of the estate” under 11 U.S.C. §1207(a)(2).  The appellate court noted that the debtors’ off-farm earnings became property of the estate at the time the Plan was confirmed and became subject to the terms and payment requirements of the Plan.  The Plan directed the use of the off-farm earnings during the life of the Plan and specifically provided that off-farm earnings could not be used to pay tax liabilities associated with the sale of farm assets used in farming – the Sec. 1232 liabilities.  Thus, the appellate court concluded what the debtors’ position was consistent with In re Heath, 115 F.3d 521 (7th Cir. 1997) because the $6,414 refund was part of a payment made from off-farm earnings necessary to fund the Plan’s payment obligations. 


Devries and Richards are important cases for practitioners helping farmers in financial distress.  11 U.S.C. §1232 is a powerful tool that can assist making a farm reorganization more feasible.  The Indiana case is a bit strange.  In that case, the debtors were also due a refund for 2016.  A pro-forma return for that year showed a refund of $1,300.  Thus, the issue of a refund being due for pre-petition taxes could have been asserted just as it was in the Iowa case.  Another oddity about the Indiana case is that the 2018 pro-forma (and regular) return was submitted to the IRS in March of 2019.  Under 11 U.S.C. §1232, the “governmental body” has 180 days to file its proof of claim after the pro forma tax return was filed.  The IRS timely filed tis proof of claim and later filed an amended proof of claim which was identical to the original proof of claim.  The IRS filed an untimely proof of claim in one of the other jointly administered cases.

Procedurally, in the Indiana case, a Notice regarding the use of 11 U.S.C. §1232 should have been filed with the court to clarify the dates of Notice to the IRS (and other governmental bodies) of the amount of the priority non-dischargeable taxes and 11 U.S.C. §1232 taxes to be discharged under the plan.  That is when the issue of the refund would have been raised with the IRS.  However, there was no Notice of the filing of the pro-forma return with the court. 

Note:  Going forward, Chapter 12 reorganization plans should provide that if a pro-forma return shows that the debtor is owed a refund the governmental bodies will pay it.  

It is also important to remember that if the debtor does not receive a Chapter 12 discharge, the taxing bodies are free to pursue the debtor as if no bankruptcy had been filed, assessing and collecting the tax as well as all penalties and interest allowed by law including any refunds the taxing bodies are forced to make based on § 1232.  Competent bankruptcy counsel that appreciates tax law is a must. 

October 8, 2021 in Bankruptcy, Income Tax | Permalink | Comments (0)

Thursday, September 30, 2021

Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas


Each year, by the end of September, the IRS provides guidance on the extension of the replacement period under I.R.C. §1033(e)(2)(B) for livestock sold on account of drought, flood or other weather-related condition.  The extended replacement period allows taxpayers additional time to replace the involuntarily converted livestock with like-kind replacement animals without triggering gain on the sale.  The IRS recently issued its 2021 guidance on the issue. 


With Notice 2021-55, 2021-41, I.R.B., the IRS issued its annual Notice specifying those areas that are eligible for an extension of the replacement period for livestock that farmers and ranchers must sell because of severe weather conditions (drought, flood or other weather-related conditions).  For livestock owners in the listed areas that were anticipating that their replacement period would expire at the end of 2021 now have at least until the end of 2022 to replace the involuntarily converted livestock.

Involuntary Conversion Rules

I.R.C. §1033(e) provides that a taxpayer does not recognize gain when property is involuntarily converted and replaced with property that is similar or related in service or use.  Under I.R.C. §1033(e)(1), the sale or exchange of livestock that a taxpayer holds for draft, dairy or breeding purposes in an amount exceeding the number of livestock that the taxpayer would normally sell under the taxpayer’s usual business practice, is treated as a non-taxable involuntary conversion if the sale of the livestock is solely on account of drought, flood or other weather-related conditions. The weather-related conditions must result in the area being designated as eligible for assistance by the federal government.  For purposes of this rule, poultry does not count as “livestock.”

The livestock must be replaced with "like-kind" livestock. I.R.C. §1033(a)(1). Normally, the replacement period is four years from the close of the first tax year in which any part of the gain from the conversion is realized. I.R.C. §1033(e)(2)(A).  But the Treasury Secretary has discretion to extend the replacement period on a regional basis for “such additional time as the Secretary deems appropriate” if the weather-related conditions that resulted in the federal designation continue for more than three years.  I.R.C. §1033(e)(2)(B). 

If the involuntary conversion of livestock is on account of drought and the taxpayer’s replacement period is determined under I.R.C. §1033(e)(2)(A), the extended replacement period under I.R.C. §1033(e)(2)(B) and Notice 2006-82, 2006-2 C.B. 529 is until the end of the taxpayer’s first taxable year after the first drought-free year for the applicable region.  That is defined as the first 12-month period that ends on August 31 in or after the last of the taxpayer’s four-year replacement period, and does not include any weekly period for which exceptional, extreme or severe drought is reported for any location in the applicable region.  The “applicable region” is the county (and all contiguous counties) that experienced the drought conditions on account of which the livestock was sold or exchanged

Note:   If an area is designated as not having a drought-free year, the extended replacement period applies.

Thus, for a taxpayer who qualified for a four-year replacement period for livestock sold or exchanged on account of drought and whose replacement period is scheduled to expire at the end of 2021 (or, for a fiscal-year taxpayer, at the end of the first tax year that includes August 31, 2021), the replacement period extends until the end of the taxpayer’s first taxable year ending after a drought-free year for the applicable region. 

Determining Eligible Locations

One way to determine if a taxpayer is in an area that has experienced exceptional, extreme or severe drought is to refer to the U.S. Drought Monitor maps that are produced on a weekly basis by the National Drought Mitigation Center  The U.S. Drought Monitor maps are archived at

Another way is to wait for the IRS to publish its list of counties, which it is required to issue by the end of September each year.

In accordance with the 2021 IRS Notice on the matter, the following is a list of the counties for which the 12-month period ending August 31, 2021, is not a drought-free year:


Counties of Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Navajo, Pima, Pinal, Santa Cruz, Yavapai, and Yuma.


Counties of Benton, Carroll, Madison, and Washington.


Counties of Alameda, Alpine, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange, Placer, Plumas, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Ventura, Yolo, and Yuba.


Counties of Adams, Alamosa, Arapahoe, Archuleta, Baca, Bent, Boulder, Broomfield, Chaffee, Cheyenne, Clear Creek, Conejos, Costilla, Crowley, Custer, Delta, Denver, Dolores, Douglas, Eagle, Elbert, El Paso, Fremont, Garfield, Gilpin, Grand, Gunnison, Hinsdale, Huerfano, Jackson, Jefferson, Kiowa, Kit Carson, Lake, La Plata, Larimer, Las Animas, Lincoln, Logan, Mesa, Mineral, Moffat, Montezuma, Montrose, Morgan, Otero, Ouray, Park, Phillips, Pitkin, Prowers, Pueblo, Rio Blanco, Rio Grande, Routt, Saguache, San Juan, San Miguel, Sedgwick, Summit, Teller, Washington, Weld, and Yuma.


Counties of Hartford, Litchfield, Middlesex, New Haven, New London, Tolland, and Windham.


Counties of Hawaii, Honolulu, Kalawao, Kauai, and Maui.


Counties of Ada, Adams, Bannock, Bear Lake, Benewah, Bingham, Blaine, Boise, Bonner, Bonneville, Boundary, Butte, Camas, Canyon, Caribou, Cassia, Clark, Clearwater, Custer, Elmore, Franklin, Fremont, Gem, Gooding, Idaho, Jefferson, Jerome, Kootenai, Latah, Lemhi, Lewis, Lincoln, Minidoka, Nez Perce, Oneida, Owyhee, Payette, Power, Shoshone, Teton, Twin Falls, Valley, and Washington.


Counties of Boone, Christian, Cook, DeKalb, De Witt, DuPage, Jo Daviess, Kane, Lake, Logan, McHenry, Macon, Menard, Ogle, Piatt, Sangamon, Stephenson, and Winnebago.


Counties of Adair, Adams, Allamakee, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Buena Vista, Butler, Calhoun, Carroll, Cass, Cerro Gordo, Cherokee, Chickasaw, Clay, Clayton, Crawford, Dallas, Delaware, Dickinson, Dubuque, Emmet, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Howard, Humboldt, Ida, Iowa, Jasper, Johnson, Keokuk, Kossuth, Linn, Lyon, Madison, Mahaska, Marshall, Mills, Mitchell, Monona, Montgomery, O'Brien, Osceola, Page, Palo Alto, Plymouth, Pocahontas, Polk, Pottawattamie, Poweshiek, Sac, Shelby, Sioux, Story, Tama, Warren, Webster, Winnebago, Winneshiek, Woodbury, Worth, and Wright.


Counties of Brown, Cheyenne, Clark, Clay, Cloud, Comanche, Decatur, Dickinson, Geary, Gove, Graham, Grant, Greeley, Hamilton, Jackson, Jewell, Kearny, Lincoln, Logan, Marshall, Meade, Mitchell, Morton, Nemaha, Norton, Ottawa, Phillips, Pottawatomie, Rawlins, Republic, Riley, Scott, Seward, Sheridan, Sherman, Smith, Stanton, Stevens, Thomas, Wabaunsee, Wallace, Washington, and Wichita.


Counties of Androscoggin, Aroostook, Cumberland, Franklin, Hancock, Kennebec, Knox, Lincoln, Oxford, Penobscot, Piscataquis, Sagadahoc, Somerset, Waldo, Washington, and York.


Counties of Barnstable, Berkshire, Bristol, Dukes, Essex, Franklin, Hampden, Hampshire, Middlesex, Nantucket, Norfolk, Plymouth, Suffolk, and Worcester.


