Agricultural Law and Taxation Blog

Federal law has established a procedure that a railroad must go through when abandoning a rail line and its corridor. 49 U.S.C. §10903. In the 1970s, the Congress specified that before abandonment can be completed, other entities can intervene to preserve the corridor for future use. 16 U.S.C. §1247(d). This process creates numerous issues for farmers, ranchers and other rural landowners along the corridor.

A couple of recent cases highlighting the issues that can arise for adjacent property owners when a rail line is abandoned – it’s the topic of today’s post.

“Railbanking” – Background

The railbanking process allows a railroad to negotiate with another entity which would then assume the financial and managerial responsibility for the corridor by operating a recreational trail on it. See, e.g., Presault v. Intertstate Commerce Commission, 494 U.S. 1 (1990). But, before the trail operator can start negotiations with the railroad, it must file a railbanking petition. See 49 C.F.R. §1152.29(a). The trail operator must state that it is willing to assume full responsibility for managing the right-of-way and assume any legal liability for the transfer or use of the right-of-way. The trail operator also must pay any and all taxes on the right-of-way. In addition, the trail operator must acknowledge that the land will remain subject to possible reconstruction and reactivation of the right-of-way for rail service. Once these certifications are made, then the trail group can negotiate with the railroad. Any agreement that is struck is then submitted to the Surface Transportation Board (STB) which will then issue a Notice of Interim Trail Use (NITU). The NITU allows the railroad to discontinue service without abandonment and allows the trail operator to use the corridor for use as a recreational trail.

The issuance of a NITU can result in a taking of property owned by the original grantor of the corridor easement. See, e.g., Presault v. Interstate Commerce Commission, 494 U.S. 1 (1990). That’s because it’s often the case that the railroad merely owns an easement and not an outright fee simple. In that situation, state law commonly provides that the easement is to revert (go back) to the abutting property owner when the railroad ceases operation. But, because interim trail use under the railbanking program is a discontinuance rather than an abandonment, the easement doesn’t revert to the abutting landowners. A taking may also occur if the original easement grant to the railroad under state law is not broad enough to allow for a recreational trail. When a trail is operated in that situation, it’s a taking of a new easement requiring compensation under the Fifth Amendment. See, Caquelin v. United States, 959 F.3d 1360 (Fed. Cir. 2020).

Recent Cases

Central Kansas Conservancy, Inc., v. Sides, 56 Kan. App. 2d 1099, 44 P.3d 337 (2019), rev. den., No. 119,605, 2019 Kan. LEXIS 527 (Kan. Sup. Ct. Dec. 19, 2019), cert. den. sub. nom., Sides v. Central Kansas Conservancy, Inc., 140 S. Ct. 2741 (2020).

In this case, the Union Pacific Railroad acquired a right-of-way over a railroad corridor that it abandoned in the mid-1990s. At issue in the case was a 12.6-mile length of the abandoned line between McPherson and Lindsborg, Kansas. NITU was issued in the fall of 1995. The corridor was converted into a trail use easement under the National Trails System Act. In 1997, Union Pacific gave the plaintiff a "Donative Quitclaim Deed" to the railroad’s easement rights over the corridor, with one-quarter mile of it running through the defendant’s property at a width of 66 feet. Pursuant to a separate agreement, the plaintiff agreed to quit claim deed its rights back to the railroad if the railroad needed to operate the line in the future. By virtue of the easement, the plaintiff intended to develop the corridor into a public trail.

In 2013, the plaintiff contacted the defendant about developing the trail through the defendant’s land. The defendant had placed machinery and equipment and fencing in and across the corridor which they refused to remove. In 2015, the plaintiff sued to quiet title to the .75-mile corridor strip and sought an injunction concerning the trail use easement over the defendant’s property. The defendant admitted to blocking the railway with fencing and equipment, but claimed the right to do so via adverse possession or by means of a prescriptive easement. The defendant had farmed, grazed cattle on, and hunted the corridor at issue since the mid-1990s. The defendant also claimed that the plaintiff had lost its rights to the trail because it had failed to complete development of the trail within two years as the Kansas Recreational Trail Act (KRTA) required.

In late 2016, the trial court determined that the two-year development provision was inapplicable because the Interstate Commerce Commission had approved NITU negotiations before the KRTA became effective in 1996. The trial court also rejected the defendant’s adverse possession/prescriptive easement arguments because trail use easements are easements for public use against which adverse possession or easement by prescription does not apply.

During the summer of 2017 the plaintiff attempted work on the trail. When volunteers arrived, the defendant had placed equipment and a mobile home on the corridor preventing any work. The plaintiff sought a "permanent prohibitory injunction and permanent mandatory injunction." The defendant argued that he had not violated the prior court order because "[a]ll the Court ha[d] done [was] issue non-final rulings on partial motions for summary judgments, which [were], by their nature, subject to revision until they [were] made final decisions." Ultimately, the trial court granted the plaintiff’s request for an injunction, determined that the defendant had violated the prior summary judgment order, but also held that the plaintiff had not built or maintained fencing in accordance with state law.

On appeal, the appellate court partially affirmed, partially reversed, and remanded the case. The appellate court determined that the defendant did not obtain rights over the abandoned line via adverse possession or prescriptive easement because such claims cannot be made against land that is held for public use such as a recreational trail created in accordance with the federal rails-to-trails legislation. The appellate court also determined that the plaintiff didn’t lose rights to develop the trail for failing to comply with the two-year timeframe for development under the KRTA. The appellate court held that the KRTA two-year provision was inapplicable because a NITU was issued before the effective date of the KRTA. However, the appellate court determined that the plaintiff did not follow state law concerning its duty to maintain fences. The appellate court held that Kan. Stat. Ann. §58-3212(a) requires the plaintiff to maintain any existing fencing along the corridor and maintain any fence later installed on the corridor. In addition, any fence that is installed on the corridor must match the fencing maintained on the sides of adjacent property. If there is no fencing on adjacent sides of a landowner’s tract that abuts the corridor, the plaintiff and landowner will split the cost of the corridor fence equally.

The appellate court remanded the case for a determination of the type and extent of fencing on the defendant’s property, and that the plaintiff has the right to enter the defendant’s property to build a fence along the corridor. Any fence along the corridor is to be located where an existing fence is located. If no existing fence exists along the corridor, the corridor fence is to be located where the plaintiff’s trail easement is separated from the defendant’s property.

The Kansas Supreme Court declined to review the case, and the U.S. Supreme Court later decline to grant certiorari.

Behrens, et al. v. Heintz, et al., 59 F. 4th 1339 (Fed. Cir. 2023)

This case involved a 144.3-mile rail line in Missouri that had been in operation for over 100 years. The railroad had acquired the necessary easements for the corridor via condemnations and agreements with the abutting landowners. The easements were granted to the railroad in 1901 and 1902. 18 of the 19 deeds containing the easements did not limit the use of the easement for railroad purposes. Ultimately, a successor-railroad to the easements sought to discontinue service and abandon the railway. In late 2014, the Missouri Department of Natural Resources filed a request to intervene in the abandonment proceeding seeking to utilize the easement for interim trail use on the corridor. Five years later, the STB was notified that a trail use agreement had been executed in accordance with the NITU and the STB regulations.

The plaintiffs, owners of the abutting land along the corridor, filed a Takings claim in 2015 in the U.S. Court of Federal Claims on the basis that the railroad originally acquired easements under Missouri law rather than a fee interest and that the easements were for railroad purposes only. Accordingly, the plaintiffs claimed that the conversion of the easements to recreational trail use was beyond the scope of the easements and constituted a Taking. The Court of Federal Claims agreed that the property interest acquired involved easements, but that interim trail use was permissible. Upon reconsideration, the Court of Federal Claims again held that no Taking had occurred because the scope of the easements was broad enough to allow for trail use. The plaintiffs appealed.

On appeal, the appellate court determined that the railroad had, under Missouri law, undisputedly acquired easements and not fee simple interests. See Mo. Rev. Stat. §388.210(2). As to the scope of the easements, the appellate court determined that Mo. Rev. Stat. §388.210(2) explicitly limited the scope of the 18 easements to “railroad purposes” only. That statute, the appellate court noted, defines the purposes of such voluntary grants to railroads as the ones involved in the case “to aid in the construction, maintenance and accommodation of the railroads.” The appellate court noted that the Missouri Supreme Court had construed this language to mean that such grants are for “all railroad purposes.” Brown v. Weare, 152 S.W.2d 649 (Mo. Sup. Ct. 1941).

On the takings issue, the appellate court determined that the issue was whether the trail use and railbanking were “railroad purposes” and, as a result, within the scope of the easements. On that issue, the appellate court cited a Missouri case finding that trail use is not included in the meaning of “railroad purposes.” Boyles v. Missouri Friends of Wabash Trace Nature Trail, Inc., 981 S.W.2d 644 (Mo. Ct. App. 1998). The appellate court also cited one of its own prior opinions holding that trail use is not a railroad purpose under other states’ laws. See, e.g., Presault v. Interstate Commerce Commission, 100 F.3d 1525 (Fed. Cir. 1996)(construing Vermont law); Toews v. United States, 376 F.3d 1371 (Fed. Cir. 2004)(construing California law). The appellate court also noted that the speculative possibility that the trail would return to rail use did not fall within the scope of the easements that were granted for railroad purposes. There simply was no realistic possibility the future rail use would occur. Likewise, the appellate court noted that the easements were granted for the benefits of the railroads to operate a rail line, not the benefit of “some future unidentified entity that might receive the easement in the future.” The preservation of a tract of land (corridor) for future rail use under the National Trail System Act does not transform an interim trail use into a “railroad purpose.”

Accordingly, the appellate court held that a Fifth Amendment Taking had occurred, reversed the Court of Federal Claims, and remanded the case to that court for a determination of damages on the Takings issue.

Conclusion

Recreational trails operating on abandoned rail lines present numerous legal issues for abutting landowners. The constitutional takings issue is a major, but other issues can arise involving fencing, trash and liability for personal injury. Expect this issue to remain an important one for landowners along abandoned railroad corridors.

March 25, 2023 in Real Property, Regulatory Law | Permalink | Comments (0)

Sunday, March 19, 2023

Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues

By Roger A. McEowen

Overview

A common interpretive problem in oil and gas conveyances and leases arises when the owner of a fractional mineral interest either conveys or reserves a fraction using unclear language. One way that can happen is when a “double fraction” clause is used. That’s a clause that creates uncertainty as to whether the grant or reservation is a fraction of what the grantor owns or a fraction of the whole interest. For instance, if Bubba owns an undivided ½ interest in minerals and conveys “an undivided ½ interest in the minerals,” does that mean that Bubba conveyed a ½ interest in all of the minerals or simply ½ of Bubba’s ½? This interpretive issue can also arise when mineral interests are devised from a decedent’s estate. It also occurs when a conveyancing instrument refers to both “minerals” and a “royalty” or blends the two concepts in the same instrument.

The interpretive issues associated with a double fraction clause recently came up again in a Texas case. That case involved the construction of a 1924 deed containing a mineral reservation clause, and it could have wide-ranging impact on oil and gas titles in Texas and, perhaps, elsewhere.

The meaning of a “double-fraction” clause and the impact on future oil and gas conveyances – it’s the topic of today’s post.

Royalty Deed Interpretation

A royalty interest is an interest in a share of production, or the value or proceeds of production, free of the costs of production, when and if there is production. It is usually expressed as a fraction. But, the way those fractional interests are expressed can create confusion, whether the fraction is expressed as a “fraction of royalty” or as a “fractional royalty.”

Fractional royalty interests. With a fractional royalty interest, the owner is entitled to a share of gross production, free of cost in an amount determined by the fractional size of the owner’s interest. The share of production the owner is entitled to does not “float” with royalties of differing amounts reserved in an oil and gas lease. An expression of a fractional royalty clause is, for example, “an undivided 1/16^th royalty interest of any oil, gas, or minerals that may hereafter be produced.”

Fraction of royalty interest. With a fraction or royalty interest, the amount of production that is associated with the interest will “float” depending on the royalty reserved in an oil and gas lease. The owner gets a share in production equal to a fraction multiplied by the royalty reserved in an oil and gas lease. Examples of such a clause would be, “1/16^th of all oil and gas royalty” or “an undivided ½ interest in and to all of the royalty” or “1/2 of 1/8^th of the oil, gas and other mineral royalty that may be produced.”

Double fractions. Complexity increases when a double fraction is used to describe the royalty interest. For instance, “1/4^th of 1/8^th of all royalty…” is an example of a double fraction clause. Many courts utilize the multiplication approach and would conclude that such a clause would convey a 1/32^nd interest. Indeed, for conveyance or reservation clauses drafted before the 1970s, the general assumption was that the royalty provided for in an oil and gas lease would always be 1/8^th. Thus, a right to “1/4^th of royalty” would be the same thing as the right to 1/4^th of the 1/8^th royalty reserved in an oil and gas lease – a 1/32^nd royalty. But, since the 1970s, mineral owners have often been able to negotiate a wider range of royalties in mineral leases with many of them larger than 1/8^th (often ranging from 10 percent to over 30 percent). This resulted in the double fraction clause creating confusion as to the drafter’s intent. This confusion can arise not only in oil and gas conveyancing instruments, but also in bequests from a decedent’s estate.

Bequests. In Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2015), the decedent executed a will in 1947 that divided three tracts of real estate among her three children. The will also distributed her mineral estates on the tracts using double fraction language – “each of my children shall have and hold an undivided one-third (1/3) of an undivided one-eighth (1/8) of all oil, gas or other minerals in or under that may be produced from any of said lands… and should there be any royalty sold during my lifetime then [the three children], shall each receive one-third of the remainder of the unsold royalty.” The question was whether the double fraction language fixed the heirs devised royalty at 1/24^th with any negotiated royalty above 1/8^th passing to the current fee owner, or if the decedent intended her heirs to receive 1/3 of all future royalties, regardless of what the royalty fraction was. The heirs of two of the decedent’s children sought 1/3^rd of the 1/5^th royalty in a new oil and gas lease, and the successors of the other child claimed that the successors of the siblings were only entitled to 1/3^rd of 1/8^th and that any additional royalty belonged to the fee simple owner.

Note: The Hysaw case involved the “estate-misconception theory.” That theory reflects the historic prevalent belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals rather than the entire mineral estate in "fee simple determinable.” In turn, for decades afterwards, many lessors referred to their entire interest in the mineral estate with the simple use of “1/8.” One court has described the “estate misconception” theory as follows: “In earlier times, many landowners labored under the misconception that when they leased their mineral estate to an operator, they only retained 1/8^th of the minerals in place, rather than a fee simple determinable with the possibility of reverter in the entirety of the mineral estate... Therefore, when the landowner conveyed a mineral interest to a third party in land that was already subject to a lease, he would often use a fraction of 1/8 to express what interest he intended to convey in his possibility of reverter. Since a landowner in reality retains a full 8/8 interest in the reverter, the application of the estate misconception doctrine has tremendous consequences.” Greer v. Shook, 503 S.W.3d 571 (Tex. Ct. App. 2016).

The Texas Supreme Court determined that the outcome should turn on the decedent’s intent. Based on the evidence, the Court found that intent to be to equally divide the royalties among the decedent’s children. Accordingly, the Court held that the decedent had devised a 1/3^rd fraction of a royalty interest (regardless of the amount of that royalty) to each of her children. In other words, the decedent has used the phrase "one-eighth royalty" as a shorthand phrase for the entire royalty interest that a lessor could retain under a mineral lease. She had left a floating 1/3^rdroyalty to each child.

Recent Texas Case

Van Dyke v. The Navigator Group, No. 21-0146,

2023 Tex. LEXIS 144 (Tex. Sup. Ct. Feb. 17, 2023)

Facts. This case culminated a decade-long battle over a mineral interest reservation involving a double fraction and accumulated royalties of approximately $44 million. In 1924, the Mulkeys deeded their ranch to White and Tom reserving “one-half of one-eighth” of all minerals and mineral rights. After the conveyance, both parties conducted themselves as if they believed that they each owned one-half of the mineral interest, as did all successors-in-interest.

