Thursday, June 16, 2022

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

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

 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)

Monday, June 6, 2022

Wisconsin Seminar and…ERP (not Wyatt) and ELRP

Overview

Next week is the first of two summer ag tax and estate/business planning conferences that Washburn Law School is putting on.  Next week’s event on June 13 and 14 will be at the Chula Vista Resort, near the Wisconsin Dells.  One of the matters addressed on Day 1 will be issues that have arisen concerning the USDA’s Emergency Relief Program (ERP).  I have received numerous questions over the past few weeks concerning the program and we will be addressing them at the conference.

Issues with the ERP – it’s the topic of today’s post.

In General

I won’t go into too much detail about the ERP here because Paul Neiffer and I will do that at the Wisconsin conference.  What follows are comments that Paul and I have been providing to those raising questions of us in recent days.  Paul has also recently blogged on the issue and with today’s post I will largely summarize and reiterate what he has commented on for the readers of this blog.  In addition, there are additional meetings occurring in D.C. this week with IRS which will hopefully result in greater clarification on some presently unclear issues (not covered in this post).  If there are additional clarifications, we will discuss those at next week’s event in Wisconsin. 

The Extending Government Funding and Delivering Emergency Assistance Act (P.L. 117-43) (Act) was signed into law on September 30, 2021.  The Act includes $10 billion for farmers impacted by weather disasters during calendar years 2020 and 2021.  $750 million is to be directed to provide assistance to livestock producers for losses incurred due to drought or wildfires in calendar year 2021 (the Emergency Livestock Relief Program – (ELRP)).

Livestock provisions. 

To receive a Phase 1 payment, a livestock producer must have suffered grazing losses in a county rated by the U.S. Drought Monitor as having a severe drought) for eight consecutive weeks or at least extreme drought during the 2021 calendar year been approved for the 2021 Livestock Forage Relief Program (LFP). Those who would have normally grazed on federal but couldn’t be due to drought are eligible for a Phase 1 payment if they were approved for a 2021 LFP.  Various FSA Forms will need to be submitted. 

ELRP Payment Calculation – Phase One

Payments are based on livestock inventories and drought-affected forage acreage or restricted animal units and grazing days due to wildfire reported on Form 2021 CCC-853.  A payment will equal the producer’s gross 2021 LFP calculated payment multiplied by 75%, and will be subject to the $125,000 payment limitation. 

Crop insurance (or NAP) requirement.  In late 2021, the USDA provided some guidance to producers impacted by various weather-related events.  The former Wildfire and Hurricane Indemnity Program (WHIP+) was retooled and renamed as the ERP.  ERP will have two payments – two phases.  Phase 1 is presently underway, and Phase 2 may not happen until 2023.  ERP payments may be made to a producer with a crop eligible for crop insurance or noninsurance crop disaster assistance (NAP) that is subject to a qualifying disaster (which is defined broadly) and received a payment.  Droughts (a type of qualifying disaster) are rated in accordance with the U.S. Drought Monitor, where the qualifying counties can be found.

To reiterate, an ERP payment will not be made to any producer that didn’t receive a crop insurance or NAP payment in 2020 or 2021.  Because of this requirement, crop insurance premiums that an ERP recipient has paid will be reimbursed by recalculating the ERP payment based on the ERP payment rate of 85 percent and then backing out the crop insurance payment based on coverage level.     

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

Note:  ERP payments are for damages occurring in 2020 and 2021 – so they are not deferable. 

Computation of payment and limits.  Once a producer submits their data to the FSA, an ERP application will be sent out for the producer to verify.  Applications started going out to producers in late May.  An ERP payment replaces the producer’s elected crop insurance coverage.  It’s based on a percentage with the total indemnity paid using the recalculated ERP percentage with any crop insurance or NAP payment subtracted. 

The ERP payment limit is $125,000 for specialty crops.  For all other crops, its $125,000 combined.  But, for an applicant with average adjusted gross income (AGI) (based on the immediate three prior years but skipping the first year back) that is comprised of more than 75 percent from farming activities, the normally applicable $900,000 AGI limit is dropped, and the payment limit goes to $900,000 for specialty crops and $250,000 for all other crops.  There is separate payment limit for each of 2020 and 2021. 

Note:  If the three-year computation of average AGI shows a loss, the enhanced payment limit is not available even if more than 75 percent of AGI is from farming activities.  In addition, the three-year computation is simply the applicant’s net income from farming compared with all of the applicant’s other sources of income as reported on the tax return. 

Definition of farm income.  Farm income for ERP purposes includes net Schedule F income; pass-through income from farming activities; farm equipment sale gains (if farm income exceeds two-thirds of overall AGI); wages from a farming entity; IC-DISC income from an entity that materially participates in farming (has a majority of gross receipts from farming).  Also counting as farm income for ERP purposes is income from packing, storing, processing, transporting and shedding of farm products. 

Certification.  To get the enhanced payment limit, a CPA or attorney must prepare a letter to be submitted with Form FSA-510 certifying that the applicant’s AGI is over the 75 percent threshold.  The FSA has a Form letter than can be used for this that is contained in its Handbook.  The FSA 6-PL, Apr. 29, 2022, Para. 489 discusses the 75 percent test and pages 8-73 through 8-74 is where the sample letter is located.  The “certification” may allow married farmers to eliminate the off-farm income of a spouse and make it possible to meet the 75 percent test if it otherwise would not be met.

 Conclusion

There are many finer details to the ERP as well as the ELRP that I haven’t covered in this post.  As I noted above, Paul Neiffer and I will be covering all of your questions at the conference next week in Wisconsin.  Also addressed at the conference will be a discussion of what's going on in the economy and U.S. and worldwide markets that are impacting agriculture.   If you haven’t registered, the conference is also broadcast live online and there’s still time to register.  Here’s the registration link:  https://www.washburnlaw.edu/employers/cle/farmandranchtaxjune.html

June 6, 2022 in Business Planning, Income Tax, Regulatory Law | Permalink | Comments (0)

Sunday, May 22, 2022

2021 Bibliography

Overview

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

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

Prior Years

Here are the links to the bibliographies from prior years:

Ag Law and Taxation 2020 Bibliography

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

Ag Law and Taxation – 2019 Bibliography

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

Ag Law and Taxation – 2018 Bibliography

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

Ag Law and Taxation – 2017 Bibliography

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

Ag Law and Taxation – 2016 Bibliography

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

 

2021 Bibliography

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

BANKRUPTCY

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

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

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

The Agricultural Law and Tax Report

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

Is a Tax Refund Exempt in Bankruptcy?

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

Ag Law and Tax Potpourri

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

Montana Conference and Ag Law Summit (Nebraska)

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

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

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

BUSINESS PLANNING

For Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

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

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

Will the Estate Tax Valuation Regulations Return?

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

June National Farm Tax and Estate/Business Planning Conference

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

August National Farm Tax and Estate/Business Planning Conference

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

C Corporation Compensation Issues

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

Planning for Changes to the Federal Estate and Gift Tax System

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

The Agricultural Law and Tax Report

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

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

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

Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance

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

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

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

Montana Conference and Ag Law Summit (Nebraska)

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

Farm Valuation Issues

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

Ag Law Summit

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

The Illiquidity Problem of Farm and Ranch Estates

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

When Does a Partnership Exist?

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

Gifting Assets Pre-Death – Part One

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

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

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

Gifting Pre-Death (Partnership Interests) – Part Three

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

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

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

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

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

Fall 2021 Seminars

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

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

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

Caselaw Update

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

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

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

2022 Summer Conferences – Save the Date

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

CIVIL LIABILITIES

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

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

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

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

Continuing Education Events and Summer Conferences

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

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

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

Agricultural Law Online!

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

Prescribed Burning Legal Issues

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

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

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

The Agricultural Law and Tax Report

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

Mailboxes and Farm Equipment

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

Statutory Immunity From Liability Associated With Horse-Related Activities

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

CONTRACTS

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Deed Reformation – Correcting Mistakes After the Fact

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

Considerations When Buying Farmland

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

Recent Court Decisions of Interest

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

The Potential Peril Associated With Deferred Payment Contracts

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

COOPERATIVES

Continuing Education Events and Summer Conferences

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

Final Ag/Horticultural Cooperative QBI Regulations Issued

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

Agricultural Law Online!

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

CRIMINAL LIABILITIES

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

The Agricultural Law and Tax Report

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

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

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

Recent Court Decisions of Interest

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

ENVIRONMENTAL LAW

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

Court and IRS Happenings in Ag Law and Tax

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

Valuing Ag Real Estate With Environmental Concerns

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

Ag Law and Tax Potpourri

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

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

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

Key “Takings” Decision from SCOTUS Involving Ag Businesses

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

Montana Conference and Ag Law Summit (Nebraska)

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

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

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

ESTATE PLANNING

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

What Now? – Part Two

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

Will the Estate Tax Valuation Regulations Return?

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

June National Farm and Tax and Estate/Business Planning Conference

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

August National Farm Tax and Estate/Business Planning Conference

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

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

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

The Revocable Living Trust – Is it For You?

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

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

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

Court Developments of Interest

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

The Agricultural Law and Tax Report

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

Planning for Changes to the Federal Estate and Gift Tax System

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

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

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

The Revocable Trust – What Happens When the Grantor Dies?

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

Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance

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

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

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

Reimbursement Claims in Estates; Drainage District Assessments

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

Montana Conference and Ag Law Summit (Nebraska)

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

Farm Valuation Issues

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

Ag Law Summit

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

The Illiquidity Problem of Farm and Ranch Estates

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

Planning to Avoid Elder Abuse

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

Gifting Assets Pre-Death – Part One

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

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

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

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

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

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

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

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

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

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

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

Tax (and Estate Planning) Happenings

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

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

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

2022 Summer Conferences – Save the Date

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

INCOME TAX

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

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

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

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

Continuing Education Events and Summer Conferences

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

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

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

Final Ag/Horticultural Cooperative QBI Regulations Issued

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

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

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

What Now? – Part One

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

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

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

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

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

June National Farm Tax and Estate/Business Planning Conference

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

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

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

Tax Update Webinar

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

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

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

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

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

August National Farm Tax and Estate/Business Planning Conference

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

Court and IRS Happenings in Ag Law and Tax

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

C Corporation Compensation Issues

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

Tax Considerations When Leasing Farmland

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

Federal Farm Programs and the AGI Computation

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

Tax Potpourri

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

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

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

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

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

Court Developments of Interest

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

The Agricultural Law and Tax Report

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

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

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

The Revocable Trust – What Happens When the Grantor Dies?

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

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

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

What’s the “Beef” With Conservation Easements?

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

Is a Tax Refund Exempt in Bankruptcy?

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

Tax Court Happenings

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

IRS Guidance On Farms NOLs

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

Montana Conference and Ag Law Summit (Nebraska)

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

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

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

Recovering Costs in Tax Litigation

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

Tax Potpourri

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

Weather-Related Sales of Livestock

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

Ag Law Summit

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

Livestock Confinement Buildings and S.E. Tax

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

When Does a Partnership Exist?