County of Alcona, Allegan, Arenac, Barry, Bay, Benzie, Berrien, Branch, Calhoun, Cass, Clinton, Eaton, Genesee, Gladwin, Grand Traverse, Gratiot, Hillsdale, Huron, Ingham, Ionia, Iosco, Isabella, Jackson, Kalamazoo, Kent, Lapeer, Leelanau, Livingston, Manistee, Mason, Mecosta, Midland, Montcalm, Muskegon, Newaygo, Ogemaw, Ottawa, Saginaw, Saint Clair, Saint Joseph, Sanilac, Shiawassee, Tuscola, Van Buren, Washtenaw, and Wexford.


County of Aitkin, Anoka, Becker, Beltrami, Benton, Big Stone, Blue Earth, Brown, Carlton, Carver, Cass, Chippewa, Chisago, Clay, Clearwater, Cook, Cottonwood, Crow Wing, Dakota, Douglas, Faribault, Fillmore, Freeborn, Goodhue, Grant, Hennepin, Houston, Hubbard, Isanti, Itasca, Jackson, Kanabec, Kandiyohi, Kittson, Koochiching, Lac qui Parle, Lake, Lake of the Woods, Le Sueur, Lincoln, Lyon, McLeod, Mahnomen, Marshall, Martin, Meeker, Mille Lacs, Morrison, Mower, Murray, Nicollet, Nobles, Norman, Otter Tail, Pennington, Pine, Pipestone, Polk, Pope, Ramsey, Red Lake, Redwood, Renville, Rice, Rock, Roseau, Saint Louis, Scott, Sherburne, Sibley, Stearns, Steele, Stevens, Swift, Todd, Traverse, Wadena, Waseca, Washington, Watonwan, Wilkin, Wright, and Yellow Medicine.


Counties of Grenada, Leflore, Quitman, Tallahatchie, and Yalobusha.


Counties of Atchison, Barry, Barton, Cedar, Christian, Dade, Douglas, Greene, Holt, Jasper, Lawrence, McDonald, Newton, Polk, Stone, Taney, Vernon, and Webster.


Counties of Beaverhead, Big Horn, Blaine, Broadwater, Carbon, Carter, Cascade, Chouteau, Custer, Daniels, Dawson, Deer Lodge, Fallon, Fergus, Flathead, Gallatin, Garfield, Glacier, Golden Valley, Granite, Hill, Jefferson, Judith Basin, Lake, Lewis and Clark, Liberty, Lincoln, McCone, Madison, Meagher, Mineral, Missoula, Musselshell, Park, Petroleum, Phillips, Pondera, Powder River, Powell, Prairie, Ravalli, Richland, Roosevelt, Rosebud, Sanders, Sheridan, Silver Bow, Stillwater, Sweet Grass, Teton, Toole, Treasure, Valley, Wheatland, Wibaux, and Yellowstone.


Counties of Adams, Antelope, Arthur, Banner, Box Butte, Boyd, Buffalo, Burt, Butler, Cass, Cedar, Chase, Cherry, Cheyenne, Clay, Colfax, Cuming, Custer, Dakota, Dawes, Dawson, Deuel, Dixon, Dodge, Douglas, Dundy, Franklin, Frontier, Furnas, Gage, Garden, Garfield, Gosper, Grant, Greeley, Hall, Hamilton, Harlan, Hayes, Hitchcock, Holt, Howard, Jefferson, Johnson, Kearney, Keith, Keya Paha, Kimball, Knox, Lancaster, Lincoln, McPherson, Madison, Merrick, Morrill, Nance, Nemaha, Nuckolls, Otoe, Pawnee, Perkins, Phelps, Pierce, Platte, Red Willow, Richardson, Rock, Saline, Sarpy, Saunders, Scotts Bluff, Sheridan, Sherman, Sioux, Stanton, Thayer, Thurston, Valley, Washington, Wayne, Webster, and Wheeler.


City of Carson City. Counties of Churchill, Clark, Douglas, Elko, Esmeralda, Eureka, Humboldt, Lander, Lincoln, Lyon, Mineral, Nye, Pershing, Storey, Washoe, and White Pine.

New Hampshire

Counties of Belknap, Carroll, Cheshire, Coos, Grafton, Hillsborough, Merrimack, Rockingham, Strafford, and Sullivan.

New Mexico

Counties of Bernalillo, Catron, Chaves, Cibola, Colfax, Curry, DeBaca, Dona Ana, Eddy, Grant, Guadalupe, Harding, Hidalgo, Lea, Lincoln, Los Alamos, Luna, McKinley, Mora, Otero, Quay, Rio Arriba, Roosevelt, Sandoval, San Juan, San Miguel, Santa Fe, Sierra, Socorro, Taos, Torrance, Union, and Valencia.

New York

Counties of Allegany, Cattaraugus, Hamilton, Herkimer, Jefferson, Lewis, Oneida, Saint Lawrence, and Suffolk.

North Carolina

Counties of Bladen, Brunswick, Columbus, Duplin, New Hanover, Onslow, Pender, Robeson, Sampson, and Scotland.

North Dakota

Counties of Adams, Barnes, Benson, Billings, Bottineau, Bowman, Burke, Burleigh, Cass, Cavalier, Dickey, Divide, Dunn, Eddy, Emmons, Foster, Golden Valley, Grand Forks, Grant, Griggs, Hettinger, Kidder, LaMoure, Logan, McHenry, McIntosh, McKenzie, McLean, Mercer, Morton, Mountrail, Nelson, Oliver, Pembina, Pierce, Ramsey, Ransom, Renville, Richland, Rolette, Sargent, Sheridan, Sioux, Slope, Stark, Steele, Stutsman, Towner, Traill, Walsh, Ward, Wells, and Williams.


Counties of Atoka, Beaver, Beckham, Blaine, Bryan, Caddo, Canadian, Carter, Choctaw, Cimarron, Coal, Custer, Dewey, Ellis, Grady, Greer, Harmon, Harper, Jackson, Jefferson, Johnston, Kiowa, Love, Major, Marshall, Murray, Roger Mills, Texas, Tillman, Washita, Woods, and Woodward.


Counties of Baker, Benton, Clackamas, Clatsop, Columbia, Coos, Crook, Curry, Deschutes, Douglas, Gilliam, Grant, Harney, Hood River, Jackson, Jefferson, Josephine, Klamath, Lake, Lane, Lincoln, Linn, Malheur, Marion, Morrow, Multnomah, Polk, Sherman, Tillamook, Umatilla, Union, Wallowa, Wasco, Washington, Wheeler, and Yamhill.


Counties of Blair, Cambria, Cameron, Centre, Clearfield, Clinton, Huntingdon, Lycoming, McKean, Potter, Tioga, and Union.

Rhode Island

Counties of Bristol, Kent, Newport, Providence, and Washington.

South Carolina

Counties of Calhoun, Chesterfield, Clarendon, Darlington, Dillon, Florence, Georgetown, Horry, Kershaw, Lee, Lexington, Marion, Marlboro, Orangeburg, Richland, Sumter, and Williamsburg.

South Dakota

Counties of Aurora, Beadle, Bennett, Bon Homme, Brookings, Brown, Brule, Buffalo, Butte, Campbell, Charles Mix, Clark, Clay, Codington, Corson, Custer, Davison, Day, Deuel, Dewey, Douglas, Edmunds, Fall River, Faulk, Grant, Gregory, Haakon, Hamlin, Hand, Hanson, Harding, Hughes, Hutchinson, Hyde, Jackson, Jerauld, Jones, Kingsbury, Lake, Lawrence, Lincoln, Lyman, McCook, McPherson, Marshall, Meade, Mellette, Miner, Minnehaha, Moody, Oglala Lakota, Pennington, Perkins, Potter, Roberts, Sanborn, Spink, Stanley, Sully, Todd, Tripp, Turner, Union, Walworth, Yankton, and Ziebach.


Counties of Andrews, Angelina, Aransas, Armstrong, Atascosa, Austin, Bailey, Bandera, Bastrop, Baylor, Bee, Bell, Bexar, Blanco, Borden, Bosque, Brazoria, Brazos, Brewster, Briscoe, Brooks, Brown, Burleson, Burnet, Caldwell, Calhoun, Callahan, Cameron, Carson, Castro, Cherokee, Childress, Clay, Cochran, Coke, Coleman, Collin, Collingsworth, Colorado, Comal, Comanche, Concho, Cooke, Coryell, Cottle, Crane, Crockett, Crosby, Culberson, Dallam, Dallas, Dawson, Deaf Smith, Denton, DeWitt, Dickens, Dimmit, Donley, Duval, Eastland, Ector, Edwards, Ellis, El Paso, Erath, Falls, Fayette, Fisher, Floyd, Foard, Frio, Gaines, Galveston, Garza, Gillespie, Glasscock, Goliad, Gonzales, Gray, Grayson, Grimes, Guadalupe, Hale, Hall, Hamilton, Hardeman, Hardin, Harris, Hartley, Haskell, Hays, Hemphill, Henderson, Hidalgo, Hill, Hockley, Houston, Howard, Hudspeth, Hunt, Hutchinson, Irion, Jack, Jackson, Jeff Davis, Jim Hogg, Jim Wells, Johnson, Jones, Karnes, Kaufman, Kendall, Kenedy, Kent, Kerr, Kimble, King, Kinney, Kleberg, Knox, Lamb, Lampasas, La Salle, Lavaca, Lee, Leon, Liberty, Lipscomb, Live Oak, Llano, Loving, Lubbock, Lynn, McCulloch, McLennan, McMullen, Madison, Martin, Mason, Matagorda, Maverick, Medina, Menard, Midland, Milam, Mills, Mitchell, Montague, Montgomery, Motley, Nacogdoches, Navarro, Nolan, Nueces, Ochiltree, Oldham, Parker, Parmer, Pecos, Polk, Potter, Presidio, Randall, Reagan, Real, Reeves, Refugio, Roberts, Robertson, Rockwall, Runnels, San Jacinto, San Patricio, San Saba, Schleicher, Scurry, Somervell, Starr, Stephens, Sterling, Stonewall, Sutton, Swisher, Tarrant, Taylor, Terrell, Terry, Throckmorton, Tom Green, Travis, Trinity, Tyler, Upton, Uvalde, Val Verde, Victoria, Walker, Ward, Washington, Webb, Wheeler, Wilbarger, Willacy, Williamson, Wilson, Winkler, Wise, Yoakum, Young, Zapata, and Zavala.