In 2012, an energy company drilled a well and paid both the successors-in-interest to the Mulkeys (the “Mulkey parties”) and the successors-in-interest to White and Tom (the “White parties”) equal one-half shares. The White parties filed a trespass-to-try-title action, claiming that the 1924 deed reserved only a 1/16^th (1/2 of 1/8^th) of the minerals to the Mulkey parties, and that the White parties owned fifteen-sixteenths of the minerals. The Mulkey parties claimed that the interest reserved was one-half of the total mineral estate, and that the reference to one-eighth of the minerals was a term of art under the “estate misconception” theory. Under that theory (which had been forgotten over time), one-eighth was commonly believed to mean the entire mineral estate.

Alternatively, the Mulkey parties claimed entitlement to one-half of the minerals because of the long history of the original parties and the successors-in-interest acting as if each party owned one-half of the mineral interest.

Trial and appellate courts. The trial court held that the 1924 deed unambiguously reserved a one-sixteenth interest in the Mulkey parties. The appellate court affirmed, also concluding that the “estate misconception theory” did not apply because “the deed did not contain any conflicting provisions requiring harmonization and the subject property was not burdened by an oil and gas lease at the time of conveyance.”

Texas Supreme Court. On further review, the Texas Supreme Court reversed and remanded. The Court noted that in the early 20^th century that landowners commonly retained a one-eighth royalty interest under an oil and gas lease and that, over time, “1/8^th” became synonymous with the mineral interest itself or as a proxy for the customary royalty of 1/8^th. In essence, it became a term of art. The Court looked to Hysaw where, as noted, the Court held that each child received a “floating one-third interest in the royalty” based on what the evidence showed was the decedent’s intent. While, as the Court noted, using “1/8” to mean the entire mineral estate is rebuttable, such a rebuttal can only be accomplished with evidence from the document itself suggesting basic multiplication be applied. The Court found that while “1/8” was a term of art in use at the time the deed was drafted to mean the entire mineral estate, there was nothing else in the deed to rebut this meaning. As a result, the Court held that the Mulkey grantors did in fact reserve a full 1/2 interest in the mineral estate.

Note: The Court also noted that the court of appeals misapprehended how the estate-misconception theory is applied to instruments, such as the 1924 deed. Instead of looking to whether the lack of inconsistencies in an instrument require harmonization, courts should first assume that the specific use of a double fraction was intentional (a rebuttable presumption) and if the document lacks anything that could rebut that presumption (inconsistencies) then the intended (historical) use of the double fraction stands. For instance, the instrument in this case included the use of a double fraction (“1/2 of 1/8”) and there was no evidence to rebut the presumption that the parties intended “1/2 of 1/8” to mean “1/2 of the mineral estate.” As for the land not being encumbered by a lease at the time of the deed, the Court stated that the theory’s “relevance has never depended on the considerations that the court of appeals identified.”

The Court went on to examine the presumed-grant doctrine – a common law form of adverse possession. The Court noted three elements which must be satisfied for the presumed grant doctrine to prevail: “(1) a long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim.” The Court noted that a ninety-year history existed between the parties in which “conveyances, leases, ratifications, division orders, contract, probate inventories, and a myriad of other instruments” were recorded, thus providing notice of the interests owned by both parties. Likewise, for nearly a century, both parties had stipulated multiple times to the one-half ownership of the mineral estate. Indeed, in a 1950 conveyance, White had recited that he only held an undivided one-half interest in the oil, gas, and other minerals on the ranch. Based on all of this evidence and the conduct of the parties over time, the Court held that the Mulkey parties conclusively established their ownership under the presumed grant doctrine.

What Would Happen In Kansas?

In Kansas, a royalty deed is normally interpreted in accordance with the evidence concerning usage over time by the parties involved along with other relevant evidence. But, in Bellport v. Harrison, 255 P. 52 (Kan. 1927), the Court held that “royalty” must be construed in accordance with its “well-known meaning” and that it was not appropriate to look to custom to define the term “royalty.” The Court also concluded that the term “royalty” cannot have a meaning different from its “well-known” meaning as a result of usage. The case involved a sale by Harrison of “one-half of [a] royalty.” The receipt stated, “Received of A.J. Bellport, $2,400.00 payment for 1/16 royalty…”. The mineral interest was leased at the time and provided for payment of a 1/8^th royalty. Harrison asserted that Bellport acquired one-half of Harrison’s 1/8^th royalty, but Bellport claimed he purchased one-half of the mineral interest and that the reference to “1/16^th royalty” conveyed to him a one-half mineral interest entitling him to one-half of the 1/8^th royalty.

The trial court, based on custom, agreed with Bellport but the Kansas Supreme Court reversed. Arguably, the Court believed that the usage was unreasonable and not probative. The Court made a clear distinction between a royalty interest and a mineral interest. A “royalty” refers to a right to share in the production of oil and gas at severance. A royalty is personal property and does not include a perpetual interest in and to oil and gas in and other minerals in and under the land. Conversely, a “mineral interest” means an interest in and to oil and gas in and under the land and constitutes the present ownership of an interest in real property. See, e.g., Shepard v. John Hancock Mutual Life Insurance Co., 368 P.2d 19 (Kan. 1962).

As a result, a Kansas court facing a double-fraction set of facts in a conveyancing instrument would likely focus on facts that enlighten the true nature of the instrument based on the language utilized rather than what the parties call it. This appears to be somewhat like the approach of the Texas Supreme Court taken in Van Dyke. The “estate misconception” theory is merely instructive, perhaps, but is not dispositive. It might also be safe to say that is the approach in Texas. See, e.g., Concord Oil Co. v. Pennzoil Exploration & Production Co., 966 S.W.2d 451 (Tex. 1998).

Conclusion

The Van Dyke ruling, at least in Texas, will probably have longstanding effect on oil and gas titles. The term “one-eighth” in a double fraction clause refers to the entire estate absent evidence to the contrary that proves otherwise and satisfies the presumed-grant doctrine. In any event, practitioners would do well to refrain from using double-fraction clauses.

March 19, 2023 in Contracts, Real Property | Permalink | Comments (0)

Tuesday, March 14, 2023

Adverse Possession and a "Fence of Convenience"

By Roger A. McEowen

Overview

When land is possessed by someone that knows the possession violates the ownership rights of someone else, the concept of adverse possession can come into play. It’s a legal principle that says a person without legal title to a tract of land may acquire legal ownership based on continuous possession absent the true owner’s permission. If the true owner does not exercise their right to eject the violator after a certain period of time, the true owner will be prevented form excluding the violator and a new title to the tract at issue could be issued to the violator who then would be the actual owner of the tract. But there are elements that must be established to successfully assert an adverse possession claim. In addition, certain facts can defeat an adverse possession claim - one of those is that a fence that is not on the actual legal boundary is not a "fence of convenience."

Adverse possession and a "fence of convenience" – it’s the topic of today’s post.

Background

Each state has its own adverse possession statute and associated timeframe after which adverse possession can be claimed. The elements of an adverse possession claim also vary from state to state. One common requirement is that the party claiming adverse possession must assert a claim that is “hostile” to the true owner’s rights. That certainly means that the permission for the usage must not have been granted. It also means that the adverse possessor knows that their asserted possession is against the true owner’s rights.

Here's a sampling of cases involving adverse possession and a brief description of the court’s holding:

Gibbons v. Lettow, 42 P.3d 925 (Or. Ct. App. 2002) (no acquisition by adverse possession because continuous use of land not made for statutory period).
Ebenhoh v. Hodgman, 642 N.W.2d 104 (Minn. Ct. App. 2002) (acquisition of adverse possession occurred because planting of crops on disputed strip for over 40 years demonstrated sufficient continuous use exclusive of any other party).
Davis v. Chadwick, 55 P.3d 1267 (Wyo. 2002) (fence used continuously for over 50 years for grazing of cattle and horses; survey revealed that fence not on boundary, but fence held to be boundary under theory of adverse possession; fence not fence of convenience);
Kosok v. Fitzpatrick, No. 2008AP2351, 2009 Wisc. App. LEXIS 883 (Wisc. Ct. App. Nov. 17, 2009)(plaintiff established statutory elements of adverse possession of disputed strip of land for 20 years; fence remnants were sufficient to “raise a flag of hostility” and were, in fact, treated as the boundary between the properties).
Wallace v. Pack, et al., No. 12-0277, 2013 W. Va. LEXIS 1012 (W. Va. Sup. Ct. Oct. 3, 2013)(trial court properly determined that defendants acquired 28 acres via adverse possession; uses of disputed tract included enclosing portions with fencing, keeping livestock, picking berries, picnicking, etc.).

Fence of “Convenience”

Sometimes a fence is not located on the actual border (partition) between adjacent parcels simply because it is not convenient to construct it there because of the terrain or natural obstructions that make it practically impossible to locate the fence on the actual property boundary. A fence that the adjoining landowners know is not on the actual surveyed line can give rise to a comparable concept – the “doctrine of practical location.” The usage of a particular line by the adjoining owners for the statutory timeframe (the same length of time that applies to adverse possession), can lead to that line becoming the actual legal boundary. The question in this situation is whether the fence is a “fence of convenience.” The fence is simply placed where it is convenient for the adjoining landowners. In that situation, adverse possession cannot apply in states that have a "hostility" requirement as part of an adverse possession statute or the common law. This precise issue came up in a recent court opinion from Wyoming.

Lyman v. Childs, 2023 WY 16 (2023)

The defendants asserted that the plaintiffs were trespassing and took action to eject them. In response, the plaintiffs filed an adverse possession claim against the defendant for approximately 100 acres of property deeded to the defendant, but on the plaintiffs’ side of a fence. The trial court found the fence was not built in accordance with the surveys because it was a fence of convenience - it was the best place to build the fence given the terrain. It was not meant to delineate the property line.

Note: When a fence is one of convenience then it is presumptively permissive, so an adverse possession claim will fail.

The trial court ruled in favor of the defendants and the plaintiffs appealed. The Supreme Court of Wyoming began by noting that the plaintiffs had presented a prima facie case for adverse possession – they had actual possession of the property on their side of the fence; the use was notorious (open and obvious to the defendant) given their use of the property and the no trespass signs they posted; the no trespass signs were enough to show an exclusive use; and the combination of the fencing, signs, and use showed hostility towards the true owner; and the use had been continuous and uninterrupted for the required 10 years needed to establish adverse possession. Once the plaintiffs showed a prima facie case of adverse possession, the burden of disproving adverse possession falls on the defendants.

The showing that a fence is one of convenience establishes permissive use, which defeats the hostility requirement for adverse possession. The Supreme Court explained that several factors are considered when determining if a fence is one of convenience including: the fence’s physical appearance; whether the fence meanders; whether the fence avoids natural barriers and obstacles; whether trees or bushes are used as fencing material; changes in elevation on the deeded boundary compared to the fence line; and the type of land the fence is dividing, among other things. The trial court found the fence did not run-in straight lines, avoided natural barriers, and changed direction for no reason other than terrain. The fence often used trees or bushes as posts and the irregularity showed it was not meant to depict the property line. The trial court gave more credit to the defendants’ expert who stated that the fence was likely built in this manner to reduce costs of building along the actual boundary line, because the easier the fence was to build the cheaper it would be. It would have been cheaper to just follow the easiest path than to require the builders to try to build the fence on along the rough terrain.

The Supreme Court noted that the trial court is to be given considerable deference when weighing testimony and found no reason to interfere with the trial court’s decision to provide more weight to the defendants’ expert. The plaintiffs asserted that if the fence was one of convenience, then the defendant needed to prove that each disputed parcel was enclosed by a fence of convenience rather than a boundary fence. The Supreme Court rejected this argument because the plaintiffs had relied on a case which contained differing facts than this one where the fence was all used for the same purpose of blocking ground and not used to be a boundary for a homeplace. The plaintiffs could not prove any parcel was used differently than the next. The plaintiffs also claimed that the trial court allowed a layman’s testimony to be utilized as expert testimony when it should not have been because the layman had not been to the site in over 30 years. However, the Supreme Court noted that the fence had not moved over that 30-year timeframe and, as a result, the layman’s testimony was valid. Finally, the plaintiffs claimed that they used the property in such a manner that the use had to been seen as hostile. The Supreme Court held the plaintiffs failed to record any deeds that showed they owned the property, so there was no notice to the defendants on the record. Further, using the ground for grazing or recreational purposes is not a hostile use in Wyoming.

The Supreme Court affirmed the trial court’s decision that the defendants had lawfully ejected the plaintiffs off the property because the plaintiffs did not own the property and held the plaintiffs did trespass. The plaintiffs began to trespass once they were aware of the defendants’ notice to not come onto the disputed property any longer, but they continued to do.

Conclusion

A fence that is not actually on the surveyed property boundary may can give rise to a quiet title action either under an adverse possession theory or the theory of boundary by acquiescence. However, those theories will not apply if the fence is merely a fence of convenience. That determination will be based on the particular facts of each situation.

March 14, 2023 in Real Property | Permalink | Comments (0)

Saturday, March 11, 2023

Happenings in Agricultural Law and Tax

By Roger A. McEowen

Overview

The legal issues in agricultural law and tax are seemingly innumerable. The leading issues at any given point in time are often tied to the area of the country involved. In the West and the Great Plains, water and grazing issues often predominate. Boundary disputes and lease issues seem to occur everywhere. Bankruptcy and bankruptcy taxation issues are tied to the farm economy and may be increasing in frequency in 2023 – the USDA projects net farm income to be about 16 percent lower in 2023 compared to 2022. Of course, estate planning, succession planning and income tax issues are always present.

With today’s post, I take a look at some recent cases involving ag issues. A potpourri of recent cases – it’s the topic of today’s post.

Dominant Estate’s Water Drainage Permissible.

Thill v. Mangers, No. 22-0197, 2022 Iowa App. LEXIS 961 (Iowa Ct. App. Dec. 21, 2022)

The plaintiffs sued their neighbor, the defendant, for nuisance. Rainwater from the defendant’s property would run off onto the plaintiffs’ property. In the 1950s and 1960s the city installed a few culverts to help with the water drainage. The water drained into an undeveloped ground area where the plaintiffs later built their home. The plaintiffs tried numerous ways to block the flow, ultimately causing drainage problems for the defendant who then tried to direct the excess water back onto the plaintiffs’ property. The plaintiffs claimed that defendant’s activity caused even more damage to their property than had previously occurred, causing a neighbor to also complain. All of the parties ended up suing each other on various trespass and nuisance claims. The trial court dismissed all of the claims because the court believed that all of the parties’ actions caused the water drainage problems. The appellate court explained that the defendant, as the owner of the dominant estate, had a right to drain water from his land to the servient estate (the plaintiffs’ property) and if damage resulted from the drainage, the servient estate is normally without remedy under Iowa Code §657.2(4). The only time a servient estate could recover damages is if there is a substantial increase in the volume of the water draining or if the method of drainage is substantially changed and actual damage results. Under Iowa law, the owner of the servient estate may not interrupt or prevent the drainage of water to the detriment of the dominant owner. The plaintiffs argued that the defendant violated his obligation by installing a berm and barricade, and presented expert testimony showing that the water flow changed when the defendant added the features, but the defendant had his own expert who provided contrary testimony. The appellate court held that the defendant’s expert was more reliable because the defendant’s expert used more historical information and photographs to analyze how the water historically flowed rather than focusing on the current condition of the neighborhood as did the plaintiffs’ expert. When the plaintiffs’ expert looked at these historical photographs, he even agreed with the defendant’s expert that the natural flow of water was through the culverts onto the plaintiffs’ property. The appellate court affirmed the trial court’s finding that the plaintiffs did not prove that the defendant substantially changed the method or manner of the natural flow of water, because the water would have flowed the same way with or without the defendant’s berm and barricade.