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

Recent Tax Developments in the Courts

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

Gifting Assets Pre-Death – Part One

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

Gifting Pre-Death (Partnership Interests) – Part Three

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

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

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

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

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

Fall 2021 Seminars

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

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

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

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

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

Caselaw Update

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

Tax Issues Associated With Easements

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

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

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

Tax Reporting of Sale Transactions By Farmers

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

The Tax Rules Involving Prepaid Farm Expenses

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

Self Employment Taxation of CRP Rents – Part One

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

Self-Employment Taxation of CRP Rents – Part Two

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

Self-Employment Taxation of CRP Rents – Part Three

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

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

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

Tax (and Estate Planning) Happenings

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

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

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

Recent Court Decisions of Interest

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

The Potential Peril Associated With Deferred Payment Contracts

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

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

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

2022 Summer Conferences – Save the Date

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

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

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

Gifting Ag Commodities To Children

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

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

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

Commodity Credit Corporation Loans and Elections

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

INSURANCE

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

The Agricultural Law and Tax Report

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

REAL PROPERTY

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

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

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Prescribed Burning Legal Issues

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

Ag Zoning Potpourri

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

Court and IRS Happenings in Ag Law and Tax

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

Is That Old Fence Really the Boundary

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

Court Developments of Interest

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

The Agricultural Law and Tax Report

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

Deed Reformation – Correcting Mistakes After the Fact

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

Valuing Ag Real Estate With Environmental Concerns

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

Ag Law and Tax Potpourri

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

Montana Conference and Ag Law Summit (Nebraska)

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

Farm Valuation Issues

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

Considerations When Buying Farmland

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

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

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

REGULATORY LAW

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

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

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

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

Continuing Education Events and Summer Conferences

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

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

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

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

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

Agricultural Law Online!

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

Recent Happenings in Ag Law and Ag Tax

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

Prescribed Burning Legal Issues

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

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

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

Federal Farm Programs and the AGI Computation

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

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

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

The Agricultural Law and Tax Report

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

The FLSA and Ag’s Exemption From Paying Overtime Wages

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

The “Dormant” Commerce Clause and Agriculture

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

Trouble with ARPA

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

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

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

Key “Takings Decision from SCOTUS Involving Ag Businesses

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

Reimbursement Claims in Estates; Drainage District Assessments

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

Mailboxes and Farm Equipment

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

Montana Conference and Ag Law Summit (Nebraska)

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

California’s Regulation of U.S. Agriculture

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

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

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

Is There a Constitutional Way To Protect Animal Ag Facilities

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

Caselaw Update

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

Recent Court Decisions of Interest

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

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

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

SECURED TRANSACTIONS

Continuing Education Events and Summer Conferences

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

Agricultural Law Online!

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

Cross-Collateralization Clauses – Tough Lessons For Lenders

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

The Agricultural Law and Tax Report

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

The “EIDL Trap” For Farm Borrowers

https://lawprofessors.typepad.com/agriculturallaw/2021/07/the-eidl-trap-for-farm-borrowers.html

The Potential Peril Associated With Deferred Payment Contracts

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

WATER LAW

Continuing Education Events and Summer Conferences

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

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

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

Agricultural Law Online!

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

The Agricultural Law and Tax Report

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

Montana Conference and Ag Law Summit (Nebraska)

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

May 22, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Wednesday, May 4, 2022

Ag Law (and Medicaid Planning) Court Developments of Interest

Overview

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

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

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

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

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

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

No Standing to Challenge Hog Operation Permits 

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

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

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

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

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

Prior Occupancy of Home Not Required For Exclusion Under Medicaid Rules 

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

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

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

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

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

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

Conclusion

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

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

Saturday, April 9, 2022

Farm Economic Issues and Implications

Overview

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

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

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

Projected Plantings (and Implications)

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

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

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

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

Global Crops

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

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

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

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

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

Energy Policy

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

Monetary Policy

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

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

Meat Sector

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

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

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

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

Water Issues

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

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

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

Tax Policy

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

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

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

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

Conclusion

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

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

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

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

Tuesday, April 5, 2022

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

Overview

Last week, there were two court major court developments of importance to agriculture.  In one, the U.S. Supreme court agreed to hear a case from the U.S. Court of Appeals for the Ninth Circuit involving California’s Proposition 12.  That law sets rules for pork production that must be satisfied for the resulting pork products to be sold in California.  In another development, a federal court in Louisiana held that state’s law designed to protect consumers from misleading and false advertising concerning meat products. 

The Supreme Court and Pork Production Regulations

National Pork Producers Council, et al. v. Ross, 6 F.4th 1021 (9th Cir. 2021), cert. granted, No. 21-468, 2022 U.S. LEXIS 1742 (U.S. Mar. 28, 2022) 

Background.  California voters approved Proposition 12 in 2018.  The new law took effect on January 1, 2022.  Proposition 12 bans the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California’s regulatory standards (largely remaining to be established).  It also establishes minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and calves raised for veal. Specifically, the law requires that covered animals be housed in confinement systems that comply with specific standards for freedom of movement, cage-free design and minimum floor space. The law identifies covered animals to include veal calves, breeding pigs and egg-laying hens.

The implementing regulations are to prohibit a farm owner or operator from knowingly causing any covered animal to be confined in a cruel manner, as specified, and prohibits a business owner or operator from knowingly engaging in the sale within the state of shell eggs, liquid eggs, whole pork meat or whole veal meat, as defined, from animals housed in a “cruel manner.”  In addition to general requirements that prohibit animals from being confined in a manner that prevents lying down, standing up, fully extending limbs or turning around freely, the measure added detailed confinement space standards for farms subject to the law. The alleged reason for the law was to protect the health and safety of California consumers and decrease the risk of foodborne illness and the negative fiscal impact on California.  Apparently, California believes that existing state and federal law regulating food products for health and safety purposes was inadequate (or the alleged reason for the law is false). 

Trial court.  In late 2019, several national farm organizations challenged Proposition 12 and sought a declaratory judgment that the law was unconstitutional under the Dormant Commerce Clause. 

Note:   The Dormant Commerce Clause bars states from passing legislation that discriminates against or excessively burdens interstate commerce.  It prevents protectionist state policies that favor state citizens or businesses at the expense of non-citizens conducting business within that state.  The clause is dormant because it is not state outright, but rather implied in the Constitution’s Commerce Clause of Article I, Section 8, Clause 3.

The plaintiffs also sought a permanent injunction preventing Proposition 12 from taking effect.  The plaintiffs claimed that Proposition 12 impermissibly regulated out-of-state conduct by compelling non-California producers to change their operations to meet California’s standards.  The plaintiffs also alleged that Proposition 12 imposed excessive burdens on interstate commerce without advancing any legitimate local interest by significantly increasing operation costs without any connection to human health or foodborne illness.  The trial court dismissed the plaintiffs’ complaint.  

Appellate court decision.  On appeal, the plaintiffs focused their argument on the allegation that Proposition 12 has an impermissible extraterritorial effect of regulating prices in other states and, as such, is per se unconstitutional.  This was a tactical mistake for the plaintiffs.  The appellate court noted that existing Supreme Court precedent on the extraterritorial principle applied only to state laws that are “price control or price affirmation statutes.”   Thus, the extraterritorial principle does not apply to a state law that does not dictate the price of a product and does not tie the price of its in-state products to out-of-state prices.  Because Proposition 12 was neither a price control nor a price-affirmation statute (it didn’t dictate the price of pork products or tie the price of pork products sold in California to out-of-state prices) the law didn’t have the extraterritorial effect of regulating prices in other states.  The appellate court likewise rejected the plaintiffs’ claim that Proposition 12 has an impermissible indirect “practical effect” on how pork is produced and sold outside California.  Upstream effects (e.g., higher production costs in other states) the appellate court concluded, do not violate the dormant Commerce Clause.   The appellate court pointed out that a state law is not impermissibly extraterritorial unless it regulates conduct that is wholly out of state.  Because Proposition 12 applied to California and non-California pork production the higher cost of production was not an impermissible effect on interstate commerce.  The appellate court also concluded that inconsistent regulation from state-to-state was permissible because the plaintiffs had failed to show a compelling need for national uniformity in regulation at the state level.  In addition, the appellate court noted that the plaintiffs had not alleged that Proposition 12 had a discriminatory effect on interstate commerce and, as such, had failed to plead a Dormant Commerce Clause violation. 

Supreme Court grants certiorari.  On March 28, 2022, the U.S. Supreme Court agreed to hear the case.  The issues before the Court are: (1) whether allegations that a state law has dramatic economic effects largely outside of the state and requires pervasive changes to an integrated nationwide industry state a violation of the Dormant Commerce clause, or whether the extraterritoriality principle is now a dead letter; and (2) whether the allegations, concerning a law that is based solely on preferences regarding out-of-state housing of farm animals, state a claim in accordance with Pike v. Bruce Church, Inc., 347 U.S. 132 (1970). In Pike, the Court said a state law that regulates fairly to effectuate a legitimate public interest will be upheld unless the burden on commerce is clearly excessive in relation to commonly accepted local benefits. 

In the current case, while California accounts for about 13 percent of U.S. pork consumption, essentially no pigs are raised there.  Thus, the costs of compliance with Proposition 12 fall almost exclusively on out-of-state hog farmers.  In addition, because a hog is processed into cuts that are sold nationwide in response to demand, those costs will be passed on to consumers everywhere, in transactions that have nothing to do with California. 

Meat Labeling Law Unconstitutional 

Turtle Island Foods SPC v. Strain, No. 20-00674-BAJ-EWD, 2022 U.S. Dist. LEXIS 56208 (M.D. La. Mar. 28, 2022)

Background.  In 2019, Louisiana enacted the Truth in Labeling of Food Products Act (“Act”), with the Act taking effect October 1, 2020.  Among other things, the Act prohibits the intentional misbranding or misrepresenting of any food product as an agricultural product via a false or misleading label; selling a product under the name of an ag product; representing food product as an meat or a meat product when the food product is not derived from a harvested beef, port, poultry, alligator, farm-raised deer, turtle, domestic rabbit, crawfish, or shrimp carcass. 

The LA Dept. of Ag and Forestry (LDAF) developed rules and regulations to enforce the Act with fines of up to $500 per violation per day but had not received any complaints nor brought any enforcement actions against anyone. Indeed, the LDAF determined that plaintiff’s product labels complied with the law. 

The plaintiff produces and packages plant-based meat products that are marketed and sold in LA and nationwide.  Plaintiff’s labels and marketing materials clearly state that its products are plant-based, meatless, vegetarian or vegan, and accurately list the products ingredients.  After the Act passed, the plaintiff refrained from using certain words and images on marketing materials and packages and removed videos from its website and social media to avoid prosecution under the Act. 