Counties of Beaver, Box Elder, Cache, Carbon, Daggett, Davis, Duchesne, Emery, Garfield, Grand, Iron, Juab, Kane, Millard, Morgan, Piute, Rich, Salt Lake, San Juan, Sanpete, Sevier, Summit, Tooele, Uintah, Utah, Wasatch, Washington, Wayne, and Weber.


Counties of Addison, Caledonia, Essex, Orange, Orleans, Rutland, Washington, Windham, and Windsor.


Counties of Adams, Asotin, Benton, Chelan, Clark, Columbia, Cowlitz, Douglas, Ferry, Franklin, Garfield, Grant, Island, Kittitas, Klickitat, Lincoln, Okanogan, Pend Oreille, San Juan, Skagit, Skamania, Spokane, Stevens, Wahkiakum, Walla Walla, Whatcom, Whitman, and Yakima.


Counties of Burnett, Crawford, Dane, Dodge, Grant, Green, Jefferson, Kenosha, La Crosse, Lafayette, Milwaukee, Monroe, Ozaukee, Pierce, Polk, Racine, Richland, Rock, Saint Croix, Vernon, Walworth, Washington, and Waukesha.


Counties of Albany, Big Horn, Campbell, Carbon, Converse, Crook, Fremont, Goshen, Hot Springs, Johnson, Laramie, Lincoln, Natrona, Niobrara, Park, Platte, Sheridan, Sublette, Sweetwater, Teton, Uinta, Washakie, and Weston.

September 30, 2021 in Income Tax | Permalink | Comments (0)

Monday, September 27, 2021

Fall 2021 Seminars


I receive many requests for my seminar schedule, particularly during the fall season when I am doing training events for tax practitioners.   Today’s post provides a listing (as of today) for my events for the rest of the year.

September 29, 2021 (LaHarpe, Kansas)

This is not a tax event, but a breakfast meeting from 8:00 a.m. – 9:30 a.m. for local landowners impacted or potentially impacted by the Southwest Power Pool Blackberry Line from Wolf Creek Nuclear plant to Blackberry (south of Pittsburg).  I will be discussing real estate principles concerning easements.

October 8, 2021 (Laramie, Wyoming)

This event is for attorneys and CPAs and other tax professionals.  I will be providing an up-to-date discussion and analysis of the current status of proposed tax legislation.  I will also be addressing some other estate and tax planning topics of present importance.  You can learn more about this event and register at the following link:

Kansas State University (KSU) Tax Institutes (October 25 – December 14)

The KSU Tax Institutes are two-day Institutes at six locations across the state of Kansas and two, two-day webinars.  This fall I will be team-teaching Day 1 with Paul Neiffer at Garden City, Kansas and Hays, Kansas.  I will also be team teaching Day 2 at those locations with Ross Hirst, retired IRS.  The three of us will also be teaching Webinar No. 1.  The Garden City Institute is on October 25-26.  The Hays Institute is on October 27 and 28.  Webinar No. 1 is on November 3-4. 

The remaining Institutes will be taught on Day 1 by Prof. Edward A. Morse of Creighton University School of Law and Daniel Waters of Lamson Dugan & Murray in Omaha, Nebraska.  Prof. Morse is also a CPA and is an excellent presenter on tax topics for CPAs and other tax professionals.  He teaches various tax classes at the law school and also operates a farm east of Omaha in Iowa.  Daniel has an extensive tax and estate/business planning practice.  Ross Hirst and I will team teach Day 2 at each of these locations.

The dates for these five Institutes are:  Salina, Kansas on November 8-9; Lawrence, Kansas November 9-10; Wichita, Kansas on November 22-23; Pittsburg, Kansas on December 8-9; and Webinar No. 2 on December 13-14.

You can learn more about the KSU Tax Institutes and the topics that we will be covering, and registration information at the following link:

December 16-17 (San Angelo, Texas)

At this two-day conference, I will be focusing on critical income tax and estate/business planning issues.  This event is sponsored by the San Angelo Chapter of the Texas Society of CPAs. 


I also have other in-house training events scheduled this fall for various CPA firms. 


I look forward to seeing you in-person at one of the events this fall.  If you can’t attend in-person, some of the events are online, as noted.   Also, thanks to those listening to the daily two-minute syndicated radio program that airs across the country.  Air plays were up about 30 percent in August compared to July.  

September 27, 2021 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Friday, September 24, 2021

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


Earlier this week the U.S. House Ways and Means Committee released the legislative text (Amendment in the Nature of a Substitute to the Committee Print Offered by Mr. Neal of Massachusetts) that includes proposed tax changes to be included in the budget reconciliation bill – the massive “porkulus” spending bill to accompany the infrastructure bill that is a separate piece of legislation.   While there are likely still many permutations remaining, and it’s still possible that the entire spending bills could go down flames, if the current proposals move forward as is what can be done to prepare for their impact?

I will be covering the most recent developments at my October 8 conference in Laramie, Wyoming.  You may attend either in person or online.  I will provide at that event the then present status of tax proposals and what planning steps should be undertaken in advance of possible changes in the tax laws.  You can learn more about that conference and register here:

Tax provisions in the committees and associated planning steps – it’s the topic of today’s post.

Income Tax Rates

As of today, the proposal continues to be to raise the top marginal income tax rate (federal) to 42.6 percent.  For married persons filing jointly, that rate would kick-in at a modified adjusted gross income (MAGI) exceeding $5 million.  The new 39.6 percent bracket would apply to married persons filing jointly with MAGI of approximately $450,000 up to that $5 million mark.  For single persons the 39.6 percent rate would apply at taxable income above $400,000.  This rate would also apply to trusts and estates with taxable income exceeding $12,500 ($100,000 for the 42.6 percent rate).  Of course, applicable state and local taxes get added on. 

This higher rate would apply to tax years beginning after 2021, which means there is some time to do some tax planning associated with trusts.  Depending on the type of trust and the language of the trust it might be possible to trigger income in 2021 at a lower rate.  A call to your tax and estate planning professionals might be in order, particularly if you recently changed the beneficiary of a retirement plan to a trust.  Some did that in light of another recent law change that eliminated “stretch” IRAs.  If the higher rate actually becomes law, it would be better in many situations to have the retirement funds distributed directly to a beneficiary rather than via a trust.  Sec. 138201.

Corporate Tax Rates

Presently, the corporate tax rate is a flat 21 percent.  The proposal graduates the corporate rate structure as follows:  18 percent on corporate taxable income up to $400,000; 21 percent on taxable income between $400,000 and $5 million; and 26.5 percent on taxable income over $5 million but under not exceeding $10 million.  An additional tax is added to the 26.5 percent rate for corporations with taxable income in excess of $10 million.   Sec. 138101

Qualified Small Business Stock

I.R.C. §1202 stock gain exclusion provisions of 75 percent and 100 percent would be inapplicable to taxpayers with adjusted gross income (AGI) at or above $400,000.  The 50 percent exclusion would remain.   Sec. 138150. 

Capital Gain Rates

The initial proposal to raise capital gain rates to the (newer) top marginal income tax rate of 39.6 percent appears to be dead.  It looks more likely that what will move forward is a 25 percent rate.  The current legislation says that the higher rate would apply to gains triggered “after date of introduction.”  If have no clue what that means, other than it is sometime before 2022.  Perhaps it means September 13, 2021, the date the legislative text was released. 

Thankfully, it appears that the “deemed realization” rules are no longer included in the proposed legislation.  That would have made death a capital gain triggering event rather than waiting for an heir to sell inherited property.  Also, for now, the “stepped-up” basis at death rule (or adjustment to fair market value at death) is retained.  Sec. 138202.

Net Investment Income Tax

Obamacare added a 3.8 percent tax on passive sources of income under I.R.C. §1411.  The current proposal is to tack this additional tax onto all trade or business income on a joint return exceeding $500,000 ($400,000 single).  It does not apply to any earnings that are subject to FICA tax.  The effect of this is to make the tax apply to distributions from S corporations, limited liability companies and partnerships with profits above the threshold.  This provision specifies that it applies to tax years beginning after 2021.  Sec. 138203.

Qualified Business Income Deduction (QBID)

As I noted in a post last week, the current proposal is to limit the 20 percent QBID to a maximum deduction of $500,000 for married filing joint filers ($400,000 for single filers).  For trusts and estates, the maximum QBID would be $10,000.  So, businesses operating inside trust that could generate a sizable QBID would no longer be a good idea from a tax standpoint.  The legislation says nothing about limiting the amount of the deduction passed through to a patron of an agricultural or horticultural cooperative.  So, a farmers QBID would be limited to $500,000, but any amount passing through from a cooperative would not be.  This provision also would be effective for tax years beginning after 2021.  Sec. 138204.

Excess Business Losses

The proposal would permanently disallow excess business losses for noncorporate taxpayers.  Sec. 138205. 

IRA Changes

The proposed legislation contains contribution limits to Individual Retirement Accounts (IRAs).  The limitations start to apply on retirement plan balances in excess of $10 million as of the end of the prior tax year and where the account owner’s MAGI exceeds $450,000 on a joint return.  The limitation applies to regular IRAs, Roth IRAs and defined contribution plans.  In addition, owners of account balances exceeding the $10 million threshold will be required to withdraw more from the account on an annual basis than will account owners with balances not exceeding the threshold.  That excess amount as a minimum distribution for the following year would be 50 percent of the amount by which the individual’s prior-year aggregate traditional IRA, Roth IRA and defined contribution account balance exceeds the $10 million limit.  A different minimum distribution calculation is specified for combined account balances of an owner exceeding $20 million.  Secs. 138301 and 138302.

IRAs would also be barred from holding investments in nonregistered securities.  For IRA accounts that hold nonregistered securities after 2021, such investments would be deemed to be distributed over a two-year transition period. 