Mortgage Interest Deduction Disallowed

Shilgevorkyan v. Comr., T.C. Memo. 2023-12

The petitioner claimed a mortgage interest deduction for 2012 associated with a home that his brother purchased for $1,525,000 in 2005. The purchase was financed with a bank loan. The brother and his wife were listed as the borrowers on the loan. The brother (and wife) and another brother also took out a $1,200,000 construction loan. Both loans were secured by the home. The construction loan was used to build a separate guesthouse on the property. In 2010, one brother executed a quit claim deed in favor of the petitioner with respect to the property. During 2012, the petitioner didn’t make any loan payments and was not issued a Form 1098 for the year. While the petitioner lived in the guesthouse for part of 2012, he did not list the property as being his place of residence or address. On his 2012 return, the petitioner claimed a $66,354 deduction for one-half of the total mortgage interest paid for the year as reported on Form 1098 that was issued to his brother and his brother’s wife. The IRS disallowed the deduction and the Tax Court agreed. The petitioner failed to prove that the debt on the property was his obligation, did not show ownership (legal or equitable) in the property, and the quitclaim deed did not convey title to him under state law. The Tax Court also determined that the petitioner failed to establish that the residence was his “qualified residence.”

Charitable Deduction Case Will Go to Trial on Numerous Issues

Lim v. Comr., T.C. Memo. 2023-11

During 2016 and 2017, the petitioners (a married couple) were the sole shareholders of an S corporation. In late 2016, after making a presentation to the petitioners concerning “The Ultimate Tax, Estate and Charitable Plan,” an attorney formed a “Charitable Limited Liability Company” for the petitioners to use as a vehicle for making charitable donations. The attorney agreed to transfer assets to the LLC, to transfer LLC units to a charity and to provide the supporting valuation documentation for the donation. He also agreed to represent them before the IRS and the Tax Court if the return(s) were later examined. His fee would be the greater of $25,000 or 6 percent of the “deductible amount” of assets capped at $1 million, plus 4 percent of the “deductible amount” of assets exceeding $1 million. The assets transferred to the LLC were five promissory notes with a face amount of $2,008,500. This generated a fee for the attorney of $84,000 based on a presupposed “deductible amount” of $1,600,000 even though the assets were not appraised until late January of 2017, which valued them at $1,600,000. The fee was to be paid in installments over six months beginning in January of 2017.

The attorney also created a second LLC in late December of 2016 with the petitioners as the managers, the attorney as the registered agent, and the petitioners’ S corporation as the single member. Petitioners promised to pay the second LLC $2,008,500 (the promissory notes) in seven years.

The charitable recipient was a Foundation (an I.R.C. §501(c)(3) organization) for which the attorney was the registered agent. The petitioners claimed that their S corporation donated “units” of the second LLC to the Foundation and claimed a charitable deduction. The IRS denied the deduction, partly on the basis of a lack of evidence that any property was actually transferred to the Foundation. The petitioners did not offer any explanation as to when or how the “units” were created or what physical form they took. The petitioners also claimed that they received an acknowledgement letter of the donation from the Foundation dated January 1, 2017. The letter referred to 1,000 units of an LLC that did not exist during 2016 or as of January 1, 2017. It was not addressed to the S corporation, but to the petitioner (wife) at their residence in a different city than the S corporation. The letter also was not signed by any person and appeared to be a form letter with taxpayer-specific information in bold font. It also did not refer to any property that the S corporation allegedly donated on December 31, 2016.

On January 4, 2017, the attorney submitted an appraisal, but it lacked substance. The appraisal asserted that LLC interests were donated to the Foundation in 2016, but did not denote how many interests had been contributed. The claimed charitable deduction was $1,608,808. The attorney also attached his curriculum vitae stating that he was a CPA, a certified valuation analyst and a licensed attorney in Kentucky. Also attached to the appraisal was a one-page “certification” on which the attorney stated that his fee was not contingent on the report in any manner and that he didn’t have any interest or bias with respect to the parties involved. This was despite his having arranged the entire transaction and being the registered agent for the second LLC.

The S corporation filed Form 1120S for 2016 and attached a copy of the appraisal and Form 8283 which described the donated property as “LLC units” with a basis of $2,008,500 that had been acquired by purchase, and an “appraised market value” of $1,608,808. The petitioners reported a non-cash charitable deduction of $1,608,808 on Schedule A that flowed through to them from the S corporation. Because the amount of the deduction exceeded the maximum allowable deduction for 2016, they claimed a $1,195,073 deduction for 2016 and carried the balance of $415,711 to their 2017 return.

The IRS audited the petitioners’ 2016 and 2017 returns and disallowed the charitable deductions for lack of substantiation. The petitioners challenged the disallowance in the Tax Court and the IRS moved for partial Summary Judgment. The Tax Court determined that the appraisal was not a “qualified appraisal” within the meaning of I.R.C. §170(f)(11)(C). Treas. Reg. §1.170A-13(c)(6)(i) requires, among other things, that “no part of the fee arrangement for a qualified appraisal can be based, in effect, on a percentage (or set of percentages) of the appraised value of the property.” Accordingly, the attorney’s fee was a prohibited appraisal fee within the meaning of the regulation. However, the Tax Court held that the petitioners had shown reasonable cause for failure to comply with the substantiation requirements of I.R.C. §170. They had presented sufficient proof that they relied upon professionals in claiming the charitable contribution deduction. Accordingly, the Tax Court denied the IRS summary judgment on this issue. The Tax Court also denied summary judgment to the IRS on the issue of whether the written acknowledgement was a “contemporaneous written acknowledgement” of the contribution in accordance with I.R.C. §170(f)(8)(A). Accordingly, the Tax Court granted the Summary Judgment motion of the IRS in part, while the remaining issues will be set for trial.

Note: In 2018 the Department of Justice filed a complaint against the attorney, alleging that he promoted the “Ultimate Tax Plan” as a tax evasion scheme. He was accused of running a $35 million federal tax advice scam offering fake deductions using three bogus charities for 19 years. The complaint alleged that he was at the helm of "a national charitable-giving tax scheme" that targeted "wealthy individuals in high tax brackets facing large tax liabilities.” He settled with the Government and agreed to a permanent injunction. On April 26, 2019, the U.S. District Court for the Southern District of Florida entered a final judgment of permanent injunction against him, holding that he had engaged in conduct penalizable under I.R.C. §6700 by promoting the “Ultimate Tax Plan.” The court permanently enjoined him from, among other things, promoting “the Ultimate Tax Plan or any plan or arrangement that is substantially similar.” The court ordered the attorney to perform other actions as well in relation to the plan.

Document Filed with FSA Not a Valid Lease

Coniglio v. Woods, No. 06-22-00021-CV, 2022 Tex. App. LEXIS 8926 (Tex. Ct. App. Dec. 7, 2022)

Involved in this case was land in Texas that the landowner’s son managed for his father who lived in Florida. The landowner needed the hay cut and agreed orally that the plaintiff could cut the hay when necessary. The hay was cut on an annual basis. So that he could receive government farm program payments on the land, the plaintiff filed a “memorialization of a lease agreement” with the local USDA Farm Service Agency (FSA). The landowner’s son also signed the agreement at the plaintiff’s request, but later testified that he didn’t believe the document to constitute a written lease. After three years of cutting the hay, the landowner wanted to lease the ground for solar development, and the plaintiff was told that the hay no longer needed to be cut and there would be no hay profits to share. The plaintiff sued for breach of a farm lease agreement. The trial court ruled in favor of the plaintiff on the basis that the form submitted to the USDA was sufficient to show the existence of a lease agreement. On appeal, the defendant claimed that the document filed with the FSA did not satisfy the writing requirement of the statute of frauds. The appellate court agreed, noting that the document didn’t contain the essential terms of the lease. It didn’t denote the names of the parties, didn’t describe the property, didn’t note the rental rate, and didn’t list any conditions or any consideration. Accordingly, the appellate court determined that no valid lease existed and reversed the trial court’s judgment.

Conclusion

I’ll provide another summary of recent cases in a subsequent post.

March 11, 2023 in Estate Planning, Income Tax, Real Property, Water Law | Permalink | Comments (0)

Sunday, March 5, 2023

Equity “Theft” - Can I Lose the Equity in My Farm for Failure to Pay Property Taxes?

By Roger A. McEowen

Overview

In January, the U.S. Supreme Court agreed to hear a case from the U.S. Court of Appeals for the Eighth Circuit involving a Minnesota homeowner that failed to keep current on the payment of her property taxes. Ultimately, title to her home was forfeited to the State under the Minnesota statutory forfeiture procedure. The county cancelled her tax debt of $15,000 and then sold the home (a condominium) to a private party for $40,000, but did not remit the $25,000 surplus back to her.

The case highlights the issue of “home equity theft” that is possible in some states and raises concerns among farmers and ranchers as to whether it is possible that the same principle could apply

Home equity “theft” and the potential application to farms and ranches – it’s the topic of today’s post

Background

Equity in a home or a farm is the difference between the value of the home or farm and the remaining mortgage balance. Equity is a primary source of wealth for many owners. Indeed, the largest asset value for a farm or ranch family is in the equity wrapped up in the land. In the non-farm sector, primary residences account for 26 percent of the average household’s assets. Equity is a valuable asset. It can be borrowed against or converted into cash and invested in other assets or used to pay debts. Home equity, however, is also subject to seizure to settle tax debt – within the confines of the constitution. Certainly, the government has the constitutional power to tax property and seize property to pay delinquent taxes on that property. But, is it constitutional for the government to retain the proceeds of the sale of seized (forfeited) property after the tax debt has been paid? That’s the question presently before the U.S. Supreme Court.

The Minnesota Case

Presently, 12 states allow the government to keep the surplus equity proceeds of a sale. Minnesota is one of those, along with Alabama, Arizona, Colorado, Illinois, Maine, Massachusetts, Nebraska, New Jersey, New York, South Dakota, and Oregon. The Minnesota case, Tyler v. Hennepin County, 26 F. 4th 789 (8th Cir. 2022), cert. granted, 143 S. Ct. 644 (2023), involved the Minnesota statutory forfeiture procedure that applies when property taxes remain unpaid. Property taxes are a perpetual lien against the property. Minn. Stat. §272.31 Property taxes that the not paid during the year they are due become delinquent on January 1 of the following year. Minn. Stat. §279.03, subdiv. 1. Each year the county must file a delinquent tax list. Once a property is listed, a lawsuit is brought against the properties on which the delinquent taxes are owed. Id. §279.05. Property owners with outstanding taxes receive multiple notices of both the delinquent tax list and the legal action. Id. §279.06, 279.09, 279.091. If the owner fails to respond, a judgment is entered against the property. Id. §279.16. The county then buys the property for the amount of the unpaid taxes (plus penalties, costs and interest). At that point, title to the property vests in the State subject to statutory redemption rights. Id. §280.41. During the statutory redemption period (typically three years) the former owner may redeem the property for the amount of the delinquent taxes, penalties, costs and interest. During the redemption period, the county must notify the taxpayer of the right to redeem. If Id. §§281.01, 281.02 and 281.17. the redemption right is not exercised, a final forfeiture occurs which vests “absolute title” in the State and cancels all taxes, penalties, costs, interest, and special assessments against the property. Id. §§281.18, 282.07. Even after the “final forfeiture” the owner has six months to apply to buy the forfeited property. Id. §282.41. But, Minnesota law specifies that if the county ultimately sells the property the former owner cannot recover any proceeds of the sale that exceed the tax debt. In other words, the State takes the former owner’s equity in the property.

This is precisely what happened in Tyler. Hennepin County followed the statutory forfeiture procedure, the homeowner didn’t redeem her condominium within the allotted timeframe and the state ultimately sold the property and bagged the proceeds – including the homeowner’s equity in the property.

The homeowner sued, claiming that Hennepin County violated the Constitution’s Takings Clause (federal and state) by failing to remit the equity she had in her home. She also claimed that the county’s actions amounted to an unconstitutional excessive fine, violated her due process and constituted an unjust enrichment under state law. The trial court dismissed the case and the Eighth Circuit affirmed finding that she lacked any recognizable property interest in the surplus equity in her home. In so holding, the appellate court noted the detailed statutory forfeiture procedure under Minnesota law. The appellate court also affirmed the trial court’s conclusion that the retention of the surplus equity by the state did not constitute an excessive fine under either the federal or state Constitutions.

Other States

Wisconsin. The result in Tyler could have also happened in Wisconsin but in 2022 state law changed to bar the state from retaining equity obtained in forfeiture proceedings. Wis. Act. 216 (2022). In 2020, the Michigan Supreme Court determined that the state’s retention of equity in a forfeiture action was an unconstitutional taking of private property. Rafaeli, LLC v. Oakland Cty., 505 Mich. 429, 952 N.W.2d 434 (2020). The case involved an 83-year-old man who failed to pay $8.41 in property taxes and the county sold his home for $24,500 to pay the debt and kept the balance.

Massachusetts. A small alpaca farmer in Massachusetts filed a claim on January 10, 2023, to argue that the local town unconstitutionally took a $310,000 profit from the sale of his farm to pay a $60,000 property tax debt. A study by Ralph D. Clifford at the University of Massachusetts School of Law at Dartmouth found that Massachusetts “steals” almost $60,000,000 in equity from taxpayers annually. (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3086247).

Note: In some instances, a private company will buy a property that has a delinquent tax debt and attach interest to it at the statutory rate – 16 percent in Massachusetts. The company then lets the interest accrue for three years (the statutory redemption timeframe) and then notifies the real homeowner one last time what they can pay to get their home back – including the interest charge.

Nebraska. In 2018, the Nebraska Supreme Court determined that 480-acre farm near North Platte worth $1..1 million had been properly acquired for $50,000 in delinquent taxes. Wisner v. Vandelay Invs., L.L.C., 300 Neb. 825, 916 N.W.2d 698 (2018). The owner was a 94-year-old woman in a nursing woman with arguable reduced mental capacity. One of her sons was named as an agent under a power of attorney who then assigned his duties to a trust officer at a local bank. The son assumed that the bank was paying the property taxes on the farm, but the bank never received any property tax notices and, thus, didn’t pay any property taxes. The taxes became delinquent, and a private company ultimately acquired the tax certificate for the farm and, after the required three-year redemption period, sent notice of intent to foreclose to the address where the owner had previously received her property tax statements. The notice was unclaimed which led the company to publish notice in a local newspaper for three consecutive weeks. Ultimately, the firm acquired the tax deed to the property.

The son sought to void the tax deed, claiming that the company didn’t comply with the statutory notice requirements (the paper wasn’t circulated in the entire county) and that the three-year redemption period should have been extended to five years on account of the owner’s mental condition. However, the Nebraska Supreme Court disagreed, holding that the son failed to overcome the presumption that the publication of notice was sufficient or that his mother had a mental condition sufficient to extend the statutory redemption period. A dissenting judge classified the majority’s opinion as a “windfall that borders on the obscene.”

Note: In the wake of the Wisner decision, the Nebraska Unicameral changed the requirements for service of notice when applying for a tax deed. Neb. Rev. Stat. §77-1832 was amended to provide that service of the notice is to be by personal or residential service on a person in actual possession of the property and on the person whose name the title to the real property appears of record who can be found in Nebraska. If personal or residential service is not possible, certified mail or designated delivery service can be used. In addition, the amendment specifies that certified mail or designated delivery service must be provided to every encumbrancer of record found by the title search. Only if a “diligent inquiry” fails to find the person(s) entitled to notice can notice then be by publication in the newspaper of general circulation designated by the county board.

Application can be made with the county treasurer for a tax deed if redemption has not been made. The county treasurer will issue the tax deed if, among other things, an affidavit proving service of notice is provided. If service of notice was by publication an affidavit of the publisher, manager, or newspaper employees is required. Also required to be provided is a copy of the notice and an affidavit of the purchaser (or the purchaser’s assignee) of the tax certificate.

Conclusion

Home (and farm) equity theft tends to bear more heavily on those that can least afford to hire legal assistance or qualify for legal aid (because they own a home or a farm). So, the lack of cases on the matter may underrepresent the extent of the problem. Also, each state bars a lender from keeping the proceeds of a forfeiture sale but, as noted above, not every state bars the government or a private company (that is not a lender), from keeping the surplus equity from a forfeiture sale.

Will the Supreme Court block the state and local governments (and private companies) from keeping surplus equity. We will soon find out.

