Sunday, June 16, 2024
Rural Practice Digest - Substack
Overview
I have started a new Substack that contains the “Rural Practice Digest.” You can access it at mceowenaglawandtax.substack.com. While I will post other content from time-to-time that is available without a paid subscription, the Digest is for paid subscribers. The inaugural edition is 22 pages in length and covers a wide array of legal and tax topics of importance to agricultural producers, agribusinesses, rural landowners and those that represent them.
Contents
Volume 1, Edition 1 sets the style for future editions - a lead article and then a series of annotations of court opinions, IRS developments and administrative agency regulatory decisions. The lead article for Volume 1 concerns losses related to cooperatives. The USDA is projecting that farm income will be down significantly this year. That means losses will be incurred by some and some of those will involve losses associated with interests in cooperatives. The treatment of losses on interests in cooperatives is unique and that’s what I focus on in the article.
The remaining 19-pages of the Digest focus on various other aspect of the law that impacts farmers and ranchers. Here’s an overview of the annotation topics that you will find in Issue 1:
- Chapter 12 Bankruptcy
- Partnership Election – BBA
- Valuation Rules and Options
- S Corporation Losses
- Nuisance
- Fair Credit Reporting Act
- Irrigation Return Flow Exemption and the CWA
- What is a WOTUS?
- EPA Regulation Threatens AI
- Trustee Liability for Taxes
- Farm Bill
- Tax Reimbursement Clauses in IDGTs
- QTIP Marital Trusts and Gift Tax
- FBAR Penalties
- Conservation Easements
- Hobby Losses
- Sustainable Aviation Fuel
- IRS Procedures and Announcements
- Timeliness of Tax Court Petition
- BBA Election
- SCOTUS Opinion on Fees to Develop Property
- Quiet Title Act
- Animal I.D.
- “Ag Gag” Update
- What is a “Misleading” Financing Statement
- Recent State Court Opinions
- Upcoming Seminars
Substack Contents
In addition to the Rural Practice Digest, I plan on adding video content, practitioner forms and other content designed to aid those representing agricultural clients in legal and tax matters, and others simply interested in keeping up on what’s happening in the world of agricultural law and taxation.
Conclusion
Thank you in advance for your subscription. I trust that you will find the Digest to be an aid to your practice. Your comments are welcome. mceowenaglawandtax.substack.com
June 16, 2024 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)
Sunday, October 29, 2023
Ag Law and Tax Topics – Miscellaneous Topics
I haven’t been able to write for the blog recently given my heavy travel and speaking schedule, and other duties that I have. But that doesn’t mean that all has been quiet on the ag law and tax front. It hasn’t. Today I write about several items that I have been addressing recently as I criss-cross the country talking ag law and tax.
What if TCJA Isn’t Extended?
Tax legislation that went into effect in 2018 is set to expire at the end of 2025. For many, this could have a significant impact starting in 2026. Do you have a plan in place if the tax law changes dramatically at that time?
If Congress allows the 2017 tax law to expire, how might it impact you? For starters, tax rates will increase, and those currently in the 12 percent federal bracket will see a 25 percent increase in their tax rate. Currently, the 12 percent bracket for married persons filing joints applies to taxable incomes from $22,000-$89,450. So, for instance, a married couple with $75,000 of taxable income would see their tax bill raise from $8,560 to approximately $10,350.
In addition, the standard deduction will be reduced (essentially cut in one-half), but personal exemptions will be restored. Also, the child tax credit will be reduced from $2,000 per qualifying child to $1,000, refundability will be reduced and the credit will be eliminated entirely for some families. For homeowners, the current limit on the mortgage interest deduction will be removed.
The 2017 law removed the penalty for not getting government health insurance, but that will be restored starting in 2026, as will the deduction for state and local taxes. In addition, the lower limit on charitable deductions will be reinstated. For businesses that aren’t corporations, the 20 percent deduction on business income will go away.
The estate tax exemption will be essentially cut in half, (from about $14 million in 2025 to about $7 million in 2026). For larger estates, making gifts now might make some sense.
It might be time to start thinking about the changes that could occur starting in 2026 and putting a good plan in place to handle what could happen. If you operate a business, think of higher taxes as an additional cost that needs to be managed.
Buying Farmland with a Growing Crop
Buying farmland with a growing crop presents unique tax issues. It has to do with allocating the purchase price and the timing of deductions.
When you buy farmland with a growing crop on it the tax Code requires that you allocate the purchase price between crops and land based on their relative fair market values. You can’t deduct the cost of the portion of the land purchase allocated to the growing crop. While the IRS has not been clear on the issue, the costs should be capitalized into the crop and deducted when the income from the crop is reported or fed to livestock, which may be in a year other than the year in which the crop is sold.
If you buy summer fallow ground, you can’t deduct or separately capitalize for later deduction the value of costs incurred before the purchase. Additional costs incurred before harvest such as for hauling are deductible if you’re on the cash method.
One approach to consider that could lead to a better tax result might be to lease the land before the purchase. That way you incur the planting costs and can deduct them rather than the landlord that will sell the farmland to you.
If your considering buying farmland with a growing crop talk with your farm tax advisor so you get the best tax result possible for your particular situation.
What is Livestock?
The definition of “livestock” can come up in various settings. For example, sometimes the tax Code says that bees are livestock for one purpose but are not for other purposes. The issue of what is livestock can also arise in ag lending situations, ag contracts as well as zoning law and ordinances.
What is “livestock”? The definition of “livestock” for purposes of determining whether an asset is used in a farming business includes “cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals and other mammals.” It does not include “poultry, chickens, turkeys, pigeons, geese, other birds, fish, frogs, and reptiles.” While that definition normally does not include bees and other insects as livestock, the IRS has ruled that honeybees destroyed due to nearby pesticide use qualify for involuntary conversion treatment.
When pledging livestock as collateral for an ag loan, it should be clear whether unborn young count as “livestock” subject to the security agreement. From a contract standpoint, semen is not livestock unless defined as such.
For zoning laws and ordinances, clarity is the key. Is a potbellied pig “livestock” or a pet”? Will an ordinance that bans livestock prohibit the keeping of bees in hives? It probably won’t unless it specifically defines bees as “livestock.”
Partition of Farmland
If your estate plan is to simply “let the children figure it out,” it’s likely instead that a judge will. Indeed, one of those situations where a judge gets involved is when the parents have left farmland in co-equal ownership to multiple children after the last of the parents to die. That often leads to a partition and sale with the proceeds being split among the children.
Partition and sale of land is a legal remedy available if the co-owners cannot agree on whether to buy out one or more of them or sell the property and split the proceeds. It’s often the result of a poorly planned estate where the surviving parent leaves the land equally to all of the children and not all of them want to farm or they simply can’t get along. Because they each own an undivided interest in the entire property, they each have the right of partition to parcel out their interest. But that rarely is the result because they aren’t able to establish that the tract can be split exactly equally between them in terms of soil type and slope, productivity, timber, road access, water and the like. So, a court will order the entire property sold and the sale proceeds split equally. That result can devastate an estate plan where the intent was to keep the farm in the family for future generations.
A little bit of estate planning can produce a much better result.
Crop Insurance Proposal
For many farmers, crop insurance is a key element of an effective risk management strategy. Private companies sell and service the policies, but taxpayers subsidize the premiums. That means the public policy of crop insurance is a component of Farm Bill discussions. There’s a current reform proposal on the table.
A crop insurance reform proposal has been introduced in the U.S. House. Its purpose is to help smaller farming operations get additional crop insurance coverage. But its means for doing so is to eliminate premium subsidies for large farmers without providing additional coverage for smaller producers.
The bill caps annual premium subsidies at $125,000 per farmer and eliminates them for farmers with more than $250,000 in adjusted gross income. The bill also reduces the subsidies to crop insurance companies which is projected to reduce their profit from 14 percent to about 9 percent.
In addition, the bill eliminates subsidies for Harvest Price Option and requires the USDA to disclose who gets subsidies and the amount. It also restricts crop insurance to active farmers.
The bill represents a dramatic change to the crop insurance program. There’s not really anything in the bill to help smaller farming operations, and if the bill passes all farmers would see an increase in crop insurance premiums.
Veterinarian’s Lien
A lien gives the lienholder an enforceable right against certain property that can be used to pay a debt or obligations of the property's owner. Most states have laws that give particular persons a lien by statute in specific circumstances. These statutory liens generally have priority over prior perfected security interests.
The rationale behind statutory liens is that certain parties who have contributed inputs or services to another should have a first claim for payment. But you have to be able to prove entitlement to the lien.
In a recent case, a veterinarian treated a rancher’s cattle. The rancher didn’t pay the vet bill and while the bill remained outstanding, the vet came into possession of cattle that the rancher was grazing for another party. The vet cared for the cattle for over two months and then filed a lien for his services. Ultimately the cattle were sold at a Sheriff’s sale and the rancher’s lender claimed it had a prior lien on the proceeds. Normally, the veterinarian’s lien would beat out the lender’s lien, but the court concluded that the veterinarian couldn’t establish who actually delivered the cattle to him or that the rancher requested his services.
The court said the vet didn’t meet his burden of proof to establish that the lien was valid. While liens have position, their validity still must be established.
Digital Assets and Estate Planning
One often overlooked aspect of estate planning involves cataloguing where the decedent’s important documents are located and who has access to them. The access issue is particularly important when it comes to the decedent’s digital assets such as accounts involving email, banks, credit cards and social media.
Who has access to a decedent’s digital assets and information? Certainly, the estate’s fiduciary should have access, but it’s the type of access that is the key. The type of access, such as the ability to read the substance of electronic communications, should be clearly specified in the account owner’s will or trust. If access to digital assets and information is to be granted to a third party before death, the type and extent of access should be set forth in a power of attorney.
But, even with proper planning, it is likely that a service provider will require that the fiduciary obtain a court order before the release of any digital information or the granting of access.
Digital assets are a very common piece of a decedent’s estate. Make sure you have taken the needed steps to allow the proper people to have access post-death. Doing so can save time and expense during the estate administration process.
There are also tax consequences of exchanging digital assets after death.
Conclusion
These are just a few items of things that have been on my mind recently. I am sure more will surface soon.
October 29, 2023 in Estate Planning, Income Tax, Real Property, Regulatory Law, Secured Transactions | Permalink | Comments (0)
Wednesday, July 12, 2023
Recent Happening in Ag Law and the Courts
Overview
The field of agricultural law is broad and dynamic. There is always something happening. That’s a function of the many varied ways that the law intersects with land ownership, land use, economics and the production of food and fiber. Below is my commentary on a few recent cases involving farmers and ranchers – farm bankruptcy; veterinarian’s lien; confined animal feeding operations and an injury sustained while assisting a downed heifer.
Some recent court cases involving ag – it’s the topic of today’s post.
Chapter 12 Plan Could Be Modified – Substantial Change in Circumstances Must be Shown
In re Swackhammer, 650 B.R. 914 (Bankr. S.D. Iowa 2023)
Chapter 12 bankruptcy is exclusively for family farmers. A creature of the farm crisis of the 1980s, it became a permanent part of the bankruptcy code in 2005. A key feature is the ability to restructure debt and put together a reorganization plan that allows the farm debtor to pay off creditors over time. But a significant question is whether that reorganization plan can be modified and, if so, how many times it can be modified. A recent case shed some light on those questions.
In Swackhammer, the debtors filed Chapter 12 bankruptcy in 2018, and a second modified plan was confirmed in 2019. In 2020, the debtors move to modify their confirmed plan to extend the time to make payments to secured creditors based on changed circumstances such as weather, equipment failure, employee illness or losses due to delayed financing. Each time the creditors objected, but each time the court allowed the modification. In 2022, the debtors motioned to approve a third modified plan to extend the deadline for payments to creditors because of unforeseen revenue loss from the 2021 crops. The debtors, for the first time, claimed that nothing in 11 U.S.C. §1229 required them to prove changed circumstances. The creditors objected, claiming that the court had plenty of evidence that none of the debtors’ plans were feasible. The creditors also asserted that the debtors had to prove that their revenue loss was due to a substantial and unanticipated change in circumstances. The creditors motioned to dismiss the debtors’ Chapter 12 case.
The bankruptcy court directed the parties to discuss whether they could agree to the terms of a fourth modified plan. Ultimately, a fourth modified plan was approved with the bankruptcy court noting that this would be the last modification allowed. A secured creditor appealed on the basis that 11 U.S.C. §1229 required a debtor to show “unanticipated, substantial change in circumstances” before confirming a proposed modified plan. The appellate court noted that the circuit courts of appeal were split on the issue and that it had not yet addressed the issue. The appellate court held that 11 U.S.C. §1229(a) requires a showing, at a minimum of a “substantial change in circumstances” but that it didn’t need to take a position on the issue in the case because the evidence illustrated that the debtors had met the burden. Accordingly, the bankruptcy court had not erred in allowing the fourth modification because, in any event, the evidence showed an unanticipated substantial change in circumstances.
Veterinarian’s Lien Fails for Lack of Proof.
In re Kern, No. 22-40437-12, 2023 Bankr. LEXIS 1392 (Bankr. D. Kan. May 26, 2023)
Every state has numerous statutory liens that, when properly “perfected” can beat out a prior perfected secured lien. Common ones include a mechanic’s lien, an agister’s lien, and a landlord’s lien. Some states, including Kansas, also have a statutory veterinarian’s lien. That lien was at issue in a recent case.
In In re Kern, the debtor had pastured cattle for third parties until February of 2022. During that time, a veterinarian provided medications and veterinary care for the cattle. After shipping the cattle at the direction of the owner, the third party’s check was dishonored, and the debtor couldn’t pay the veterinary bill. Ultimately, the veterinarian came into possession of some of the debtor’s cattle and the veterinarian cared for the cattle for slightly over two months. It was unclear and disputed how the veterinarian came into possession of the cattle. The veterinarian filed a veterinary lien under Kan. Stat. Ann. §47-836 with the local county Register of Deeds and a copy of the lien from mailed to the debtor and printed in the local newspaper. The debtor’s primary lender then intervened, claiming a first-priority lien on the cattle. The county Sheriff sold the cattle for $18,714.83. That amount was deposited with the county court.