Another provision changes the existing threshold prohibiting investment by an IRA in an entity in which the IRA owner owns at least a 50 percent ownership interest to a 10 percent ownership interest for investments that are not traded on an established securities market. 

Roth conversions would be eliminated for married taxpayers filing jointly with taxable income exceeding $450,000 ($400,000 single).  Sec. 138311.

Exemption Equivalent of the Unified Credit

I have written in prior articles about the proposal to “decouple” the estate and gift tax systems.  They are presently “coupled” but if the proposed changes make it into law, the systems will be decoupled.  There will be a credit to offset estate tax, and a separate credit to offset gift tax.  Under current law, the coupled estate and gift tax credit rises with inflation through 2025.  Beginning in 2026 it is scheduled to drop so that its exemption equivalent is $5 million in 2011 dollars.   The present proposal fast-forwards the 2026 law to 2022.  In other words, the exemption equivalent of the unified credit would be $5 million adjusted for inflation since 2011 – approximately $6.2 million.  Thus, for higher-wealth persons, it might be wise to start using some of the higher exemption by the end of 2021.  Strategies might include the formation of a “self-settled” trust (in some states); a special power of appointment trust; or a spousal lifetime access trust.  Sec. 138207.

Special Use Valuation

Under current law, as I have noted in other posts, farm and ranch land (and other non-farm business property) can be valued at death for federal estate tax purposes at its use value rather than fair market value.  I.R.C. §2032A. For deaths in 2021, the maximum value reduction possible is $1,190,000.  Under the current proposal the maximum reduction in value would be $12 million.  Sec. 138208.

Trust Planning

I have written previously on proposals that would essentially end dynasty trusts and intentionally defective grantor trusts as well as grantor retained annuity trusts, qualified personal residence trusts and even irrevocable life insurance trusts.  The provisions attacking these traditional planning methods remain. 


Eliminating valuation discounting as a planning tool was a target of the Obama-Biden administration.  After the valuation regulations largely eliminating such discounts was removed by the Trump Administration, the restrictions on valuation discounting are now back.  This time the restrictions would be statutory and would eliminate discounts on non-business assets.  Passive assets are non-business assets.  That could mean that farm and ranch land under a cash lease is a passive, non-business asset in the landlord’s hands.  Likewise, the value of marketable securities would not be eligible for a valuation discount. 


The draft legislation ends the employer credit for wages paid to employees during family and medical leave for tax years beginning after 2023.  Sec. 138506.

An S corporation could reorganize as a partnership tax-free.  The S corporation that qualifies is one that was an S corporation as of May 13, 1996.  Sec. 138509.

The Work Opportunity Tax Credit would be increased to 50 percent for the first $10,000 of wages for all groups except youth employees.  This provision would apply for persons hired before 2023.  Sec. 138513.

A new payroll tax credit for compensation of “local news journalists” is created.  The tax credit applies against employment taxes for each calendar quarter up to $12,500.  The credit is 50 percent for each of the first four calendar quarters (total of $25,000) and then 30 percent thereafter.  An “eligible local newspaper publisher” is one having substantially all gross receipts derived from publishing a local newspaper.  “Local newspaper” means any print or digital publication if the content is original and derives from primary sources relating to news and current events.  The publisher must not employ more than 750 employees during the calendar quarter during which a credit is allowed.  A “local news journalist” is a person providing at least 100 hours of service during the calendar quarter.  Sec. 138517.


I will provide the latest up-to-date discussion of pending tax legislation and possible year-end planning steps at the conference in Laramie, WY on October 8.  Again, attendance may either be in person or online.

September 24, 2021 in Estate Planning, Income Tax | Permalink | Comments (0)

Saturday, September 18, 2021

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


The Tax writing committees in the Congress are busy trying to figure out ways to pick your pocket through the tax Code to pay for the massive spending legislation that is currently proposed and being debated.  If and when any legislative proposals become law, important planning steps will be necessary for many farm and ranch families.  But, all hinges on just exactly what changes become law.  It’s difficult, if not impossible, to plan for changes that are unknown.  That’s particularly the case if tax changes are done on a retroactive basis. 

In today’s post, I highlight where the areas of change might occur by referring you to a lengthy article resulting from interviews with farm media in recent days.  Also, I invite you to attend either in-person or online, my upcoming 4-hour seminar on the tax landscape on October 8.  The in-person presentation will be at the University of Wyoming College of Law in Laramie.  The event will also be simulcast over the web.  I will provide the most up-to-date information of where legislative proposals are at as of that time and the prospects for passage, and planning steps that need to be taken.

The current tax landscape and the upcoming October 8 seminar – it’s the topic of today’s post.

Possible Changes

In the article in which I am quoted that is linked below, I attach percentages (as of September 17, 2021) as to likelihood of whether particular current tax Code provisions would change.  The areas that I address include the following:

  • The federal estate tax exemption
  • “Stepped-up” basis at death
  • Income tax rates
  • The deduction for state and local taxes
  • A cap on itemized deductions
  • The capital gains tax rate(s)

Stepped-Up Basis

As for the stepped-up basis issue and the possible elimination of modification of the rule, the Congress has tried this approach before.  The long-standing rule has been that the basis of property that is included in a decedent’s estate for tax purposes gets a basis equal to the fair market value of the property in the hands of the heir(s).  I.R.C. §1014.  But, for property that is gifted, the donee generally receives an income tax basis equal to the donor’s basis at the time of the gift.  This is known as a “carryover basis.”  The Tax Reform Act of 1976 expanded carryover basis to include dispositions at death.  Pub. L. No. 94-455, Sec. 2005, 90 Stat. 1872 (1976).  Section 2005(a)(1) of that law retained the old step-up/step-down (fair market value basis) rule of I.R.C. Sec. 1014 in the case of a decedent dying before January 1, 1977.  The Revenue Act of 1978 delayed the effective date of I.R.C. Sec. 1023 (the new carryover basis rule) to decedents dying after 1979, and the non-application date of I.R.C. Sec. 1014 (the old step-up basis rule), to estates of decedents dying before January 1, 1980.  Pub. L. No. 95-600, Sec. 515, 82 Stat. 2884.  The new carryover basis rule of I.R.C. §1023 was repealed by Pub. L. No. 96-223, Sec. 401, 94 Stat. 229 (1980).   This amendment was made effective for decedents dying after 1976.  The date on this repeal amendment is April. 2, 1980.

As of this writing, it appears that the Congress will not change the existing fair market value basis at death rule.  The chairman of the House Ways and Means committee has indicated that the votes are not there to change the rule.  That’s good news for farmers and ranchers and tax practitioners – the administrative burden of changing to a carryover over basis would be extensive.

Corporate Tax and I.R.C. §199A

Corporate tax.  Presently, the proposal is to increase the corporate tax to 26.5 percent on income exceeding $5 million from its current 21 percent rate.  That would amount to a 25.5 percent rate increase at the federal level that corporations would, depending on the competitive structure of their market, pass through to consumers in the form of higher prices.  On top of the 26.5 percent rate would be any state-level corporate tax.  The current federal corporate income tax rate puts the United States near the middle of the pack in comparison with its Organisation for Economic Co-operation and Development peer countries.  The proposed change would give the U.S. one of the highest corporate tax rates of the OECD countries. The result would be a drop in investment in U.S. companies and cause some firms to locate outside the U.S., taking jobs with them.  Also, if the corporate rate is increased, it’s not likely that the various tax deductions and other favorable corporate tax provisions that the Tax Cuts and Jobs Act removed, would not be restored. 

Qualified Business Income Deduction (QBID).  The QBID of I.R.C. §199A, under the current House proposal, the QBID would be limited to a $500,000 deduction (joint), $400,000 (single) and $250,000 (MFS).  It would be capped at $10,000 for a trust or an estate.  For farmers that are patrons of qualified cooperatives the amount passed through from the cooperative would not be limited.  The QBID is presently 20 percent of business income.  There is “talk” on the Senate side of eliminating the QBID, but retaining any amount passed through to a patron from a cooperative. Either proposal, if enacted, would result in a significant tax increase for many farmers. 

For discussion of the other major tax proposals, you can read my comments in the article linked here:

Wyoming Seminar

As mentioned above, I will be addressing the legislative tax proposals and providing possible planning steps at a seminar to be held at the University of Wyoming College of Law in Laramie on October 8, 2021.  You may attend either in person or online.  For more information the October 8 event, you may click here:


The future of tax policy for agriculture is of critical importance at the present time.  Make sure you are staying up with the developments. 

September 18, 2021 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Wednesday, September 15, 2021

Gifting Pre-Death (Partnership Interests) – Part Three


In the Part One of this series, I discussed the basics rules governing gifts made during life and the present interest annual exclusion.  In Part Two, I expanded the present interest gifting discussion to gifts of entity interests and how to qualify the gifts for present interest exclusions.  In today’s Part Three the attention turns to how to report gifts of interests in a partnership for tax purposes. 

The tax reporting of gifted partnership interests – it’s the topic of today’s post.

Basic Rules Applied

Often no issues.  From an income tax standpoint, the donee does not recognize income (or loss) on the value of gifted property.  The gift, however, can trigger gift tax if the amount of the gift exceeds the present interest annual exclusion (presently $15,000 per donee, per year) or is not of a present interest of any amount. In that situation, Form 709 must be filed by April 15 of the year following the year in which the taxable gift was made. But, as noted in Part One, gift tax is often not due because the tax can be offset by unified credit. But remember, even if the credit is used to fully offset gift tax, Form 709 must be filed to show the amount of the taxable gift and the offsetting credit reducing the taxable amount to zero.

Valuing gifts for tax purposes.  If gift tax is imposed, it is calculated on the fair market value (FMV) of the gifted property less the amount of debt (if any) from which the donor is relieved. Applying those principles in the partnership context, the fair market value of a partnership interest would need to be determined, as well as the donor’s share of any partnership liabilities.  If the gifted partnership interest relieves the donor of more debt than the donor has income tax basis in the partnership interest, the excess is treated as an amount realized in a deemed sale transaction.  In that event, the donor must recognize gain.  Treas. Reg. §1.1001-2(a). 