March 5, 2023 in Real Property | Permalink | Comments (0)

Monday, January 30, 2023

Bibliography - July Through December 2022

By Roger A. McEowen

Overview

After the first half of 2022, I posted a blog article of a bibliography of my blog articles for the first half of 2022. You can find that bibliography here: Bibliography – January through June of 2022

https://lawprofessors.typepad.com/agriculturallaw/2022/09/bibliography-january-through-june-of-2022.html.

Bibliography of articles for that second half of 2022 – you can find it in today’s post.

Alphabetical Topical Listing of Articles (July 2022 – December 2022)

Bankruptcy

More Ag Law Developments – Potpourri of Topics

https://lawprofessors.typepad.com/agriculturallaw/2022/10/more-ag-law-developments-potpourri-of-topics.html

Business Planning

Durango Conference and Recent Developments in the Courts

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

Is a C Corporation a Good Entity Choice For the Farm or Ranch Business?

https://lawprofessors.typepad.com/agriculturallaw/2022/07/whats-the-best-entity-structure-for-the-farm-or-ranch-business.html

What is a “Reasonable Compensation”?

https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html

Federal Farm Programs: Organizational Structure Matters – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2022/08/federal-farm-programs-organizational-structure-matters-part-three.html

LLCs and Self-Employment Tax – Part One

https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html

LLCs and Self-Employment Tax – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html

Civil Liabilities

Durango Conference and Recent Developments in the Courts

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

Dicamba Spray-Drift Issues and the Bader Farms Litigation

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

Tax Deal Struck? – and Recent Ag-Related Cases

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

Ag Law and Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html

More Ag Law Developments – Potpourri of Topics

https://lawprofessors.typepad.com/agriculturallaw/2022/10/more-ag-law-developments-potpourri-of-topics.html

Ag Law Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html

Contracts

Minnesota Farmer Protection Law Upheld

https://lawprofessors.typepad.com/agriculturallaw/2022/09/minnesota-farmer-protection-law-upheld.html

Criminal Liabilities

Durango Conference and Recent Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/20Ag Law Summit

https://lawpr 22/07/durango-conference-and-recent-developments-in-the-courts.html

Environmental Law

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

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

More Ag Law Developments – Potpourri of Topics

https://lawprofessors.typepad.com/agriculturallaw/2022/10/more-ag-law-developments-potpourri-of-topics.html

Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland

https://lawprofessors.typepad.com/agriculturallaw/2022/10/court-says-coe-acted-arbitrarily-when-declining-jurisdiction-over-farmland.html

Ag Law Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html

Estate Planning

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

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

IRS Modifies Portability Election Rule

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

Modifying an Irrevocable Trust – Decanting

https://lawprofessors.typepad.com/agriculturallaw/2022/09/modifying-an-irrevocable-trust-decanting.html

Farm and Ranch Estate Planning in 2022 (and 2023)

https://lawprofessors.typepad.com/agriculturallaw/2022/09/farm-and-ranch-estate-planning-in-2022-and-2023.html

Social Security Planning for Farmers and Ranchers

https://lawprofessors.typepad.com/agriculturallaw/2022/11/social-security-planning-for-farmers-and-ranchers.html

How NOT to Use a Charitable Remainder Trust

https://lawprofessors.typepad.com/agriculturallaw/2022/12/how-not-to-use-a-charitable-remainder-trust.html

Recent Cases Involving Decedents’ Estates

https://lawprofessors.typepad.com/agriculturallaw/2022/12/recent-cases-involving-decedents-estates.html

Medicaid Estate Recovery and Trusts

https://lawprofessors.typepad.com/agriculturallaw/2022/12/medicaid-estate-recovery-and-trusts.html

Income Tax

What is the Character of Land Sale Gain?

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

Deductible Start-Up Costs and Web-Based Businesses

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

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

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

Tax Deal Struck? – and Recent Ag-Related Cases

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

What is “Reasonable Compensation”?

https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html

LLCs and Self-Employment Tax – Part One

https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html

LLCs and Self-Employment Tax – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html

USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)

https://lawprofessors.typepad.com/agriculturallaw/2022/08/usdas-emergency-relief-program-update-on-gain-from-equipment-sales.html

Declaring Inflation Reduced and Being Forgiving – Recent Developments in Tax and Law

https://lawprofessors.typepad.com/agriculturallaw/2022/09/declaring-inflation-reduced-and-being-forgiving-recent-developments-in-tax-and-law.html

Ag Law and Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html

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

https://lawprofessors.typepad.com/agriculturallaw/2022/09/extended-livestock-replacement-period-applies-in-areas-of-extended-drought-irs-updated-drought-areas.html

More Ag Law Developments – Potpourri of Topics

https://lawprofessors.typepad.com/agriculturallaw/2022/10/more-ag-law-developments-potpourri-of-topics.html

IRS Audits and Statutory Protection

https://lawprofessors.typepad.com/agriculturallaw/2022/10/irs-audits-and-statutory-protection.html

Handling Expenses of Crops with Pre-Productive Periods – The Uniform Capitalization Rules

https://lawprofessors.typepad.com/agriculturallaw/2022/10/handling-expenses-of-crops-with-pre-productive-periods-the-uniform-capitalization-rules.html

When Can Depreciation First Be Claimed?

https://lawprofessors.typepad.com/agriculturallaw/2022/10/for-depreciation-purposes-what-does-placed-in-service-mean.html

Tax Treatment of Crops and/or Livestock Sold Post-Death

https://lawprofessors.typepad.com/agriculturallaw/2022/11/tax-treatment-of-crops-andor-livestock-sold-post-death.html

Social Security Planning for Farmers and Ranchers

https://lawprofessors.typepad.com/agriculturallaw/2022/11/social-security-planning-for-farmers-and-ranchers.html

Are Crop Insurance Proceeds Deferrable for Tax Purposes?

https://lawprofessors.typepad.com/agriculturallaw/2022/11/are-crop-insurance-proceeds-deferrable-for-tax-purposes.html

Tax Issues Associated With Easement Payments – Part 1

https://lawprofessors.typepad.com/agriculturallaw/2022/11/tax-issues-associated-with-easement-payments-part-1.html

Tax Issues Associated With Easement Payments – Part 2

https://lawprofessors.typepad.com/agriculturallaw/2022/11/tax-issues-associated-with-easement-payments-part-2.html

How NOT to Use a Charitable Remainder Trust

https://lawprofessors.typepad.com/agriculturallaw/2022/12/how-not-to-use-a-charitable-remainder-trust.html

Does Using Old Tractors Mean You Aren’t a Farmer? And the Wind Energy Production Tax Credit – Is Subject to State Property Tax?

https://lawprofessors.typepad.com/agriculturallaw/2022/12/does-using-old-tractors-mean-you-arent-a-farmer-and-the-wind-energy-production-tax-credit-is-it-subject-to-state-prop.html

Insurance

Tax Deal Struck? – and Recent Ag-Related Cases

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

Real Property

Tax Deal Struck? – and Recent Ag-Related Cases

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

Ag Law Summit

https://lawprofessors.typepad.com/agriculturallaw/2022/08/ag-law-summit.html

Ag Law and Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html

More Ag Law Developments – Potpourri of Topics

https://lawprofessors.typepad.com/agriculturallaw/2022/10/more-ag-law-developments-potpourri-of-topics.html

Ag Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html

Regulatory Law

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

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

The Complexities of Crop Insurance

https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html

Federal Farm Programs – Organizational Structure Matters – Part One

https://lawprofessors.typepad.com/agriculturallaw/2022/08/federal-farm-programs-organizational-structure-matters-part-one.html

Federal Farm Programs – Organizational Structure Matters – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2022/08/federal-farm-programs-organizational-structure-matters-part-two.html

Federal Farm Programs: Organizational Structure Matters – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2022/08/federal-farm-programs-organizational-structure-matters-part-three.html

USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)

https://lawprofessors.typepad.com/agriculturallaw/2022/08/usdas-emergency-relief-program-update-on-gain-from-equipment-sales.html

Minnesota Farmer Protection Law Upheld

https://lawprofessors.typepad.com/agriculturallaw/2022/09/minnesota-farmer-protection-law-upheld.html

Ag Law and Tax Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html

Animal Ag Facilities and Free Speech – Does the Constitution Protect Saboteurs?

https://lawprofessors.typepad.com/agriculturallaw/2022/10/animal-ag-facilities-and-free-speech-does-the-constitution-protect-saboteurs.html

Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland

https://lawprofessors.typepad.com/agriculturallaw/2022/10/court-says-coe-acted-arbitrarily-when-declining-jurisdiction-over-farmland.html

Ag Law Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html

Water Law

More Ag Law Developments – Potpourri of Topics

https://lawprofessors.typepad.com/agriculturallaw/2022/10/more-ag-law-developments-potpourri-of-topics.html

January 30, 2023 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Monday, December 5, 2022

Ag Law Developments in the Courts

By Roger A. McEowen

Overview

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

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

Jumping Mouse Habitat Designation Upheld

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

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

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

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

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

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

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

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

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

Oil and Gas Lease on Disputed Property Invalidates Adverse Possession

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

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

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

Thursday, October 6, 2022

More Ag Law Developments – Potpourri of Topics

By Roger A. McEowen

Overview

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

Court Says Public Has Right to Use Private Riverbeds

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

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

Retained Ownership of Minable Surface Negates Conservation Easement Deduction.

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

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

Family Farms Not Part of Bankruptcy Estate.

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

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

FIFRA Doesn’t Preempt State-Based Warranty Claims

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

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

Comparative Fault for Unmaintained Waterway

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

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

Conclusion

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

October 6, 2022 in Bankruptcy, Civil Liabilities, Environmental Law, Income Tax, Real Property, Water Law | Permalink | Comments (0)

Wednesday, September 14, 2022

Ag Law and Tax Developments

By Roger A. McEowen

Overview

It’s been a while since I last did an case and ruling update. So, today’s post is one of several that I will post in the coming weeks.

Some recent developments in the courts and IRS – it’s the topic of today’s post.

Retained Ownership of Minable Surface Negates Conservation Easement Deduction

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

Use of Pore Space Without Permission Unconstitutional

Northwest Landowners Association v. State, 2022 ND 150 (2022)

North Dakota law provides that a landowner’s subsurface pore space can be used for oil and gas waste without requiring the landowner’s permission or the payment of any compensation. The plaintiffs challenged the law as an unconstitutional taking under the Fourth and Fifth Amendments. The trial court held that the law was unconstitutional on its face and awarded attorney’s fees to the plaintiff. On further review, the North Dakota Supreme Court determined that the plaintiffs had a property interest in subsurface pore space and that the section of the law specifying that the landowners did not have to provide consent to the trespassers to use the land unconstitutionally deprived them of their property rights as a per se taking. However, the Supreme Court determined that the section of the law allowing oil and gas producers to inject carbon dioxide into subsurface pore space was constitutional. The Supreme Court upheld the award of attorney fees.

Net Operating Loss Couldn’t Be Carried Forward

Villanueva v. Comr., T.C. Memo. 2022-27

The petitioner sustained a loss from the disposition of a condominium he owned as a rental property. He reported the date of the loss as August 2013, but a mortgage lender had foreclosed on the condo in May 2009 and the taxpayer lost possession on that date. The IRS denied the deduction on the basis that the petitioner had not claimed the loss on either an original or amended return which meant that there was no loss that could be carried forward. The Tax Court agreed with the IRS, noting that the Treasury Regulations for I.R.C. §165 provide that a loss is treated as sustained during the tax year in which the loss occurs as evidenced by a closed and completed transaction and fixed by identifiable events occurring in such taxable year. A loss resulting from a foreclosure sale is typically sustained in the year in which the property is disposed of, and the debt is discharged from the proceeds of the foreclosure sale. Thus, the Tax Court determined that the loss had occurred in 2009 and should have been claimed at that time where it could have then been carried forward.

Overtime Pay Rate Not Applicable to Construction Work on Farm

Vanegas v. Signet Builders, Inc., No. 21-2644, 2022 U.S. App. LEXIS 23206 (7th Cir. Aug. 19, 2022)

The plaintiff, the defendant’s employee, worked overtime in building a livestock fence for the defendant. The defendant refused to pay the plaintiff time and a half for overtime. The plaintiff sued the defendant to recover the extra wages. The defendant’s refusal was based on the plaintiff being an agricultural worker not entitled to overtime. The trial court agreed and dismissed the plaintiff’s claim. The plaintiff appealed. The appellate court looked to the language of 29 U.S.C. § 213(b)(12) and the work of the plaintiff to determine if the plaintiff would be considered an agricultural employee. The appellate court found the plaintiff’s work was carried out as a separately organized activity outside of the defendant’s agricultural operations. The plaintiff worked for the defendant, but he built the fence on his own without any aid from any of the farm employees. The appellate court noted that another indication the work would not be considered exempt is whether farmers typically hire someone out for the work at issue. If so, it could be an indication the work is separate from agricultural work and would qualify for overtime pay. The appellate court found the defendant failed to provide much evidence to show that the plaintiff worked with agricultural employees and did not show the work was commonly done by a farmer. The appellate court also reasoned that just because the plaintiff was given a visa for agricultural work did not mean his work for the defendant was agricultural. The appellate court reversed the trial court’s decision to dismiss the complaint.

Early Distribution “Penalty” is a “Tax” and Does Not Require Supervisor Approval

Grajales v. Comr., No. 21-1420, 2022 U.S. App. LEXIS 23695 (4th Cir. Aug. 24, 2022), aff’g., 156 T.C. 55 (2021)

The petitioner borrowed money from her pension account at age 42. She received an IRS Form 1099-R reporting the gross distributions from the pension of $9,025.86 for 2015. She didn’t report any of the amount as income in 2015. The IRS issued her a notice of deficiency for $3,030.00 and an additional 10 percent penalty tax of $902.00. The parties later stipulated to a taxable distribution of $908.62 and a penalty of $90.86. The petitioner claimed that she was not liable for the additional penalty tax because the IRS failed to obtain written supervisory approval for levying it under I.R.C. §6751(b). The Tax Court determined that the additional 10 percent tax of I.R.C. §72(t) was a “tax” and not an IRS penalty that required supervisor approval before it would be levied. The Tax Court noted that I.R.C. §72(t) specifically refers to it as a “tax” rather than a penalty and that other Code sections also refer to it as a tax. The appellate court affirmed.

U.S. Fish & Wildlife Service Can Regulate Ag Practices on Leased Land

Tulelake Irrigation Dist. v. United States Fish & Wildlife Serv., 40 F.4th 930 (9th Cir. 2022)

The plaintiffs sued the defendant, U.S. Fish and Wildlife Service, claiming the defendant violated environmental laws by regulating leased farmland in the Tule Lake and Klamath Refuge. The trial court granted summary judgment in favor of the defendant. The plaintiff appealed. The appellate court noted that the Kuchel Act and the Refuge Act allow the defendant to determine the proper land management practices to protect the waterfowl management of the area. Under the Refuge Act, the defendant was required to issue an Environmental Impact Statement (EIS) and Comprehensive Conservation Plan (CCP). The defendant did issue an EIS and CCP for the Tule Lake and Klamath Refuge area, which included modifications to the agricultural use on the leased land within the region. The EIS/CCP required the leased lands to be flooded post-harvest, restricted some harvesting methods, and prohibited post-harvest field work, which the plaintiffs claimed violated their right to use the leased land. The plaintiffs argued that the language, “consistent with proper waterfowl management,” within the Kuchel Act was “nonrestrictive” and was not essential to the meaning of the Act. The appellate court held it was improper to read just that portion of the Act without considering the rest of the Act to understand the intent. The appellate court found the Kuchel Act was unambiguous and required the defendant to regulate the leased land to ensure proper waterfowl management. The Refuge Act allows the defendant to regulate the uses of the leased land, but the plaintiffs argued the agricultural practices were a “purpose” rather than a “use” so the defendant could not regulate it under the Refuge Act. The appellate court found the agriculture on the leased land was not a “purpose” equal to waterfowl management. The appellate court also held the language of the act was unambiguous and determined that agricultural activities on the land was to be considered a use that the defendant could regulate. The appellate court affirmed the trial court’s award of summary judgment for the defendant.