Trial court decision.  The plaintiff sued, challenging the constitutionality of the Act on the grounds that the Act violated its freedom of commercial speech.  The plaintiff claimed it would be very expensive to change its labeling and marketing nationwide.  The trial court determined that the plaintiff had standing because “chilled speech” or “self-censorship” is an injury sufficient to confer standing, and that the plaintiff had demonstrated a “serious intent” to engage in proscribed conduct and that the threat of future enforcement was substantial. 

On the merits, as noted, the plaintiff asserted that its conduct was protected commercial speech (both current and future intended) that the Act prohibited.  The trial court noted that commercial speech is not as protected as is other forms of speech.  To be constitutional, the government speech (the Act) must be a substantial governmental interest, advance the government’s asserted interest and not be any more excessive than what is necessary to further the government’s interest.  The trial court determined that the Act was more extensive than necessary to further the state’s interest.  While the interest in protecting consumers from misleading and false labeling is substantial, the defendant failed to establish that consumers were confused by the plaintiff’s labeling.  Thus, the Act failed to directly advance the State’s interest and was more extensive than necessary to further that interest.    The trial court also determined that the defendant failed to show why alternative, less-restrictive means, such as a disclaimer would not accomplish the same goal of avoiding consumer deception/confusion.  The trial court held the Act unconstitutional and enjoined its enforcement. 

“Greenbook” Released

On March 28, the White House released the details of its $6 trillion budget for the 2023 fiscal year (October 1, 2022 – September 30, 2023).  That same day, the Treasury released the Greenbook, its explanations of the revenue proposals.  Many of the provisions are those that were proposed in 2021, but did not become law.  Here’s a brief rundown of the provisions of most significance to farmers and ranchers:

  • Top individual rate to 39.6 percent on income over $400,000 ($450,000 for married couples;
  • Corporate rate goes to 28 percent (87 percent increase on many farm corporations);
  • Raise capital gain rate to 39.6 percent on income over $1 million;
  • Capital gain tax on any transfer of appreciated property either during life or at death;
  • Partial elimination of stepped-up basis – if to spouse, then carryover; transfer of appreciated property to CRAT would be taxable;
  • Transfers of property by gift or at death would be a realization event (eliminates the fair market value at death rule);
  • Trust assets must be “marked-to-market” every 90 years beginning with any new trust after 1940. The rule would be the same for partnerships or any other non-corporate owned entity.  In addition, no valuation discount for partial interests, and a transfer from a trust would be a taxable event.  Exclusion of $1 million/person would apply.  Any tax on illiquid assets could be paid over 15 years or the taxpayer could elect to pay the tax when the property is sold or is no longer used as a farm (in that event, there would be no 15-year option);
  • All farm income (including self-rents) would be subject to the net investment income tax of 3.8 percent;
  • A minimum tax would apply to those with a net worth over $100 million;
  • Long-term capital gains and qualified dividends taxed at ordinary income rates for taxpayers with taxable income exceeding $1 million;
  • Grantor-Retained Annuity Trusts (GRATs) must have minimum term of 10 years. This would eliminate the use of a “zeroed-out” GRAT; also, the remained interest in a GRAT at the time of creation must have a minimum value for gift tax purposes equal to the greater of 25 percent of the value of assets transferred to the GRAT or $500,000.  In addition, there would be limited ability to use a donor-advised fund to avoid the payout limitation of a private foundation;
  • Any sale to a grantor trust is taxable and any payment of tax of the trust is a taxable gift;
  • Limitation on valuation discounts (related party rules);
  • R.C. §2032A maximum reduction would increase to $11.7 million (from current level of $1.23 million);
  • Trust reporting of assets would be required if the trust corpus is over $300,000 (or $10,000 of income);
  • Elimination of dynasty trusts;
  • Carried interest income would become ordinary income;
  • No basis-shifting by related parties via partnerships;
  • Limitation of a partner’s deduction in certain syndicated conservation easement transactions;
  • R.C. §1031 exchange deferral would be limited to $1 million;
  • Depreciation recapture would be triggered on the sale of real estate, which would eliminate the maximum 25% rate;
  • Elimination of credit for oil and gas produced from marginal wells;
  • Repeal of expensing of intangible drilling costs;
  • Repeal of enhanced oil recovery credit;
  • Adoption credit refundable, and some guardianship arrangements qualify; and
  • Expand the definition of “executor” to apply for all tax matters.

The provisions have little to no chance of becoming law, but they are worth paying attention to. 

Conclusion

There’s never a dull moment in agricultural law and tax. 

April 5, 2022 in Business Planning, Estate Planning, Income Tax, Regulatory Law | Permalink | Comments (0)

Monday, March 21, 2022

Animal Ag Facilities and the Constitution

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)

Wednesday, February 9, 2022

Ag Law and Tax Potpourri

Overview

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

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

No WOTC For “Weed” Business 

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

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

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

IRS Email Approval of Supervisor Penalty Approval

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

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

Low Soil Quality Doesn’t Reduce Assessment Value 

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

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

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

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

ESOP Didn’t Shield Taxpayer From Income 

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

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

New ESA Policy for ESA Consultations 

EPA Announcement, January 11, 2022.  Effective upon announcement   

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

Court Says Animal Chiropractic is Veterinary Medicine 

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

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

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

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

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

Tuesday, February 1, 2022

The “Almost Top 10” of 2021 (Part 6)

Overview

I continue my journey through the big developments of 2021 that didn’t make my “Top 10” list.  In Part 6 today, I look at another development that will likely continue to be in the news with implications for farmers and ranchers in 2022 – California’s Proposition 12.

Another 2021 ag law development that wasn’t quite top big enough to make my 10 biggest developments from 2021 – it’s the topic of today’s post.

California’s Proposition 12 Upheld as Constitutional

National Pork Producers Council, et al. v. Ross, 6 F.4th 1021 (9th Cir. 2021), pet. for cert. filed No. 21-468 (Sept. 27, 2021)

Background

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

Note:  Most of the provisions of Proposition 12 went into effect in December of 2018.  However, a requirement that breeding pigs be confined in a structure with at least 24 square feet of space went into effect on January 1, 2022. 

In the fall of 2018, California voters passed Proposition 12.  Proposition 12 bans the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California’s regulatory standards.  Proposition 12 established minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and calves raised for veal. Specifically, the law requires that covered animals be housed in confinement systems that comply with specific standards for freedom of movement, cage-free design and minimum floor space. The law identifies covered animals to include veal calves, breeding pigs and egg-laying hens.

Proposition 12 prohibit a farm owner or operator from knowingly causing any covered animal to be confined in a “cruel manner,” and prohibits a business owner or operator from knowingly engaging in the sale within the state of shell eggs, liquid eggs, whole pork meat or whole veal meat, as defined, from animals housed in a “cruel manner.”  That phrase, “cruel manner” is defined as confining the animal in a manner that prevents the animal from lying down, standing up, fully extending its limbs (without touching the side of the enclosure) or turning around freely (without impediment and without touching a side of the enclosure).  In addition, the law added detailed confinement space standards for farms subject to the law, such as confining a breeding pig with less than 24 square feet of usable floorspace per pig. 

Note:   The alleged reason for the law was to protect the health and safety of California consumers and decrease the risk of foodborne illness and the negative fiscal impact on California. 

The restrictions of Proposition 12 do not apply during medical research; examination, testing, individual treatment or operation for veterinary purposes; transportation; rodeo exhibitions, state or county fair exhibitions, 4-H programs and similar exhibitions; slaughter; to a breeding pig for five days before the expected farrowing date and any day the breeding pig is nursing piglets; and during temporary periods of animal husbandry. 

Note:  The California Department of Food and Agriculture and the State Department of Public Health were to develop rules and regulations to implement Proposition 12 by September 1, 2019.  That deadline was missed.  Proposed rules were released in December of 2021. 

In late 2019, several national farm organizations challenged Proposition 12 and sought a declaratory judgment that the law was unconstitutional under the dormant Commerce Clause.  The plaintiffs also sought a permanent injunction preventing Proposition 12 from taking effect.  The plaintiffs claimed that Proposition 12 impermissibly regulated out-of-state conduct by compelling non-California producers to change their operations to meet California’s standards.  The plaintiffs also alleged that Proposition 12 imposed excessive burdens on interstate commerce without advancing any legitimate local interest by significantly increasing operation costs without any connection to human health or foodborne illness.  The trial court dismissed the plaintiffs’ complaint. 

On appeal, the plaintiffs focused their argument on the allegation that Proposition 12 has an impermissible extraterritorial effect of regulating prices in other states and, as such, is per se unconstitutional.  This was a tactical mistake by the plaintiffs’ attorneys.  The appellate court noted that existing Supreme Court precedent on the extraterritorial principle applied only to state laws that are “price control or price affirmation statutes.”  Thus, the extraterritorial principle does not apply to a state law that does not dictate the price of a product and does not tie the price of its in-state products to out-of-state prices.  Because Proposition 12 was neither a price control nor a price-affirmation statute (it didn’t dictate the price of pork products or tie the price of pork products sold in California to out-of-state prices) the law didn’t have the extraterritorial effect of regulating prices in other states. 

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

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

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

Note:  There is another case proceeding in the federal district court for the Eastern District of California.  Iowa Pork Producers Association v. Bonta, No. 1:21-cv-01663-NONE-EPG, 2021 U.S. Dist. LEXIS 246123 (E.D. Cal. Dec. 27, 2021).  The plaintiff sought to prevent enforcement of Proposition 12 as of January 1, 2022, by means of temporary injunctive relief but failed.  The plaintiff claimed that the law was unconstitutionally vague because implementing regulations had not yet been developed.  The case was filed on November 9, 2021, more than three years after Proposition 12 was approved by voters, moved to federal court on November 16 with a motion for a hearing to be set on December 17.  The court also noted that the plaintiff had filed an identical suit in Iowa state court in May of 2021 which was removed to federal court and dismissed for lack of personal jurisdiction.  Then, for unexplained reasons, the plaintiff waited 10 weeks to file this identical case in a California county court which was removed to federal court six weeks before Proposition 12 would take effect.  The court expressed its irritation with the conduct of plaintiff’s attorneys and changed the motion to one for a restraining order, noting that the “urgency” of the matter was the fault of the plaintiff’s attorneys.  The court noted that the matter had been one of “urgency” for the plaintiff for more than seven months at the time of filing of the case.  The court ruled that the motion for preliminary injunction would remain pending until a hearing on January 27, 2022. 

On to the Supreme Court?

During the summer of 2021, the U.S. Supreme Court declined to review a decision of the Ninth Circuit involving Proposition 12.  North American Meat Institute v. Bonta, 141 S. Ct. 2854 (2021).  Will the Court now take up the decision of the Ninth Circuit this time around?  It remains to be seen.  Unfortunately, the Supreme Court has been careless in applying the anti-discrimination test as part of the Dormant Commerce Clause, and in many of the cases, neither of the two requirements for finding a violation (interstate competition or harm to the national economy) is ever mentioned.  See, e.g., Hughes v. Oklahoma, 441 U.S. 322 (1979). The reason interstate competition goes unstated is obvious – in most cases the in-state and out-of-state actors compete in the same market.  But, the reason that the second requirement, harm to the national economy, goes unstated is because the Court simply assumes the issue away.