Gain Recognition on Gift of a Partnership Interest

For gifted partnership interests, gain recognition is common when the donor has a negative tax basis capital account.  A partner’s tax basis capital account balance generally equals the amount of cash and tax basis of property that the partner contributes to the partnership, increased by allocations of taxable income to the partner, decreased by allocations of taxable loss to the partner, and decreased by the amount of cash or the tax basis of property distributed by the partnership to the partner.  If the result of all of these adjustments is a negative amount, the partner has a negative tax basis capital account and is more likely to have gain recognition upon the gift of a partnership interest. 

Note:  For tax years ending on or after 2020 partnerships must report each partner’s capital account on a tax basis.  For prior years, a partnership could report partner capital accounts on some other basis (such as GAAP) which limited the ability of the IRS to identify potentially taxable situations.

Depending on whether the “hot asset” rules of I.R.C. §751 apply, some of the gain could be taxed at ordinary income rates. IRC §751 requires recognition of gain from "hot assets" as ordinary income. Under §751(b), "hot assets" include unrealized receivables, substantially appreciated inventory and depreciation recapture. Any amount of capital gain triggered by the gifted partnership interest will be either short-term or long-term under the normal rules. 


Frank has structured his farming operation as a general partnership.  Assume that his tax basis capital account is negative $200,000 and his share of partnership liabilities is $300,000, and the FMV of his interest in the partnership assets is $400,000.  For succession planning purposes, Frank wants to gift his partnership interest to his son, Fred. Frank needs to know both the gift tax and income tax consequences of gifting his partnership interest to Fred.  

The amount of the taxable gift is the difference in the FMV of Frank’s share of the partnership assets and his share  of partnership debt he is being relieved of.  Thus, the amount of the gift is $100,000.  Assuming that the gift qualifies for the present interest annual exclusion (see Part 2 of this series), the taxable gift would be $85,000.  That amount could be fully offset by the estate and gift tax unified credit (assuming Frank has enough currently remaining) resulting in no gift tax liability.  Form 709 would need to be filed by April 15 of the year following the year of the gift. 

On the income tax side of things, the gift of the partnership interest relieved Frank of his share of partnership liabilities of $300,000.  From that amount Frank subtracts the adjusted basis of his partnership interest – that’s Frank’s tax basis capital account value of negative $200,000 plus his share of partnership liabilities of $300,000.  Thus, from the debt relief of $300,000, Frank subtracts $100,000.  The result is that Frank has $200,000 of gain associated with a deemed sale of the partnership interest.   

The amount of gain that Frank recognizes on the gift of the partnership interest is added to Frank’s basis in his interest for determining Fred’s basis. Fred then has a basis equal to the amount realized (the amount of debt relief) in the deemed sale. Treas. Reg. §1.1015-4(a). Fred’s tax basis capital account begins at zero, representing Frank’s negative capital account of $200,000 plus $200,000 gain recognized by Frank. Another way of looking at this is the tax basis of Frank’s share of the partnership assets was $100,000, plus Frank recognized gain of $200,000, reduced by Frank’s share of the partnership debt assumed by Fred of $300,000.

Note:  One exception to the general rule of carryover basis is if the donor’s pays any gift tax on the gift.  See I.R.C. §§742 and 1015. 

Note:  If the FMV of a partnership interest is less than the partner's basis at the time of the gift, for purposes of determining the donee's loss on a subsequent disposition, the donee's basis in the interest is the FMV of the partnership interest at the time of the gift.  I.R.C. §1015(a). 

Partnership-Level Impact

Basis adjustment.  If a gifting partner recognizes gain on the deemed sale of the partnership interest and the partnership had an I.R.C. §754 election in place, the partnership will need to adjust the basis of its assets to reflect the amount of the gain.

Transfer to family members.  If a partnership interest is purchased by a family member, the transfer is subject to the family partnership rules of I.R.C. §704(e)(2). For this purpose, a “family member” is defined as the donor’s spouse, ancestors and lineal descendants and any trusts for the primary benefit of such persons.  If the rules are triggered, the transfers is treated as if it was created by gift from the seller, and the fair market value of the purchased interest is considered to be donated capital. This rule is designed to bar the shifting of income and property appreciation from higher-bracket taxpayers to lower-bracket taxpayers by requiring income produced by capital to be taxed to the true owner of that capital. The rule is also designed to ensure that services are taxed to the person performing the services.  If the IRS deems the rules to have been violated it may reallocate income between partners (or determined that a partner is not really a partner) for income tax purposes.   

Valuation discounts.  As noted in Part 2, gifts of partnership interests to family members are often subject to valuation discounts to reflect lack of marketability or minority interest.  Thus, careful structuring of partnerships and transferring of partnership interests involving family members must be cautiously and carefully undertaken to avoid IRS objection. 


Transitioning the farming or ranching business to the next generation is difficult from a technical perspective.  But those difficulties should not prevent farm and ranch families from doing appropriate planning to ensure that a succession plan is in place to help assist the future economic success of the family business.

September 15, 2021 in Business Planning, Income Tax | Permalink | Comments (0)

Friday, September 10, 2021

Gifting Assets Pre-Death - Part One


Proposed legislation that would decrease the federal estate tax exemption and the federal gift tax exemption is raising many concerns among farm and ranch families and associated estate and business planning issues.  For farmers and ranchers desirous of keeping the family business intact for the next generation, questions about gifting assets and business interests to the next generation of owners now are commonplace. 

Gifting assets before death – Part One of a series - It’s the topic of today’s post.

Federal Estate and Gift Tax - Current Structure

The current federal estate and gift tax system is a “coupled” system.  A “unified credit” amount generates and “applicable exclusion” of $11.7 per individual for 2021.  That amount can be used to offset taxable gifts during life or offset taxable estate value at death.  It’s and “either/or” proposition.  Any unused exclusion at the time of death can be “ported” over to the surviving spouse and added to the surviving spouse’s own applicable exclusion amount at death. 

However, some gifts are not “taxable” gifts for purposes of using up the unified credit and, in turn, reducing the amount of asset value that can be excluded from federal estate tax at death.

Gifting – The Present Interest Annual Exclusion

Basics.  “Present interest” gifts are not “taxable” gifts and do not reduce the donor’s unified credit.  The present interest annual exclusion amount is a key component of the federal gift tax.  I.R.C. §2503.  The exclusion is presently $15,000 per donee, per year. That means that a donor can make gifts of up to $15,000 per year, per donee (in cash or an equivalent amount of property) without triggering any gift tax, and without any need to file Form 709 – the federal gift tax return.  

Note:   Spouses can elect split gift treatment regardless of which spouse actually owns the gifted property. With such an election, the spouses are treated as owning the property equally, thereby allowing gifts of up to $30,000 per donee. Also, under I.R.C. §2503(e), an unlimited exclusion is allowed for direct payment of certain educational and medical expenses. In effect, such transfers are not deemed to be gifts.

The exclusion “renews” each year and is not limited by the number of potential donees.  It is only limited by the amount of the donor’s funds and interest in making gifts.  Thus, the exclusion can be a key estate planning tool by facilitating the passage of significant value to others (typically family members) pre-death to aid in the succession of a family business or a reduction in the potential size of the donor’s taxable estate, or both. But, to qualify for the exclusion, the gift must be a gift of a present interest – the exclusion does not apply to future interests.

Note:   A present interest gift is one that the recipient is free to use, enjoy, and benefit from immediately.  A gift of a future interest is one where the recipient doesn't have complete use and enjoyment of it until some future point in time. “Strings” are attached to future interest gifts.

Gifts to minors.  I.R.C. §2503(c) specifies that gifts to persons under age 21 at the time of the gift are not future interests if the property and the income from the gift “may be expended by, or for the benefit of, the donee before attaining the age of 21 years, and will to the extent not so expended, pass to the donee on his attaining the age of 21 years, and in the event the donee dies before attaining…age…21…, be payable to the estate of the donee or as he may appoint under a general power of appointment…”.  This provision contemplates gifts to minors in trust with a trustee appointed to manage the gifted property on the minor’s behalf.  But, to qualify as a present interest, the gift still must be an “outright” gift with no strings attached. 

Whether gifts are present interests that qualify for the annual exclusion has been a particular issue in the context of trust gifts that benefit minors. In 1945, the U.S. Supreme Court decided two such cases. In Fondren v. Comr. 324 U.S. 18 (1945) and Comr. v. Disston, 325 U.S. 442 (1945), the donor created a trust that benefitted a minor. In Fondren, the trustee had the discretion to distribute principal and income for the minor’s support, maintenance and education and, in Disston, the trustee had to apply to the minor’s benefit such income “as may be necessary for…education, comfort, and support.” In both cases, the Court determined that the minor was not entitled to any amount of a “specific and identifiable income stream.” So, no present interest was involved. The gifts were determined to be future interests.

What if a transferee has a right to demand the trust property via a right to withdraw the gifted property from the trust? Is that the same as outright ownership such that the gifted property would qualify the donor for an annual exclusion on a per donee basis?  In 1951, the U.S. Court of Appeals for the Seventh Circuit said “yes” in a case involving an unlimited timeframe in which the withdrawal right could be exercised without any time limit for exercising the right. Kieckhefer v. Comr., 189 F.2d 118 (7th Cir. 1951).  But in 1952 the U.S. Court of Appeals for the Second Circuit said “no” because it wasn’t probable that the minor would need the funds. Stifel v. Comr., 197 F.2d 107 (2d Cir. 1952).  In Stifel, the minor’s access to the gifted property was to be evaluated in accordance with how likely it was that the minor would need the funds and whether a guardian had been appointed.