Crop Salesman Sued for Ruining Relationship with Landowner

Walt Goodman Farms, Inc. v. Hogan Farms, LLC, No. 1:22-cv-01004-JDB-jay, 2022 U.S. Dist. LEXIS 134192 (W.D. Tenn. Jul. 28, 2022)

The plaintiff, a farm tenant, sued the defendant landlord and a third-party ag salesman. The plaintiff claimed that the salesman wrongly advised the landlord and encouraged the landlord to complain about the plaintiff’s farming practices. Specifically, the plaintiff’s claims against the salesman were for interference with contract, interference with business relationship, and fraud. The salesman moved to dismiss each claim, but the trial court denied the motion with respect to the contract interference and interference with business relationship claims. The trial court, however, dismissed the fraud claim involving the efficacy of corn seed.

Standard Default Interest Rate Not Unconscionable

Savibank v. Lancaster, No. 82880-1-I, 2022 Wash. App. LEXIS 1558 (Wash. Ct. App. Aug. 1, 2022)

The defendant obtained a loan from the plaintiff to purchase his father’s farm before the virus outbreak. The loan agreement stated that the interest rate would increase to 18 percent upon default. The defendant did default when the pandemic hit, and the plaintiff filed a foreclosure and repossession action against the plaintiff. The trial court ruled in favor the plaintiff. The defendant appealed and asserted the 18 percent default interest rate was unconscionable during a pandemic. During the appeal, the defendant claimed the plaintiff should have alerted the defendant to any better loan alternatives but failed to do so. The appellate court, affirmed, finding that the plaintiff had no contractual obligation to make the defendant aware of any better financing agreement. The appellate court also upheld the trial court’s finding that the 18 percent default interest rate was not unconscionable and was common for agricultural loans with other banks in the area. The appellate court also noted that the defendant had the opportunity to consult with a lawyer about the loan terms before signing. The loan terms were standard and straightforward, and the defendant failed to show any evidence as to how the virus caused his default or how it made the default interest rate unconscionable. In addition, the court noted that the defendant had stopped making loan payments before the virus began to impact the United States. The appellate court also held that the defendant failed to provide any evidence for an unconscionability defense.

Conclusion

I’ll post additional developments in a subsequent post.

September 14, 2022 in Civil Liabilities, Income Tax, Real Property, Regulatory Law | Permalink | Comments (0)

Sunday, September 11, 2022

September 30 Ag Law Summit in Omaha (and Online)

By Roger A. McEowen

Overview

On September 30, Washburn Law School with cooperating partner Creighton Law School will conduct the second annual Ag Law Summit. The Summit will be held on the Creighton University campus in Omaha, Nebraska. Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30 and will also be broadcast live online.

The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.

The 2022 Ag Law Summit – it’s the topic of today’s post.

Agenda

Developments in agricultural law and taxation. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world. There have been several major developments involving agricultural that have come through the U.S Supreme Court in recent months. I will discuss those decisions and the implications for the future. Several of them involve administrative law and could have a substantial impact on the ability of the federal government to micro-manage agricultural activities. I will also get into the big tax developments of the past year, including the tax provisions included in the recent legislation that declares inflation to be reduced!

Death of a farm business owner. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections. The handling of tax attributes after death will be covered as will some non-tax planning matters when an LLC owner dies. There are also entity-specific issues that arise when a business owner dies, and Prof. Morse will address those on an entity-by-entity basis. The transition issue for farmers and ranchers is an important one for many. This session will be a good one in laying out the major tax and non-tax considerations that need to be laid out up front to help the family achieve its goals post-death.

Governing documents for farm and ranch business entities. After a morning break Dan Waters with Lamson Dugan & Murray in Omaha will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.

Fence law issues. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.

Farm economics. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an ag economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? How will the war in Ukraine continue to impact agriculture in the U.S.? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.

Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.

Online. The Summit will be broadcast live online and will be interactive to allow you the ability to participate remotely.

Reception

For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.

Conclusion

If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.

I hope to see you in Omaha on September 30 or see that you are with us online.

You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html

September 11, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Monday, September 5, 2022

Bibliography – January through June of 2022

By Roger A. McEowen

Overview

Periodically I post an article containing the links to all of my blog articles that have been recently published. Today’s article is a bibliography of my articles from the beginning of 2022 through June. Hopefully this will aid your research of agricultural law and tax topics.

A bibliography of articles for the first half of 2022 – it’s the content of today’s post.

Bankruptcy

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

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

Other Important Developments in Agricultural Law and Taxation

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

Recent Court Cases of Importance to Agricultural Producers and Rural Landowners

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

Business Planning

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

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

Should An IDGT Be Part of Your Estate Plan?

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

Farm Wealth Transfer and Business Succession – The GRAT

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

Captive Insurance – Part One

https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html

Captive Insurance – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html

Captive Insurance – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html

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

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

Farm Economic Issues and Implications

https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html

Intergenerational Transfer of the Farm/Ranch Business – The Buy-Sell Agreement

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

IRS Audit Issue – S Corporation Reasonable Compensation

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

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

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

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

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

S Corporation Dissolution – Part 1

https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html

S Corporation Dissolution – Part Two; Divisive Reorganization Alternative

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

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

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

Durango Conference and Recent Developments in the Courts

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

Civil Liabilities

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

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

Agritourism

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

Animal Ag Facilities and the Constitution

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

When Is an Agricultural Activity a Nuisance?

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

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

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

Durango Conference and Recent Developments in the Courts

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

Dicamba Spray-Drift Issues and the Bader Farms Litigation

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

Tax Deal Struck? – and Recent Ag-Related Cases

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

Contracts

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

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

What to Consider Before Buying Farmland

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

Elements of a Hunting Use Agreement

https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html

Ag Law (and Medicaid Planning) Court Developments of Interest

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

Cooperatives

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

Criminal Liabilities

Animal Ag Facilities and the Constitution

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

Is Your Farm or Ranch Protected From a Warrantless Search?

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

Durango Conference and Recent Developments in the Courts

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

Environmental Law

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

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

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

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

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

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

Ag Law and Tax Potpourri

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

Farm Economic Issues and Implications

https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html

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

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

Estate Planning

Other Important Developments in Agricultural Law and Taxation

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

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

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

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

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

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

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

Nebraska Revises Inheritance Tax; and Substantiating Expenses

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

Tax Consequences When Farmland is Partitioned and Sold

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

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

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

Should An IDGT Be Part of Your Estate Plan?

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

Farm Wealth Transfer and Business Succession – The GRAT

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

Family Settlement Agreement – Is it a Good Idea?

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

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

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

Captive Insurance – Part One

https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html

Captive Insurance – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html

Captive Insurance Part Three

https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html

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

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

Farm Economic Issues and Implications

https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html

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

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

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

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

Ag Law (and Medicaid Planning) Court Developments of Interest

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

Joint Tenancy and Income Tax Basis At Death

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

More Ag Law Court Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html

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

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

IRS Modifies Portability Election Rule

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

Income Tax

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

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

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

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

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

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

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

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

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

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

Purchase and Sale Allocations Involving CRP Contracts

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

Ag Law and Tax Potpourri

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

What’s the Character of the Gain From the Sale of Farm or Ranch Land?

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

Proper Tax Reporting of Breeding Fees for Farmers

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

Nebraska Revises Inheritance Tax; and Substantiating Expenses

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

Tax Consequences When Farmland is Partitioned and Sold

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

Expense Method Depreciation and Leasing- A Potential Trap

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

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

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

income Tax Deferral of Crop Insurance Proceeds

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

What if Tax Rates Rise?

https://lawprofessors.typepad.com/agriculturallaw/2022/03/what-if-tax-rates-rise.html

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

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

Captive Insurance – Part One

https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html

Captive Insurance – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html

Captive Insurance – Part Three

https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html

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

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

Farm Economic Issues and Implications

https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html

IRS Audit Issue – S Corporation Reasonable Compensation

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

Missed Tax Deadline & Equitable Tolling

https://lawprofessors.typepad.com/agriculturallaw/2022/04/missed-tax-deadline-equitable-tolling.html

Summer 2022 Farm Income Tax/Estate and Business Planning Conferences

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

Joint Tenancy and Income Tax Basis At Death

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

Tax Court Caselaw Update

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

Deducting Soil and Water Conservation Expenses

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

Correcting Depreciation Errors (Including Bonus Elections and Computations)

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

When Can Business Deductions First Be Claimed?

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

Recent Court Decisions Involving Taxes and Real Estate

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

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

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

Tax Issues with Customer Loyalty Reward Programs

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

S Corporation Dissolution – Part 1

https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html

S Corporation Dissolution – Part Two; Divisive Reorganization Alternative

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

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

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

What is the Character of Land Sale Gain?

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

Deductible Start-Up Costs and Web-Based Businesses

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

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

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

Tax Deal Struck? – and Recent Ag-Related Cases

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

Insurance

Tax Deal Struck? – and Recent Ag-Related Cases

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

Real Property

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

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

Ag Law and Tax Potpourri

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

What to Consider Before Buying Farmland

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

Elements of a Hunting Use Agreement

https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html

Animal Ag Facilities and the Constitution

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

Recent Court Decisions Involving Taxes and Real Estate

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

Recent Court Cases of Importance to Agricultural Producers and Rural Landowners

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

More Ag Law Court Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html

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

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

Tax Deal Struck? – and Recent Ag-Related Cases

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

Regulatory Law

The “Almost Top 10” of 2021 (Part 5)

https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-10-of-2021-part-5.html

The “Almost Top 10” of 2021 (Part 6)

https://lawprofessors.typepad.com/agriculturallaw/2022/02/the-almost-top-10-of-2021-part-6.html

Ag Law and Tax Potpourri

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

Animal Ag Facilities and the Constitution

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

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

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

Farm Economic Issues and Implications

https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html

Ag Law (and Medicaid Planning) Court Developments of Interest

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

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

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

More Ag Law Court Developments

https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html

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

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

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

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

The Complexities of Crop Insurance

https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html

Secured Transactions

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

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

Water Law

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

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

Durango Conference and Recent Developments in the Courts

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

September 5, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Saturday, August 20, 2022

Ag Law Summit

By Roger A. McEowen

Overview

Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30, and will also be broadcast live online.

The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.

The 2022 Ag Law Summit – it’s the topic of today’s post.

Agenda

Survey of ag law and tax. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world.

Tax issues upon death of a farmer. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections.

Farm succession planning drafting language. After a morning break Dan Waters, and estate planning attorney in Omaha, NE, will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.

Fences and boundaries. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.

The current farm economy and future projections. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.

Reception

For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.

Conclusion

I hope to see you in Omaha on September 30 or see that you are with us online.

You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html

August 20, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Thursday, July 28, 2022

Tax Deal Struck? – and Recent Ag-Related Cases

By Roger A. McEowen

Overview

Reports are that Senator Joe Manchin has come to an agreement with Senate leadership on tax legislation that is part of a larger package, termed the “Inflation Reduction Act of 2022.” It’s apparently part of the 2022 budget reconciliation bill which only requires a simple majority of the Senate to pass. What are the tax provisions that have been agreed to?

Proposed tax provisions apparently agreed to, and some recent ag-related court decisions – it’s the topic of today’s post.

Tax Agreement

Reports are that the agreed upon tax package includes a 15 percent corporate alternative minimum tax (AMT) applied to adjusted financial statement income of corporations with profits exceeding $1 billion. A corporation subject to the AMT would be able to claim net operating losses and tax credits against the AMT. In addition, a corporation subject to the AMT would be able to claim tax credits against the AMT as well as regular corporate tax for AMT paid in prior years to the extent the regular tax liability in any year exceeds 15 percent of the corporation’s adjusted financial statement income. The provision would be effective for tax years after 2022.

Also included in the agreement is a change in the tax treatment of carried interest (e.g., the share of profit that general partners receive to compensate them for managing a venture capital fund).

Another proposal would apply the net investment income tax (NIIT) of I.R.C. §1411 to all income. Presently this 3.8 percent tax (which was created as part of Obamacare) applies only to passive income above a threshold. Under the proposal, the additional 3.8 percent tax would apply to adjusted gross income over $400,000 (single) and $500,000 (mfj). This means that there is a substantial “marriage penalty.” In addition, the qualified business income deduction (QBID) of I.R.C. §199A is not part of a taxpayer’s AGI computation. In other words, AGI is not reduced by the 20 percent QBID – AGI is computed before accounting for the QBID. Thus, for a taxpayer that has taxable income at or below the threshold for application of the NIIT as a result of the QBID, the NIIT would be computed on AGI first.

Note: Applying the NIIT to adjusted gross income (including income from both passive and active sources) could result in a sizeable tax increase for many farmers – particularly dairy operations.

There are other tax provisions reported to be in the agreement, including those dealing with “renewable” energy credits. The projected additional revenue from the tax increases is to fund certain “green energy” initiative. The actual text of the legislation is presently slated for the Senate parliamentarian to review on August 3. Full Senate consideration would occur after that date.

Note: There presently is no word on how Senator Sinema views the proposal, although she has stated in the past that she will not support legislation that increases corporate or personal tax rates. While the proposals don’t increase actual rates, they do increase effective rates on certain corporations and individuals.

Also, Senate Finance Committee Chairman Charles Grassley has introduced legislation that would index certain tax benefits to adjust for inflation. The indexed provisions include certain tax credits and deductions such as the Child Tax Credit and the Non-Child Dependent Credit. The bill, known as the “Family and Community Inflation Relief Act,” would also adjust for inflation the American Opportunity Tax Credit, Lifetime Learning Credit, and the Student Loan Interest Deduction. The proposal would also extent the current $10,000 limitation on state and local taxes through 2026.

Recent Ag-Related Court Opinions

Child Support Obligation Computed Based on All Income and Loss from Farming.

Gerving v. Gerving, 969 N.W.2d 184 (N.D. 2022)

The issue in this case was the proper way to calculate a father’s child support obligation. The father conducted a farming operation, and a primary issue was whether only income and gains from farming should count for purposes of child support, or whether losses should also be accounted for. Under child support guidelines, the court must determine the payor’s net income and use that amount to calculate the child support obligation. The trial court calculated the father’s income based only on gains and did not include any related losses incurred from equipment trades and other farm-related transactions. The appellate court held that the trial court erred by not including the farm losses to calculate the father’s self-employment income because those losses must be considered to show actual profit from the farming operation. The appellate court also determined that the father had no income from subleases of farmland.

Deduction for Full Amount of C Corporate Shareholder Compensation Not Deductible

Clary Hood, Inc. v. Comr., T.C. Memo. 2022-15

A big audit issue for farming (and other) corporations is reasonable compensation. This case illustrates that point in a non-farm context. Here, a married couple were the sole shareholders of the petitioner, a corporation engaged in the construction business that graded and prepared land. The petitioner’s growth was irregular from 2000 on. The principal took a relatively modest salary between 2000 and 2012 but took a big increase in the years 2013 to 2016, ostensibly to compensate for earlier years. The company had an outside consulting firm perform an analysis to determine what the principal's compensation should be. The IRS challenged the amount in 2015 and 2016.

The Tax Court examined the usual factors considered in such a case including 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 with gross income and net income; the prevailing general economic conditions; comparison of salaries with distributions to stockholders; the prevailing rates of compensation for comparable positions in comparable concerns; and the salary policy of the taxpayer as to all employees. The Tax Court denied a deduction for the full amount of the compensation. In addition, the IRS assessed an accuracy-related penalty for both years. The taxpayer was able to show that he relied in good faith on the advice of the accounting firm and the Tax Court did not sustain the penalty. However, for the second year the taxpayer could not substantiate its reliance on the outside adviser.

Homeowner’s Policy Doesn’t Cover Farming Injury

Mills v. CSAA General Insurance. Co., No. 21-CV-0479-CVE-JFJ, 2022 U.S. Dist. LEXIS 114741 (N.D. Okla. Jun. 29, 2022)

It’s always good to make sure you understand the extent of coverage you have under an insurance policy, and what is excluded from coverage. This case illustrates that point. Here, the plaintiff became pinned between a trailer and barn while loading cattle, and was hospitalized for several days as a result of his resulting injuries. The plaintiff had a homeowner’s insurance policy with the defendant and filed a claim for coverage under the policy for his injuries. The defendant denied coverage on the basis that the policy only covered claims for bodily or personal injury brought by third parties against the plaintiff, and that the farming endorsement did not extend coverage for the plaintiff’s own bodily injury and incorporated the policy’s exclusion for bodily injury into the farming endorsement.