The veterinarian then sought payment pursuant to the lien, and the primary lender objected. The debtor then filed Chapter 12 bankruptcy. The parties stipulated that the primary lender held a valid perfected lien in the cattle and cattle proceeds, that could be beat out by a valid veterinarian’s lien. The debtor claimed that he didn’t request veterinary services for the cattle, but that the cattle owner must have. Ultimately, the court concluded that the veterinarian could only establish that someone with lawful possession of the cattle delivered them to him for veterinary services, but that it couldn’t be established that it was the debtor. Thus, the veterinarian couldn’t establish it was the debtor that requested his services and the veterinarian failed to meet his burden of proof by a preponderance of the evidence and the veterinarian’s lien was invalid.
Court Vacates Medium-Sized CAFO Rule
Dakota Rural Action v. United States Department of Agriculture, No. 18-2852 (CKK), 2023 U.S. Dist. LEXIS 58678 (D. D.C. Apr. 4, 2023)
The plaintiff, a non-profit organization that was initially formed during the farm debt crisis of the 1980s to provide various forms of assistance to smaller-sized family farming operations, acting on behalf of various farm and animal rights groups, challenged a rule promulgated by the Farm Service Agency (FSA) in 2016. That rule exempted medium-sized confined animal farming operations (CAFOs) from environmental review for FSA loans. A medium-sized CAFO can house up to 700 dairy cows, 2,500 55-pound hogs or up to 125,000 chickens. The plaintiff challenged the rule as being implemented without complying with the National Environmental Policy Act (NEPA) [42 U.S.C. §4332(2)(C)] which requires all federal agencies to undertake a certain degree of environmental review before effecting an agency decision or policy. In addition, the NEPA specifies that “an agency will inform the public that it has indeed considered environmental concerns in its decision-making process.” Alternative, an agency can provide an environmental impact statement (EIS). An EIS requires agency review before any action is taken that will “significantly affect the quality of the human environment.” Another alternative is for an agency to prepare an “environmental assessment” (EA) when environmental impact is not clearly established, an EIS is not necessary and there will not be any significant environmental impact. But, no analysis need be made public is the agency determines that its proposed action will not individually or cumulatively have a significant effect on the human environment. The FSA concluded that it didn’t need to do any environmental analysis before making loans to medium-sized CAFOs, categorically exempting them from NEPA review. The court disagreed and vacated the rule. The court noted that FSA had provided no rationale for the exemption or the data upon which it relied except a 2013 discussion of a proposed categorical exemption. FSA conceded that it made no finding as to environmental impact. The court determined that to be fatal, along with providing no notice that it was going to categorically exempt all loan actions to medium-sized CAFOs. Thus, the rule was procedurally defective. The court vacated the rule and remanded to the FSA.
Domesticated Animal Activity Act Doesn’t Provide Immunity for Feedlot Operator
Vreeman v. Jansma, No. 22-1365, 2023 Iowa App. LEXIS 492 (Iowa Ct. App. Jun. 21, 2023)
The defendant operated a feedlot and discovered a downed heifer in an area where he couldn’t get tractor or equipment to assist the heifer in getting up. He called the plaintiff to come and help him with the task, something the plaintiff has assisted with in the past. While trying to get the heifer to her feet, the plaintiff’s leg was severely injured. The plaintiff sued for negligence and the defendant motioned for summary judgment, citing the Iowa Domesticated Animal Activity Act (Iowa Code Ch. 673) (Act) as providing him with immunity from suit. The Act states that “A person, including a domesticated animal professional, domesticated animal activity sponsor, the owner of the domesticated animal, or a person exhibiting the domesticated animal, is not liable for the damages, injury or death suffered by a participant or spectator resulting from the inherent risks of a domesticated animal activity.” The plaintiff asserted that the Act was inapplicable because standing up a downed heifer is not a “domesticated animal activity.” The trial court granted summary judgment to the defendant and the plaintiff appealed. The appellate court reversed, noting that the statute provided a specific list of definitions for “domesticated animal activity” and that standing up a downed heifer was not in the list.
Conclusion
There’s never a dull moment in agricultural law and taxation. Stay tuned for more developments in future posts.
July 12, 2023 in Bankruptcy, Civil Liabilities, Regulatory Law, Secured Transactions | Permalink | Comments (0)
Saturday, July 8, 2023
Coeur d’ Alene, Idaho, Conference – Twin Track
Overview
On August 7-8 in beautiful Coeur d’ Alene, ID, Washburn Law School the second of its two summer conferences on farm income taxation as well as farm and ranch estate and business planning. A bonus for the ID conference will be a two-day conference focusing on various ag legal topics. The University of Idaho College of Law and College of Agricultural and Life Sciences along with the Idaho State Bar and the ag law section of the Idaho State Bar are co-sponsoring. This conference represents the continuing effort of Washburn Law School in providing practical and detailed CLE to rural lawyers, CPAs and other tax professionals as well as getting law students into the underserved rural areas of the Great Plains and the West. The conference can be attended online in addition to the conference location in Coeur d’ Alene at the North Idaho College.
More information on the August Idaho Conference and some topics in ag law – it’s the topic of today’s post.
Idaho Conference
Over two days in adjoining conference rooms the focus will be on providing continuing education for tax professionals and lawyers that represent agricultural clients. All sessions are focused on practice-relevant topic. One of the two-day tracks will focus on agricultural taxation on Day 1 and farm/ranch estate and business planning on Day 2. The other track will be two-days of various agricultural legal issues.
Here's a bullet-point breakdown of the topics:
Tax Track (Day 1)
- Caselaw and IRS Update
- What is “Farm Income” for Farm Program Purposes?
- Inventory Method – Options for Farmers
- Machinery Trades
- Easement and Rental Issues for Landowners
- Protecting a Tax Practice From Scammers
- Amending Partnership Returns
- Corporate Provided Meals and Lodging
- CRATs
- IC-DISCS
- When Cash Method Isn’t Available
- Accounting for Hedging Transactions
- Deducting a Purchased Growing Crop
- Deducting Soil Fertility
Tax Track (Day 2)
- Estate and Gift Tax Current Developments
- Succession Plans that Work (and Some That Don’t)
- The Use of SLATs in Estate Planning
- Form 1041 and Distribution Deductions
- Social Security as an Investment
- Screening New Clients
- Ethics for Estate Planners
Ag Law Track (Day 1)
- Current Developments and Issues
- Current Ag Economic Trends
- Handling Adverse Decisions on Federal Grazing Allotments
- Getting and Retaining Young Lawyers in Rural Areas
- Private Property Rights and the Clean Water Act – the Aftermath of the Sackett Decision
- Ethics
Ag Law Track (Day 2)
- Foreign Ownership of Agricultural Land
- Immigrant Labor in Ag
- Animal Welfare and the Legal System
- How/Why Farmers and Ranchers Use and Need Ag Lawyers and Tax Pros
- Agricultural Leases
Both tracks will be running simultaneously, and both will be broadcast live online. Also, you can register for either track. There’s also a reception on the evening of the first day on August 7. The reception is sponsored by the University of Idaho College of Law and the College of Agricultural and Life Sciences at the University of Idaho, as well as the Agricultural Law Section of the Idaho State Bar.
Speakers
The speakers for the tax and estate/business planning track are as follows:
Day 1: Roger McEowen, Paul Neiffer and a representative from the IRS Criminal Investigation Division.
Day 2: Roger McEowen; Paul Neiffer; Allan Bosch; and Jonas Hemenway.
The speakers for the ag law track are as follows:
Day 1: Roger McEowen; Cody Hendrix; Hayden Ballard; Damien Schiff; aand Joseph Pirtle.
Day 2: Roger McEowen; Joel Anderson; Kristi Running; Aaron Golladay; Richard Seamon; and Kelly Stevenson
Who Should Attend
Anyone that represents farmers and ranchers in tax planning and preparation, financial planning, legal services and/or agribusiness would find the conference well worth the time. Students attend at a much-reduced fee and should contact me personally or, if you are from Idaho, contract Prof. Rich Seamon (also one of the speakers) at the University of Idaho College of Law. The networking at the conference will be a big benefit to students in connecting with practitioners from rural areas.
As noted above, if you aren’t able to attend in-person, attendance is also possible online.
Sponsorship
If your business would be interested in sponsoring the conference or an aspect of it, please contact me. Sponsorship dollars help make a conference like this possible and play an important role in the training of new lawyers for rural areas to represent farmers and ranchers, tax practitioners in rural areas as well as legislators.
For more information about the Idaho conferences and to register, click here:
Farm Income Tax/Estate and Business Planning Track: https://www.washburnlaw.edu/employers/cle/farmandranchtaxaugust.html
Ag Law Track: https://www.washburnlaw.edu/employers/cle/idahoaglaw.html
July 8, 2023 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Saturday, April 29, 2023
Selling Collateralized Ag Products – The “Farm Products” Rule; Are Racehorses (and Breeding Rights) an Agricultural Commodity?
Overview
When a farmer sells farm products such as crops and livestock in the normal course of the farming business, those products often are also serving as collateral for a lender’s security interest. So what are the rights of the buyer in that instance? Does the buyer take the goods subject to a pre-existing security interest created by the farmer-seller? That’s an important question for both farmer-sellers and buyers of farm products to know. Another question is what the scope of definition of “farm products” includes. Is it broad enough to include racehorses and their breeding rights?
The “farm products rule,” and the 1985 Farm Bill modification and its application – it’s the topic of today’s post.
The Farm Products Rule
Original rule. There is a long history behind the farm products rule. Prior to a change in the law that was contained in the 1985 Farm Bill, the majority rule was that a buyer in the ordinary course of business (BIOC) from a seller engaged in farming operations did not take free of a perfected security interest unless evidence existed of a course of past dealing between the secured party and the debtor from which it could be concluded that the secured party gave authority to the debtor to sell the collateral. UCC § 9-307(1). Thus, a farmer's sale of secured farm products did not cut off the creditor's right to follow farm products into the hands of buyers, such as grain elevators. This meant that when a farmer failed to settle with secured parties, buyers of farm products sometimes had to pay twice unless the buyer could show that the secured party gave the debtor authority to sell the collateral.
Under the farm products rule, farm products were not considered “inventory” to a farmer. Instead, “farm products” were defined as crops, livestock (including, apparently, fowl) or supplies used or produced in farming operations and products of crops or livestock in their unmanufactured states if they were in the possession of a debtor engaged in the raising, fattening, or grazing of livestock or other farming operations. Under the rule, the holder of the perfected security interest could recover farm products subject to the interest from a bona fide purchaser purchasing watermelons from a roadside stand, steers in carload lots, or a load of corn, if the purchase was from a seller engaged in farming operations. However, crops, livestock, or the products of crops or livestock if in the possession of one not engaged in farming ceased to be farm products and were inventory. Similarly, if farm products passed to one engaged in marketing for sale or a manufacturer or processor, they became inventory.
Impact of the rule. The farm products rule was highly protective of secured parties. Purchasers of farm products had to be cautious in all transactions and were given strong incentive to always check the record for filed financing statements, and to have checks made payable jointly to the seller and the lender. However, creditors secured by farm products still needed to have a properly perfected security interest in the crops or livestock and include a specific provision in the security agreement specifying whether the debtor could sell the collateral. If sales were allowed, the lender needed to state clearly how payment was to be made, whether checks were to be sent directly to the lender, whether the debtor and lender were to be joint payees, or, whether a specified percentage of the proceeds was to be remitted directly to the lender. In any event, the provisions on sale and payment of proceeds had to be consistently enforced.
From the mid-1970s until the mid-1980s, several states amended the UCC farm products rule to allow, in various circumstances, purchasers of farm products from a person engaged in farming operations to take free of a perfected security interest. By the end of 1985, about 40 percent of the states had modified the general rule.
1986 – A New Rule
Effective December 23, 1986, the 1985 Farm Bill (Food Security Act (FSA) of 1985) “federalized” the states' farm product rules. The new provision specified that, "a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations shall take free of a security interest created by the seller, even though the security interest is perfected; and the buyer knows of the existence of such interest." 7 U.S.C. §1631(d). The term "farm product" means an agricultural commodity such as wheat, corn, soybeans, or a species of livestock such as cattle, hogs, sheep, horses, or poultry used or produced in farming operations, or a product of such crop or livestock in its unmanufactured state (such as ginned cotton, wool-clip, maple syrup, milk, and eggs), that is in the possession of a person engaged in farming operations. 7 U.S.C. §1631(c)(5).
State options. The FSA provision gave the states two options - adopt a prescribed central filing system or follow an “actual notice” rule. Thus, under the federal rule, if a BIOC buys a farm product that has been “produced in a state” from a seller engaged in farming, the BIOC takes the farm product free of any security interest created by the seller unless:
- Within one year before the sale of the farm products, the buyer has received written notice of the security interest from the secured party (the direct notice exception);
- The buyer has failed to pay for the farm products; or
- In states which have established a central filing system (all states now have adopted central filing), the buyer has received notice from the Secretary of State of an effective filing of a financing statement (EFS) or notice of the security interest in the farm products and has not obtained a waiver or release of the security interest from the secured party (the central filing exception).
To comply with the direct notice exception, a secured creditor had to send the farm products purchaser a written notice listing (1) the secured creditor’s name and address; (2) the debtor’s name and address; (3) the debtor’s social security number or taxpayer identification number; (4) a description of the farm products covered by the security interest and a description of the property; and (5) any payment obligations conditioning the release of the security interest. The description of the farm products had to include the amount of the farm products subject to the security interest, the crop year, and the counties in which the farm products are located or produced.