Conclusion

The dormant Commerce Clause is something to watch for in court opinions involving agriculture.  As states enact legislation designed to protect the economic interests of agricultural producers in their states, those opposed to such laws could challenge them on dormant Commerce Clause grounds.  But, such cases must be plead carefully to show an impermissible regulation of extraterritorial conduct. 

In the present case, practically doubling the cost of creating hog barns to comply with the California standards was not enough, nor was the interconnected nature of the pork industry.  California gets to call the shots concerning the manner of U.S. pork production for pork marketed in the state.  This, in spite of overarching federal food, health and safety regulations that address California’s purported rationale for Proposition 12.

The dormant commerce clause is one of those legal theories “floating” around out there that can have a real impact in the lives of farmers, ranchers and consumers, and how economic activity is conducted.   Stay tuned for more developments on this issue in 2022.

February 1, 2022 in Regulatory Law | Permalink | Comments (0)

Thursday, January 27, 2022

The “Almost Top 10” of 2021 (Part 5)

Overview

I continue my journey through the big developments of 2021 that didn’t make my “Top 10” list.  In Part 5 today, I look at two more developments – FDA rule changes to water qualify testing for ag water, and a Missouri food labeling law that was upheld as constitutional by a federal appellate court.

More not quite top 10 developments from 2021 – it’s the topic of today’s post.

FDA Proposes Tightening of Water Quality Testing

FDA Notice of Proposed Rulemaking, 86 FR 69120 (Dec. 6, 2021)

On December 6, 2021, the Food and Drug Administration (FDA) published proposed amendments to the agricultural water regulations contained in the Produce Safety Rule (PSR).  The ag water regulations cover groundwater and numerous surface water sources including ponds, rivers, creeks, as wells as municipal and other public water supplies.   According to the FDA, the proposed rule is designed to make pre-harvest testing of water more practical and less complex while simultaneously protecting public health.  FDA says the proposed rule is designed to be flexible to more easily adapt to future developments in water quality science.  According to the FDA, the new rule would replace the current PSR with systems-based preharvest ag water assessments designed to identify conditions that are reasonably likely to "introduce known or reasonably foreseeable hazards into or onto produce or food contact surfaces, and to determine whether corrective or mitigation measures are needed to minimize the risks associated with preharvest agricultural water."

The PSR is a rule that is part of the implementation of the Food Safety Modernization Act (FSMA), enacted in 2011 as an amendment to the Federal Food, Drug, and Cosmetic Act (FFDCA). The FSMA amended the FFDCA to require the FDA to establish minimum standards for the production and harvesting of certain fruits and vegetables that are raw ag commodities for which the Secretary determines that the minimum standards will minimize the risk of serious adverse health consequences or death. Accordingly, the FDA published a the proposed PSR in 2015 to apply to “covered produce” that are regularly consumed raw. Farmers of covered produce must ensure that there is no detectable E. coli in 100 milliliters of water used to irrigate the covered produce. “Very small producers” (those selling less than $250,000 of covered produce annually over the last three years) were to be in compliance by January 26, 2022. “Small producers (those selling annually between $250,000 and $500,000 of covered produce) had to comply by January 26, 2021. All other producers had to be in compliance by January 25, 2020.  Based on producer feedback, the FDA issued a proposed rule in 2017 extending the compliance dates to January 26, 2024; January 26, 2023, and January 26, 2022, respectively.

The December 6, 2021, proposed rule would amend the ag water requirements for farmers growing covered produce other than sprouts, and would require growers to annually prepare a pre-harvest written ag water assessment and notification anytime a significant change occurs to the grower’s ag water system that introduces a contamination risk. A grower must identify conditions that are reasonably likely to introduce known or reasonably foreseeable hazards into or onto covered produce. The proposal specifies five factors for consideration when composing an ag water assessment – 1) whether the water is ground water or surface water and whether the water is in an open or closed system; 2) the type of irrigation system used; 3) the characteristics of the crop(s) at issue; 4) environmental conditions (e.g., heavy rain or extreme weather events); and 5) the results of any testing the farmer conducted.

Three exemptions from conducting an ag water assessment are provided – 1) if requirements are met for water used on sprouts and in harvesting, packing and holding; 2) if the only water used is from a public water system or public water supply; and 3) if the water used on covered produce is treated according to requirements contained in the proposed rule. The FDA also stated that it anticipates publishing another proposed rule extending the compliance dates. The comment period on the proposed rule runs until April 5, 2022. If finalized, the new rule would replace the pre-harvest microbial quality criteria and testing requirements of the PSR. 

Food Labeling Law Upheld

Turtle Islands Foods, SPC v. Thompson, 992 F.3d 694 (8th Cir. 2021)

In recent years, food labeling issues have been in the courts.  It is an important issue to many ag producers because of the connection to marketing of ag products and the ability to properly market those products to consumers and ensure that consumers have full knowledge of the content of what they are purchasing.  In 2021, a Missouri food labeling law was challenged on constitutional grounds and upheld.

Missouri law (Mo. Rev. Stat. Sec. 265.282(7)) criminalizes the misrepresentations of a product as meat that is not derived from the harvested production of livestock or poultry.  Violations are a Class A misdemeanor that are penalized by up to a year in prison plus a fine not to exceed $1,000. The law is specifically directed at Missouri businesses that market their products that are plant-based or cell-cultured as “meat-based” and sell them as “alternative” protein sources (which implies that the products contain real meat).  The plaintiff, a maker of a vegetarian turkey substitute (Tofurkey), challenged the law as an unconstitutional violation of free speech, due process and the Dormant Commerce Clause and sought a preliminary injunction preventing the state from enforcing the law. The state submitted evidence showing how the plaintiff could comply with the law by labeling their products as “plant-based,” “veggie,” “lab grown,” or something similar.

The trial court denied the plaintiff’s request for an injunction on the basis that the law only barred a company from misleading consumers into believing that a product is meat from livestock when it is not. The trial court also determined that the plaintiff had failed to prove an irreparable injury by risk of prosecution because its packaging already contained the necessary disclaimers.

On further review, the appellate court affirmed. The appellate court noted that the plaintiff admitted that its products were labeled in such a way to clearly indicate that the products did not contain meat from slaughtered animals and denoted that they were plant-based, vegan or vegetarian. The appellate court noted that, on remand at the trial court, facts could be discovered that could possibly lead to a different result on appeal. 

January 27, 2022 in Regulatory Law | Permalink | Comments (0)

Tuesday, December 28, 2021

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

Overview

The mid-December wildfire in Kansas resulted in loss of livestock along with damage to farm/ranch buildings and structures.  The wind damage was more widespread than just Kansas, and I wrote about the tax issues associated with demolishing farm buildings and structures that are no longer usable as a result of the storm here:   https://lawprofessors.typepad.com/agriculturallaw/2021/12/inland-hurricane-2021-version-is-there-any-tax-benefit-to-demolishing-farm-buildings-and-structures.html.

What I didn’t address in that article are the tax issues associated with the receipt of USDA Livestock Indemnity Program (LIP) payments for livestock deaths and the tax issues associated with the receipt of those payments.

USDA LIP payments and the associated tax reporting – it’s the topic of today’s post.

The LIP Program

The LIP program, administered by USDA’s Farm Service Agency (FSA), was created under the 2014 Farm Bill to provide benefits to livestock producers for livestock deaths that exceed normal mortality caused by adverse weather and other events such as attacks by animals that have been reintroduced into the wild, as well as death caused by certain diseases.  The 2018 Farm Bill expanded eligibility for LIP payments to contract growers.  LIP payments are also available to livestock owners that sell livestock at a reduced price due to an eligible loss condition.  Eligibility for LIP payments turns on the livestock owner providing sufficient evidence of an eligible cause of loss that was a direct cause of loss or death. 

Note:  Livestock deaths due to extreme cold are eligible losses (whether the livestock were vaccinated or not), as are livestock deaths due to disease as a result of particular causes. 

Payment amount.  The amount of a LIP payment is set at 75 percent of the market value of the livestock (as the USDA determines) on the day before the date of death.  For contract growers of poultry or swine, LIP payments are capped at the rate for owners, but are based on 75 percent of the national average input costs for the livestock at issue. 

Note:   Eligible livestock are those that were used as part of a farming operation as of the day of death.  This rule excludes animals such as those that are wild and free-roaming; pets; or animals used for recreational purposes (e.g., hunting, roping or for show). 

The market value of the livestock is tied to a “national payment rate” for each eligible livestock category as published by the USDA.  LIP payments are adjusted for normal mortality.  If LIP payments are issued for injured livestock that are sold at a reduced price, the payments are reduced by the amount the owner received on sale.  If the livestock are sold for more than the national payment rate there is no LIP payment.  

For contract growers, the LIP national payment rate is based on 75 percent of the average income loss sustained by the contract grower with respect to the livestock that died.  Any LIP payment that a contract grower is set to receive will be reduced by the amount of monetary compensation that the grower received from the grower’s contractor for the loss of income sustained from the death of the livestock grown under contract. 

Eligibility.  To be eligible for a LIP payment (for other than contract growers of poultry or swine), the livestock owner must have owned the livestock on the day the livestock died or were injured by an eligible loss condition.  The owner must have suffered a death loss that exceeded normal mortality as a direct result of an eligible loss condition, or sold the livestock at a reduced price as a result of an injury incurred as a direct result of an eligible loss condition.  Contract growers of poultry and swine must have had possession and control of the animals and a written agreement with the owner establishing the specific terms, conditions and obligations of the parties regarding the production of the livestock. 

Note:   Contract growers are not eligible for LIP payments based on injured livestock being sold at a reduced price due to an eligible loss condition. 

Eligible livestock and poultry.  Eligible livestock include beef bulls and cows, buffalo, beefalo and dairy cows and bulls.  Non-adult beef cattle, beefalo and buffalo are also eligible livestock.  Eligible poultry include chickens, broilers, pullets, layers, chicks, Cornish hens, roasters, super roasters, ducks, ducklings, geese, goslings, and turkeys. Swine is also eligible and includes nursery pigs, lightweight barrows and gilts, as well as sows and boars. Other eligible animals include alpacas, deer, elk, emus, equine, goats, llamas, ostriches, reindeer, caribou and sheep. 

Eligible loss condition.  An “eligible loss condition” includes an adverse weather event that was extreme and not expected to occur during the loss period for which it actually occurred.  The weather event must be a direct cause of the livestock losses.  An eligible disease is one that is made worse by an eligible adverse weather event that directly results in livestock losses.  It also includes diseases caused or transmitted by vectors where vaccination or acceptable management practices are not available.  An eligible loss condition may also be based on an attack by animals that have been reintroduced into the wild by the Federal Government.  The attack must have resulted in either death of livestock in excess or normal mortality rates, or the sale of the livestock at below market value. 