The plaintiff sued, claiming that he intended to purchase coverage for personal injuries he might suffer while operating his farm and that he had a reasonable expectation of coverage under the policy. He also claimed that the exclusions were “buried in the more than 100 pages of the policy.” The trial court disagreed, determining that the policy’s liability provisions applied only to claims for bodily or personal injury brought by third parties against the plaintiff. The trial court also determined that the policy language was not ambiguous and was not “buried deep” into the policy documents.

Gross Acres, not Tillable Acres, Used for Partition-in-Kind

Mueggenberg v. Mueggenberg, No. 21-0887, 2022 Iowa App. LEXIS 510 (Iowa Ct. App. Jun. 29, 2022)

The two parties were comprised of five siblings, who each had an undivided one-fifth interest in 179.61 acres of farmland. The plaintiffs, three of the siblings, filed for a partition in kind. The court appointed an appraiser to analyze and equally divide the farmland between the three parties. The appraiser determined that partitioning the land into five equal sections would be unworkable because the land’s topography varied greatly. The appraiser recommended the defendants should receive an approximate share of 40 percent comprised of 62 gross acres and all the future easement payments from the energy company that operated a windmill on the land. The appraiser allocated 117.61 gross acres to the plaintiffs. The defendants claimed that they were entitled to 68.64 tillable acres. The appraiser explained that while the acre division was not necessarily 40/60, the land awarded to the defendants was overall more desirable and expensive as it had a higher CSR2 rating.

The trial court agreed with the appraiser and assessed fees and costs to the defendants. On appeal, the appellate court found the defendants’ calculations for a different split were inaccurate as the defendants used tillable acres when they should have used gross acres in the calculation. The defendants also failed to account for the difficulty of dividing the land caused by a non-uniform property line and the existence of terraces. The appellate court affirmed the trial court’s decision to adopt the appraiser’s division but reversed the trial court’s award of attorney’s fees and costs. Accordingly, the appellate court vacated the trial court’s assessment of costs and remanded the case with instructions that only costs arising from the contested matter be assessed to the defendants. The parties were to share all remaining costs proportionately.

Conclusion

Keep your eyes on what, if any, tax proposals come out of the Senate. Increasing taxes on individuals whether via the NIIT or the corporate tax in a recessionary economy (despite the changed definition from the White House) is not a good idea. It’s particularly a bad idea when any additional revenue is to be used to fund inefficient and costly energy proposals to further energy policies that are the driver to the current inflationary problems in the economy.

On the ag law front, make sure to understand how child support is computed in the context of a farmer’s divorce; pay reasonable compensation to shareholder/offices for services rendered; know what is and what is not covered under an insurance policy; and avoid partition actions – they rarely end up in family harmony.

July 28, 2022 in Civil Liabilities, Income Tax, Insurance, Real Property | Permalink | Comments (0)

Thursday, June 16, 2022

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

By Roger A. McEowen

Overview

Agricultural law touches many aspects of the daily life of a farmer, rancher, or anyone using an ag-related product or service. In today’s post, I provide a small sample illustrating that very point.

Some additional ag law-related developments – it’s the topic of today’s post.

Claims Against Dog Food Producer Wrongfully Dismissed

Kucharski-Berger v. Hill's Pet Nutrition, Inc., 60 Kan. App. 2d 510, 494 P.3d 283 (Kan, Ct. App. 2021)

A veterinarian prescribed Hill’s Pet Nutrition dog food for the plaintiff’s dog. The plaintiff sued Hill’s Pet Nutrition upon discovering that the dog food did not contain medicine or drugs, had not been tested and approved for medicinal purposes by the FDA, but was priced higher than “normal” dog food. The plaintiff claimed the defendant and other pet food manufacturers had conspired to monopolize the prescription pet food market and they had artificially inflated the prices by claiming the food required a prescription. No federal or state law required pet food to be sold with a prescription from a vet. The plaintiff claimed the defendant had violated the Kansas Restraint of Trade Act (KRTA) and the Kansas Consumers Protection Act (KCPA) and also brought an unjust enrichment claim. The trial court dismissed the case for failure to state a claim under KCPA, the plaintiff had to allege that the defendant was engaged in a deceptive act or practice involving the plaintiff that caused the plaintiff damages. The plaintiff claimed that the defendant had misrepresented that the dog food required a prescription so as to sell at a premium price. The appellate court determined that the plaintiff had clearly alleged sufficient facts to put the defendant on notice of the allegations under the KCPA. The defendant claimed that the plaintiff failed to show a causal connection between the prescription practices and the injury, but the appellate court noted that the plaintiff did not need to show she was misled, only that the defendant’s actions were deceptive. On that point, the appellate court noted that the plaintiff had provided enough detail in the complaint to show that the prescription requirement could be deceptive and was the cause of her spending more money (the injury). As such, the plaintiff’s KCPA claims should not have been dismissed. With respect to the KRTA claim, the court noted that the plaintiff was required to allege that the defendant was creating a restriction in trade, increasing or reducing the price of merchandise to prevent competition, and had entered into an agreement establishing a set price for a good in the market. The plaintiff alleged the defendant had entered into a contract with other dog food producers to set prices higher for prescription dog food, which violated KRTA. The plaintiff also claimed that the defendant had entered into a conspiracy to monopolize the prescription dog food market. As such, the appellate court held that the plaintiff had properly presented the KRTA claims. The appellate court reversed the trial court’s dismissal and remanded the case for furthering proceedings.

Oil and Gas Developments

Fracking Water Not Taxable

CDOR PLR 22-001 (Apr. 8, 2022)

A Colorado company sold non-potable river water to oil and gas producers for use in hydraulic fracturing and sought guidance from the Colorado Department of Revenue (CDOR) as to its taxability. The company delivers water by withdrawing it from ditch and reservoir systems, securing rights-of-way, and laying temporary surface lines to the customers’ locations. The CDOR concluded that the company did not owe sales tax because water in conduits, pipes, ditches and reservoirs is not subject to sales tax.

Colorado Changes Oil and Gas Severance Tax Credit

H.B. 1391, signed into law on June 7, 2022.

Colorado H.B. 1391 was signed into law on June 7, 2022 and changes the calculation of the oil and gas severance tax credit. Beginning January 1, 2025, the credit will be calculated as 76.56 percent of the gross income attributable to the well in the current tax year, multiplied by the local mill rate of the prior year. Under prior law, the credit was 87.5 percent of the prior year’s local taxes, which are assessed at 87.5 percent of the gross income of the prior year and are subject to the prior year’s local mill levies. The change is intended to simplify the credit’s calculation and eliminate the one-year lag in its administration. Well operators, rather than royalty interest owners will be responsible for the tax.

Low-Producing Oil and Gas Tax Exemption Tied to Actual Projection.

Farmer v. Board of Ellis County Commissioners, Nos. 123,488 & 123,489, 2022 Kan. App. LEXIS 19 (Kan. Ct. App. May 6, 2022)

The taxpayer sought a refund for property tax exemptions under state law (K.S.A. 79-201t) for tax year 2018 for several oil and gas leases on his property for low-producing oil and gas wells (less than five barrels per day. The Board of Tax Appeals (BOTA) denied the refund on the basis that it would be retrospective and concluded that the taxpayer should pay the amount of tax based on the predicted production for 2018 rather than actual production. At the trial court, BOTA argued the leases should not be exempt because the 2017 production that was used to find the fair market value for taxes for 2018 was not at the exempt level. BOTA claimed the first time the taxpayers would qualify for the exemption would be in 2019 as the 2018 oil production would be used at that time to predict the value that would meet the exemption level. The trial court held the taxpayers should be granted the exemption as the daily average in 2018 fell below the level required for the exemption. On appeal, the appellate court concluded that the statute was unclear on when the exemption could take effect and if a refund could be awarded. The appellate court looked at how BOTA honored tax refunds in the past for taxpayers who filed for an exemption retrospectively. Based on legislative intent, the appellate court held the intent was clearly to allow tax exemptions on the first day an oil well would qualify. The appellate court held that the taxpayer should be refunded property tax if the well actually produced at exempt levels instead of the projected production levels.

Conclusion

There’s never a dull moment in the ag law and tax world.

June 16, 2022 in Civil Liabilities, Real Property, Regulatory Law | Permalink | Comments (0)

Sunday, June 12, 2022

More Ag Law Court Developments

By Roger A. McEowen

Overview

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

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

Irrigation System Value Included in Land Valuation in Partition Action

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

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

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

Grand Champion Lamb Properly Stripped of State Fair Title

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

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

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

Landowner Establishes Adverse Possession Through “Tacking.”

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

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

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

June 12, 2022 in Estate Planning, Real Property, Regulatory Law | Permalink | Comments (0)

Thursday, June 9, 2022

Recent Court Cases of Importance to Agricultural Producers and Rural Landowners

By Roger A. McEowen

Overview

Farmers, ranchers and other rural landowners face many legal and tax issues on a daily basis. The type of legal issues varies, and some are cyclical. Others seem to repeat over and over. In today’s article I discuss two cases from Kansas that illustrate some of the issues that seem to come up frequently with respect to real estate, and one that arises on a cyclical basis.

Various legal issues associated with agricultural production and rural landownership – it’s the topic of today’s post.

Common Issues Involving Ag Real Estate

Removal of Vegetation Within Easement Proper

Presnell v. Cullen, 2022 Kan. App. Unpub. LEXIS 250 (Kan. Ct. App. May 6, 2022)

Farm and ranch land is often burdened by easements. Energy-related easements are common in rural areas as are access easements to a landlocked field or home. One common question is what activities are permissible in the easement area by the easement holder? Without clear specification in the written easement agreement, the rule is one of reasonability. That means that the easement holder can use the easement for the purpose(s) for which it was acquired and other associated purposes, within reason.

In this case, the plaintiff owned land subject to a railroad easement. The Central Kansas Conservancy (Conservancy) acquired the easement from a railroad under the National Trails System Act for the purpose of developing a recreational trail. The plaintiff sued claiming that the Conservancy did not have a right to cut down vegetation located within the easement. The trial court disagreed and awarded the Conservancy legal fees. On appeal, the plaintiff claimed that the Conservancy had a duty to protect and preserve the trees in the easement area, only needed to use 10 to 14 feet of the 66-foot easement, did not control the entire width of the easement, and had actually abandoned the easement.

The appellate court disagreed, finding that the Conservancy had a right to use the railroad corridor to develop and maintain the trail based either based on title ownership or via the easement. Thus, the Conservancy was entitled to remove the vegetation, but only to the extent necessary for developing and maintaining the trail. The appellate court also rejected the plaintiff’s trespass claim. The appellate court affirmed the trial court’s award of attorney's fees under K.S.A. §61-2709(a).

Note: The case points out that reasonable use of the easement is the key when the easement agreement is silent. Here, the Conservancy could remove vegetation, but only if the removal was related to the trail. The landowner’s other trees and vegetation were to be left untouched.

Farmland Adversely Possessed, But No Prescriptive Easement.

Pyle v. Gall, No. 123,823, 2022 Kan. App. Unpub. LEXIS 242 (Kan. Ct. App. Apr. 29, 2022)

Adverse possession has its origin in the English common law. It’s a concept whereby someone who knows that they don’t have legal title to land can gain title by possessing the land long enough without the owner’s permission. There are various elements to adverse possession that have been added over time, but basically if someone openly and knowingly takes possession of someone else’s land and does so for a long enough period of time set by state law, that person can end up the owner of the land via a quiet title action if the true owner knows of the possession and doesn’t do anything within the statutory timeframe to stop it.

Adverse possession was at issue in this case.

The parties disputed the location of the property line between their tracts. The plaintiff routinely planted crops up to what the plaintiff believed to be the property line, but that planting interfered with the crop farming plans of the defendant’s tenant. The plaintiff also regularly used a portion of the defendant’s field as a road to access the plaintiff’s crops. In 2015, the defendant offered to sell the disputed area to the plaintiff and told the plaintiff to stop accessing the plaintiff’s crops via the defendant’s field. Each party hired surveyors, but the surveyors reached different conclusions as to the property line. In March of 2016, the defendant built a fence based on the property line that the defendant’s surveyor found, which was 17 feet beyond what the plaintiff believed to be the property line. In March 2017, the plaintiff sued to quiet title to the field up to the crop line they farmed to by adverse possession and sought either a prescriptive easement or easement by necessity. The trial court held that the plaintiff had adversely possessed the land in dispute and had acquired a prescriptive easement across the defendant’s property.

On appeal, the appellate court upheld the trial court’s determination that the plaintiff had acquired the strip in question by adverse possession. The plaintiff had used the property for the statutory timeframe in an open, exclusive and continuous manner upon belief of true ownership. Use by others for recreational purposes, the appellate court reasoned, did not negate the exclusivity requirement because the use was infrequent compared to the plaintiff’s farming activity on the disputed land. However, the appellate court reversed the trial court on the prescriptive easement issue because both the plaintiff and the defendant used the alleged area on which a prescriptive easement was being asserted. Thus, the plaintiff had not used the easement exclusively. The appellate court remanded to the trial court the issue of whether an easement by necessity had arisen because the trial court had not considered the issue.

Note: Exclusivity is a key element of an adverse possession/prescriptive easement claim

Farm Bankruptcy

Bankruptcy is a cyclical. With the significant downturn in the economy driven largely by incomprehensible energy policy, it is looking as if 2023 will be an even tougher year for many parts of the agricultural sector. Existing operating loans will be renewed at higher interest rates, and this year’s inputs that were prepaid before major price increases may not work to avoid price increases next year. Thus, farm bankruptcies and foreclosures may tick up in 2023.

One of the key points of a farm bankruptcy is that a reorganization plan must be file in a timely manner and in good faith. A debtor cannot act in bad faith towards creditors.

The following case makes the points, and also points out that a farm bankruptcy requires planning as well as a plan.

Chapter 12 Case Dismissed for Unreasonable Delays

In re Bradshaw, No. 20-40948-12, 2022 Bankr. LEXIS 1424 (Bankr. D. Kan. May 19, 2022)

The debtor filed Chapter 12 bankruptcy in late 2020 but failed to file a confirmable plan for 18 months. The debtor also failed to meet many other Chapter 12 requirements. As a result, the Chapter 12 Trustee filed a motion to dismiss the case under 11 U.S.C. § 1208(c) which allows a case to be dismissed for the debtor’s unreasonable delay or gross mismanagement. Before the court, the Trustee pointed to the debtor’s failure to file a plan in a timely fashion, denial of plan confirmation, continuous loss to the bankruptcy estate and absence of a reasonable likelihood of rehabilitation. The Trustee also noted that the debtor did not file taxes in 2016, 2017, or 2018 and the returns filed in 2019 and 2020 were insufficient. The debtor did not consistently file monthly operating reports and the debtor’s proposed plan did not meet basic bankruptcy code requirements.

The court also noted that the Trustee had no way of monitoring the debtor’s case properly because the debtor only filed three of eighteen monthly reports. Without monthly operating reports, it was impossible to determine if the estate could be rehabilitated. The debtor also had no income from farming operations with no prospect of an improved financial situation. The debtor also gambled with estate property and failed to account for, liquidate, or preserve estate property. The bankruptcy estate was uninsured, and the debtor had abandoned it. The court concluded that this amounted to the debtor’s gross mismanagement of the estate. The court noted that the debtor had ninety days to file a plan and after eighteen months and had not done so. While the debtor proposed one plan in April of 2021, it was denied, and no amended plan was submitted. This constituted an unreasonable delay and prejudice to creditors. The court granted the Trustee’s motion to dismiss the case.

Note: Don’t simply file Chapter 12 without an idea of where you are headed with your farming/ranching operation. Chapter 12 is designed for farmers that intend on continuing in farming after restricting the business to make it viable into the future. It’s not for those that don’t have a plan for the business into the future.