Under central filing, the secured creditor must file a financing statement containing the same information as required in the written notice under the direct notice exception, except the secured creditor need not include crop year or payment obligation information. Also, notwithstanding errors contained in the financing statement, a financing statement in a central filing state remains effective so long as the errors “are not seriously misleading.” However, the general rule is that there is no “substantial compliance” rule with respect to the direct notice exception. A secured creditor must comply strictly with the requirements of the direct notice exception. See, e.g., State Bank of Cherry v. CGB Enterprises, Inc., 984 N.E.2d 449 (Ill. 2013), aff’g., 964 N.E.2d 604 (Ill. Ct. App. 2012). However, the Kansas Supreme Court has applied a substantial compliance rule to the direct notice exception. First National Bank & Trust v. Miami County Cooperative Assoc., 257 Kan. 989, 897 P.2d 144 (1995).
2002 Farm Bill amendments. The 2002 Farm Bill made several changes in the federal farm products rule. Under the legislation, a financing statement is effective if it is signed, authorized or otherwise authenticated by the debtor. A financing statement securing farm products needs to describe the farm products and specify each county or parish in which the farm products are produced or located. Also, the required information on the security agreement must include a description of the farm products subject to the security interest created by the debtor, including the amount of such products where applicable, crop year, and the name of each county or parish in which the farm products are produced or located.
Application of revised Article 9. Secured transactions under Article 9 of the Uniform Commercial Code (UCC) involve personal property and fixtures including loans on crops, livestock, inventories, consumer goods and accounts receivable. Effective in 2001, Article 9 was revised such that “farm products” means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:
- Crops grown, growing or to be grown, including crops produced on trees, vines and bushes; and aquatic goods produced in aquacultural operations;
- Livestock, born or unborn, including aquatic goods produced in aquacultural operations;
- Supplies used or produced in a farming operation; or
- Products of crops or livestock in their unmanufactured states.
“Farming operation” means raising, cultivating, propagating, fattening, grazing or any other farming, livestock or aquacultural operation. As such, the revised definition of “farm products” eliminates the provision explicitly requiring the collateral to be in the possession of a person engaged in a farming operation.
Legal Issues Under the 1985 Rule
Buyer in direct notice state buying farm products in central filing state. Under the farm products rule, before all states became central filing jurisdictions, a question was whether a buyer in a direct notice state that bought farm products produced in a central filing state was subject to a filing in an EFS central notice state. 7 U.S.C. §1631 says the answer to that question is “yes” but does not define what “produced in” means. Is the phrase restricted in meaning only to production activities or does it also include marketing of the farm products? One court has held that “produced in” means “the location where farm products are furnished or made available for commerce.” The court believed that “such an interpretation allowed lenders to discern where they must file notice of their security interests and ensures a practical means for buyers to discover otherwise unknown security interests in farm products.” Great Plains National Bank v. Mount, 280 P.3d 670 (Colo. Ct. App. 2012).
Are thoroughbreds “agricultural commodities”? As noted above, the 1985 rule change also defined a “farm product” as an “agricultural commodity.” In a recent Kentucky case, the court was faced with the question of whether thoroughbred racehorses (and their breeding rights) were farm products that fell within the scope of federal preemption under the farm 7 U.S.C. §1631(d) that was codified in Ky. Rev. Stat. §355.9-320(1) such that a purchaser took free of a prior perfected security interest.
Under the facts of the case, the plaintiff entered into a financing agreement with Zayat Stables, LLC (Zayat Stables) which owns, raises, maintains, buys, races, breeds, and sells horses – including American Pharoah, the winner of the 2015 Triple Crown. In 2016 the plaintiff loaned Zayat Stables $30 million secured by “all the property and assets and all interests therein and proceeds thereof now owned or hereafter acquired by any person upon which a lien is granted or purported to be granted by such person as security for all or any part of the obligations, including, without limitation, all equine collateral.” Zayat Stables sold a series of horses and breeding rights without notifying the plaintiff, so the plaintiff sued for breach of contract and fraud, seeking to recover $23 million. The plaintiff also sued other purchasers, including the defendant. The trial court and the appellate court both held the purchasers were protected by the 1985 repeal of the farm products rule. The plaintiff claimed that thoroughbreds were exempt from the provision under K.R.S. §355.9-102(1)(ah) because they were not used for farming purposes.
The Supreme Court affirmed the lower courts, noting that there was no carve-out for thoroughbreds in the statute (the provision applied to all horses) and that the USDA had stated that the repeal of the farm products rule applies to “specific commodities, species of livestock, and specific products of crops or livestock” including “cattle & calves, goats, horses, mules, sheep & lambs, other livestock.” The Supreme Court stated the list did not put a limitation on types of horses and that the Kentucky legislature had expressed its acceptance of the provision’s application to thoroughbred horses through a series of statutory enactments.
The plaintiff further claimed that thoroughbred horses were not “farm products” because they were not an “agricultural commodity” as defined by 7 U.S.C. §1631(c)(5). The plaintiff’s position was the thoroughbreds were simply “too exceptional” to constitute a “commodity.” However, the Supreme Court determined that the plain language of the FSA demonstrated that thoroughbred horses were farm products and that such a construction was consistent with how the Kentucky legislature viewed the FSA as applied to all types of horses.
The Supreme Court also held that breeding rights to the thoroughbreds (including those of American Pharaoh) were included under the FSA provision as horses “produced” in a farming operation as well as a “product of such… livestock in its unmanufactured state.” Thus, the buyers of the thoroughbreds and their breeding rights took free of the plaintiff’s security interest. MGG Investments Group. LP v. Bemak N.V., Ltd., No. 2021-SC-0561-DG, 2023 Ky. LEXIS 50 (Ky. Sup. Ct. Mar. 23, 2023).
Conclusion
In difficult financial times, understanding the rights of creditors of agricultural products is important. The specific rules surrounding the sale of farm products are important to understand.
April 29, 2023 in Secured Transactions | Permalink | Comments (1)
Thursday, April 20, 2023
Bibliography – First Quarter of 2023
The following is a listing by category of my blog articles for the first quarter of 2023.
Bankruptcy
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Chapter 12 Bankruptcy – Proposing a Reorganization Plan in Good Faith
Business Planning
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Civil Liabilities
Top Ag Law and Tax Developments of 2022 – Part 1
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Contracts
Top Ag Law and Developments of 2022 – Part 2
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Environmental Law
Here Come the Feds: EPA Final Rule Defining Waters of the United States – Again
Top Ag Law and Developments of 2022 – Part 2
Top Ag Law and Developments of 2022 – Part 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Estate Planning
Tax Court Opinion – Charitable Deduction Case Involving Estate Planning Fraudster
Happenings in Agricultural Law and Tax
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
RMD Rules Have Changed – Do You Have to Start Receiving Payments from Your Retirement Plan?
Common Law Marriage – It May Be More Involved Than What You Think
The Marital Deduction, QTIP Trusts and Coordinated Estate Planning
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Income Tax
Top Ag Law and Developments of 2022 – Part 3
Top Ag Law and Developments of 2022 – Part 4
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Tax Court Opinion – Charitable Deduction Case Involving Estate Planning Fraudster
Deducting Residual (Excess) Soil Fertility
Deducting Residual (Excess) Soil Fertility – Does the Concept Apply to Pasture/Rangeland? (An Addendum)
Happenings in Agricultural Law and Tax
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
RMD Rules Have Changed – Do You Have to Start Receiving Payments from Your Retirement Plan?
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Real Property
Equity “Theft” – Can I Lose the Equity in My Farm for Failure to Pay Property Taxes?
Happenings in Agricultural Law and Tax
Adverse Possession and a “Fence of Convenience”
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Abandoned Rail Lines – Issues for Abutting Landowners
Regulatory Law
Top Ag Law and Developments of 2022 – Part 2
Top Ag Law and Developments of 2022 – Part 4
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Foreign Ownership of Agricultural Land
Abandoned Rail Lines – Issues for Abutting Landowners
Secured Transactions
Priority Among Competing Security Interests
Water Law
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Happenings in Agricultural Law and Tax
April 20, 2023 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Sunday, February 12, 2023
Priority Among Competing Security Interests
Overview
Most agricultural operations are dependent on borrowed money or financing for continuing in business. Presently, United States agriculture bears about $450 billion in total real estate and personal property debt. With this financing comes the need to understand the legal relations created by such debt, and the rights and obligations of the parties involved.
Recently, a bank in Texas got confused on the financing rules governing agricultural crops and lost its security interest as a result.
Ag financing and priority rules among competing security interests – it’s the topic of today’s post.
Background
Changing form of collateral and “proceeds.” The security interest created by a security agreement is a relatively durable lien. The collateral may change form as the production process unfolds. Fertilizer and seed become growing crops, animals are fattened and sold, and equipment is replaced. The lien follows the changing collateral and, in the end, may attach to the proceeds from the sales of products, at least up to ten days after the debtor receives the proceeds. In other words, a security interest in proceeds is automatically perfected if the interest in the original collateral was perfected. However, a security interest in proceeds ceases to be automatically perfected ten days after the debtor receives the proceeds. To avoid the ten-day rule from eliminating its security interest, a creditor often puts a provision in the security agreement stating that the security interest continues in the “proceeds” of the collateral.
Priority. If a debtor gives a security interest in the same collateral to two or more creditors, and the interests are perfected, it is necessary to determine which one has priority upon the debtor’s default. If the interests are perfected by filing, priority is determined by the time of filing. The creditor who filed first, wins. Therefore, because a financing statement may be filed before a security agreement is signed or the security interest attaches, a cautious creditor may wish to file early. If one or both are perfected in some manner other than filing, priority is determined by the time of perfection.
PMSI. A special type of security interest, known as a purchase money security interest (PMSI), is taken or retained by the seller of property to secure payment of the purchase price. A PMSI can also be obtained by a lender when it provides funds for the buyer to acquire specific property. But, when funds are loaned to a farmer to buy inputs to plant a crop, does the lender get a PMSI in the resulting crops that has priority to a different lender that had already loaned money to the farmer and had a perfected security interest in the farmer’s “crops and proceeds thereof?”
Recent Case
In Agrifund, LLC v. First State Bank of Shallowater, No. 07-22099925-CV, 2022 Tex. App. LEXIS 9010 (Tex. Ct. App. Dec. 9, 2022), a farm couple borrowed money from the plaintiff to finance their farming operation. They received multiple extension of the credit line with the final promissory note executed in December of 2017. The plaintiff perfected a security interest in the couple’s crops, among other items. The couple defaulted on the loan on March 15, 2018. Shortly thereafter, the couple borrowed money from the defendant. The couple used the funds to buy cotton seed and chemicals to enable them to put the 2018 cotton crop in the ground. They granted the defendant a security interest in all crops grown or to be grown for the 2018 crop year. The defendant perfected its security interest on June 4, 2018. Upon harvest, the couple sold the resulting cotton crop, and the defendant claimed its security interest beat out the plaintiff’s prior perfected interest on the basis that the defendant’s interest was a PMSI. The trial court agreed.
Under Texas law, “purchase money collateral” means “goods that secure a purchase-money obligation incurred with respect to that collateral.” Tex. Bus. & Com. Code Ann. §9.103(a)(1). A “purchase-money obligation” is “an obligation of an obligor incurred as part or all of the price of the collateral or for value to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used. Id. §9.103(a)(2). “Goods” are defined as “all things that are movable when a security interest attaches” and includes “crops grown, growing or to be grown….” Id. §9.102(a)(44). The defendant’s security interest stated that the property subject to the security interest included “supplies used or produced in a farming operation” and “crops grown or to be grown for the 2018 crop year.”
The defendant claimed it had a PMSI because it had a perfected security interest in “crops to be grown” which met the definition of “goods.” The appellate court disagreed noting that, by definition, a “purchase money security interest” means that the security interest must be taken in the items actually purchased. The couple borrowed money to produce a crop, not buy one. The appellate court also pointed out that purchased seed is not the same as a “crop to be grown.” A crop is distinguishable from the seed and chemicals, the purchase of which the defendant funded with its loan. The appellate court also rejected the defendant's claim that the cotton crop was the “proceeds” of the seed. Texas law defines “proceeds” as “whatever is acquired upon the sale, lease, license, exchange, or other disposition of the collateral….” Id. §9.102(a)(65)(A). As the appellate court pointed out, the resulting cotton crop was not the result of the sale, lease, license, exchange, or disposition of the seed. Crops are not the proceeds of seeds. See, e.g., Searcy Farm Supply, LLC v. Merchants & Planters Bank, 256 S.W.3d 496 (Ark. 2007). As a result, the appellate court held that the defendant did not have a PMSI in the farm couple’s crop and the plaintiff had priority to the sale proceeds of the crop.
Note: A dissenting judge would have held that the defendant had a PMSI superior to the plaintiff’s interest on the basis that the definition of “goods” included “crops to be grown.” But, the statute at issue defines “goods” as “all things that are movable when a security interest attaches.” At the time of attachment (when the defendant made the loan pursuant to the security agreement executed on account of the debtor's power to create a security interest), the “crops to be grown” were not in existence because the seeds hadn’t yet been planted. Thus, “goods”, by definition, could not include “crops to be grown.” The dissenting judge simply failed to apply the statute as written and misapplied the concepts of secured transactions law.
PMSI in Crop Rule
A prior version of Article 9 of the Uniform Commercial Code (UCC) provided for a unique limited PMSI that a creditor could obtain in crops to be grown. A perfected security interest in crops for new value, that is given to enable the debtor to produce the crops during the growing season and given not more than three months before the crops become growing crops by planting or otherwise, takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than six months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest.