Note:   The livestock must have died within 60 calendar days from the ending date of the “applicable adverse weather event” and in the calendar year for which benefits are requested. 

Payment limitation.  The general $125,000 per person payment limitation does not apply to LIP payments.  But to be eligible for LIP payments, the applicant must have average adjusted gross income (AGI) over a three-year period that is less than or equal to $900,000.  For 2021, the applicable three-year period is 2017-2019. 

Note:   For a particular producer, the application of the AGI limitation could mean that tax planning strategies to keep average AGI at or under $900,000 need to be implemented.  That might include the use of deferral strategies, income averaging and/or amending returns to make or revoke an I.R.C. §179 election.

Direct attribution rules apply to LIP payments.  That means that the AGI limitation applies to the person or legal entity that requesting payment as well as to those persons or entities with an interest in the entity or sub-entity.   

Applying for payment.  An eligible producer (owner or contract grower) must submit a notice of loss and an application for LIP payments with the local FSA office.  A notice of loss must be submitted within the earlier of 30 days of when the loss occurred or became apparent.  In addition, an application for payment must be filed within 60 calendar days after the end of the calendar year in which the loss occurred.  Application for LIP payments is to be made with the local USDA/FSA office that serves the county in which the loss occurred.  For contract growers, a copy of the grower contract must also be provided.  For all producers, it is important to submit evident of the loss supporting the claim for payment via Form CCC-852.  Photographs, veterinarian records, purchase records, loan documentation, tax records, and similar data can be helpful in documenting losses.  Of course, the weather event triggering the livestock losses must also be documented.  If the livestock owner/grower is not able to provide acceptable records to prove death or loss of value due to injury, the owner/grower is to use a third-party certification via Form CCC-854.  The third party must be an independent source who is not affiliated with the farming/ranching operation, and cannot be a hired hand or family member. 

Tax Reporting

Given that the Kansas wildfire occurred mid-December, it is likely that any LIP payments will not be received until 2022.  For LIP payments that are paid out, the FSA will issue a 1099G for the full amount of the payment. That could create an issue for some livestock producers.

Death of breeding livestock.  While the 1099G simply reports the gross amount of any LIP payment to a producer for the year, there may be situations where a portion of the payment is compensation for the death loss of breeding livestock.  If the producer would have sold the breeding livestock, the sale might have triggered an I.R.C. §1231 gain that would have been reported on Form 4797.  If LIP payments were received for cattle or horses that the owner had held for 24 months or more from the acquisition date and the animals were held for draft, breeding, dairy or sporting purposes (assuming the LIP payment applies to animals held for a sporting purpose), then the LIP payment would constitute I.R.C. §1231 gain.  The holding period is 12 months or more for other livestock.  I.R.C. §1231 gain is reported on Form 4797 rather than Schedule F.  By being reported on Form 4797, self-employment tax will not apply.  However, the IRS will look for Form 1099G amounts paid for livestock losses to show up on Schedule F – most likely on line 4a (Agricultural Program Payments).  This raises a question as to whether it is possible to allocate the portion of the LIP payments allocable to breeding livestock from Schedule F to Form 4797. 

Income inclusion and deferral.  The general rule is that any indemnity payments (or feed assistance) are reported in income in the tax year that they are received.  That would mean, for example, that payments received in 2021 for livestock losses occurring in 2021 will get reported on the 2021 return.  Payments for livestock losses occurring in 2021 that were received in 2022 will be reported in 2022.

The receipt and inclusion in income of LIP payments could also put a livestock producer in a higher income tax bracket for 2021/2022.  In that instance, there might be other tax rules that can be used to defer the income associated with the livestock losses.  Under I.R.C. §451(f), the proceeds of livestock that are sold on account of weather-related conditions can be deferred for one year.  Under another provision, I.R.C. §1033(e), the income from livestock (not poultry) sales where the livestock are held for draft, dairy or breeding purposes that are involuntarily converted due to weather can be deferred if the livestock are replaced with like-kind livestock within four years.  The provision applies to the excess amount of livestock sold over sales that would occur in the course of normal business practices. 

While I.R.C. §451(f) requires that a sale or exchange of the livestock must have occurred, that is not the case with the receipt of indemnity payments for livestock losses.  So, that rule doesn’t provide any deferral possibility.  The involuntary conversion rule of I.R.C. §1033(e) is structured differently.  It doesn’t require a sale or exchange of the livestock, but allows a deferral opportunity until animals are acquired to replace the (excess) ones lost in the weather-related event   Thus, only the general involuntary conversion rule of I.R.C. §1033(a) applies rather than the special one for livestock when a producer receives indemnity (or insurance) payments due to livestock deaths.  Thus, for LIP payments received in 2022, they will have to be reported on the 2022 return unless the recipient acquires replacement livestock within the next two years – by the end of 2024.  Any associated gain would then be deferred until the replacement livestock are sold.  At that time, any gain associated gain would be reported and the gain in the replacement animals attributable to breeding stock would be reported on Form 4797.

Conclusion

Livestock losses due to weather-related events can be difficult to sustain.  LIP payments can help ease the burden.  Having the farming or ranching operation structured properly to receive the maximum benefits possible is helpful, as is understanding the tax rules and opportunities for reporting the payments.

December 28, 2021 in Income Tax, Regulatory Law | Permalink | Comments (0)

Friday, December 3, 2021

Recent Court Decisions of Interest

Overview

I always find it amazing how often legal issues present themselves for farmers and ranchers.  In 30 years of being involved in issues involving agricultural law and taxation, I have never had a shortage of client issues to deal with or matters to write or speak about.  It literally has been non-stop. 

As usual, the courts continue to issue opinions involving farmers and ranchers and tax matters of importance to an even broader set of taxpayers.  In today’s post, I highlight just a few of the recent ones.

Recent court opinions involving agricultural law and taxation – it’s the topic of today’s post.

Farmer’s Marijuana and Firearm Conviction Upheld

United States v. Lundy, No. 20-6323, 2021 U.S. App. LEXIS 33551 (6th Cir. Nov. 9, 2021)

After receiving a complaint that the defendant was growing cannabis on his property, state police officers investigated the property and found a large crop of cannabis plants, growing equipment, hundreds of pounds of processed cannabis with levels of THC meeting the standard for a controlled substance.  The defendant had a past criminal history and unauthorized firearms were also found in his possession.  The defendant had also been denied an application for a hemp license the previous year due to his criminal history involving marijuana and drug paraphernalia. 

While being interviewed by police, the defendant emphasized that the marijuana on the property was for personal use and not for sale, though he admitted to giving marijuana away.  He claimed that the firearms were for protecting his farm from nuisance animals and self-protection.  Also at this interview, the defendant offered to smoke marijuana with the police officer conducting the interview.  The defendant was arrested, charged with possession of a firearm by a user of controlled substances and ultimately sentenced to 46 months imprisonment. 

The defendant appealed his conviction, claiming that the government failed to prove that he knew he was prohibited from possessing a firearm, and that the government failed to prove that he knew he was possessing and manufacturing marijuana.  To sustain a conviction, the government bears the burden to prove that the defendant took drugs with regularity, over an extended period of time, and contemporaneously with his purchase or possession of a firearm.  The defendant claimed that because he thought he was using hemp, the government failed to prove that he knew he used a controlled substance.  In refuting the defendant’s claim, the government presented evidence of the defendant’s substance use, including prior testimony by the defendant about his use of marijuana throughout his entire adult life, testimony that he smokes pounds of marijuana a year, findings from the search of his property, testimony that the marijuana found was for personal use, the man’s offer to smoke marijuana with the police officer, and urine and hair samples that tested positive for high levels of THC.  The court upheld the defendant’s conviction on the basis that there was overwhelming evidence that the defendant used marijuana with regularity and at the same time as his possession of firearms.

Note:   Lundy clearly went, as the songwriter in the 1970s put it, “one toke over the line…”.

Rerouting of Irrigation Ditches Not a Taking

Ministerio Roca Solida_ Inc. v. United States, No. 16-826L, 2021 U.S. Claims LEXIS 2277 (Fed. Cl.  Oct. 25, 2021)

The federal government has the right of eminent domain.  In other words, it can take your property if it wants to.  But, under the Constitution, a taking must be for a public purpose and the government must pay “just compensation” for what it takes. 

In this case, a ministry owned a forty-acre parcel of land, which included a church camp, located within the boundaries of a national refuge.  The refuge is home to many native plants and animals, including certain endemic species of fish that the United States Fish and Wildlife Service (USFWS) committed to protecting beginning in 1995.  The USFWS’s protection plan included filling in irrigation ditches to return spring waters back to their historic paths.  As a result of this plan, the ministry’s church camp was washed away in a series of floods caused by heavy rainfall.  Camp buildings, access ways, and other improvements were swept away.  The ministry alleged that construction of the spring water restoration channel caused the destructive flooding and constituted a total physical taking of its property, for which it was entitled to just compensation.  Repairs were estimated at a cost of over $200.000. 

While it is well-established that government-induced flooding of property can constitute a compensable taking for purposes of the Fifth Amendment, the court found that the ministry did not meet its burden of proving that the government’s construction of the restoration channel caused the flooding that occurred.  The refuge had a long history of flooding, which was demonstrated by historical satellite images and expert testimony.  Additionally, the Federal Emergency Management Agency had designated the ministry’s property as a high-risk flood zone, and informed it of floodplain ordinances requiring that buildings in flood zones be elevated or flood-proofed and anchored.  Upon receiving this information, the ministry took no actions to bring itself into compliance with the ordinances.  Consequently, the weight of the evidence showed that the flooding of the church camp would have occurred regardless of whether the restoration channel was built. 

Farmers Detrimentally Relied on Crop Supply Salesman to Check Crops

Dettenhaim Farms, Inc. v. Greenpoint Ag, LLC, et al., No. 54,162-CA, 2021 La. App. LEXIS 1729 (La. Ct. App. Nov. 17, 2021)

The plaintiff corporation is a tenant farmer.  Over a period of at least 25 years, a close friend would check the corporation’s crops for stinkbugs.  The friend became employed by the defendant and continued checking the plaintiff’s crops for stinkbugs.  Eventually, confusion over the corporation’s credit account arose and the defendant’s location manager told the friend that he should tell the plaintiff’s owner and his father that they probably needed to find somewhere else to do business.  The manager also told the friend that the friend might not need to go back to the plaintiff’s fields.  The friend never communicated this to farmers, and neither did anyone with the defendant.  The manager did have a phone conversation with the farmers and thought they knew what he meant, but never told the farmers that the friend would no longer be checking their fields.  In late summer, the farmers discovered that their soybean fields had not been checked and that, by then, stinkbugs had caused major damage to the crop. 