June 9, 2022 in Bankruptcy, Real Property | Permalink | Comments (0)

Monday, May 30, 2022

Recent Court Decisions Involving Taxes and Real Estate

By Roger A. McEowen

The courts are constantly deciding tax issues. Two recurring themes in numerous cases involve timing of asset sales and recordkeeping/substantiation. Those two issues are on display in court opinions that I summarize. On the real estate side of the ledger fence issues loom large (and always have) as do partition actions (don’t leave property at death to your children in co-equal undivided interests – just don’t) and warrantless searches of farmland.

Recent court opinions involving taxes and real estate – it’s the topic of today’s post.

Recent Tax Cases of Interest

Questions Remain on “Unforeseen Circumstances” Exception Under I.R.C. §121

Webert v. Comm’r, T.C. Memo. 2022-32

The petitioners, a married couple, bought a home in 2005. The wife was diagnosed with cancer later that year and underwent costly treatments. They resided in the home until 2009 and then rented out the home and resided in another home the husband owned. The sold the first home in 2015. They filed joint returns for tax years 2010 through 2015. During those years, they reported income from the lease of the first home on Schedule E. They reported that they used the home for personal purposes for 14 days in 2010 and zero days in 2011 through 2015. Their depreciation schedules mirrored the number of fair rental days reported for the property on their Schedule E. On their 2015 return, they reported the sale of the first home but excluded the gain from gross income. The IRS audited and asserted that the income from the sale of the home should have been reported and moved for summary judgment. The Tax Court granted summary judgment to the IRS on the issue of whether the petitioners used the home as their principal residence for at least two of the last five years immediately preceding the sale as I.R.C. §121 requires. They did not. However, the Tax Court determined that issues of material fact remained on whether the wife’s health problems were the primary reason for the sale such that the gain might be excludible because the sale was on account of health or other unforeseen circumstance in accordance with I.R.C. §121(c)(2)((B).

Jewelry Gift Not Properly Substantiated – Charitable Deduction Denied

Albrecht v. Commissioner, T.C. Memo. 2022-53

In 2014, the petitioner donated approximately 120 pieces of Native American jewelry to a museum, a qualified charity. The museum executed a “Deed of Gift” which specified, in part, that “all rights, titles, and interests” in the jewelry were transferred from the donor to the donee upon donation unless otherwise stated in the Gift Agreement. The petitioner claimed a charitable deduction for the donation on her 2014 return and supported the claimed deduction by submitting the “Deed of Gift” documentation. The IRS denied the deduction on the basis that the “Deed of Gift” documentation did not meet the substantiation requirements of I.R.C. §170(f)(8)(B) that require a description of the donated item(s), whether the donee provided any form of consideration in exchange for the donation, and a good faith estimate of the value of the donation. The IRS pointed out that the “Deed of Gift” documentation from the museum did not state whether the museum provided any goods or services in return for the donation. In addition, the terms of the “Deed of Gift” documentation with the museum referred to a superseding agreement, “the Gift Agreement,” which left open the question of whether the donor retained some title or rights to the donation, and also indicated that the petitioner’s documentation did not include the entire agreement with the done. The Tax Court agreed with the IRS and held that the petitioner did not comply with the substantiation requirements of I.R.C. §170(f)(8)(B) and denied the charitable deduction.

Legal Issues Related to Real Estate

Court Construes State Fence Law

Yin v. Aguiar, 146 Haw. 254, 463 P.3d 911 (2020)

The plaintiff leased property from a third party for growing sweet potatoes. Under the lease, the plaintiff was responsible for keeping cattle from damaging his crop. The plaintiff filed a complaint against a neighboring cattle owner claiming that the cattle damaged over 13 acres of the plaintiff’s sweet potato crop and the landowner’s fence in the amount of $190,000. The cattle owner claimed he was not liable because the fence between the properties was not a legal fence. The fence was less than 4 and ½ feet tall and was made from hog wire, which did not meet the state law requirements for a legal fence. The cattle owner further pointed to the plaintiff’s lease, which stated the plaintiff was responsible for keeping cattle off the leased property. The state Supreme Court determined that that it was inappropriate to interpret state fence law to hold cattle owners solely responsible for properly fenced or entirely unfenced property (including property enclosed with improper fencing) because that did not comport with the legislative intent of the fence laws. But, the Supreme Court also concluded that to hold the plaintiff liable for the damage due to a clause in his lease agreement would be against public policy because upholding the clause would be contrary to state fence law that holds livestock owners responsible for escaped livestock in certain situations. The state Supreme Court remanded the case to the circuit court for further proceedings consistent with its opinion.

“Improvements” Valued in Partition Action

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

Two brothers each inherited an undivided one-third interest in farmland, and the wife of a deceased brother owned the other one-third interest via a trust created for her benefit. She filed a partition action seeking to sever the co-ownership. The brothers counterclaimed, asserting they improved the value of the land and that her share should be offset to account for the improvements. The brothers obtained a water permit, installed an $83,000 ten-tower irrigation system to convert the dry land to irrigation crop farming, and spent over $10,000 on piping and a water meter. The irrigation system was one brother’s personal property. The sister in-law did not contribute to the cost of these improvements. Three commissioners were appointed to appraise the land and they valued the dryland at $390,000 and the irrigated land at $2,065,000. She elected to take the smaller tract that was not worth as much. The commissioners determined that because her tract was less valuable, the brothers owed her $428,333 to account for her one-third interest. The trial court ultimately ordered the brothers to pay her the $428,333 for her one-third interest in the higher-valued land based on a finding that improvements were limited to physical structures and equipment. $50,000 of the $428,333 was placed in escrow and the brothers filed a counterclaim that the $50,000 represented her one-third interest in the increased value from irrigation and should be credited against what they owed her. The trial court ruled for the sister-in-law on the counterclaim, finding that the increase in value was attributable solely to the pivot irrigation system. As personal property of one of the brothers, the irrigation system was not an “improvement.” The trial court awarded the $50,000 to the sister-in-law. On appeal, the appellate court held the trial court erred when it found the brothers did not improve the land. The appellate court determined that Kansas law requires a broader inquiry into possible improvements to the land other than just physical structures and equipment. The appellate court held that the improvements enhanced the property’s condition by increasing productivity and were not mere repairs or replacements. Changing the land’s status from dry to irrigated and obtaining a water right improved the value of the land. Accordingly, the appellate court held that such “improvements” should be considered to offset the sister-in-law’s share in the property and remanded the case to the trial court.

State Law Allowing Warrantless Searches Unconstitutional

Rainwaters, et al. v. Tennessee Wildlife Resources Agency, No. 20-CV-6 (Benton Co. Ten. Dist. Ct. Mar. 22, 2022)

The plaintiffs owned farmland on which they hunted or fished. They marked fenced portions of their respective tracts where they hunted and posted the tracts as “No Trespassing.” Tennessee Wildlife Resources Agency (TWRA) officers entered onto both tracts on several occasions and took photos of the plaintiffs and their guests without permission or a warrant. Tennessee law (Tenn. Code Ann. §70-1-305(1) and (7)) allows TWRA officers to enter onto private property, except buildings, without a warrant “to perform executive duties.” The TWRA officers installed U.S. Fish & Wildlife Service surveillance cameras on the plaintiffs’ property without first obtaining a warrant to gather information regarding potential violations of state hunting laws. The plaintiffs challenged the constitutionality of the Tennessee law and sought injunctive and declaratory relief as well as nominal damages. The defendants moved for summary judgment arguing that the plaintiffs lacked standing and that there was no controversy to be adjudicated. The trial court found the Tennessee law to be facially unconstitutional. The trial court noted that the statute at issue reached to “any property, outside of buildings” which unconstitutionally allowed for warrantless searches of a home’s curtilage. The trial court also determined that the officers’ information gathering intrusions were unconstitutional searches rather than reasonable regulations and restrictions, and that the statute was comparable to a constitutionally prohibited general warrant. It was unreasonable for the TWRA officers to enter onto occupied, fenced, private property without first obtaining consent or a search warrant. The trial court also held the plaintiffs had standing to sue because they experienced multiple unauthorized entries onto their private property, and that declaratory relief was an adequate remedy. The trial court awarded nominal damages of one dollar. The defendant has appealed, and the case is ongoing.

Conclusion

The cases summarized in this post point out several important things: 1) for purposes of the gain exclusion rule of I.R.C. §121, usage of the principal residence as a “principal residence” is critical, as is the timing of the sale; 2) the substantiation rules for charitable deductions must be closely followed; 3) fence law statutes tend to be old and can be complex and somewhat difficult and confusing to apply; 4) leaving land at death to children in co-equal undivided interests often creates issues, including partition actions and difficulties in equating each separate tract; and 5) the warrantless search of farmland is a continuing issue in agriculture.

May 30, 2022 in Income Tax, Real Property | Permalink | Comments (0)

Sunday, May 22, 2022

2021 Bibliography

By Roger A. McEowen

Overview

In the past, I have posted bibliographies of my articles by year to help readers researching the various ag tax and ag law topics that I write about. The blog articles are piling up, with more 750 available for you to read and use for your research for clients (and yourself). The citations contained in the articles are linked so that you can go directly to the source. I trust that you find that feature helpful to save you time (and money) in representing clients.

Today, I provide you with the bibliography of my 2021 articles (by topic) as well as the links to the prior blogs containing past years. Many thanks to my research assistant, Kennedy Mayo, for pulling this together for me.

Prior Years

Here are the links to the bibliographies from prior years:

Ag Law and Taxation 2020 Bibliography

https://lawprofessors.typepad.com/agriculturallaw/2021/01/ag-law-and-taxation-2020-bibliography.html

Ag Law and Taxation – 2019 Bibliography

https://lawprofessors.typepad.com/agriculturallaw/2021/02/ag-law-and-taxation-2019-bibliography.html

Ag Law and Taxation – 2018 Bibliography

https://lawprofessors.typepad.com/agriculturallaw/2021/03/ag-law-and-taxation-2018-bibliography.html

Ag Law and Taxation – 2017 Bibliography

https://lawprofessors.typepad.com/agriculturallaw/2021/04/ag-law-and-taxation-2017-bibliography.html

Ag Law and Taxation – 2016 Bibliography

https://lawprofessors.typepad.com/agriculturallaw/2021/04/ag-law-and-taxation-2016-bibliography.html

2021 Bibliography

Below are the links to my 2021 articles, by category:

BANKRUPTCY

The “Almost Tope Ten” Ag Law and Ag Tax Developments of 2020

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

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

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

Is a Tax Refund Exempt in Bankruptcy?

https://lawprofessors.typepad.com/agriculturallaw/2021/06/is-a-tax-refund-exempt-in-bankruptcy.html

Ag Law and Tax Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html

Montana Conference and Ag Law Summit (Nebraska)

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

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

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

BUSINESS PLANNING

For Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

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

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

Will the Estate Tax Valuation Regulations Return?

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

June National Farm Tax and Estate/Business Planning Conference

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

August National Farm Tax and Estate/Business Planning Conference

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

C Corporation Compensation Issues

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

Planning for Changes to the Federal Estate and Gift Tax System

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

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

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

Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance

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

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

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

Montana Conference and Ag Law Summit (Nebraska)

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

Farm Valuation Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html

Ag Law Summit

https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html

The Illiquidity Problem of Farm and Ranch Estates

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

When Does a Partnership Exist?

https://lawprofessors.typepad.com/agriculturallaw/2021/09/when-does-a-partnership-exist.html

Gifting Assets Pre-Death – Part One

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

Gifting Assets Pre-Death (Entity Interests) – Part Two

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

Gifting Pre-Death (Partnership Interests) – Part Three

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

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

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

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

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

Fall 2021 Seminars

https://lawprofessors.typepad.com/agriculturallaw/2021/09/fall-2021-seminars.html

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

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

Caselaw Update

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

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

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

2022 Summer Conferences – Save the Date

https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html

CIVIL LIABILITIES

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

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

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

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

Continuing Education Events and Summer Conferences

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

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

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

Agricultural Law Online!

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

Prescribed Burning Legal Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html

Damaged and/or Destroyed Trees and Crops – How is the Loss Measured?

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

Mailboxes and Farm Equipment

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

Statutory Immunity From Liability Associated With Horse-Related Activities

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

CONTRACTS

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Deed Reformation – Correcting Mistakes After the Fact

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

Considerations When Buying Farmland

https://lawprofessors.typepad.com/agriculturallaw/2021/11/considerations-when-buying-farmland.html

Recent Court Decisions of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html

The Potential Peril Associated With Deferred Payment Contracts

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

COOPERATIVES

Continuing Education Events and Summer Conferences

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

Final Ag/Horticultural Cooperative QBI Regulations Issued

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

Agricultural Law Online!

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

CRIMINAL LIABILITIES

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

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

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

Recent Court Decisions of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html

ENVIRONMENTAL LAW

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

Court and IRS Happenings in Ag Law and Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html

Valuing Ag Real Estate With Environmental Concerns

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

Ag Law and Tax Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html

No Expansion of Public Trust Doctrine in Iowa – Big Implications for Agriculture

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

Key “Takings” Decision from SCOTUS Involving Ag Businesses

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

Montana Conference and Ag Law Summit (Nebraska)

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

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

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

ESTATE PLANNING

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

What Now? – Part Two

https://lawprofessors.typepad.com/agriculturallaw/2021/02/what-now-part-two.html

Will the Estate Tax Valuation Regulations Return?

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

June National Farm and Tax and Estate/Business Planning Conference

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

August National Farm Tax and Estate/Business Planning Conference

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

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

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

The Revocable Living Trust – Is it For You?

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

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

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

Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

Planning for Changes to the Federal Estate and Gift Tax System

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

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

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

The Revocable Trust – What Happens When the Grantor Dies?

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

Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance

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

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

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

Reimbursement Claims in Estates; Drainage District Assessments

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

Montana Conference and Ag Law Summit (Nebraska)

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

Farm Valuation Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html

Ag Law Summit

https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html

The Illiquidity Problem of Farm and Ranch Estates

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

Planning to Avoid Elder Abuse

https://lawprofessors.typepad.com/agriculturallaw/2021/08/planning-to-avoid-elder-abuse.html

Gifting Assets Pre-Death – Part One

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

Gifting Assets Pre-Death (Entity Interests) – Part Two

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

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

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

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

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

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

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

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

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

Tax (and Estate Planning) Happenings

https://lawprofessors.typepad.com/agriculturallaw/2021/11/tax-and-estate-planning-happenings.html

Selected Tax Provisions of House Bill No. 5376 – and Economic Implications

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

2022 Summer Conferences – Save the Date

https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html

INCOME TAX

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

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

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

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

Continuing Education Events and Summer Conferences

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

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

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

Final Ag/Horticultural Cooperative QBI Regulations Issued

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

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

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

What Now? – Part One

https://lawprofessors.typepad.com/agriculturallaw/2021/02/what-now-part-one.html

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

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

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

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

June National Farm Tax and Estate/Business Planning Conference

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

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

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

Tax Update Webinar

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

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

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

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

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

August National Farm Tax and Estate/Business Planning Conference

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

Court and IRS Happenings in Ag Law and Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html

C Corporation Compensation Issues

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

Tax Considerations When Leasing Farmland

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

Federal Farm Programs and the AGI Computation

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

Tax Potpourri

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

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

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

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

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

Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

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

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

The Revocable Trust – What Happens When the Grantor Dies?

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

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

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

What’s the “Beef” With Conservation Easements?