The purpose of this PMSI in crop rule was to permit farmers to obtain financing to allow planting of a current crop in circumstances where current lenders will not advance funds to enable the farmer to put in a crop. This was precisely the situation involved in Agrifund, LLC, but the provision was eliminated in 1999. The Texas legislature, unlike Iowa, did not enact an optional provision that would have given priority status to a lender that extends credit to enable a farm debtor to produce crops.
Conclusion
The Texas case illustrates that ag financing rules are important to understand by farmers and lenders alike. While I don’t know the backstory of the case, I suspect that the defendant either failed to check the public records to determine if another lender had a prior perfected security interest in the cotton crop before making the loan or got bad legal advice as to the applicability of a PMSI. Of course, an input supply dealer could have financed the purchase of the seed and fertilizer and claimed a lien under Tex. Agric. Code Ann. §§128.001-128.048. That would have given the supplier equal priority to the plaintiff in the proceeds of the crop.
February 12, 2023 in Secured Transactions | Permalink | Comments (0)
Monday, January 30, 2023
Bibliography - July Through December 2022
Overview
After the first half of 2022, I posted a blog article of a bibliography of my blog articles for the first half of 2022. You can find that bibliography here: Bibliography – January through June of 2022
Bibliography of articles for that second half of 2022 – you can find it in today’s post.
Alphabetical Topical Listing of Articles (July 2022 – December 2022)
Bankruptcy
More Ag Law Developments – Potpourri of Topics
Business Planning
Durango Conference and Recent Developments in the Courts
Is a C Corporation a Good Entity Choice For the Farm or Ranch Business?
What is a “Reasonable Compensation”?
https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html
Federal Farm Programs: Organizational Structure Matters – Part Three
LLCs and Self-Employment Tax – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html
LLCs and Self-Employment Tax – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html
Civil Liabilities
Durango Conference and Recent Developments in the Courts
Dicamba Spray-Drift Issues and the Bader Farms Litigation
Tax Deal Struck? – and Recent Ag-Related Cases
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
More Ag Law Developments – Potpourri of Topics
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Contracts
Minnesota Farmer Protection Law Upheld
Criminal Liabilities
Durango Conference and Recent Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/20Ag Law Summit
https://lawpr22/07/durango-conference-and-recent-developments-in-the-courts.html
Environmental Law
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
More Ag Law Developments – Potpourri of Topics
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Estate Planning
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
IRS Modifies Portability Election Rule
Modifying an Irrevocable Trust – Decanting
Farm and Ranch Estate Planning in 2022 (and 2023)
Social Security Planning for Farmers and Ranchers
How NOT to Use a Charitable Remainder Trust
Recent Cases Involving Decedents’ Estates
Medicaid Estate Recovery and Trusts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/medicaid-estate-recovery-and-trusts.html
Income Tax
What is the Character of Land Sale Gain?
Deductible Start-Up Costs and Web-Based Businesses
Using Farm Income Averaging to Deal With Economic Uncertainty and Resulting Income Fluctuations
Tax Deal Struck? – and Recent Ag-Related Cases
What is “Reasonable Compensation”?
https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html
LLCs and Self-Employment Tax – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html
LLCs and Self-Employment Tax – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html
USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)
Declaring Inflation Reduced and Being Forgiving – Recent Developments in Tax and Law
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas
More Ag Law Developments – Potpourri of Topics
IRS Audits and Statutory Protection
https://lawprofessors.typepad.com/agriculturallaw/2022/10/irs-audits-and-statutory-protection.html
Handling Expenses of Crops with Pre-Productive Periods – The Uniform Capitalization Rules
When Can Depreciation First Be Claimed?
Tax Treatment of Crops and/or Livestock Sold Post-Death
Social Security Planning for Farmers and Ranchers
Are Crop Insurance Proceeds Deferrable for Tax Purposes?
Tax Issues Associated With Easement Payments – Part 1
Tax Issues Associated With Easement Payments – Part 2
How NOT to Use a Charitable Remainder Trust
Does Using Old Tractors Mean You Aren’t a Farmer? And the Wind Energy Production Tax Credit – Is Subject to State Property Tax?
Insurance
Tax Deal Struck? – and Recent Ag-Related Cases
Real Property
Tax Deal Struck? – and Recent Ag-Related Cases
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2022/08/ag-law-summit.html
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
More Ag Law Developments – Potpourri of Topics
Ag Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Regulatory Law
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
The Complexities of Crop Insurance
https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html
Federal Farm Programs – Organizational Structure Matters – Part One
Federal Farm Programs – Organizational Structure Matters – Part Two
Federal Farm Programs: Organizational Structure Matters – Part Three
USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)
Minnesota Farmer Protection Law Upheld
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
Animal Ag Facilities and Free Speech – Does the Constitution Protect Saboteurs?
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Water Law
More Ag Law Developments – Potpourri of Topics
January 30, 2023 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Sunday, September 11, 2022
September 30 Ag Law Summit in Omaha (and Online)
Overview
On September 30, Washburn Law School with cooperating partner Creighton Law School will conduct the second annual Ag Law Summit. The Summit will be held on the Creighton University campus in Omaha, Nebraska. Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30 and will also be broadcast live online.
The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.
The 2022 Ag Law Summit – it’s the topic of today’s post.
Agenda
Developments in agricultural law and taxation. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world. There have been several major developments involving agricultural that have come through the U.S Supreme Court in recent months. I will discuss those decisions and the implications for the future. Several of them involve administrative law and could have a substantial impact on the ability of the federal government to micro-manage agricultural activities. I will also get into the big tax developments of the past year, including the tax provisions included in the recent legislation that declares inflation to be reduced!
Death of a farm business owner. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections. The handling of tax attributes after death will be covered as will some non-tax planning matters when an LLC owner dies. There are also entity-specific issues that arise when a business owner dies, and Prof. Morse will address those on an entity-by-entity basis. The transition issue for farmers and ranchers is an important one for many. This session will be a good one in laying out the major tax and non-tax considerations that need to be laid out up front to help the family achieve its goals post-death.
Governing documents for farm and ranch business entities. After a morning break Dan Waters with Lamson Dugan & Murray in Omaha will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.
Fence law issues. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.
Farm economics. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an ag economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? How will the war in Ukraine continue to impact agriculture in the U.S.? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.
Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.
Online. The Summit will be broadcast live online and will be interactive to allow you the ability to participate remotely.
Reception
For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.
Conclusion
If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.
I hope to see you in Omaha on September 30 or see that you are with us online.
You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
September 11, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Monday, September 5, 2022
Bibliography – January through June of 2022
Overview
Periodically I post an article containing the links to all of my blog articles that have been recently published. Today’s article is a bibliography of my articles from the beginning of 2022 through June. Hopefully this will aid your research of agricultural law and tax topics.
A bibliography of articles for the first half of 2022 – it’s the content of today’s post.
Bankruptcy
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
Other Important Developments in Agricultural Law and Taxation
Recent Court Cases of Importance to Agricultural Producers and Rural Landowners
Business Planning
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Should An IDGT Be Part of Your Estate Plan?
Farm Wealth Transfer and Business Succession – The GRAT
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance – Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Intergenerational Transfer of the Farm/Ranch Business – The Buy-Sell Agreement
IRS Audit Issue – S Corporation Reasonable Compensation
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
S Corporation Dissolution – Part 1
https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
Durango Conference and Recent Developments in the Courts
Civil Liabilities
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
Agritourism
https://lawprofessors.typepad.com/agriculturallaw/2022/03/agritourism.html
Animal Ag Facilities and the Constitution
When Is an Agricultural Activity a Nuisance?
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Durango Conference and Recent Developments in the Courts
Dicamba Spray-Drift Issues and the Bader Farms Litigation
Tax Deal Struck? – and Recent Ag-Related Cases
Contracts
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
What to Consider Before Buying Farmland
Elements of a Hunting Use Agreement
https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html
Ag Law (and Medicaid Planning) Court Developments of Interest
Cooperatives
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Criminal Liabilities
Animal Ag Facilities and the Constitution
Is Your Farm or Ranch Protected From a Warrantless Search?
Durango Conference and Recent Developments in the Courts
Environmental Law
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
“Top Tan” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1
The “Almost Top Ten” (Part 3) – New Regulatory Definition of “Habitat” under the ESA
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
Estate Planning
Other Important Developments in Agricultural Law and Taxation
Other Important Developments in Agricultural Law and Taxation (Part 2)
The “Almost Top Ten” (Part 4) – Tax Developments
The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]
Nebraska Revises Inheritance Tax; and Substantiating Expenses
https://lawprofessors.typepad.com/agriculturallaw/2022/02/recent-developments-in-ag-law-and-tax.html
Tax Consequences When Farmland is Partitioned and Sold
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Should An IDGT Be Part of Your Estate Plan?
Farm Wealth Transfer and Business Succession – The GRAT
Family Settlement Agreement – Is it a Good Idea?
Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Proposed Estate Tax Rules Would Protect Against Decrease in Estate Tax Exemption
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Ag Law (and Medicaid Planning) Court Developments of Interest
Joint Tenancy and Income Tax Basis At Death
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
IRS Modifies Portability Election Rule
Income Tax
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 10 and 9
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1
The “Almost Top Ten” (Part 4) – Tax Developments
The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]
Purchase and Sale Allocations Involving CRP Contracts
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
What’s the Character of the Gain From the Sale of Farm or Ranch Land?
Proper Tax Reporting of Breeding Fees for Farmers
Nebraska Revises Inheritance Tax; and Substantiating Expenses
https://lawprofessors.typepad.com/agriculturallaw/2022/02/recent-developments-in-ag-law-and-tax.html
Tax Consequences When Farmland is Partitioned and Sold
Expense Method Depreciation and Leasing- A Potential Trap
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
income Tax Deferral of Crop Insurance Proceeds
What if Tax Rates Rise?
https://lawprofessors.typepad.com/agriculturallaw/2022/03/what-if-tax-rates-rise.html
Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance – Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
IRS Audit Issue – S Corporation Reasonable Compensation
Missed Tax Deadline & Equitable Tolling
https://lawprofessors.typepad.com/agriculturallaw/2022/04/missed-tax-deadline-equitable-tolling.html
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Joint Tenancy and Income Tax Basis At Death
Tax Court Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2022/05/tax-court-caselaw-update.html
Deducting Soil and Water Conservation Expenses
Correcting Depreciation Errors (Including Bonus Elections and Computations)
When Can Business Deductions First Be Claimed?
Recent Court Decisions Involving Taxes and Real Estate
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
Tax Issues with Customer Loyalty Reward Programs
S Corporation Dissolution – Part 1
https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
What is the Character of Land Sale Gain?
Deductible Start-Up Costs and Web-Based Businesses
Using Farm Income Averaging to Deal with Economic Uncertainty and Resulting Income Fluctuations
Tax Deal Struck? – and Recent Ag-Related Cases
Insurance
Tax Deal Struck? – and Recent Ag-Related Cases
Real Property
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
What to Consider Before Buying Farmland
Elements of a Hunting Use Agreement
https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html
Animal Ag Facilities and the Constitution
Recent Court Decisions Involving Taxes and Real Estate
Recent Court Cases of Importance to Agricultural Producers and Rural Landowners
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Tax Deal Struck? – and Recent Ag-Related Cases
Regulatory Law
The “Almost Top 10” of 2021 (Part 5)
https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-10-of-2021-part-5.html
The “Almost Top 10” of 2021 (Part 6)
https://lawprofessors.typepad.com/agriculturallaw/2022/02/the-almost-top-10-of-2021-part-6.html
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
Animal Ag Facilities and the Constitution
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Ag Law (and Medicaid Planning) Court Developments of Interest
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
The Complexities of Crop Insurance
https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html
Secured Transactions
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
Water Law
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3
Durango Conference and Recent Developments in the Courts
September 5, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Saturday, August 20, 2022
Ag Law Summit
Overview
Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30, and will also be broadcast live online.
The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.
The 2022 Ag Law Summit – it’s the topic of today’s post.
Agenda
Survey of ag law and tax. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world.
Tax issues upon death of a farmer. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections.
Farm succession planning drafting language. After a morning break Dan Waters, and estate planning attorney in Omaha, NE, will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.
Fences and boundaries. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.
The current farm economy and future projections. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.
Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.
Reception
For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.
Conclusion
If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.
I hope to see you in Omaha on September 30 or see that you are with us online.
You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
August 20, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
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
Continuing Education Events and Summer Conferences
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?
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)
Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)
BUSINESS PLANNING
For Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
C Corporate Tax Planning; Management Fees and Reasonable Compensation – A Roadmap of What Not to Do
Will the Estate Tax Valuation Regulations Return?
June National Farm Tax and Estate/Business Planning Conference
August National Farm Tax and Estate/Business Planning Conference
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
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
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance
Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
Montana Conference and Ag Law Summit (Nebraska)
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
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
Gifting Pre-Death (Partnership Interests) – Part Three
The Future of Ag Tax Policy – Where Is It Headed?
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
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
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
S Corporations – Reasonable Compensation; Non-Wage Distributions and a Legislative Proposal
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
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
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?
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
CONTRACTS
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Deed Reformation – Correcting Mistakes After the Fact
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
COOPERATIVES
Continuing Education Events and Summer Conferences
Final Ag/Horticultural Cooperative QBI Regulations Issued
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
Continuing Education Events and Summer Conferences
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
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
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
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
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
Key “Takings” Decision from SCOTUS Involving Ag Businesses
Montana Conference and Ag Law Summit (Nebraska)
Navigable Waters Protection Rule – What’s Going on with WOTUS?
ESTATE PLANNING
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
Continuing Education Events and Summer Conferences
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?
June National Farm and Tax and Estate/Business Planning Conference
August National Farm Tax and Estate/Business Planning Conference
Farmland in an Estate – Special Use Valuation and the 25 Percent Test
The Revocable Living Trust – Is it For You?
Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)
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
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
The Revocable Trust – What Happens When the Grantor Dies?