Upon harvest, yield was dramatically reduced. The plaintiff sued the defendants after harvest for lost profit and also alleged that a different crop consultant could have been found if the friend and/or the defendants had given timely notice that crop consulting services had stopped.  The plaintiff’s petition was later amended to add an allegation that the reduced soybean yield caused a premature sale of a cattle herd in order to compensate for the lack of revenue from the sale of harvested crops.  The trial court heard testimony from various experts as to economic loss, and concluded that the plaintiff justifiably relied to its detriment on the defendants to advise concerning the products to use on the plaintiff’s fields and when to apply them.  That justifiable reliance, the trial court concluded, caused the plaintiff to change position to its detriment.  The trial court also determined that the defendants owed a duty to the plaintiff and failed to conform to that duty resulting in substantial crop damage which could have been avoided if the defendants had inspected the crops. 

As to damages, the trial court accepted the methodology of a CPA that examined yield on nearby farms and concluded that the plaintiff sustained damages of $246,334,  The trial court rejected the defendants’ argument that the plaintiff failed to mitigate damages by waiting at least two weeks to spray for stinkbugs after discovering the infestation.  At the time of discovery of the stinkbug problem, the trial court determined, the crop damage had already occurred and the second wave of bugs didn’t arrive until two weeks later.  However, the trial court, rejected the plaintiff’s claim that it was forced to sell 600 head of cattle to pay down debt because of the lost crop revenue.  The trial court also rejected an emotional distress claim. 

On appeal, the appellate court upheld the trial court’s finding of causation of damages to the soybean crop by the defendants.  On the damages issue, the appellate court reduced the award to $148,946 based on the best historical yields over a five-year span rather than the yield from nearby field in 2016 (the year of the crop loss) based on the standard for calculating damages set forth in Aultman v. Rinicker, 416 So. 2d 641 (La. Ct. App. 1982).  The appellate court also determined that, based on the evidence, the plaintiff failed to mitigate damages and, as a result, reduced the damage award further to $134,051. 

No Deduction For Excess Rent – Bad Valuation

Plentywood Drug, Inc., et al. v. Comr., T.C. Memo. 2021-45

The petitioner, a drug store in a rural town in northeast Montana, claimed rent deduction for the main floor of the building it rented.  The petitioner estimated the value of the main floor at $25 per square foot.  Upon audit, the IRS rejected the petitioner’s valuation and pegged the value at $7.17 per square foot.  The Tax Court rejected both valuations and determined that the rental value was $15.90 per square foot.  As a result, the petitioner couldn’t claim approximately $40,000 in deductions attributable to “excess” rent.  In addition, the rents paid exceeding the $15.90 per square foot threshold were non-deductible constructive dividends to the building owners.  The Tax Court also rejected the IRS imposition of penalties under I.R.C. §6662.  The Tax Court noted that real estate data are not publicly available in Montana which complicates efforts to appraise property values and reasonable rents. 

EIP Not Exempt From Garnishment 

United States v. Ruiz, No. EP-19-CR-03035(1)-DCG, 2021 U.S. Dist. LEXIS 217327 (W.D. Tex. Nov. 10, 2021)

The plaintiff was sentenced to five years in prison with five years of supervised release and ordered to pay restitution in early 2021.  As of August of 2021, the plaintiff still owed the full amount.  The government moved to garnish his bank account containing $3,982.23.  The plaintiff claimed that $1,700 contained in the bank account was from a stimulus payment (“Economic Impact Payment”) paid under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and was exempt from garnishment as an unemployment benefit to provide relief from “economic challenges” faced as a result of the virus.  The court noted that the statutory language providing for the payment classified it as a “recovery rebate” taking the form of a tax credit, and did not refer to it as an “unemployment” benefit.  It was not conditioned on the lack of employment.  The court held that the payment was also not properly classified as unemployment insurance, but was separate and distinct from unemployment insurance.  Accordingly, the payment was not protected from garnishment under 18 U.S.C. §3613(a)(1) and 26 U.S.C. §6334. 

December 3, 2021 in Contracts, Criminal Liabilities, Income Tax, Regulatory Law | Permalink | Comments (0)

Monday, October 11, 2021

Caselaw Update

Overview

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

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

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

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

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

Lawsuit Challenging Changes to Beef Checkoff Continues

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

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

Lack of Documentation Leads to Receipt of Constructive Dividends

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

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

Suing Ex-Wife Not a Trade or Business

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

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

Conclusion

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

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

Tuesday, August 31, 2021

Is There a Constitutional Way To Protect Animal Ag Facilities?

Overview

In response to attempts by activist groups opposed to animal agriculture, legislatures in several states over the last 30 years have enacted laws designed to protect specified livestock facilities from certain types of interference.  Some of the laws have been challenged on free speech and equal protection grounds with a few courts issuing opinions that have largely found the laws constitutionally suspect.  Most recently, the statutes in Iowa and Kansas were construed by two different U.S. Circuit Courts of Appeals. 

Recent court developments involving legislative attempts to protect confinement animal agriculture – it’s the topic of today’s article.

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 likely are not constitutionally deficient.  Laws that go beyond those confines may be. 

Recent Court Opinions

2017 developments.  2017 saw several courts issue opinions on various state provisions.  In North Carolina, 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. 

The Utah law, however, was 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. 

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 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, No. 19-1364, 2021 U.S. App. LEXIS 23643 (8th Cir. Aug. 10, 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, No. 20-1538, 2021 U.S. App. LEXIS 23502 (8th Cir. Aug. 9, 2021). 

Tenth Circuit.  In Animal Legal Defense Fund, et al. v. Kelly, No. 20-3082, 2021 U.S. App. LEXIS 24817 (10th Cir. Aug. 19, 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. 

Conclusion

There presently is a split between the Eighth and Tenth Circuits on the constitutionality of the Iowa and Kansas laws with respect to the issue of gaining access to a covered facility by lying.  That’s a key point.  If access can be barred by sifting out liars with intent to do a covered facility harm, then the video issue is largely mooted.  The issues will likely continue in the courts for the foreseeable future.

August 31, 2021 in Regulatory Law | Permalink | Comments (0)

Sunday, August 29, 2021

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

Overview

The research and promotion of numerous ag products is funded by the producers that raise the commodities via “checkoff” programs.  Sometimes producers object to the content and manner of various promotions and claim that being compelled to fund the offensive advertising is private speech that they cannot be compelled to fund.  But, is a mandatory checkoff private speech or is it constitutionally protected government speech?  Recently the U.S. Court of Appeals addressed the question again in the context of the beef checkoff. 

Checkoff programs and the Constitution – it’s the topic of today post.

Background

Legislation has established mandatory assessments for promotion of particular agricultural products.  An assessment (or “checkoff”) is typically levied on handlers or producers of commodities with the collected funds to be used to support research promotion and information concerning the product.  Such checkoff programs have been challenged on First Amendment free-speech grounds.  For example, in United States v. United Foods, Inc., 533 U.S. 405 (2001), the U.S. Supreme Court held that mandatory assessments for mushroom promotion under the Mushroom Promotion, Research, and Consumer Identification Act violated the First Amendment.  The assessments were directed into generic advertising, and some handlers objected to the ideas being advertised.  In an earlier decision, the Court had upheld a marketing order that was part of a greater regulatory scheme with respect to California tree fruits.  Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S. 457, rev’g, 58 F. 3d 1367 (9th Cir. 1995).  In that case, producers were compelled to contribute funds for cooperative advertising and were required to market their products according to cooperative rules.  In addition, the marketing orders had received an antitrust exemption.  None of those facts was present in the United Foods case, where the producers were entirely free to make their own marketing decisions and the assessments were not tied to a marketing order. The Supreme Court did not address, however, whether the checkoffs at issue were government speech and, therefore, not subject to challenge as an unconstitutional proscription of private speech.

The Government Speech Issue

In Livestock Marketing Association v. United States Department of Agriculture, 335 F.3d 711 (8th Cir. 2003), the Eighth Circuit held unconstitutional the beef checkoff authorized under the Beef Promotion and Research Act of 1985.  The court ruled that the mandatory assessment of one dollar per-head violated the free-speech rights of those who objected to the generic advertising of beef funded by the check-off because cattle producers and sellers were not regulated nearly to the extent the California tree fruit industry was regulated in Wileman Brothers.  As such, the beef industry was similar to the mushroom industry, and United Foods controlled. The court also ruled that the beef checkoff did not constitute government speech. 

The Supreme Court agreed to hear the Livestock Marketing Association case on the narrow grounds of whether the beef checkoff was government speech.  The Court reversed the Eighth Circuit and upheld the check-off as government speech. Johanns v. Livestock Marketing Association, 544 U.S. 550 (2005).  The case involved (in the majority’s view) a narrow facial attack on whether the statutory language of the Act created an advertising program that could be classified as government speech. That was the only issue before the Court.

Elements of constitutionality.  While the government speech doctrine is relatively new and is not well-developed, prior Supreme Court opinions not involving agricultural commodity checkoffs indicated that to constitute government speech, a checkoff must clear three hurdles: (1) the government must exercise sufficient control over the content of the check-off to be deemed ultimately responsible for the message; (2) the source of the checkoff assessments must come from a large, non-discrete group; and (3) the central purpose of the checkoff must be identified as the government’s. Based on that analysis, it was believed that the beef checkoff would clear only the first and (perhaps) the third hurdle, but that the program would fail to clear the second hurdle. Indeed, the source of funding for the beef check-off comes from a discrete identifiable source (cattle producers) rather than a large, non-discrete group. The point is that if the government can compel a targeted group of individuals to fund speech with which they do not agree, greater care is required to ensure political accountability as a democratic check against the compelled speech. That is less of a concern if the funding source is the taxpaying public which has access to the ballot box as a means of neutralizing the government program at issue and/or the politicians in support of the program. While the dissent focused on this point, arguing that the Act does not establish sufficient democratic checks, Justice Scalia, writing for the majority, opined that the compelled-subsidy analysis is unaffected by whether the funds for the promotions are raised by general taxes or through a targeted assessment. That effectively eliminates the second prong of the government speech test. The Court held that the other two requirements were satisfied because the Act vests substantial control over the administration of the checkoff and the content of the ads in the USDA Secretary.

The Supreme Court, in Johanns, did not address (indeed, the issue was not before the Court) whether the advertisements, most of which are credited to “America’s Beef Producers,” give the impression that the objecting cattlemen (or their organizations) endorse the message. Because the case only involved a facial challenge to the statutory language of the Act, the majority examined only the Act’s language and concluded that neither the statute nor the accompanying Order required attribution of the ads to “America’s Beef Producers” or to anyone else. Thus, neither the statute nor the Order could be facially invalid on this theory. However, the Court noted that the record did not contain evidence from which the Court could determine whether the actual application of the checkoff program resulted in the message of the ads being associated with the plaintiffs. Indeed, Justice Thomas, in his concurring opinion, noted that the government may not associate individuals or organizations involuntarily with speech by attributing an unwanted message to them whether or not those individuals fund the speech and whether or not the message is under the government’s control. Justice Thomas specifically noted that, on remand, the plaintiffs could possibly amend their complaint to assert an attribution claim which ultimately could result in the beef checkoff being held unconstitutional. If that occurred, and the ads were found to be attributable to the complaining ranchers or their associated groups, the beef checkoff could still be held to be unconstitutional.