The “breakthrough” case on the issue of gifts to minors and qualification for the present interest annual exclusion came in 1968.  In that year, the U.S. Circuit Court of Appeals for the Ninth Circuit, in Crummey v. Comr., 397 F.2d 82 (9th Cir. 1968), allowed present interest annual exclusions for gifts to a trust for minors that were subject to the minor’s right to demand withdrawal for a limited timeframe without any need to determine how likely it was that a particular minor beneficiary would actually need the gifted property. Since the issuance of the Crummey decision, the “Crummey demand power” technique has become widely used to assure availability of annual exclusions while minimizing the donee’s access to the gifted property.

Gifting – The Income Tax Basis Issue

In general, property that is included in a decedent’s estate receives an income tax basis in the hands of the heir equal to the fair market value of the property as of the date of the decedent’s deathI.R.C. §1014(a)(1).  However, the rule is different for gifted property.  Generally, a donee takes the donor’s income tax basis in gifted property.  I.R.C. §1015(a).  These different rules are often a significant consideration in estate planning and business transition/succession plans. 

With the current federal estate and gift tax exemption at $11.7 million for decedent’s dying in 2021 and gifts made in 2021, gifting assets to minimize or eliminate potential federal estate tax at death is not part of an estate or succession plan for very many.  But, if a current proposal to reduce the federal estate tax exemption to $3.5 million and peg the gift tax exemption at the $1 million level would become law, then gifting to avoid estate tax would be back in “vogue.”  However, legislation currently under consideration would change the basis rule with respect to inherited property.  The proposal is to limit the fair market at death income tax basis rule to $1 million in appreciated value before death, and apply a “carry-over” basis to any excess.  An exception would apply to farms and ranches that remain in the family and continue to be used as a farm or ranch for at least 10 years following the decedent’s death.  Gifted property would retain the “carry-over” basis rule. 

Another proposal would specify death as an income tax triggering event causing tax to be paid on the appreciated value over $1 million, rather than triggering tax on appreciated value when the heir sells the appreciated property.  If any of these proposals were to become law, the planning horizon would have to be reevaluated for many individuals and small businesses, particularly farming and ranching operations. 

Still another piece of the proposed legislation would limit present interest gifts to $10,000 per donee and $20,000 per donor on an annual (it appears, although this is not entirely clear) basis. 

Note:  At this time, it remains to be seen whether these proposed changes will become law.  There is significant push-back among farm-state legislators from both aisles and small businesses in general.


Even if the rules change surrounding the exemption from federal estate tax and/or the income tax basis rule at death, and/or the timing of taxing appreciation in wealth, gifting of assets during life will still play a role in farm and ranch business/succession planning.  A big part of that planning involves taking advantage of the present interest annual exclusion to avoid reducing the available federal estate tax exemption at death. 

September 10, 2021 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (0)

Wednesday, September 8, 2021

Recent Tax Developments in the Courts


The courts continue to issue opinions involving important tax issues not only farmers and ranchers, but opinions on issues that impact a broader range of taxpayers.  In today’s post I highlight a few of the recent developments involving dependency; conservation easements; the ability to deduct NOLs; whether the “Roberts Tax” is a tax; whether losses are passive; and the deductibility of theft losses.

Recent court developments in tax law – it’s the topic of today’s post

Taxpayer Caring for Brother’s Children Entitled to Child-Related Tax Benefits

Griffin v. Comr., T.C. Sum. Op. 2021-26

During the tax year in issue, the petitioner lived with and cared for her mother at the petitioner’s home. She received compensation for caring for her mother through a state agency. For more than one-half of the tax year, the petitioner also cared for her niece and nephews because their father (her brother) was a disabled single parent. The niece and nephews stayed with her overnight from mid-May to mid-August and on weekends during school closures and on holidays. While they were with her, she paid for their food, home utility use and entertainment. On her 2015 return she claimed dependency exemption deductions for the children and child tax credits as well as the earned income tax credit. On audit and during the examination, the brother provided a signed form 8332, but the petitioner did not attach it to her return. The IRS denied the dependency exemptions, the child tax credits and the earned income tax credit. The Tax Court, rejecting the IRS position, noted that the children stayed with the petitioner for more than one-half of the tax year and that the petitioner’s testimony was credible to establish that the children were “qualifying children” for purposes of I.R.C. §152. Because none of them had reached age 17 during the tax year, the petitioner was entitled to a child tax credit for each one. Also, because I.R.C. §32 uses the same definition of “qualifying child” as does I.R.C. §152, the petitioner was entitled to the earned income tax credit. 

IRS Provides Deed Language for Conservation Easement Donations

CCA 202130014 (Jun. 16, 2021)

The IRS has noted that a deed language for a donated conservation easement to a qualified charity fails to satisfy the requirements of I.R.C. §170(h) if the deed contains language that subtracts from the donee’s extinguishment proceeds the value of post-donation improvements or the post-donation increase in value of the property attributable to improvements. Such language violates Treas. Reg. §1.170A-14(g)(6)(ii) unless, as provided in Treas. Reg. §1.170A-14(g)(6). The IRS has provided sample language adhering to Treas. Reg. §1.170A-14(g)(6)(ii) that would not cause the issue from arising on audit. The language specifically states that on any subsequent sale, exchange or involuntary conversion of the property subject to the easement, the done is entitled to a portion of the proceeds at least equal to the proportionate value of the perpetual conservation restriction. 

NOL Not Available Due to Lack of Documentation

Martin v. Comr., T.C. Memo. 2021-35

The petitioners, a married couple, has NOLs from 1993-1997 (which could be carried back three years and forward 15 years) that were being used to offset income in 2009 and 2010. The petitioners provided their 1993 and 1994 tax returns, but the returns did not include a detailed schedule related to the NOLs. Based on the information provided, the Tax Court determined that the petitioners had, at most, an NOL of $782,584 in 1993 and $666,002 in 1992 or earlier. Consequently, $1,448,586 of the NOL had expired in 2008 and was not available to offset income in 2009 or 2010. Thus, the petitioners had a potential NOL of $257,125 for their 1994 return. The Tax Court pointed out that the petitioners bore the burden of substantiating NOLs by establishing their existence and the carryover amount to the years at issue. That requires a statement be include with the return establishing the amount of the NOL deduction claimed, including a detailed schedule showing how the taxpayer computed the NOL deduction. The petitioners also filed bankruptcy in 1998. The Tax Court determined that the $257,125 NOL for 1994 was zeroed-out in the bankruptcy. The petitioners provided some information from their 1997-2007 returns which seemed to show Schedule C losses for some years, but had no documentation. They claimed that the NOLs should be allowed because they had survived prior audits of their 20072008 and 2011-2012 returns. The Tax Court pointed out that each year stands on its own and the fact that the IRS didn’t challenge an item on a return in a prior year is irrelevant to the current year’s treatment. Due to the lack of documentation the Tax Court denied any NOL deduction for 2009 or 2010. 

“Roberts Tax” is Not a Tax

In re Juntoff, No. 20-13035, 2021 Bankr. LEXIS 995 (Bankr. N.D. Ohio Apr. 15, 2021)

The court held that the “shared-responsibility” payment of Obamacare is not an income tax because it is not measured based on income or gross receipts. The court determined that it also was not an excise tax because an individual’s not purchasing minimum essential coverage was not a transaction. Thus, the payment was not on a transaction. Thus, the “Roberts Tax” was not a tax entitled to priority treatment in bankruptcy under 11 U.S.C. §507(a)(8). The court noted it’s disagreement with the holding in In re Szczyporski, No. 2:20-cv-03133, 2021 U.S. Dist. LEXIS 61628 (E.D. Pa. Mar. 31, 2021) on the same issue.

Losses Not Passive and Fully Deductible 

Padda v. Comr., T.C. Memo. 2020-154

The petitioner, a married couple, worked full-time as physicians. They also owned and operated a pain management clinic. During 2008-2012, they also opened five restaurants and a brewery with a 50 percent partner in the same general location as their medical practices. Each restaurant and the brewery operated in a separate LLC. For the years 2010-2012, they deducted nonpassive losses of more than $3 million from these businesses. The IRS claimed that the losses were passive and, thus, nondeductible. The petitioners couldn’t substantiate their participation, but did have some records showing trips and time spent at the various locations. They were also able to obtain sworn statements from 12 witnesses about the petitioners’ involvement in the construction and operation on a daily basis over the years. The Tax Court found the witnesses credible. The Tax Court determined that the petitioners had satisfied the material participation requirement of Temp. Treas. Reg. §1,469-5T(a)(4) because their hours in the non-medical activities exceeded the 100 hours required for each one to be considered a significant participation activity and exceeded the 500-hour threshold. The Tax Court therefore rejected the IRS argument that the restaurants and brewery were passive activities. The claimed losses were currently deductible. 

No Theft Loss Deduction

Torres v. Comr., T.C. Memo. 2021-66

The petitioner was the president, CEO and sole shareholder of an S corporation that he cofounded with Ruzendall. From about 2010 forward, Ruzendall was no longer a shareholder but continued to manage the S corporation’s books and records. The petitioner became ill in 2016 and was unable to work and relied on others to handle the taxes for the business. Upon a bookkeeper’s advice, Ruzendall was issues a Form 1099-Misc. for 2016 reporting $166,494 in non-employee compensation. In 2018, the petitioner sued Ruzendall for misappropriation of funds, alleging a loss from embezzlement. In 2019, an amended Form 1120-S was filed. The IRS denied a deduction for embezzlement and the alternative claim as a deduction for compensation. The Court looked to the definition of embezzlement under state law. One of the requirements is an intent to defraud. The taxpayer did not offer evidence the woman intended to defraud the company and denied the deduction. The Court also noted that even if a theft loss occurred it was discovered in 2017, not 2016 and, therefore, could only be deducted in the year of discovery. The Court also denied the taxpayer's alternate argument of a deduction for compensation, but on the taxpayer's claim he did not mention the woman was entitled to compensation. The Court denied the alternative argument. 


There are so many relevant and key developments practically on a daily basis.  I’ll be posting soon on where this fall’s tax update seminars will be held at and when online updates will be occurring. 

September 8, 2021 in Income Tax | Permalink | Comments (0)

Sunday, September 5, 2021

When Does a Partnership Exist?