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance
Ohio Conference –June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
Reimbursement Claims in Estates; Drainage District Assessments
Montana Conference and Ag Law Summit (Nebraska)
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
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
The Future of Ag Tax Policy – Where Is It Headed?
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Tax Happenings – Present Status of Proposed Legislation (and What You Might Do About It)
Corporate-Owned Life Insurance – Impact on Corporate Value and Shareholder’s Estate
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
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
The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four
Final Ag/Horticultural Cooperative QBI Regulations Issued
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Deducting Start-Up Costs – When Does the Business Activity Begin?
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
Where’s the Line Between Start-Up Expenses, the Conduct of a Trade or Business and Profit Motive?
June National Farm Tax and Estate/Business Planning Conference
Selling Farm Business Assets – Special Tax Treatment (Part One)
Tax Update Webinar
https://lawprofessors.typepad.com/agriculturallaw/2021/03/tax-update-webinar.html
Selling Farm Business Assets – Special Tax Treatment (Part Two)
Selling Farm Business Assets – Special Tax Treatment (Part Three)
August National Farm Tax and Estate/Business Planning Conference
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
Federal Farm Programs and the AGI Computation
Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/04/tax-potpourri.html
What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?
Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)
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
The Revocable Trust – What Happens When the Grantor Dies?
Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
What’s the “Beef” With Conservation Easements?
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)
Tax Developments in the Courts – The “Tax Home”; Sale of the Home; and Gambling Deductions
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
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
The Future of Ag Tax Policy – Where Is It Headed?
Tax Happenings – Present Statute of Proposed Legislation (and What You Might Do About It)
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
Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)
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
Tax Reporting of Sale Transactions By Farmers
The Tax Rules Involving Prepaid Farm Expenses
Self Employment Taxation of CRP Rents – Part One
Self-Employment Taxation of CRP Rents – Part Two
Self-Employment Taxation of CRP Rents – Part Three
Recent IRS Guidance, Tax Legislation and Tax Ethics Seminar/Webinar
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
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
Inland Hurricane – 2021 Version; Is There Any Tax Benefit to Demolishing Farm Buildings and Structures?
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?
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?
Commodity Credit Corporation Loans and Elections
INSURANCE
Continuing Education Events and Summer Conferences
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
Continuing Education Events and Summer Conferences
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
Valuing Ag Real Estate With Environmental Concerns
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)
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?
REGULATORY LAW
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
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
Federal Farm Programs and the AGI Computation
Regulation of Agriculture – Food Products, Slaughterhouse Line Speeds and CAFOS
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
The “Dormant” Commerce Clause and Agriculture
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
Key “Takings Decision from SCOTUS Involving Ag Businesses
Reimbursement Claims in Estates; Drainage District Assessments
Mailboxes and Farm Equipment
https://lawprofessors.typepad.com/agriculturallaw/2021/07/mailboxes-and-farm-equipment.html
Montana Conference and Ag Law Summit (Nebraska)
California’s Regulation of U.S. Agriculture
Checkoffs and Government Speech – The Merry-Go-Round Revolves Again
Is There a Constitutional Way To Protect Animal Ag Facilities
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?
SECURED TRANSACTIONS
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Cross-Collateralization Clauses – Tough Lessons For Lenders
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
WATER LAW
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
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)
May 22, 2022 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Friday, January 7, 2022
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
Overview
As I pointed out in the previous articles in this series, agricultural law and agricultural tax law intersect with everyday life of farmers and ranchers in many ways. Some of those areas of intersection are good, but some are quite troubling. In any event, it points to the need for being educated and having good legal and tax counsel that is well-trained in the special rules that apply to agriculture.
This is the third installment in my list of the “Top Ten” agricultural law and tax developments of 2021. The list is comprised of what are, in my view, the most important developments in agricultural law (which includes taxation that impacts farmers and ranchers) to the sector as a whole. The developments primarily are focused on the impact to production agriculture, but the issues involved will also have effects that spillover to rural landowners and agribusinesses as well as consumers of agricultural products.
The Sixth and Fifth most important agricultural law and tax developments of 2021 – it’s the topic of today’s post.
6. The Potential Peril Associated With Deferred Payment Grain Sales. On November 8, a group of Mississippi farmers filed a class action against UMB Bank, N.A. for misleading them about the financial status of a grain elevator they sold grain to that filed bankruptcy before paying them. Island Farms, LLC, et al. v. UMB Bank, N.A., No.___, (S.D. Miss. filed Nov. 8, 2021). The case is a grim reminder of the financial peril a farmer can be in when grain is delivered to an elevator, but payment is not made on delivery. After grain is delivered, but before it is paid for, the seller is an unsecured creditor of the buyer. If the buyer files bankruptcy before making payment, the seller is not likely to recover much, if anything.
Based on the plaintiffs’ complaint, they delivered grain to a grain elevator that, unbeknownst to them, was insolvent and being propped up by the defendant bank. The elevator’s grain purchases involved the farmers delivering and transferring title to the grain to the elevator. The elevator would then weigh, inspect and access the grain, and deliver payment in the form of a check within a period of a few days, or at another date if any particular farmer so desired.
The elevator is one of the largest grain elevator operations serving farmers in the Mississippi Delta, and was highly leveraged with massive amounts of debt. The elevator’s principal creditor was the bank, with loans dating back to 2015. The total balance on the loans was approximately $70 million as of September 2021. $37 million was the balance on a revolving loan and $33 million was the balance on a term note. The bank required the grain elevator to post collateral, which meant that virtually all of its assets were collateralized. The loan agreements gave the bank a continuing security interest upon all property of the grain elevator, whether then owned or later acquired. The elevator’s most valuable collateral was the grain they stored, and the amount they could borrow was determined in part by the amount of grain in inventory.
By the spring of 2021, the elevator was in serious financial distress, having less than $4,000 cash on hand, and was effectively insolvent. In addition, throughout 2021 the elevator failed to make payments to reduce the balance of the revolving loan, which it was contractually obligated to reduce. However, the bank permitted the elevator to keep the balance of the loan at the maximum level throughout the year. The elevator was required to furnish audited financial statements to the bank within 120 days of December 31, the end of its fiscal year.
The plaintiffs claim that the elevator was kept afloat by the bank’s forbearance on their loans. The bank was aware that if it called the loans, there would be little grain it could claim as security for the grain elevator’s debt. As a result, the plaintiffs claim that the bank proposed to wait until the grain elevator had as much grain as practicable before calling the loan and thereby effectively forcing the grain elevator into bankruptcy – which it filed for Chapter 11 (reorganization) bankruptcy on September 29, 2021.
Although the elevator was in financial distress, the farmers claim that it continued to hold out to farmers the opposite. In the spring of 2021, the elevator issued an update that stated it would be better prepared financially than in years past. The update also mentioned that the elevator had funding in place from multiple sources to ensure everyone got paid on time. However, several checks that the elevator wrote bounced during the harvest season. By the end of September, the bank notified the elevator that all amounts owed under the loan would be due immediately. As a result, the elevator filed Chapter 11 on September 29, 2021, effectively placing the bank in priority position as a secured creditor in accordance with its security agreements and the farmers in non-priority, general unsecured creditor status.
The plaintiffs claim that the elevator made knowingly false representations and concealed information that it had a duty to disclose. Additionally, they claim the bank aided and abetted the elevator’s fraud by remaining silent while knowing that the farmers would deliver their crops with a time interval before being paid. The plaintiffs specifically claim that the bank deliberately propped up the grain elevator until the crops were delivered during harvest season. The plaintiffs claim that the bank was the beneficiary of the elevator’s fraud, and that it has been unjustly enriched at the plaintiffs’ expense. The plaintiffs further claim that in addition to equitable title of the crops, they had a constructive trust over the grain for the purpose of getting paid. They assert that had the grain elevator clearly indicated its financial position, the plaintiffs would have sold their crops elsewhere. Ultimately, the plaintiffs seek forfeiture of all money received by the bank in the matter.
The Mississippi case points out the problems that a farmer can encounter when a buyer fails before making paying on delivered grain. While state indemnity funds and bonding programs might be available, they often don’t go far in making any particular farmer whole. Certainly, the financial status of a buyer should be examined carefully before delivery is made. That means seeing a certified audit of the buyer before making delivery. Also, carefully using a letter of credit or an escrow account might provide security against a buyer’s default and achieve deferability. In any event, planning is required anytime an ag commodity is sold on a deferred basis to a buyer.
Update: Shortly after the elevator filed bankruptcy, two farming entities sued for an expedited determination that the grain contracts they had with the debtor were executory and subject to an immediate deadline for the executor to assume them. In In re Express Grain Terminals, LLC, No. 21-11832-SDM, 2021 Bankr. LEXIS 3415 (Bankr. N.D. Miss. Dec. 14, 2021), the court determined that the contracts were executory and set deadlines for the debtor to assume or reject them. The debtor was required to provide adequate assurance of performance of both the monetary and non-monetary requirements of the executory contracts. The issues became whether the executory contracts were a part of a “single contract” under the Master Trade Agreement (MTA), and whether the executory contracts were actually contracts for “financial accommodations” under 11 U.S.C. §365(c)(2). The court determined that the individual farmer contracts were the executory contracts that the debtor could assume or reject. Based on state law, the court found that the individual farmer contracts were severable. In addition, the language of the MTA and the individual grain contracts demonstrated the severable nature of the individual grain contracts. In addition, the court determined that the parties’ conduct indicated the severable nature of the individual grain contracts. The court also held that the individual grain contracts with farmers were not contracts for financial accommodation because they were not contracts for the extension of cash or line of credit.
5. U.S. Supreme Court May Decide Whether FIFRA Preempts State Law – Roundup Litigation. Since 2015, thousands of cancer victims have sued Monsanto in state and federal court, alleging that Roundup caused their non-Hodgkins lymphoma. In 2021, a state court in California and a federal court in California issued important decisions on whether the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) pre-empts a state-law failure-to-warn claim when the warning cannot be added to the Roundup product without the Environmental Protection Agency’s (EPA’s) approval.
Background. In 2005, the U.S. Supreme Court, in Bates, et al. v. Dow Agrosciences LLC, 544 U.S. 431 (2005) provided guidance on how courts are to analyze FIFRA preemption claims in the future. The plaintiffs in Bates were 29 Texas peanut farmers who claimed that in the 2000 growing season their crops were severely damaged by the application of the defendant’s pesticide. The farmers claimed that the defendant knew or should have known that the pesticide would stunt the growth of peanuts in acidic soils. However, the pesticide label stated that the pesticide was recommended in all areas where peanuts were grown. Before the 2001 growing season, the defendant reregistered the pesticide with the EPA, and the EPA approved a supplemental label that specified that the product was not to be used on peanuts grown in soils with a high acidity level (pH of 7.2 or greater). After negotiations failed, the farmers gave notice of intent to sue under Texas law, and the defendant filed a motion for declaratory judgment in Federal District Court on the grounds that FIFRA preempted the farmers’ claims. The farmers also brought tort claims based in strict liability and negligence, fraud, breach of warranty and violation of the Texas Deceptive Trade Practices-Consumer Protection Act. The District Court granted the defendant’s motion, finding that FIFRA preempted the farmers’ claims, and the U.S. Court of Appeals for the Fifth Circuit affirmed. The Fifth Circuit reasoned that the farmers’ claims were preempted because if the claims were successful, the defendant would be induced (as opposed to being actually required) to change its label. Accordingly, the farmers’ successful claim would impose an additional “requirement” on the defendant under state law – something the states cannot do under FIFRA.
The Supreme Court began its analysis in Bates by noting that FIFRA preemption applies to state rules that: (1) establish a requirement for labeling or packaging that; (2) is in addition to or different from what FIFRA requires. The Court noted, therefore, that rules that require manufacturers to design reasonably safe products, use due care in conducting appropriate testing of their products, market products free of manufacturing defect, and to honor their express warranties or other contractual commitments are not preempted because they do not qualify as requirements for labeling or packaging. Thus, the Court ruled that the farmers’ claims for defective design, defective manufacture, negligent testing and breach of express warranty were not preempted. The Court rejected the Fifth Circuit’s “inducement” test as overbroad – that the farmers’ claims were preempted because, if successful, the defendant would be induced to change the pesticide label. However, the Court ruled that the farmers’ fraud and negligent- failure-to-warn claims were premised on common law rules that qualified as “requirements” for labeling or packaging. But, such claims are only preempted, the Court reasoned, if the state level common law rules establish requirements that are “in addition to or different from” FIFRA’s standards. The farmers claimed that their claims based on fraud and failure-to-warn were not preempted because these common law duties were equivalent to FIFRA’s requirements that a pesticide label not contain “false or misleading” statements, or inadequate instructions or warnings.
Ultimately, the Court ruled that it had not received sufficient briefing on whether FIFRA preempted the farmers’ fraud and failure-to-warn claims brought under Texas law, and remanded the case to the Fifth Circuit for a resolution of those claims. In remanding on these claims, the Court emphasized that a state law labeling requirement must in fact be equivalent to a requirement under FIFRA to survive preemption. If, for example, the element of falsity contained in a Texas common law fraud action imposes a broader obligation than FIFRA’s requirement that labels not contain “false or misleading statements,” the action would be preempted to the extent of the difference. The Court also opined that state law requirements must be measured against any relevant EPA regulations that give content to FIFRA’s misbranding standards. Likewise, the Court stated that jury instructions must ensure that nominally equivalent labeling requirements are genuinely equivalent such that a pesticide manufacturer should not be held liable under a state labeling requirement unless the manufacturer is also liable for misbranding under FIFRA.
In rejecting the “inducement” test of the Fifth Circuit and utilizing a “parallel requirements” test for determining FIFRA preemption, it is likely that more claims against pesticide manufacturers will survive preemption. It is no longer a valid ground for preemption that a state-based claim, if successful, would induce a manufacturer to change a label. Under the “parallel requirements” test, preemption applies only to claims that, if successful, would actually require a label to be changed. Thus, the key is whether applicable state law imposes broader obligations on pesticide manufacturers than does FIFRA.