In the first check-off opinion rendered by a federal court after the U.S. Supreme Court’s opinion in the beef check-off case, the Federal District Court for the Central District of California issued a preliminary injunction against enforcement of the California Pistachio check-off on the basis that the plaintiffs were likely to succeed on the merits of their claim that the program was unconstitutional.  Paramount Land Co., et al. v. California Pistachio Comm’n, No. 2:05-cv-05-07156-mmm-pjw (C.D. Cal. Dec. 12, 2005). The court reasoned, based on Johanns, that the check-off was not government speech and that the industry regulation of the marketing aspects of pistachios was more like the regulatory aspects of the Mushroom industry at issue in United Foods than the regulatory aspects of the California tree fruit industry at issue in Glickman. However, on appeal, the district court’s opinion was reversed. Paramount Land Company, LP v. California Pistachio Commission, 491 F.3d 1003 (9th Cir. 2007). The appellate court determined that the First Amendment was not implicated because, consistent with Johanns, the Secretary of the California Department of Food and Agriculture retained sufficient authority to control both the activities and the message under the Pistachio Act.  The court reasoned that the fact that the Secretary had not actually played an active role in controlling pistachio advertising could not be equated with the Secretary abdicating his regulatory role. In another California case, a court held that milk producer assessments used for generic advertising to stimulate milk sales were constitutional under the Johanns rationale. Gallo Cattle Co. v. A.G. Kawamura, 159 Cal. App. 4th 948, 72 Cal. Rptr. 3d 1 (2008).

Recent Case

The government speech issue came up again in the context of the beef checkoff in Ranchers Cattlemen Action Legal Fund United Stockgrowers of America v. Vilsack, No. 20-35453, 2021 U.S. App. LEXIS 22189 (9th Cir. Jul. 27, 2021).  The plaintiff represents cattlemen that are subject to the $1 per head of cattle sold in the United States federal beef checkoff created under the Beef Promotion and Research Act of 1985.  The checkoff funds promotions to “maintain and expand domestic and foreign markets and uses for beef and beef products.”  The USDA Secretary, the defendant in the case, oversees the checkoff through the Cattlemen’s Beef Promotion and Research Board that consists of members the Secretary appoints.  A qualified state beef council typically collects the checkoff, retains half of the amount collected to fund state marketing efforts and forwards the balance to the federal program.  A cattle producer may opt out of funding their state beef council and direct the entire assessment to the federal program. 

The plaintiff’s members object to their states’ advertising campaigns, and claim in particular that the distribution of funds to the Montana Beef Council under the federal program is an unconstitutional compelled subsidy of private speech. Later, the plaintiff amended its complaint to include numerous other states where it had members.  The trial court entered a preliminary injunction preventing the use of checkoff funds for promotional campaigns absent the producers' consent.  On the merits, the trial court determined that by virtue of a memorandum of understanding that the Montana Beef Council and the other state beef councils had entered into with the defendant, the defendant had sufficient control over the promotional program to make the speech of the various state beef councils effectively government speech. 

On appeal, the appellate court affirmed.  The appellate court noted that the critical question in determining whether speech is public or private is whether the speech is “effectively controlled” by the government.  The appellate court determined that the challenged speech was.  Under the memorandums of understanding, the state beef councils had to submit for the defendant’s pre-approval “any and all promotion advertising, research, and consumer information plans and projects" and "any and all potential contracts or agreements to be entered into by state beef councils for the implementation and conduct of plans or projects funded by checkoff funds." The state beef councils also had to submit "an annual budget outlining and explaining . . . anticipated expenses and disbursements" and a "general description of the proposed promotion, research, consumer information, and industry information programs contemplated.”  Failure to comply could lead to the defendant’s de-certification of a state beef council.  The appellate court noted that this established "final approval authority over every word used in every promotional campaign,” and constituted government speech.   In addition, all private contracted third parties that were not subject to pre-approval were “effectively controlled” by the government.  The appellate court noted that the Congress expressly contemplated the participation of third parties in the beef checkoff program, designating several "established national nonprofit industry-governed organizations" with whom the Operating Committee could contract to "implement programs of promotion." 

In addition, the appellate also pointed out that the state beef councils had to give the defendant notice of all board meetings and allow the defendant or his designees to participate in any discussions about payment to third parties.  It was this ability to control speech that was the key rather than whether the defendant exercised final pre-approval authority over some third-party speech. On that point, the appellate court noted it had previously ruled similarly in 2007 in the Paramount Land Company, LP case.

Conclusion

If by use of a memorandum of understanding the USDA is able to create sufficient theoretical control over a checkoff to transform the program into government speech, there isn’t much of a viable path forward for claiming that a checkoff isn’t government speech.  Any future challenge, as Justice Thomas pointed out in Johanns, would have to clearly and convincingly posit that an unwanted message is being attributed to particular producers. 

August 29, 2021 in Regulatory Law | Permalink | Comments (0)

Monday, August 9, 2021

California’s Regulation of U.S. Agriculture

Overview

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

Each state sets its own rules concerning the regulation of agricultural production activities.  So, how can one state override other states’ rules?  Involved is a judicially-created doctrine known as the dormant Commerce Clause.

California Proposition 12, the dormant Commerce Clause and the ability of a state to dictate ag practices in other states – it’s the topic of today’s post.

Background

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

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

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

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

California Proposition 12 Litigation

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

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

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

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

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

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

On to the Supreme Court?

Earlier this summer, the U.S. Supreme Court declined to review Proposition 12.  North American Meat Institute v. Bonta, No. 20-1215, 2021 U.S. LEXIS 3405 (S. Ct. Jun. 28, 2021).  Will the Court now take up the decision of the Ninth Circuit if requested?  That remains to be seen.  Unfortunately, the Supreme Court has been careless in applying the anti-discrimination test, and in many cases, neither of the two requirements--interstate competition or harm to the national economy--is ever mentioned.  See, e.g., Hughes v. Oklahoma, 441 U.S. 322 (1979). The reason interstate competition goes unstated is obvious – in most cases the in-state and out-of-state actors compete in the same market.  But, the reason that the second requirement, harm to the national economy, goes unstated is because the Court simply assumes the issue away.

Conclusion

The dormant Commerce Clause is something to watch for in court opinions involving agriculture.  As states enact legislation designed to protect the economic interests of agricultural producers in their states, those opposed to such laws could challenge them on dormant Commerce Clause grounds.  But, such cases must be plead carefully to show an impermissible regulation of extraterritorial conduct. 

In the present case, practically doubling the cost of creating hog barns to comply with the California standards was not enough, nor was the interconnected nature of the pork industry.  California gets to call the shots concerning the manner of U.S. pork production for pork marketed in the state.  This, in spite of overarching federal food, health and safety regulations that address California’s purported rationale for Proposition 12.

The dormant commerce clause is one of those legal theories “floating” around out there that can have a real impact in the lives of farmers, ranchers and consumers, and how economic activity is conducted.  

August 9, 2021 in Regulatory Law | Permalink | Comments (0)

Thursday, July 15, 2021

Montana Conference and Ag Law Summit (Nebraska)

Overview

The second of the two national conferences on Farm/Ranch Income Tax and Farm/Ranch Estate and Business Planning is coming up on August 2 and 3 in Missoula, Montana.  A month later, on September 3, I will be conducting an “Ag Law Summit” at Mahoney State Park located between Omaha and Lincoln, NE.

Upcoming conferences on agricultural taxation, estate and business planning, and agricultural law – it’s the topic of today’s post.

Montana

The second of my two 2021 summer conferences on agricultural taxation and estate/business planning will be held in beautiful Missoula, Montana.  Day 1 on August 2 is devoted to farm income taxation, with sessions involving an update of farm income tax developments; lingering PPP and ERC issues (as well as an issue that has recently arisen with respect to EIDLs); NOLs (including the most recent IRS Rev. Proc. and its implications); timber farming; oil and gas taxation; handling business interest; QBID/DPAD planning; FSA tax and planning issues; and the prospects for tax legislation and implications.  There will also be a presentation on Day 1 by IRS Criminal Investigation Division on how tax practitioners can protect against cyber criminals and other theft schemes. 

On Day 2, the focus turns to estate and business planning with an update of relevant court and IRS developments; a presentation on the farm economy and what it means for ag clients and their businesses; special use valuation; corporate reorganizations; the use of entities in farm succession planning; property law issues associated with transferring the farm/ranch to the next generation; and an ethics session focusing on end-of life decisions.

If you have ag clients that you do tax or estate/business planning work for, this is a “must attend” conference – either in-person or online.

For more information about the Montana conference and how to register, click here:  https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html

Nebraska

On September 3, I will be holding an “Ag Law Summit” at Mahoney St. Park, near Ashland, NE.  The Park is about mid-way between Omaha and Lincoln, NE on the adjacent to the Platte River and just north of I-80.  The Summit will be at the Lodge at the Park.  On-site attendance is limited to 100.  However, the conference will also be broadcast live over the web for those that would prefer to or need to attend online.

I will be joined at the Summit by Prof. Ed Morse of Creighton Law School who, along with Colten Venteicher of the Bacon, Vinton, et al., firm in Gothenburg, NE, will open up their “Ag Entreprenuer’s Toolkit” to discuss the common business and tax issues associated with LLCs.  Also on the program will be Dan Waters of the Lamson, et al. firm in Omaha.  Dan will address how to successfully transition the farming business to the next generation of owners in the family. 

Katie Zulkoski and Jeffrey Jarecki will provide a survey of state laws impacting agriculture in Nebraska and key federal legislation (such as the “30 x 30” matter being discussed).  The I will address special use valuation – a technique that will increase in popularity if the federal estate tax exemption declines from its present level.  I will also provide an update on tax legislation (income and transfer taxes) and what it could mean for clients. 

The luncheon speaker for the day is Janet Bailey.  Janet has been deeply involved in Kansas agriculture for many years and will discuss how to create and maintain a vibrant rural practice. 

If you have a rural practice, I encourage you to attend.  It will be worth your time. 

For more information about the conference, click here:   https://www.washburnlaw.edu/employers/cle/aglawsummit.html

Conclusion

The Montana and Nebraska conferences are great opportunities to glean some valuable information for your practices.  As noted, both conferences will also be broadcast live over the web if you can’t attend in person.   

July 15, 2021 in Bankruptcy, Business Planning, Environmental Law, Estate Planning, Income Tax, Real Property, Regulatory Law, Water Law | Permalink | Comments (0)

Sunday, July 11, 2021

Mailboxes and Farm Equipment

Overview

Farmers use the public roadways to move farm machinery and equipment.  Sometimes, mailboxes present issues.  What are the rules for placement of mailboxes along rural roads?  What if a mailbox is hit?  The resolution of the matter will be fact based.  Was the mailbox intentionally damaged or destroyed?  Was the mailbox located in the proper place?  Was the mailbox at the proper height and of the correct size?  Was the farm machinery and equipment operating on the public roadway within applicable size and weight limitations?  These are all relevant questions.