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

Is a Tax Refund Exempt in Bankruptcy?

https://lawprofessors.typepad.com/agriculturallaw/2021/06/is-a-tax-refund-exempt-in-bankruptcy.html

Tax Court Happenings

https://lawprofessors.typepad.com/agriculturallaw/2021/06/tax-court-happenings.html

IRS Guidance On Farms NOLs

https://lawprofessors.typepad.com/agriculturallaw/2021/07/irs-guidance-on-farm-nols.html

Montana Conference and Ag Law Summit (Nebraska)

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

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

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

Recovering Costs in Tax Litigation

https://lawprofessors.typepad.com/agriculturallaw/2021/07/recovering-costs-in-tax-litigation.html

Tax Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2021/08/tax-potpourri.html

Weather-Related Sales of Livestock

https://lawprofessors.typepad.com/agriculturallaw/2021/08/weather-related-sales-of-livestock.html

Ag Law Summit

https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html

Livestock Confinement Buildings and S.E. Tax

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

When Does a Partnership Exist?

https://lawprofessors.typepad.com/agriculturallaw/2021/09/when-does-a-partnership-exist.html

Recent Tax Developments in the Courts

https://lawprofessors.typepad.com/agriculturallaw/2021/09/recent-tax-developments-in-the-courts.html

Gifting Assets Pre-Death – Part One

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

Gifting Pre-Death (Partnership Interests) – Part Three

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

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

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

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

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

Fall 2021 Seminars

https://lawprofessors.typepad.com/agriculturallaw/2021/09/fall-2021-seminars.html

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

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

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

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

Caselaw Update

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

Tax Issues Associated With Easements

https://lawprofessors.typepad.com/agriculturallaw/2021/10/tax-issues-associated-with-easements.html

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

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

Tax Reporting of Sale Transactions By Farmers

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

The Tax Rules Involving Prepaid Farm Expenses

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

Self Employment Taxation of CRP Rents – Part One

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

Self-Employment Taxation of CRP Rents – Part Two

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

Self-Employment Taxation of CRP Rents – Part Three

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

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

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

Tax (and Estate Planning) Happenings

https://lawprofessors.typepad.com/agriculturallaw/2021/11/tax-and-estate-planning-happenings.html

Selected Tax Provisions of House Bill No. 5376 – and Economic Implications

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

Recent Court Decisions of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html

The Potential Peril Associated With Deferred Payment Contracts

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

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

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

2022 Summer Conferences – Save the Date

https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html

The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold?

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

Gifting Ag Commodities To Children

https://lawprofessors.typepad.com/agriculturallaw/2021/12/gifting-ag-commodities-to-children.html

Livestock Indemnity Payments – What Are They? What Are the Tax Reporting Options?

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

Commodity Credit Corporation Loans and Elections

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

INSURANCE

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

REAL PROPERTY

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Prescribed Burning Legal Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html

Ag Zoning Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2021/02/ag-zoning-potpourri.html

Court and IRS Happenings in Ag Law and Tax

https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html

Is That Old Fence Really the Boundary

https://lawprofessors.typepad.com/agriculturallaw/2021/04/is-that-old-fence-really-the-boundary.html

Court Developments of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

Deed Reformation – Correcting Mistakes After the Fact

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

Valuing Ag Real Estate With Environmental Concerns

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

Ag Law and Tax Potpourri

https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html

Montana Conference and Ag Law Summit (Nebraska)

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

Farm Valuation Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html

Considerations When Buying Farmland

https://lawprofessors.typepad.com/agriculturallaw/2021/11/considerations-when-buying-farmland.html

The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold?

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

REGULATORY LAW

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

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

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

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

Continuing Education Events and Summer Conferences

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

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

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

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

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

Prescribed Burning Legal Issues

https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html

Packers and Stockyards Act Amended – Additional Protection for Unpaid Cash Sellers of Livestock

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

Federal Farm Programs and the AGI Computation

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

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

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

The FLSA and Ag’s Exemption From Paying Overtime Wages

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

The “Dormant” Commerce Clause and Agriculture

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

Trouble with ARPA

https://lawprofessors.typepad.com/agriculturallaw/2021/06/trouble-with-arpa.html

No Expansion of Public Trust Doctrine in Iowa – Big Implications for Agriculture

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

Key “Takings Decision from SCOTUS Involving Ag Businesses

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

Reimbursement Claims in Estates; Drainage District Assessments

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

Mailboxes and Farm Equipment

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

Montana Conference and Ag Law Summit (Nebraska)

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

California’s Regulation of U.S. Agriculture

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

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

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

Is There a Constitutional Way To Protect Animal Ag Facilities

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

Caselaw Update

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

Recent Court Decisions of Interest

https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html

Livestock Indemnity Payments – What Are They? What Are the Tax Reporting Options?

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

SECURED TRANSACTIONS

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Cross-Collateralization Clauses – Tough Lessons For Lenders

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

The “EIDL Trap” For Farm Borrowers

https://lawprofessors.typepad.com/agriculturallaw/2021/07/the-eidl-trap-for-farm-borrowers.html

The Potential Peril Associated With Deferred Payment Contracts

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

WATER LAW

Continuing Education Events and Summer Conferences

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

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

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

Agricultural Law Online!

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

The Agricultural Law and Tax Report

https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html

Montana Conference and Ag Law Summit (Nebraska)

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

May 22, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Monday, March 21, 2022

Animal Ag Facilities and the Constitution

By Roger A. McEowen

Overview

In response to attempts to shut down animal confinement operations by activist groups, legislatures in several states have enacted laws designed to protect these businesses by limiting access. A common approach is for the law to criminalize the use of deception to access a confined livestock facility or meatpacking plant with the intent to cause physical harm, economic harm or some other type of injury to the business. But the laws have generally been struck down on free speech and equal protection grounds. Is there a way for states to provide legal protection to confinement livestock facilities? What can these facilities do to protect themselves?

Laws designed to protect confined animal livestock facilities from those intended to do them harm – it’s the topic of today’s post.

General Statutory Construct

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

The Iowa provisions. Iowa legislation is a common example of how states have attempted to address the issue. The Iowa legislature has made two attempts at crafting a state law that would withstand a constitutional challenge. The initial version criminalized “agricultural production facility fraud” if a person willfully obtained access to such a facility by false pretenses (the “access” provision) or made a false statement or representation as part of an application or agreement to be employed at the facility (the “employment” provision). The law also required the person to know that the statement was false when made and that it was made with an intent to commit a knowingly unauthorized act. Iowa Code §717A.3A. This initial statutory version was challenged and, as discussed below, the employment provision was deemed unconstitutional.

The Iowa legislature then modified the law with a second version that described an agricultural production facility trespass as occurring when a person uses deception “on a matter that would reasonably result in a denial of access to an agricultural production facility that is not open to the public, and, through such deception, gains access to [the facility], with the intent to cause physical or economic harm or other injury to the [facility’s] operations, agricultural animals, crop, owner, personnel, equipment, building, premises, business interest, or customer [the “access” provision]. The revised law also criminalizes the use of deception “on a matter that would reasonably result in a denial of an opportunity to be employed at [a facility] that is not open to the public, and, through such deception, is so employed, with the intent to cause physical or economic harm or other injury to the [facility’s] operations, agricultural animals, crop, owner, personnel, equipment, building, premises, business interest, or customer [the “employment” provision].

In other words, the Iowa provisions criminalizes the use of lies to either gain access or employment at an ag production facility where the use is coupled with the intent to do harm. Sounds quite reasonable, doesn’t it? But the courts (a place where the telling of a lie can come with severe penalties) have generally come to a different conclusion.

Recent Court Opinions

North Carolina. In 2017, a challenge to the North Carolina statutory provision was dismissed for lack of standing. People for the Ethical Treatment of Animals v. Stein, 259 F. Supp. 3d 369 (M.D. N.C. 2017). The plaintiffs, numerous animal rights activist groups, brought a pre-enforcement challenge to the North Carolina Property Protection Act. They claimed that the law unconstitutionally stifled their ability to investigate North Carolina employers for illegal or unethical conduct and restricted the flow of information those investigations provide. As noted, the court dismissed the case for lack of standing. On appeal, however, the appellate court reversed. PETA, Inc. v. Stein, 737 Fed. Appx. 122 (4th Cir. 2018). The appellate court determined that the plaintiffs had standing to challenge the law through its “chilling effect” on their First Amendment rights to investigate and publicize actions on private property. They also alleged a reasonable fear that the law would be enforced against them.

On the merits, the trial court then held that the challenged provisions of the law were unconstitutional under the First Amendment as a violation of the plaintiffs’ free speech rights. People for the Ethical Treatment of Animals, Inc. v. Stein, 466 F. Supp. 3d 547 (M.D. N.C. 2020).

Utah. The Utah law was also deemed unconstitutional. Animal Legal Defense Fund v. Herbert, 263 F. Supp. 3d 1193 (D. Utah 2017). At issue was Utah Code §76-6-112 which criminalizes the entering of a private agricultural livestock facility under false pretenses or via trespass to photograph, audiotape or videotape practices inside the facility. While the state claimed that lying, which the statute regulates, is not protected free speech, the court determined that only lying that causes “legally cognizable harm” falls outside First Amendment protection. The state also argued that the act of recording is not speech that is protected by the First Amendment. However, the court determined that the act of recording is protectable First Amendment speech. The court also concluded that the fact that the speech occurred on a private agricultural facility did not render it outside First Amendment protection. The court determined that both the lying and the recording provisions of the Act were content-based provisions subject to strict scrutiny. To survive strict scrutiny the state had to demonstrate that the restriction furthered a compelling state interest. The court determined that “the state has provided no evidence that animal and employee safety were the actual reasons for enacting the Act, nor that animal and employee safety are endangered by those targeted by the Act, nor that the Act would actually do anything to remedy those dangers to the extent that they exist.” For those reasons, the court determined that the Act was unconstitutional.

A Wyoming law experienced a similar fate. Western Watersheds Project v. Michael, 869 F.3d 1189 (10th Cir. 2017), rev’g., 196 F. Supp. 3d 1231 (D. Wyo. 2016). In 2015, two new Wyoming laws went into effect that imposed civil and criminal liability upon any person who "[c]rosses private land to access adjacent or proximate land where he collects resource data." Wyo. Stat. §§6-3-414(c); 40-27-101(c). The appellate court, reversing the trial court, determined that because of the broad definitions provided in the statutes, the phrase "collects resource data" included numerous activities on public lands (such as writing notes on habitat conditions, photographing wildlife, or taking water samples), so long as an individual also records the location from which the data was collected. Accordingly, the court held that the statutes regulated protected speech in spite of the fact that they also governed access to private property. While trespassing is not protected by the First Amendment, the court determined that the statutes targeted the “creation” of speech by penalizing the collection of resource data.

Note: The appellate court remanded the case to the trial court for a determination of the appropriate level of scrutiny and whether the statutes survived review. Ultimately, the trial court granted the plaintiffs’ motion for summary judgment, finding that the statutes were content based and, as such failed to withstand constitutional strict scrutiny review on the basis that the laws were not narrowly tailored. Western Watersheds Project v. Michael, 353 F. Supp. 3d 1176 (D. Wyo. 2018).

Ninth Circuit. In early 2018, the U.S. Circuit Court of Appeals for the Ninth Circuit issued a detailed opinion involving the Idaho statutory provision. Animal Legal Defense Fund v. Wasden, 878 F.3d 1184 (9th Cir. 2018). The Ninth Circuit’s opinion provides a roadmap for state lawmakers to follow to provide at least a minimal level of protection to animal production facilities from those that would intend to do them economic harm. According to the Ninth Circuit, state legislation can bar entry to a facility by force, threat or trespass. Likewise, the acquisition of economic data by misrepresentation can be prohibited. Similarly, criminalizing the obtaining of employment by false pretenses coupled with the intent to cause harm to the animal production facility is not constitutionally deficient. However, provisions that criminalize audiovisual recordings are suspect.

Eighth Circuit. In 2021, the U.S. Court of Appeals for the Eighth Circuit construed the initial version of the Iowa law and upheld the portion of it providing for criminal penalties for gaining access to a covered facility by false pretenses. Animal Legal Defense Fund v. Reynolds, 8 F.4th 781 (8th Cir. 2021). This is the first time that any federal circuit court of appeals has upheld a provision that makes illegal the gaining of access to a covered facility by lying.

Conversely, the court held that the employment provision of the law (knowingly making a false statement to obtain employment) violated the First Amendment because the law was not limited to false claims that were made to gain an offer of employment. Instead, the provision provided for prosecution of persons who made false statements that were incapable of influencing an offer of employment. A prohibition on immaterial falsehoods was not necessary to protect the State’s interest – such as false exaggerations made to impress the job interviewer. The court determined that barring only false statements that were material to a hiring decision was a less restrictive means to achieve the State’s interest.

Note. The day before the Eighth Circuit issued its opinion concerning the Iowa law, it determined that plaintiffs challenging a comparable Arkansas law had standing the bring the case. Animal Legal Defense Fund v. Vaught, 8 F.4th 714 (8th Cir. 2021). The court later denied a petition for rehearing. Animal Legal Defense Fund v. Vaught, No. 20-1538, 2021 U.S. App. LEXIS 27712 (8th Cir. Sept. 15, 2021).

In late 2019, the plaintiffs in the Iowa case file suit to enjoin the second version of the Iowa law – Iowa Code §717A.3B. The trial court agreed and preliminary enjoined the revised law. The plaintiffs then filed a motion for summary judgment in early 2020 and the state filed a cross motion for summary judgment, and the case was continued while the appellate court was considering the case involving the initial version of the Iowa law. As noted above, the appellate court ultimately upheld the access provision but not the employment provision. The trial court, in the current case upheld the plaintiffs’ motion for summary judgment, finding that the revised statutory language had been slightly modified, but was substantially similar to the initial version. As such, the trial court determined that the revised statute discriminated based on content and viewpoint and was unconstitutional under a strict scrutiny analysis. Animal Legal Defense Fund v. Reynolds, No. 4:19-cv-00124-SMR-HCA, 2022 U.S. Dist. LEXIS 48142 (S.D. Iowa Mar. 14, 2022).

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

A Different Approach?

The appellate courts generally holding that the right to free speech protects false factual statements that inflict real harm and serve no legitimate interest runs contrary to an established line of U.S. Supreme Court precedent, at least until the Court’s decision in United States v. Alvarez, 567 U.S. 709 (2012). See, e.g., Bill Johnson’s Restaurants, Inc. v. NLRB, 461 U.S. 731 (1983); Brown v. Hartlage, 456 U.S. 45 (1982); Herbert v. Lando, 441 U.S. 153 (1979); Garrison v. Louisiana, 379 U.S. 64 (1964). The current split between the Eighth, Ninth and Tenth Circuits on the constitutionality of the Iowa Idaho and Kansas laws with respect to the issue of gaining access to a covered facility by lying could warrant a Supreme Court review.

Indiana trespass law. Short of a Supreme Court review of a state statute such as that of Iowa, Idaho or Kansas, is there another approach that a state might take to provide protection for agricultural livestock facilities? The state of Indiana’s approach might be the answer. In 2014, the Indiana legislature passed, and the Governor signed into law the “Indiana Trespass Law.” Ind. Code 35-43-2-2. Under the statute, “trespass” is defined as being on a property after being denied entry by the property owner, court order or by a posted sign (or purple paint). If the trespass involves a dwelling (including an ag operation), the landowner need not deny entry for a trespass to be established. The law also sets various thresholds for criminal violations.

The Indiana law appears to base property entry on the legal property interest of that of a license. A license is a term that covers a wide range of permissive land uses which, unless permitted, would be trespasses. For example, a hunter who is on the premises with permission is a licensee. The hunter has a license for the limited purpose of hunting only. If the hunter were to videotape any activity on the premises, that would constitute a trespass as exceeding the scope of the license. An unlawful entry. This would be the same result for a farm employee. Video recording would be outside the scope of employment. By focusing on the property interest of a license and that of a trespass for unauthorized entry, a claim of a possible free speech violation is eliminated.

Hiring Practices

In light of activists that wish to harm animal agriculture, ag animal facilities should utilize common sense steps to minimize potential problems. Of course, not mistreating animals should always be the standard. Proper hiring practices are also very important. A well drafted employment agreement should be used for workers hired to work in an ag animal facility to help screen potential hires. The agreement should specify in detail the job requirements and what is not permitted to occur on the premises and inside buildings. The agreement should give the employer the right to search every employee for devices that could be used to record activities on the farm and in farm buildings. Also, employee training should be provided and documented. Also, it’s critical that employee conduct be closely monitored to ensure that employees are acting within the scope of their employment and that animals are being treated appropriately.

Conclusion

It’s unfortunate that groups exist dedicated to damage and/or eliminate certain aspects of animal agriculture, and that they will use lies and deception to become employed and gain access. But, until state law is drafted in a way that will be found constitutional, livestock operations must adopt hiring and business practices that will minimize potential harm.

March 21, 2022 in Civil Liabilities, Criminal Liabilities, Real Property, Regulatory Law | Permalink | Comments (0)

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