Note: Nothing in FIFRA precludes states from providing a remedy to farmers and state law claims can be asserted based on alleged FIFRA violations to the extent that the claims would not impose a requirement that is in addition to or different from FIFRA requirements. However, a federal claim cannot be asserted. See, e.g., G & M Farms, Inc. v. Britz-Simplot Grower Solutions, LLC, et al., No. 1:13-cv-0368 LJO MJS, 2013 U.S. Dist. LEXIS 75458 (E.D. Cal. May 29, 2013).
Based on the Court’s opinion in Bates, it became reasonable to believe that additional litigation would be brought against applicators and other parties that have some connection with the activity that caused damages along with pesticide manufacturers, and that some state legislatures might reexamine state statutes governing pesticides with an eye toward conformity with FIFRA. In any event, the Court illustrated its preference against preemption without clear direction from the Congress.
2021 developments. In a California case, a married couple claimed that their usage of Roundup on their properties for several decades caused the husband’s non-Hodgkin’s lymphoma. They made numerous legal claims, including a claim that Monsanto knew or had reason to know that its Roundup products were defective and inherently dangerous and unsafe when used in the manner that Monsanto instructed. The jury determined that Monsanto had designed Roundup in a manner that was a substantial factor causing the husband’s harm; that Roundup had potential risks that were known or knowable in light of scientific and medical knowledge that were generally known in the scientific community at the time of manufacture, distribution and sale; that Monsanto was negligent in designing, manufacturing and supplying Roundup; and that Monsanto negligently failed to warn and instruct of Roundup’s danger. The trial court jury awarded $2,055,000,000 to the plaintiffs. The trial court reduced the total damage award to $86.7 million.
In 2021, the appellate court affirmed in Pilliod v. Monsanto Co., 67 Cal. App. 5th 591 (2021), pet. for review den., No. S270957, 2021 Cal. LEXIS 7965 (Cal. Sup. Ct. Nov. 17, 2021). The appellate court determined that Monsanto had not shown that FIFRA preempted the plaintiffs’ design defect and failure to warn claims because it failed to identify any state-law requirements that were in addition to or different from FIFRA’s misbranding requirements.
Also in 2021, the U.S. Circuit Court of Appeals for the Ninth Circuit issued its opinion on the application of FIFRA preemption in a bellweather case involving Roundup. Hardeman v. Monsanto Co., 997 F.3d 941 (9th Cir. 2021). In Hardeman, the trial court jury returned a verdict in the plaintiff’s favor of $5,267,634.10 in compensatory damages and $75 million in punitive damages for the plaintiff’s non-Hodgkin’s lymphoma allegedly caused by long-term used of Roundup. Monsanto appealed claiming that FIFRA preempted the plaintiff’s failure to warn claims; that the trial court committed numerous errors; and that the punitive damage award was excessive in violation of California law and the Constitution’s Due Process Clause. The appellate court disagreed, holding that the plaintiff’s failure-to-warn claims based on Roundup’s labeling were consistent with FIFRA and, therefore, neither expressly nor impliedly preempted. FIFRA’s requirement, the appellate court found, that a pesticide not be misbranded were consistent with (if not broader) than California’s common law duty to warn. Thus, Monsanto could comply with both FIFRA and California law which eliminated any preemption claim. The appellate court also held that the trial court had applied the correct standard for the admission of the plaintiff’s expert witness testimony, and properly included and excluded various evidence as to Roundup being likely carcinogenic – a risk that was known at the time of the plaintiff’s exposure. The appellate court also upheld the trial court’s reduction of punitive damages from $75 million to $20 million was proper.
Note: On August 16, 2021, Monsanto filed a petition for certiorari with the U.S. Supreme Court. The Supreme Court held a conference on the matter on December 10. While the Court did not decide whether to take the case at its conference on December 10, on December 13 the Court invited the U.S. Solicitor General to file briefs expressing the views of the United States on the matter. Monsanto Co. v. Hardeman, No. 21-241, 2021 U.S. LEXIS 6152 (U.S. Sup. Ct. Dec. 13, 2021). The issue the Court may consider is whether FIFRA preempts a state law failure-to-warn claim when the warning cannot be added to a product without the EPA's approval and the EPA has repeatedly concluded that the warning is not appropriate. A side issue in the case is whether the Ninth Circuit's standard for admitting expert testimony is inconsistent with the Court's precedent and Rule 702 of the Federal Rules of Evidence.
Conclusion
The next installment in this series will detail what I view as the fourth and third most important developments in ag law and ag tax from 2021. Stay tuned and keep reading.
January 7, 2022 in Contracts, Environmental Law, Secured Transactions | Permalink | Comments (0)
Monday, December 6, 2021
The Potential Peril Associated With Deferred Payment Contracts
Overview
A recent news story involving a group of farmers in Mississippi reveals the potential downside of selling grain under a deferred payment contract. Unless a farmer-seller takes steps to gain protection, the farmer is an unsecured creditor of the buyer after delivery is made and before payment is made. If the buyer files bankruptcy in that interim period, the farmer-seller will be a general unsecured creditor and could lose out on the vast amount of income anticipated from the sale.
The risk of deferred payment ag commodity sales and what can be done for protection – it’s the topic of today’s post.
The Mississippi Matter
On November 8, a group of Mississippi farmers filed a class action against UMB Bank, N.A. for misleading them about the financial status of a grain elevator they sold grain to that filed bankruptcy before paying them. Island Farms, LLC, et al. v. UMB Bank, N.A., No.___, (S.D. Miss. filed Nov. 8, 2021).
Fact of the case. Based on the plaintiffs’ complaint as filed, they delivered grain to a grain elevator that, unbeknownst to them, was insolvent and being propped up by the defendant bank. The elevator’s grain purchases involved the farmers delivering and transferring title to the grain to the elevator. The elevator would then weigh, inspect and access the grain, and deliver payment in the form of a check within a period of a few days, or at another date if any particular farmer so desired
The grain elevator is one of the largest grain elevator operations serving farmers in the Mississippi Delta. However, the grain elevator was highly leveraged with massive amounts of debt. The grain elevator’s principal creditor was the bank, with loans dating back to 2015. The total balance on the loans was approximately $70 million as of September 2021. $37 million was the balance on a revolving loan and $33 million was the balance on a term note. The bank required the grain elevator to post collateral, which meant that virtually all of its assets were collateralized. The loan agreements gave the bank a continuing security interest upon all property of the grain elevator, whether then owned or later acquired. The grain elevator’s most valuable collateral was the grain they stored, and the amount they could borrow was determined in part by the amount of grain in inventory.
By the spring of 2021, the grain elevator was in serious financial distress, having less than $4,000 cash on hand, and was effectively insolvent. In addition, throughout 2021 the grain elevator failed to make payments to reduce the balance of the revolving loan, which it was contractually obligated to pay down. However, the bank permitted the grain elevator to keep the balance of the loan at the maximum level throughout the year. The elevator was required to furnish audited financial statements to the bank within 120 days of December 31, the end of its fiscal year.
The plaintiffs claim that the grain elevator was kept afloat by the bank’s forbearance on their loans. The bank was aware that if it called the loans, there would be little grain it could claim as security for the grain elevator’s debt. As a result, the plaintiffs claim that the bank proposed to wait until the grain elevator had as much grain as practicable before calling the loan and thereby effectively forcing the grain elevator into bankruptcy. The elevator ultimately filed Chapter 11 (reorganization) bankruptcy on September 29, 2021.
Although the grain elevator was in financial distress, it continued to hold out to farmers the opposite. In the spring of 2021, the grain elevator issued an update that stated the elevator would be better prepared financially than in years past. The update also mentioned that the grain elevator had funding in place from multiple sources to ensure everyone got paid on time. However, several checks that the grain elevator wrote bounced during the harvest season. By the end of September, the bank notified the grain elevator that all amounts owed under the loans would be due immediately. The effect of the elevator's bankruptcy was to place the bank in priority position as a secured creditor in accordance with its security agreements and the farmers in non-priority, general unsecured creditor status.
The plaintiffs claim that the grain elevator made knowingly false representations and concealed information that it had a duty to disclose. Additionally, the plaintiffs claim the bank aided and abetted the fraud perpetrated by the grain elevator by remaining silent, while knowing that the grain elevator’s customers would deliver their crops with a time interval before being paid. They specifically claim that the bank deliberately propped up the grain elevator until the crops were delivered during harvest season. The plaintiffs claim that the bank was the beneficiary of the fraud perpetrated by the grain elevator, and that it has been unjustly enriched at the plaintiffs’ expense. The plaintiffs further claim that in addition to equitable title of the crops, they had a constructive trust over the grain for the purpose of getting paid. They assert that had the grain elevator clearly indicated its financial position, the plaintiffs would have brought their crops elsewhere. Ultimately, the plaintiffs are seeking forfeiture of all money received by the bank through their alleged conduct.
Is There a Way That Cash Grain Sellers Can Achieve Security?
The Mississippi farmers’ plight points out the peril of selling grain on a deferred basis – whether via a properly structured deferred payment contract or by an informal understanding of the parties that there will be a time lag between delivery and payment. Every farmer must understand that, after an agricultural commodity is delivered to a buyer but before payment is made, the farmer-seller is an unsecured creditor of the buyer. If the buyer files bankruptcy in that interim period, the farmer-seller will likely not get paid. While state indemnity funds and bonding programs might be available, they often don’t go far in making any particular farmer whole.
Letter of credit. While there isn’t any indication in the Mississippi case, as filed, that the farmers were using a deferral strategy for tax purposes, there is legal risk involved anytime that grain is delivered and payment is delayed. This is typically not a problem with livestock sales because unpaid cash sellers of livestock to a buyer that is covered by the Packers and Stockyards Act (PSA) have their funds set aside for them in trust that remains outside of any bankruptcy filing of the buyer.
As for grain sales, is it possible to achieve legal protection comparable to that provided by a PSA trust and achieve income tax deferral? In some instances, farmers have tried the use of escrow accounts or letters of credit via third parties (an agent). However, with a handful of exceptions, the weight of the authority is that an agent’s receipt is considered the taxpayer’s (farmer’s) receipt. That means that such an arrangement is ineffective to defer income into the following tax year.
In Griffith v. Comr., 73 T.C. 933 (1980), a farm couple reported income on the cash method and sold cotton in 1973 under a deferred payment contract for payment in 1974. The buyer’s obligation under the contract was secured by a standby letter of credit. The Tax Court determined that the strategy didn’t work for deferral purposes, holding that the contractual rights and the letter of credit were the same as cash. The dissent pointed out the Tax Court’s prior decision in Oden v. Comr., 56 T.C. 569 (1971), where the Tax Court held that funds placed in escrow as security for payment on a deferred payment contract may not be constructively received in the year of sale based on the facts and circumstances of the case. While the taxpayer lost in Oden, the key to the case was that the taxpayer actually looked to and received payment from the escrow account. The taxpayer was not treating the account as intended for security. But, in Porterfield. v. Comr., 73 T.C. 91 (1979), the court determined that the parties intended an escrow account to serve as security for the buyer’s obligation and that, as a result, the taxpayer was entitled to report the sale on the installment method. The dissent in Griffith pointed out that a nontransferable letter of credit was used that specifically provided it was to serve as security and could only be collected in the event of the buyer’s default. The buyer didn’t default, and the couple looked to and received payment from the buyer.
This all means that if a letter-of-credit is not done absolutely correctly, it won’t achieve tax-deferral (including the interest on the funds in the account) and it may not even provide security. It is a fact-based determination despite what the majority in Griffith said.
Escrow account. Although the general rule is that funds placed in escrow as security for payment are not constructively received in the year of sale, it is critical for a farmer-seller to clearly indicate that the buyer is being looked to for payment and that the escrow account serves only as security for this payment. See, e.g., Watson v. Comr., 613 F.2d 594 (5th Cir. 1980); Busby v. Comr., 679 F.2d 48 (5th Cir. 1982); Scherbart v. Comr., 463 F.3d 987 (8th Cir. 2006). The cases point out that there is a possibility that an escrow account can successfully achieve deferral and provide security, but the account must be set-up and used properly. Clearly, the escrow arrangement should be a separate agreement between the buyer and the seller and not a self-imposed limitation that the seller creates.
Conclusion
The Mississippi case points out the problems that a farmer can encounter when a buyer fails before making paying on delivered grain. Certainly, the financial status of a buyer should be examined carefully before delivery is made. That means seeing a certified audit of the buyer before making delivery. Reliance on an audit can mean that the firm providing the audit can be held liable to a farmer that detrimentally relied on the audit. See, e.g., KPMG Peat Marwick v. Asher, 689 N.E.2d 1283 (Ind. Ct. App. 1997). Also, carefully using a letter of credit or an escrow account might provide security against a buyer’s default and achieve deferability. In any event, planning is required anytime an ag commodity is sold on a deferred basis to a buyer.
December 6, 2021 in Contracts, Income Tax, Secured Transactions | Permalink | Comments (0)
Wednesday, July 7, 2021
The “EIDL Trap” For Farm Borrowers
Overview
The CARES Act that was signed into law in early 2020 is a massive “stimulus” bill designed to help offset the negative economic fallout of the shutdowns decreed by various state governors. An aspect of the CARES Act was an expansion of the Economic Injury Disaster Loans (EIDLs) of the Small Business Administration (SBA). Later legislation provided that EIDL “grants” are not included in gross income and that the exclusion will not result in a denial of a deduction (e.g., deductions are allowed for otherwise deductible expenses paid with loan proceeds), reduction of tax attributes, or denial of a basis increase (e.g., tax basis and other attributes are not reduced as a result of the EIDL being excluded from income).