The Uniform Partnership Act defines a partnership as an association of two or more persons to carry on as co-owners a business for profit. Uniform Partnership Act, §6.  As an estate planning device, the partnership is generally conceded to be less complex and less costly to organize and maintain than a corporation.  A general partnership is comprised of two or more partners.  There is no such thing as a one-person partnership, but there is no maximum number of partners that can be members of any particular general partnership.

Sometimes interesting legal issues arise as to whether a particular organization is, in fact, a partnership.  If there is a written partnership agreement, that usually settles the question of whether the arrangement is a partnership.  Unfortunately, relatively few farm or ranch business relationships are based upon a written partnership agreement or, as it is expressed in some cases, a set of articles of partnership.  

When does a partnership exist – it’s the topic of today’s post. 

Informality Creates Questions

If there is no written partnership agreement, one of the questions that may arise is whether a landlord/tenant lease arrangement constitutes a partnership.  Unfortunately, the great bulk of farm partnerships are oral.  Because a partnership is an agreement between two or more individuals to carry on as co-owners a business for profit, a partnership generally exists when there is a sharing of net income and losses. See, e.g., In re Estate of Humphreys, No. E2009-00114-COA-R3-CV, 2009 Tenn. App. LEXIS 716 (Tenn. Ct. App. Oct. 28, 2009). This also tracks the U.S. Supreme Court’s definition of a partnership as the sharing of income and gains from the conduct of a business between two or more persons.  Comr. v. Culbertson, 337 U.S. 733(1949). This rule has been loosely codified in I.R.C. §761, which also includes a “joint venture” in the definition of a partnership. 

A crop-share lease shares gross income, but not net income because the tenant still has some unique deductions that are handled differently than the landlord's deductions.  For example, the landlord typically bears all of the expense for building maintenance and repair, but the tenant bears all the expense for machinery and labor.  Thus, there is not a sharing of net income, and the typical crop-share lease is, therefore, not a partnership.  Likewise, a livestock share lease is usually not a partnership because both the landlord and the tenant will have unique expenses.  But, if a livestock share lease or a crop-share lease exists for some time and the landlord and tenant start pulling out an increased amount of expenses and deducting them before dividing the remaining income, then the arrangement will move ever closer to partnership status.  When the arrangement arrives at the point where there is a sharing of net income, a partnership exists.

Conduct Counts

This means that a partnership can exist in certain situations based on the parties’ conduct rather than intent.  Does the form of property ownership constitute a partnership?  By itself, the answer is generally “no.” See, e.g., Kan. Stat. Ann. §56a-202.  Thus, forms of ownership of property (including joint ownership) do not by themselves establish a partnership “even if the co-owners share profits made by the use of the property.”  See, e.g., Kan. Stat. Ann. §56a-202(c)(1).  Also, if a share of business income is receive in payment of rent, a presumption that the parties would otherwise be in a partnership does not apply.  See, e.g., Kan. Stat. Ann. §56a-202(c)(3)(iii). 

Tax Code, Tax Court and IRS Views

The United States Tax Court, in Luna v. Comr., 42 T.C. 1067 (1964) set forth eight factors to consider in determining the existence of a partnership for tax purposes.  In Luna, the Tax Court considered whether the parties in a business relationship had informally entered into a partnership under the tax Code, allowing them to claim that a payment to one party was intended to buy a partnership interest.  To determine whether the parties formed an informal partnership for tax purposes, the Tax Court asked "whether the parties intended to, and did in fact, join together for the present conduct of an undertaking or enterprise."  The Tax Court listed non-exclusive factors to determine whether the intent necessary to establish a partnership exists. 

The eight factors set forth in Luna are:

  • The agreement of the parties and their conduct in executing its terms;
  • The contributions, if any, which each party has made to the venture;
  • The parties' control over income and capital and the right of each to make withdrawals;
  • Whether each party was a principal and co-proprietor, sharing a mutual proprietary interest in the net profits and having an obligation to share losses, or whether one party was the agent or employee of the other, receiving for his services contingent compensation in the form of a percentage of income;
  • Whether business was conducted in the joint names of the parties;
  • Whether the parties filed federal partnership returns or otherwise represented to the IRS or to persons with whom they dealt that they were joint ventures;
  • Whether separate books of account were maintained for the venture;
  • Whether the parties exercised mutual control over and assumed mutual responsibilities for the enterprise

A recent Tax Court case is instructive on the application of the Luna factors.  In White v. Comr., T.C. Memo. 2018-102, the petitioner was approached by his ex-wife, about forming a mortgage company and, along with their respective spouses, they orally agreed to work together in the real estate business in 2010 or 2011. The business was conducted informally, and no tax professionals were consulted.  In 2011, the petitioner withdrew funds from his retirement account to support the business.  The ex-wife and her new husband did not make similar financial contributions.  Each of the “partners” handled various aspects of the business.  The petitioner initially used his personal checking account for the business, until business accounts could be opened.  Some accounts listed the petitioner as “president” and his wife as treasurer, but other business accounts were designated as “sole proprietorship” with the petitioner’s name on the account.  The petitioner controlled the business funds and used business accounts to pay personal expenses and personal accounts to pay business expenses.  Records were not kept of the payments.  Business funds were also used to pay the ex-wife’s personal expenses. 

The Tax Court applied the Luna factors and concluded that the business was not a partnership for tax purposes. The Tax Court determined that all but one of the Luna factors supported a finding that a partnership did not exist. To begin with, the parties must comply with a partnership.  There was no equal division of profits; the parties withdrew varying sums from the business; the petitioner claimed personal deductions for business payments; the ex-wife and her new spouse could have received income from sources other than their share of the business income; and there was no explanation for how payments shown on the ex-wife’s return ended up being deposited into the business bank account. 

Alternatively, the court concluded that even if a partnership existed, there was no reliable evidence of the partnership's total receipts to support an allocation of income different from the amounts that the IRS had determined by its bank deposits analysis.

When applying the Luna factors to typical farming/ranching arrangements, it is relevant to ask the following:

  • Was Form 1065 filed for any of the years at issue (it is required for either a partnership or a joint venture)?
  • Did the parties commingle personal and business funds?
  • Were any partnership bank accounts established?
  • Was there and distinct treatment of income and expense between business and personal expenses?
  • How do the parties refer to themselves to the public?
  • How do the parties represent themselves to the Farm Service Agency?
  • Are the business assets co-owned?

An informal farming arrangement can also be dangerous from an income tax perspective.  Often

taxpayers attempt to prove (or disprove) the existence of a partnership in order to split income

and expense among several taxpayers in a more favorable manner or establish separate ownership of interests for estate tax purposes.  However, such a strategy is not always successful, as demonstrated in the following case.  See, e.g., Speelman v. Comr., 41 T.C.M. 1085 (1981).

Liability and other Legal Concerns

Why all of the concern about whether an informal farming arrangement could be construed legally as a partnership?  Usually, it is the fear of unlimited liability.  Partners are jointly and severally liable for the debts of the partnership that arose out of partnership business.  It is this fear of unlimited liability that causes parties that have given thought to their business relationship to have written into crop-share and livestock-share leases a provision specifying that the arrangement is not to be construed as a partnership. 

The scenarios are many in which legal issues arise over the question of whether a partnership exists and gives rise to some sort of legal issue.  For example, in Farmers Grain Co., Inc. v. Irving 401 N.W.2d 596 (Iowa Ct. App. 1986), the plaintiff extended credit to the defendant who was a tenant under an oral livestock share lease.  Upon default of the loan, the defendant filed bankruptcy and the plaintiff tried to bind the landlord to the debt under a partnership theory.  The court held that a partnership had not been formed where the landlord did not participate in the operation, no joint bank accounts were established, and gross returns were shared rather than net profits. 

In Tarnavsky v. Tarnavsky, 147 F.3d 674 (8th Cir. 1998), the court determined that a partnership did exist where the farming operation was conducted for a profit, the evidence established that the parties involved intended to be partners and business assets were co-owned.

Oral business arrangements can also create unanticipated problems if one of the parties involved in the business dies.  In In re Estate of Palmer, 218 Mont. 285, 708 P.2d 242 (1985), the court determined that a partnership existed even though title to the real estate and the farm bank account were in joint tenancy.  As such, the surviving spouse of the deceased “partner” was entitled to one-half of the farm assets instead of the land and bank account passing to the surviving joint tenant.


Formality in business relationships can go along way to avoiding legal issues and costly court proceedings when expectations don’t work out as anticipated.  Putting agreements in writing by professional legal counsel often outweighs the cost of not doing so.

September 5, 2021 in Business Planning, Income Tax | Permalink | Comments (0)

Saturday, August 28, 2021

Livestock Confinement Buildings and S.E. Tax


In addition to income tax, a tax of 15.3 percent is imposed on the self-employment income of every individual.  Clearly, if a farmer constructs a confinement building, places their own livestock in the building, provides all management and labor, and pays all expenses, the net profit from the activity will be subject to self-employment tax.  But, what if the livestock production activity conducted in the confinement building is done so under a contract with a third party?  Is the farmer’s net income from the activity subject to self-employment tax in that situation?

Livestock confinement buildings and self-employment tax – it’s the topic of today’s post.


Self-employment income is defined as “net earnings from self-employment.”  The term “net earnings from self-employment” is defined as gross income derived by an individual from a trade or business that the individual conducts.  I.R.C. §1402.  In general, income derived from real estate rents (and personal property leased with real estate) is not subject to self-employment tax unless the arrangement involves an agreement between a landowner or tenant and another party providing for the production of an agricultural commodity and the landowner or tenant materially participates. I.R.C. §§1402(a)(1) and 1402(a)(1)(A).  For rental situations not involving the production of agricultural commodities where the taxpayer materially participates, rental income is subject to self-employment tax if the operation constitutes a trade or business “carried on by such individual.”  See, e.g., Rudman v. Comr., 118 T.C. 354 (2002)Similarly, an individual rendering services is subject to self-employment tax if the activity rises to the level of a trade or business.  In general, to be subject to self-employment tax, an activity must be engaged in on a substantial basis with continuity and regularity.