Moving farm machinery and equipment along a public roadway and the potential hazard presented by mailboxes- it’s the topic of today’s post.

Postal Service Rules

If a mailbox is struck with farm equipment, one issue to check is whether the mailbox was in the proper location and was of the proper height and size.  The United States Postal Service (USPS) has rules for the placement of mailboxes.  But, the matter is also a mixture of state law.  Generally, a mailbox must be 41-45 inches above the road surface and 6-8 inches from the edge of the road. See, e.g., Mailbox Installation, USPS.COM; Section 632, USPS Postal Operations Manual.  The meaning of “edge of the road” depends on state law – “shoulder” is defined differently from state-to-state.  For rural postal routes, all mailboxes are to be on the right side of the road in the carrier’s direction of travel and be placed in conformity with state laws and highway regulations.  If state law is more restrictive than the USPS Operations Manual, state law controls.    

The posts for a mailbox are to be made from wood no larger than 4” x 4,” but can also be made out of steel or aluminum no larger than 2” in diameter.  However, the posts should be designed to easily bend or fall away in the event of a collision.  USPS Operations Manual.  The mailbox cannot be constructed in a manner that it is a fixed object that won’t break away when it is struck. 

The USPS also has specific mailbox size limitations.  All dimensions and designs must be in accordance with USPS rules before a mailbox can be sold to the public at retail.  For those that wish to build their own, the mailbox must be approved by the local postmaster.  This can be a key point when it comes to large farm equipment utilizing rural roads. 

A mailbox that is not in compliance with USPS rules could be creating a “traffic” hazard.  The hazard issue not only involves size and height restrictions but can also instruct the issue of where a mailbox is placed.  Each state has its own set of regulations on this issue.  In some states, a mailbox cannot be placed within a certain distance of an intersection.  The distance requirement might expand if the daily traffic is of a particular volume.

If farm equipment accidentally strikes a mailbox that is out of compliance with either federal or state requirements, that fact could absolve the farmer from responsibility for replacing the mailbox.

Roadway Size and Weight Limitations

On the other side of the coin, each state also has regulations governing the weight and size of farm equipment that can travel public roads. A farmer utilizing the public roadways with equipment and machinery exceeding applicable size and/or weight limitations that strikes a mailbox has little defense.  The size and weight limitations have come into greater relevance in recent years as farm machinery and equipment have enlarged (in size and weight) along with the size of farming operations.  Public roads have not correspondingly widened.  Weight limitations are often tied to the number of axles and the distance between the axles.  See, e.g., Kan. Stat. Ann. §8-1908.  Vehicles exceeding the limitations are not to be driven on public roads.  But, in states where the agricultural industry predominates, agricultural equipment and machinery is often exempted.  See., e.g., Kan. Stat. Ann. §8-1908.  Civil damages to the road are possible for violations.  See, e.g., Kan. Stat. Ann. §8-1913.      

As for size limitations, the maximum width permitted is generally eight and one-half feet under federal law.  But, that limit is inapplicable to “special mobile equipment” including farm equipment or instruments of husbandry.  See Federal Size Regulations for Commercial Motor Vehicles, U.S. Department of Transportation:  Federal Highway Administration (Oct. 9, 2019); Kan. Stat. Ann. §8-1902(b).  However, a state may require a permit for “over-width” farm equipment to be operated on a public roadway in the state, and may adopt additional requirements for width and height than the federal rules.  Common rules apply to the transporting of hay loads and combine headers.  See, e.g., Kan. Stat. Ann. §§8-1902(d)(2)-(3); 8-1902(e).

Sometimes, existing size and weight limitations are lifted for farm equipment (including farm trucks) during planting and harvesting seasons, and other unique exemptions might apply in certain situations.  It’s important to pay attention to a particular state’s rules as well as administrative notices concerning any modification (whether permanent or temporary) to existing rules.

If the operator of farm equipment on a public road is not in compliance with those regulations and strikes a non-compliant mailbox, sorting out the legal liability gets murkier.    

Colliding With A Mailbox

A mailbox is federal property.  Under federal law, it is unlawful to intentionally destroy a mailbox.  Doing so could result in a substantial fine and/or imprisonment of up to three years.  18 U.S.C. §1705.  Unintentional damage or destruction to a mailbox will typically require the notification of the property owner and the local police.  In addition, local regulations may impose other requirements. 

But, for those operating farm equipment and machinery on public roads within the applicable rules that happen to strike a mailbox, being required to pay for the damage caused is probably the worst that will happen.

Conclusion

Farmers often must use the public roads to move farm equipment from field-to-field, to get harvested crops to a local elevator, or for other reasons.  The increased size of farm equipment and natural limitations to the width of roads (particularly in the eastern third of the U.S.) present challenges to avoiding mailboxes.  It’s good to know the rules that can apply in such situations. 

July 11, 2021 in Civil Liabilities, Regulatory Law | Permalink | Comments (0)

Thursday, July 1, 2021

Reimbursement Claims in Estates; Drainage District Assessments

Overview

Two interesting issues that sometimes come up in the agricultural setting are those involving claims in a decedent’s estate as well as those involving drainage district assessments.  Matters involving ag estates are often difficult because family members tend to be involved.  Drainage issues can also become contentious and can become tangled in numerous ways.

Reimbursement claims in an estate and drainage district assessments – it’s the topic of today’s post.

Former Trustee Fails to Establish Claims for Reimbursement

In Re Estate of Bronner, No. 20-0747, 2021 Iowa App. LEXIS 488 (Iowa Ct. App. Jun. 16, 2021)

A married couple as operated a 276-acre family farm.  Upon the husband’s death, his one-half interest in the farm passed to a family trust for his wife for life, and named a son as trustee.  Upon the surviving spouse’s death, the trust would terminate with the remaining assets distributed to the couple’s then surviving children.  The surviving spouse and trustee son continued to operate the trust’s farmland.  In addition, the trustee rented other land from his mother for his own farming operation, and he paid his annual farm rent by depositing into his mother’s account the amount necessary to cover the loan payment and real estate taxes on the trust’s farmland.  The trustee also made insurance premium payments. 

Ultimately, the surviving spouse’s cognitive function declined, and she was no longer competent to enter into contracts.  The trustee then arranged for the sale of a 76.11-acre parcel of trust farm property to an adjoining landowner through a private sale for $275,000.  The net sale proceeds were paid to reduce the amount owed on the existing farm loan.  Shortly before the surviving spouse’s death, another son sued the trustee for elder abuse, but later agreed to dismiss his claim in exchange for a court-appointed guardian and conservator for his mother.  When the surviving spouse died, the trustee was appointed executor of her estate.  The other son sued to remove the trustee son as executor, alleging that he breached his fiduciary duties as trustee by paying farm rent at less than market value and in selling the 76.11-acre parcel of land for less than its market value. 

The trial court found that the trustee had breached his fiduciary duties and removed him as trustee.  He was not compensated for his services.  He was also removed as executor.  He then sued to recover for expenditures he made on behalf of his mother and the family trust totaling over $199,000 for farm maintenance/capital improvements; taxes and insurance; appraisal costs; costs associated with prior litigation; and funeral and nursing home/medical expenses.  The trial court denied the claims for maintenance and capital improvements, and the appellate court affirmed noting that most of the expenses went to improve his own farming operations or to benefit himself personally, and the invoices he submitted did not establish that he paid the expenses.  The appellate court also affirmed the trial court’s denial of reimbursement for taxes and insurance as they were considered part of his farm rent payments and the evidence showed that some were paid by the estate.  The appellate court also affirmed the trial court’s denial of appraisal costs because the costs didn’t benefit the trust, and the trial court’s refusal to allow reimbursement for legal expenses because the expenses were court-ordered as part of prior litigation.  The former trustee/executor also failed to substantiate that he had paid funeral expenses, and the appellate court affirmed the trial court’s decision to he was not entitled to reimbursement of these costs. 

Observation:  Keeping good records of transactions personally entered into on behalf of an estate or trust is an essential part of successfully being reimbursed for expenses incurred. 

Drainage District Incorrectly Makes Improper Assessment

Union Pacific Railroad Co., et al. v.  v. Drainage District 67 Board of Trustees, No. 20-0814, 2021 Iowa App. LEXIS 458 (Iowa Ct. App. Jun. 16, 2021).

In 1913, a wholly owned subsidiary of the plaintiff built a railway within its right-of-way.  The right-of-way became included in the defendant’s drainage district that was established in 1915.  State law requires drainage districts to keep any improvements in good condition and to pay for repairs, and when a drainage district has insufficient funds to pay for a repair, it must assess the costs of repairs to the property located within it in proportion to the benefit the land receives from the improvement.  A classification of benefit remains the same unless the drainage district reclassifies the land. A reclassification commission determines the percentage of actual benefits received by each tract of land and makes an equitable apportionment of the costs of repairs.  Apportionment of costs must be made strictly in accordance with the benefits reasonably expected or actually enjoyed. 

The defendant constructed an artificial tile to drain the agricultural lands in the district with the main tile crossing the railroad’s right of way.  The railroad had been originally assessed 5.81 percent for its share of the drainage benefits in the district.  In 2018, the defendant discovered that tile needed repaired or replaced, including a collapse in the tile under the plaintiff’s tracks that, if not repaired, would cause soil to enter the main tile.  To comply with federal safety requirements, the portion of the repair running under the right-of-way required steel casing and mechanical restrained leak resistant joints.  Use of these materials approximately doubled the cost of using just corrugated plastic pipe.  The drainage district received a base bid price of $200,891 for the project.  Of that figure, $98,343 was for items necessary to prevent erosion at the railroad crossing – about 49 percent of the project cost.  The reclassification commission found that about one-half of the construction costs resulted from federal regulations and determined that the railroad would receive 100 percent of the benefit of compliance.  Thus, the reclassification commission recommended that the railroad be assessed one-half of the total cost of repair. 

At a public hearing, the railroad objected to the assessment, but the defendant approved it.  The plaintiff sued, and the trial court noted that the defendant had the authority to modify an assessment if there was evidence of an erroneous assessment or inequitable apportionment.  However, the trial court determined that the plaintiff had satisfied its burden to show that the cost had not been properly assessed.  Specifically, the trial court found that the defendant had reclassified the land based on “extra costs” driven by compliance with federal requirements that were not a benefit to the plaintiff so as to lower the assessments to other lands in the district.  The appellate court affirmed the trial court’s award of summary judgment for the plaintiff, noting that construction costs are not benefits that may be considered in a reclassification, nor are the costs of federal compliance.

Conclusion

The law intersects with agriculture in many ways.  Sometimes production activities are involved, sometimes the two meet at the point of family relationships and transactions, and other times it’s a matter of only tangential connections that can ultimately have an impact on production activities.  Often, state law is involved.  The two cases discussed in today’s post are an illustration of the myriad of ways that the law can touch agriculture and those involved in it.

July 1, 2021 in Estate Planning, Regulatory Law | Permalink | Comments (0)