However, for some farmers and ranchers that receive an EIDL, the accompanying blanket security agreement can create a potential trap for unwary recipients. Recently, Joe Peiffer, founder of Ag & Business Legal Strategies of Hiawatha, Iowa, brought to my attention potential problems for farmers that receive an EIDL based on the language of the SBA’s security agreement that a borrower must sign to receive a secured EIDL.
EIDLs and potential issues with associated security agreements – it’s the topic of today’s post.
EIDL Basics
An eligible applicant for an EIDL is a small business, small agricultural cooperative, and most private organizations that suffered “substantial economic injury” as a result of the virus and is not able to obtain credit elsewhere.
Note: A qualified agricultural business is one with 500 or fewer employees that is engaged in the production of food and fiber, ranching, raising of livestock, aquaculture, and all other farming and agricultural related industries. 15 U.S.C. §647(b).
“Substantial economic injury” is defined as the business not being able to satisfy its obligations and pay ordinary and necessary operating expenses. For loans approved after April 6, 2021, the maximum loan amount is $500,000 with a term of 30 years at a 3.75 percent fixed rate (2.75 percent for non-profit businesses). There are no fees and no prepayment penalty.
The proceeds of an EIDL are to be used for working capital of the borrower’s business and to cover normal operating expenses – such things as continuing health care benefits for workers; rent; utilities; and fixed debt payments. The loan is not forgivable, as is a Paycheck Protection Program (PPP) loan.
The “EIDL Trap”
SBA security agreement language. An unsecured EIDL can be for up to $25,000, but collateral is required for an EIDL exceeding that threshold. Indeed, for EIDLs exceeding the $25,000 amount, the borrower must sign an SBA blanket security agreement. The security agreement states the following in Paragraph 4:
“The Collateral in which this security interest is granted includes the following property that Borrower now owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory noted (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letters of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest Borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the Collateral, all products, proceeds and collection thereof and all records and data relating thereto.”
Also included in the SBA security agreement is Paragraph 5 entitled, “Restrictions on Collateral Transfer. This paragraph requires the SBA’s consent before the borrower can sell or encumber the collateral subject to the agreement and reads in pertinent part as follows:
“Borrower will not sell, lease, license or otherwise transfer (including by granting security interests, liens, or other encumbrances in) all or any part of the Collateral or Borrower’s interest in the Collateral without Secured Party’s written or electronically communicated approval, except that Borrower may sell inventory in the ordinary course of business on customary terms…”.
The terms of Paragraph 8, entitled “Perfection of Security Interest,” states as follows:
Borrower consents, without further notice, to Secured Party’s filing or recording of any documents necessary to perfect, continue, amend or terminate its security interest. Upon request of Secured Party, Borrower must sign or otherwise authenticate all documents that Secured Party deems necessary at any time to allow Secured Party to acquire, perfect, continue or amend its security interest in the Collateral. Borrower will pay the filing and recording costs of any documents relating to Secured Party’s security interest. Borrower ratifies all previous filings and recordings, including financing statements and notations on certificates of title. Borrower will cooperate with Secured Party in obtaining a Control Agreement satisfactory to Secured Party with respect to any Deposit Accounts or Investment Property, or in otherwise obtaining control or possession of that or any other Collateral.
Paragraph 14 is entitled, “Borrower Certifications,” and reads as follows:
“Borrower certifies that: (a) its Name (or Names) as stated above is correct; (b) all Collateral is owned or titled in the Borrower’s name and not in the name of any other organization or individual; (c) Borrower has the legal authority to grant the security interest in the Collateral; (d) Borrower’s ownership in or title to the Collateral is free of all adverse claims, liens, or security interests (unless expressly permitted by the Secured Party); (e) none of the Obligations are or will be primarily for personal, family or household purposes; (f) none of the Collateral is or will be used, or has been or will be bought primarily for personal, family or household purposes; (g) Borrower has read and understands the meaning and effect of all terms of this Agreement.”
Implications. This is where Joe’s “heads up” comes into play. He points out that clearly, in accordance with Paragraph 5 of the security agreement, the SBA is requiring a borrower to obtain SBA’s consent before selling or encumbering any EIDL collateral. As noted above, an EIDL is for a term of 30 years – outlasting much farm equipment and other tangible and intangible farm personal property. This poses significant problems for farmers as well as creditors of farm equipment dealers. An SBA release will need to be obtained before engaging in common transactions such as an equipment “trade” – which, for tax years beginning after 2017, is treated as a “sale” of the property and not as a like-kind exchange.
Note: Obtaining the necessary consents from the SBA could be difficult and time-consuming, creating further complications for otherwise ordinary financial transactions.
The requirement contained in Paragraph 8 requiring the EIDL borrower to cooperate with the SBA in obtaining a “Control Agreement” that meets SBA’s approval concerning any deposit accounts or investment property, as well as assisting the SBA in obtaining control or possession of any collateral also raises particular concern. For instance, if a default occurs, all commodity positions of the borrower that are secured by funds in the borrower’s commodity market transactions account (the “hedge” account) would be subject to SBA’s discretion to withdraw. Such a withdrawal would eliminate the farm borrower’s risk management protection via commodity market positions taken in commodities on the Board of Trade.
Uniform Commercial Code, Article 9, Section 320 (UCC §9-320) contains a provision governing a “buyer in the ordinary course of business.” That provision states in subsection (a) that, “Except as otherwise provided in subsection (e), a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.
Note: Each state has codified Article 9. For example, the Kansas version of this provision is found at Kan. Stat. Ann. §84-9-320. The Iowa version is contained in Iowa Code §554.9320(1).
Joe also notes that the protection under UCC §9-320 is not solid. It provides no protection for purchases not within the ordinary course of business. In addition, an exception applies for farm products that are purchased from a person engaged in farming operations. This would include, for example, a livestock operator buying feed or bedding directly from a farmer. Also, the provision only protects security interests that the buyer’s seller creates. It does not afford protection for the seller’s seller or any other party further up the chain. Thus, if a transaction falls within one of these “gaps” and the seller failed to satisfy or obtain lien releases from all of the creditors, those liens and interests will continue in the property.
Note: A buyer of collateral will need to determine how the collateral was acquired and the circumstances surrounding the sale of the collateral. For instance, if a farmer that obtained an EIDL trades equipment to an implement dealer that is subject to SBA’s blanket security agreement, and the dealer does not obtain the release of the SBA’s security interest, the SBA’s interest will continue in the equipment when the dealer sells to its purchasers in the ordinary course of business.
Conclusion
The EIDL program was created in response to the economic shutdowns instituted in many states. It is intended to provide relief to disaffected businesses. However, obtaining an EIDL comes with “strings” that can create a trap for the unwary. The terms of the EIDL security agreements puts significant constraints on EIDL borrowers and can also have implications for others that an EIDL borrower transacts business with.
July 7, 2021 in Secured Transactions | Permalink | Comments (0)
Saturday, May 1, 2021
The Agricultural Law and Tax Report
May 1, 2021 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Monday, April 19, 2021
Ag Law and Taxation - 2016 Bibliography
Overview
Today's post is a bibliography of my ag law and tax blog articles of 2016. Earlier this year I have provided bibliographies for you of my blog articles for 2020, 2019, 2018 and 2017. This now completes the bibliographies since I began the blog in July of 2016. At the end of 2021, I will post a lengthy blog article of all of the articles published through that timeframe.
The 2016 bibliography of articles – it’s the subject matter of today’s post.
BUSINESS PLANNING
Treasury Attacks Estate and Entity Planning Techniques With Proposed Valuation Regulations
Using an LLC to Reduce S.E Tax and the NIIT
IRS Audit Issue – S Corporation Reasonable Compensation
Rents Are Passive, But They Can Be Recharacterized - And Grouped (Sometimes)
Tribute To Orville Bloethe
https://lawprofessors.typepad.com/agriculturallaw/2016/12/tribute-to-orville-bloethe.html
CIVIL LIABILITIES
Registration of a Pesticide Doesn't Mean It Might Not Be Misbranded
Death of Livestock In Blizzard Was a Covered Loss by “Drowning”
FIFRA Pre-Emption of Pesticide Damage Claims
Agritourism Acts, Zoning Issues and Landowner Liability
The “Agriculture” Exemption From The Requirement To Pay Overtime Wages
The Scope and Effect of Equine Liability Acts
What’s a Rural Landowner’s Responsibility Concerning Crops, Trees and Vegetation Near an Intersection?
CONTRACTS
Some Thoughts on Production Contracts
https://lawprofessors.typepad.com/agriculturallaw/2016/10/some-thoughts-on-production-contracts.html
CRIMINAL LIABILITIES
Prison Sentences Upheld For Egg Company Executives Even Though Government Conceded They Had No Knowledge of Salmonella Contamination.
ENVIRONMENTAL LAW
Registration of a Pesticide Doesn't Mean It Might Not Be Misbranded
FIFRA Pre-Emption of Pesticide Damage Claims
Air Emissions, CWA and CERCLA
https://lawprofessors.typepad.com/agriculturallaw/2016/08/air-emissions-cwa-and-cercla.html
Are Seeds Coated With Insecticides Exempt From FIFRA Regulation?
ESTATE PLANNING
The Situs of a Trust Can Make a Tax Difference
Treasury Attacks Estate and Entity Planning Techniques With Proposed Valuation Regulations
Common Estate Planning Mistakes of Farmers
Staying on the Farm With the Help of In-Home Care
Including Property in the Gross Estate to Get a Basis Step-Up
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2016/10/farm-valuation-issues.html
The Future of the Federal Estate Tax and Implications for Estate Planning
Tribute To Orville Bloethe
https://lawprofessors.typepad.com/agriculturallaw/2016/12/tribute-to-orville-bloethe.html
INCOME TAX
House Ways and Means Committee Has A Blueprint For Tax Proposals - Implications For Agriculture
In Attempt To Deny Oil and Gas-Related Deductions, IRS Reads Language Into the Code That Isn’t There – Tax Court Not Biting
IRS Does Double-Back Layout on Self-Employment Tax
S.E. Tax on Passive Investment Income; Election Out of Subchapter K Doesn’t Change Entity’s Nature; and IRS Can Change Its Mind
Handling Depreciation on Asset Trades
https://lawprofessors.typepad.com/agriculturallaw/2016/08/handling-depreciation-on-asset-trades.html
Claiming “Bonus” Depreciation on Plants
https://lawprofessors.typepad.com/agriculturallaw/2016/08/claiming-bonus-depreciation-on-plants.html
Proper Reporting of Crop Insurance Proceeds
Permanent Conservation Easement Donation Opportunities and Perils
Sales By Farmers/Rural Landowners Generate Common Questions
Expense Method Depreciation - Great Tax Planning Opportunities On Amended Returns
The DPAD and Agriculture
https://lawprofessors.typepad.com/agriculturallaw/2016/10/the-dpad-and-agriculture.html
Donating Food Inventory to a Qualified Charity - New Opportunity for Farmers
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2016/10/farm-valuation-issues.html
Treatment of Farming Casualty and Theft Losses
More on Handling Farm Losses
https://lawprofessors.typepad.com/agriculturallaw/2016/11/more-on-handling-farm-losses.html
Selected Tax Issues For Rural Landowners Associated With Easement Payments
Are You A Farmer? It Depends!
https://lawprofessors.typepad.com/agriculturallaw/2016/11/are-you-a-farmer-it-depends.html
Rents Are Passive, But They Can Be Recharacterized - And Grouped (Sometimes)
It’s Fall and Time to “Hoop it Up”!
https://lawprofessors.typepad.com/agriculturallaw/2016/11/its-fall-and-time-to-hoop-it-up.html
Utilizing the Home Sale Exclusion When Selling the Farm
Farmland Acquisition – Allocation of Value to Depreciable Items
Tribute To Orville Bloethe
https://lawprofessors.typepad.com/agriculturallaw/2016/12/tribute-to-orville-bloethe.html
IRS Continues (Unsuccessfully) Attack on Cash Accounting By Farmers
The Uniform Capitalization Rules and Agriculture
The Non-Corporate Lessor Rule – A Potential Trap In Expense Method Depreciation
REAL PROPERTY
Texas Mineral Estates, Groundwater Rights, Surface Usage and the “Accommodation Doctrine”
So You Want To Buy Farmland? Things to Consider
What’s the Character of the Gain From the Sale of Farm or Ranch Land?
Utilizing the Home Sale Exclusion When Selling the Farm
REGULATORY LAW
New Food Safety Rules Soon to Apply to Farmers and Others In the Food Production Chain
New Regulations on Marketing of Livestock and Poultry
The Future of Ag Policy Under Trump
https://lawprofessors.typepad.com/agriculturallaw/2016/11/the-future-of-ag-policy-under-trump.html
Verifying Employment – New Form I-9; The Requirements and Potential Problem Areas
SECURED TRANSACTIONS
Feedlot Has Superior Rights to Cattle Sale Proceeds
WATER LAW
Watercourses and Boundary Lines
https://lawprofessors.typepad.com/agriculturallaw/2016/11/watercourses-and-boundary-lines.html
April 19, 2021 in Business Planning, Civil Liabilities, Contracts, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Friday, April 2, 2021
Ag Law and Taxation - 2017 Bibliography
Overview
Today's post is a bibliography of my ag law and tax blog articles of 2017. This will make it easier to find the articles you are looking for in your research. In late January I posted the 2020 bibliography of articles. In late February I posted the bibliography of the 2019 articles. Last month, I posted the 2018 bibliography of articles. Today’s posting is the bibliography of my 2017 articles. Later this month I will post the 2016 bibliography.
The library of content continues to grow with relevant information for you practice or your farming/ranching business.
The 2017 bibliography of articles – it’s the subject matter of today’s post.