Livestock Confinement Buildings and Contract Production

Does self-employment tax apply to the net income derived from livestock production activities conducted in a farmer’s confinement building pursuant to a contract with a third party?  As with many tax answers, “it depends.”

The U.S. Tax Court provided guidance on the issue in 1995.  In Gill v. Comr., T.C. Memo. 1995-328, a corporation that produced, processed and marketed chicken products bought breeder stock from primary breeders and placed them in farmer-owned buildings for 20 weeks.  The placement of the chicks with individual farmers was done in accordance with production contracts.  The petitioners (two different farmers) constructed broiler barns with the corporation’s assistance in obtaining financing and established that the petitioners had the ability to maintain their facilities.  Each contract was for 10 years and the corporation paid the petitioners a fixed monthly amount tied to the space inside each building ($.045 per month/per square foot) that was supplemented over time to reflect inflation.  The petitioners were required to perform certain maintenance items, inspections and general flock management responsibilities. 

The petitioners did not report the income received under the contracts as subject to self-employment tax.  They claimed that they did not materially participate in the production or the management of the production of the poultry in the barns that they leased to the corporation.  As such, they claimed that the payments they received were excluded from the definition of “net earnings from self-employment” as “rents from real estate.”   

The Tax Court disagreed.  The Tax Court noted that the apparent intent of the Congress was to exclude from self-employment tax only those payments for use of space and, by implication, such services as are required to maintain the space in condition for occupancy.  Thus, when a taxpayer performs additional services of a substantial nature that compensation for the additional services can be said to constitute a material part of the payment the made to the owner, the payment is income that is attributable to the performance of labor.  It’s not incidental to the realization of return from a passive investment, and the payment is included in the computation of the taxpayer’s “net earnings from self-employment.”  Applying the analysis to the facts, the Tax Court determined that the petitioners (and their children) performed each and every task necessary to raise the flocks of birds that the corporation delivered.  This constituted material participation subjecting the contract payments to self-employment tax.  The payments were not excluded from net earning from self-employment as “real estate rents.”  See also Schmidt v. Comr., T.C. Memo. 1997-41. 

Planning Considerations

Many ag production contracts like the ones at issue in Gill require the farmer/producer to perform substantial services in connection with the production of the livestock or poultry.  Therein lies the problem.  To avoid having the income subjected to self-employment tax, the farmer/building owner must not participate to a significant degree in the production activities or bear a substantial risk of loss.

So, are there any planning avenues to address the self-employment tax issue?  One option may be to split the contractual arrangement into two separate agreements.  One agreement would be strictly for the “rental” of the building with IRS Form 1099 issued for the rental income.  Given the typical high capital costs for livestock confinement buildings, a return on capital shown as “rent” should not be unreasonable.  A second agreement would be entered into providing for herd/flock management with the issuance of a separate Form 1099 for non-employee compensation or a Form W-2 for wages.  These payments would be subject to self-employment tax or FICA tax. 

Another approach was established by the Tax Court in 2017.  In Martin v. Comr., 149 T.C. 293 (2017), the petitioners, a married couple, operated a farm in Texas.  In late 1999, they built the first of eight poultry houses to raise broilers under a production contract with a large poultry integrator.  The petitioners formed an S corporation in 2004, and set up oral employment agreements with the S corporation based on an appraisal for the farm which guided them as to the cost of their labor and management services.  They also pegged their salaries at levels consistent with other growers.  The wife provided bookkeeping services and the husband provided labor and management.  In 2005, they assigned the balance of their contract to the S corporation.  Thus, the corporation became the “grower” under the contract.  In 2005, the petitioners entered into a lease agreement with the S corporation.  Under the agreement, the petitioners rented their farm to the S corporation, under which the S corporation would pay rent of $1.3 million to the petitioners over a five-year period.  The court noted that the rent amount was consistent with other growers under contract with the integrator.  The petitioners reported rental income of $259,000 and $271,000 for 2008 and 2009 respectively, and the IRS determined that the amounts were subject to self-employment tax because the petitioners were engaged in an “arrangement” that required their material participation in the production of agricultural commodities on their farm.

The Tax Court determined that the “derived under an arrangement” language in I.R.C. §1402(a)(1) meant that a nexus had to be present between the rents the petitioners received and the “arrangement” that required their material participation.  In other words, there must be a tie between the real property lease agreement and the employment agreement.  The court noted the petitioners received rent payments that were consistent with the integrator’s other growers for the use of similar premises. That fact was sufficient to establish that the rental agreement stood on its own as an appropriate measure of return on the petitioners’ investment in their facilities.  Similarly, the employment agreement was appropriately structured as a part of the petitioners’ conduct of a legitimate business.  Importantly, the Tax Court noted that the IRS failed to brief the nexus issue and simply relied on the Tax Court to broadly interpret “arrangement” to include all contracts related to the S corporation.  Accordingly, the Tax Court held that the petitioners’ rental income was not subject to self-employment tax.


Aside from the “two-check” approach, leases should be drafted to carefully specify that the landlord is not providing any services or participating as part of the rental arrangement.  Services and labor participation should remain solely within the domain of the employment agreement.  In addition, leases where the landlord is also participating in the lessee entity must be tied to market value for comparable land leases.  See e.g., Johnson v. Comm'r, T.C. Memo. 2004-56.  If the rental amount is set too high, the IRS could argue that the lease is part of “an arrangement” that involves the landlord’s services. See, e.g., Solvie v. Comm'r, T.C. Memo. 2004-55.  If the lessor does provide services, a separate employment agreement should put in writing the duties and compensation for those services. 

Whether self-employment tax is incurred or not will likely be determined by the extent of involvement the owner retains with regard to the confinement building.  But, a word of caution.  With the ability to claim substantial depreciation and large interest expense payments (associated with financing the confinement building), a loss could be created.  Thus, classification of the arrangement as a rental activity with no self-employment tax may not be the best tax strategy.  Instead, the preference might be to offset the loss against self-employment income.  This last point raises a question.  Can a taxpayer “change horses” mid-stream when the confinement building is sufficiently paid for such that interest expense is lower and, also, depreciation deductions have dropped significantly?  Can the contract then be modified at that point so that self-employment tax is avoided? 

Interesting tax planning questions.

August 28, 2021 in Income Tax | Permalink | Comments (0)

Monday, August 16, 2021

Ag Law Summit


On Friday, September 3, I will be hosting an “Ag Law Summit” at Nebraska’s Mahoney State Park.  This one-day conference will address numerous legal and tax issues of current relevance.  The conference will also be broadcast live online.

The Ag Law Summit – it’s the topic of today’s post.

Topics and Speakers

Proposed legislation and policy implications.  The day begins with my overview of what’s happening with proposed legislation that would impact farm and ranch estate and business and income tax planning.  Many proposals are being discussed that would dramatically change the tax and transfer planning landscape.  From the proposed lowering of the federal estate tax exemption, to the change in the step-up basis rule at death, to changes in the rules governing gifts, there is plenty to discuss.  But, the list goes on.  What about income tax rates and exemptions?  What about capital gain rates?  There are huge implications if any of these changes are made, let alone all of them.  What does the road forward for ag producers look like?  What changes need to be made to keep the family farm intact?  The discussion during this session should be intense!

State ag law update.  Following my discussion of what is going on at the federal level, the discussion turns to the state level.  Jeff Jarecki, an attorney with Jarecki Lay & Sharp P.C. out of Albion and Columbus, NE will team up with Katie Weichman Zulkoski to teach this session.  Katie is a lawyer in Lincoln, NE that works in lobbying and government affairs.  They will provide a NE legislative update specific to agriculture and review significant federal developments that impact agriculture – including the current Administration’s proposed 30 by 30 plan.

Farm succession planning.  After the morning break.  Dan Waters, a partner in the Lamson, Dugan & Murray firm in Omaha will get into the details of the mechanics of transitioning a farming/ranching business to subsequent generations.  How do you deal with uncertainty in the factors that surround estate and business planning such as commodity prices, land values, taxation, and government programs?  This session will examine various case studies and the use of certain tools to address the continuity question. 

Luncheon.  During the catered lunch, the speaker is Janet Bailey.  Janet has been involved in ag and food policy issues for many years and has an understanding of rural issues.  Her presentation will be addressed to legal and tax professionals that represent rural clients.  How can you maintain a vibrant practice in a rural community?  What other value does a rural practice bring to the local area?  The session’s focus is on the importance of tax and legal professionals to small towns in the Midwest and Plains.

Special use valuation.  If the federal estate tax exemption is reduced, the ability to value the ag land in a decedent’s estate at it’s value for ag purposes rather than fair market value will increase in importance.  During this session, I will provide an overview of the key points involved in this very complex provision of the tax Code.  What steps need to be taken now to ensure that the eventual decedent’s estate qualifies to make the special use valuation election on the federal estate tax return?  How do farmland leases impact the qualification for the election and avoidance of recapture tax being imposed?  Those are just a couple of the topics that will be addressed.

Ag entrepreneur’s toolkit.  This final session for the day will cover the business and tax law feature of limited liability companies.  The session is taught by Prof. Ed Morse of the Creighton University School of Law and Colten Venteicher, an attorney with the Bacon, Vinton, Venteicher firm in Gothenburg, Nebraska.  They will address some of the practical considerations for how to properly use the LLC in the context of farm and ranch businesses. 

Online Broadcast

The Summit will be broadcast online for those unable to attend in-person.  Washburn Law is an NASBA CPE provider. The program will qualify in the taxes area for the minutes noted next to each presentation for both the online and in-person attendees.  The goal of the Summit is tto continue providing good legal and tax educational information for practitioners with a rural client base.  That will aid in the provision of excellent legal and tax services for those rural clients and will, in turn, benefit the associated rural communities.

We hope that you will join us either in-person or online for the Summit on September 3.  For more information and to register, click here:

August 16, 2021 in Business Planning, Estate Planning, Income Tax | Permalink | Comments (2)