BANKRUPTCY
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law Developments of 2016 (Five Through One)
Farm Financial Stress – Debt Restructuring
Qualified Farm Indebtedness – A Special Rule for Income Exclusion of Forgiven Debt
What Are a Farmer’s Rights When a Grain Elevator Fails?
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
The Business of Agriculture – Upcoming CLE Symposium
Tough Financial Times in Agriculture and Lending Clauses – Peril for the Unwary
What Interest Rate Applies to a Secured Creditor’s Claim in a Reorganization Bankruptcy?
PACA Trust Does Not Prevent Chapter 11 DIP’s Use of Cash Collateral
Are Taxes Dischargeable in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2017/12/are-taxes-dischargeable-in-bankruptcy.html
Christmas Shopping Season Curtailed? – Bankruptcy Venue Shopping, That Is!
BUSINESS PLANNING
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law Developments of 2016 (Five Through One)
C Corporation Penalty Taxes – Time to Dust-Off and Review?
Divisive Reorganizations of Farming and Ranching Corporations
The Scope and Effect of the “Small Partnership Exception”
Using the Right Kind of an Entity to Reduce Self-Employment Tax
Employer-Provided Meals and Lodging
https://lawprofessors.typepad.com/agriculturallaw/2017/05/employer-provided-meals-and-lodging.html
Self-Employment Tax on Farming Activity of Trusts
Minority Shareholder Oppression Case Raises Several Tax Questions
Farm Program Payment Limitations and Entity Planning – Part One
Farm Program Payment Limitations and Entity Planning – Part Two
Summer Ag Tax/Estate and Business Planning Conference
An Installment Sale as Part of an Estate Plan
The Use of a Buy-Sell Agreement for Transitioning a Business
The Business of Agriculture – Upcoming CLE Symposium
Forming a Farming/Ranching Corporation Tax-Free
Farmers Renting Equipment – Does it Trigger A Self-Employment Tax Liability?
New Partnership Audit Rules
https://lawprofessors.typepad.com/agriculturallaw/2017/09/new-partnership-audit-rules.html
Self-Employment Tax on Farm Rental Income – Is the Mizell Veneer Cracking?
IRS To Finalize Regulations on Tax Status of LLC and LLP Members?
H.R. 1 – Farmers, Self-Employment Tax and Business Arrangement Structures
Summer 2018 – Farm Tax and Farm Business Education
Partnerships and Tax Law – Details Matter
CIVIL LIABILITIES
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law and Developments of 2016 (Five Through One)
Recreational Use Statutes – What is Covered?
Is Aesthetic Damage Enough to Make Out a Nuisance Claim?
Liability Associated with a Range of Fires and Controlled Burns
What’s My Liability for Spread of Animal Disease
Dicamba Spray-Drift Issues
https://lawprofessors.typepad.com/agriculturallaw/2017/07/dicamba-spray-drift-issues.html
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
The Business of Agriculture – Upcoming CLE Symposium
Right-to-Farm Laws
https://lawprofessors.typepad.com/agriculturallaw/2017/09/right-to-farm-laws.html
CONTRACTS
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)
Top Ten Agricultural Law Developments of 2016 (Five Through One)
Another Issue With Producing Livestock on Contract – Insurance
The Ability of Tenants-in-Common To Bind Co-Tenants to a Farm Lease – and Related Issues
Ag Goods Sold at Auction – When is a Contract Formed?
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
The Business of Agriculture – Upcoming CLE Symposium
Ag Contracts and Express Warranties
https://lawprofessors.typepad.com/agriculturallaw/2017/09/ag-contracts-and-express-warranties.html
What Remedies Does a Buyer Have When a Seller of Ag Goods Breaches the Contract?
COOPERATIVES
The Most Important Agricultural Law and Tax Developments of 2016
Top Ten Agricultural Law Developments of 2016 (Five Through One)
What Is a Cooperative Director’s Liability to Member-Shareholders and Others?
CRIMINAL LIABILITIES
The Necessity Defense to Criminal Liability
The Business of Agriculture – Upcoming CLE Symposium
What Problems Does The Migratory Bird Treaty Act Pose For Farmers, Ranchers and Rural Landowners?
ENVIRONMENTAL LAW
Drainage Activities on Farmland and the USDA
The Application of the Endangered Species Act to Activities on Private Land
Eminent Domain – The Government’s Power to “Take” Private Property
Spray Drift As Hazardous Waste?
https://lawprofessors.typepad.com/agriculturallaw/2017/07/spray-drift-as-hazardous-waste.html
What Problems Does The Migratory Bird Treaty Act Pose For Farmers, Ranchers and Rural Landowners?
The Prior Converted Cropland Exception From Clean Water Act Jurisdiction
Air Emission Reporting Requirement For Livestock Operations
ESTATE PLANNING
Rights of Refusal and the Rule Against Perpetuities
Some Thoughts On Long-Term Care Insurance
Overview of Gifting Rules and Strategies
Disinheriting a Spouse – Can It Be Done?
https://lawprofessors.typepad.com/agriculturallaw/2017/04/disinheriting-a-spouse-can-it-be-done.html
Specific Property Devised in Will (or Trust) That Doesn’t Exist At Death – What Happens?
Discounting IRAs for Income Tax Liability?
Special Use Valuation and Cash Leasing
Self-Employment Tax On Farming Activity Of Trusts
Would an Interest Charge Domestic International Sales Corporation Benefit a Farming Business?
An Installment Sale as Part of An Estate Plan
Using An IDGT For Wealth Transfer and Business Succession
Federal Tax Claims in Decedent’s Estates – What’s the Liability and Priority?
Estate Tax Portability – The Authority of the IRS To Audit
Digital Assets and Estate Planning
https://lawprofessors.typepad.com/agriculturallaw/2017/10/digital-assets-and-estate-planning.html
INCOME TAX
The Burden of Proof in Tax Cases – What are the Rules?
The Home Office Deduction
https://lawprofessors.typepad.com/agriculturallaw/2017/02/the-home-office-deduction.html
IRS To Continue Attacking Cash Method For Farmers Via the “Farming Syndicate Rule”
Using Schedule J As A Planning Tool For Clients With Farm Income
Deductibility of Soil and Water Conservation Expenses
Should Purchased Livestock Be Depreciated or Inventoried?
The Changing Structure of Agricultural Production and…the IRS
Farm-Related Casualty Losses and Involuntary Conversions – Helpful Tax Rules in Times of Distress
Charitable Contributions Via Trust
https://lawprofessors.typepad.com/agriculturallaw/2017/03/charitable-contributions-via-trust.html
Ag Tax Policy The Focus in D.C.
https://lawprofessors.typepad.com/agriculturallaw/2017/04/ag-tax-policy-the-focus-in-dc-.html
For Depreciation Purposes, What Does Placed in Service Mean?
Tax Treatment of Commodity Futures and Options
Discounting IRAs for Income Tax Liability?
Like-Kind Exchanges, Reverse Exchanges, and the Safe Harbor
Insights Into Handling IRS Disputes
https://lawprofessors.typepad.com/agriculturallaw/2017/05/insights-into-handling-irs-disputes.html
Employer-Provided Meals and Lodging
https://lawprofessors.typepad.com/agriculturallaw/2017/05/employer-provided-meals-and-lodging.html
Self-Employment Tax On Farming Activity Of Trusts
Minority Shareholder Oppression Case Raises Several Tax Questions
Input Costs – When Can a Deduction Be Claimed?
Like-Kind Exchange Issues
https://lawprofessors.typepad.com/agriculturallaw/2017/06/like-kind-exchange-issues.html
Tax Issues With Bad Debt Deductions
https://lawprofessors.typepad.com/agriculturallaw/2017/06/tax-issues-with-bad-debt-deductions.html
Like-Kind Exchanges – The Related Party Rule and a Planning Opportunity
Tax Treatment of Cooperative Value-Added Payments
Would an Interest Charge Domestic International Sales Corporation Benefit a Farming Business?
Timber Tax Issues – Part One
https://lawprofessors.typepad.com/agriculturallaw/2017/07/timber-tax-issues-part-one.html
Timber Tax Issues – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2017/07/timber-tax-issues-part-two.html
An Installment Sale as Part of An Estate Plan
Using An IDGT For Wealth Transfer and Business Succession
Prospects for Tax Legislation
https://lawprofessors.typepad.com/agriculturallaw/2017/08/prospects-for-tax-legislation.html
Deferred Payment Contracts
https://lawprofessors.typepad.com/agriculturallaw/2017/08/deferred-payment-contracts.html
When Is A Farmer Not A “Qualified Farmer” For Conservation Easement Donation Purposes?
Substantiating Charitable Contributions
Forming a Farming/Ranching Corporation Tax-Free
Farmers Renting Equipment – Does It Trigger A Self-Employment Tax Liability?
Commodity Credit Corporation Loans and Elections
New Partnership Audit Rules
https://lawprofessors.typepad.com/agriculturallaw/2017/09/new-partnership-audit-rules.html
Alternatives to Like-Kind Exchanges of Farmland
South Dakota Attempts To Change Internet Sales Taxation – What Might Be The Impact On Small Businesses?
Fall Tax Schools
https://lawprofessors.typepad.com/agriculturallaw/2017/09/fall-tax-schools.html
Self-Employment Tax on Farm Rental Income – Is the Mizell Veneer Cracking?
Tax Treatment of Settlements and Court Judgments
The “Perpetuity” Requirement For Donated Easements
The Tax Rules Involving Prepaid Farm Expenses
It’s Just About Tax School Time
https://lawprofessors.typepad.com/agriculturallaw/2017/10/its-just-about-tax-school-time.html
IRS To Finalize Regulations On Tax Status of LLC and LLP Members?
The Deductibility (Or Non-Deductibility) of Interest
H.R. 1 - Farmers, Self-Employment Tax and Business Arrangement Structures
The Broad Reach of the Wash-Sale Rule
https://lawprofessors.typepad.com/agriculturallaw/2017/11/the-broad-reach-of-the-wash-sale-rule.html
Comparison of the House and Senate Tax Bills – Implications for Agriculture
Partnerships and Tax Law – Details Matter
Senate Clears Tax Bill - On To Conference
Are Taxes Dischargeable in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2017/12/are-taxes-dischargeable-in-bankruptcy.html
Bitcoin Fever and the Tax Man
https://lawprofessors.typepad.com/agriculturallaw/2017/12/bitcoin-fever-and-the-tax-man.html
House and Senate to Vote on Conference Tax Bill This Week
Another Tax Bill Introduced, Year-End Planning, and Jan. 10 Seminar/Webinar
PUBLICATIONS
Agricultural Law in a Nutshell
https://lawprofessors.typepad.com/agriculturallaw/2017/07/agricultural-law-in-a-nutshell.html
REAL PROPERTY
Another Issue When the Definition of “Agriculture” Matters – Property Tax
The Ability of Tenants-in-Common To Bind Co-Tenants to a Farm Lease – and Related Issues
Like-Kind Exchanges, Reverse Exchanges, and the Safe Harbor
Like-Kind Exchange Issues
https://lawprofessors.typepad.com/agriculturallaw/2017/06/like-kind-exchange-issues.html
Easements on Agricultural Land – Classification and Legal Issues
Should I Enter Into An Oil and Gas Lease?
REGULATORY LAW
Checkoffs, The Courts and Free Speech
https://lawprofessors.typepad.com/agriculturallaw/2017/01/checkoffs-the-courts-and-free-speech.html
Joint Employment Situations In Agriculture – What’s the FLSA Test?
Farmers, Ranchers and Government Administrative Agencies
IRS To Target “Hobby” Farmers
https://lawprofessors.typepad.com/agriculturallaw/2017/03/irs-to-target-hobby-farmers.html
Drainage Activities on Farmland and the USDA
What is a “Separate Person” For Payment Limitation Purposes?
Livestock Indemnity Payments – What They Are and Tax Reporting Options
Can One State Regulate Agricultural Production Activities in Other States?
Farm Program Payment Limitations and Entity Planning – Part One
Farm Program Payment Limitations and Entity Planning – Part Two
Eminent Domain – The Government’s Power to “Take” Private Property
Department of Labor Overtime Rules Struck Down – What’s the Impact on Ag?
The Prior Converted Cropland Exception From Clean Water Act Jurisdiction
Air Emission Reporting Requirement For Livestock Operations
Federal Labor Law and Agriculture
https://lawprofessors.typepad.com/agriculturallaw/2017/11/federal-labor-law-and-agriculture.html
Electronic Logs For Truckers and Implications for Agriculture
SECURED TRANSACTIONS
Ag Supply Dealer Liens – Important Tool in Tough Financial Times
“Commercial Reasonableness” of Collateral Sales
What Are A Farmer’s Rights When a Grain Elevator Fails?
Selling Collateralized Ag Products – The “Farm Products” Rule
SEMINARS AND CONFERENCES
Fall Tax Schools
https://lawprofessors.typepad.com/agriculturallaw/2017/09/fall-tax-schools.html
Another Tax Bill Introduced, Year-End Planning, and Jan. 10 Seminar/Webinar
Summer 2018 - Farm Tax and Farm Business Education
The Business of Agriculture – Upcoming CLE Symposium
Summer Ag Tax/Estate and Business Planning Conference
WATER LAW
Prior Appropriation – First in Time, First in Right
Kansas Water Law - Reactions to and Potential Consequences of the Garetson decision
Public Access To Private Land Via Water
Big Development for Water in the West - Federal Implied Reserved Water Rights Doctrine Applies to Groundwater
April 2, 2021 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)
Sunday, March 21, 2021
Ag Law and Taxation - 2018 Bibliography
Overview
Today's post is a bibliography of my ag law and tax blog articles of 2018. Many of you have requested that I provide something like this to make it easier to find the articles, and last month I posted the bibliography of the 2020 and 2019 articles. Soon I will post the bibliography of the 2017 articles and then 2016. After those are posted. I will post one long bibliography containing all of the articles up to that point in time. Then, to close out 2021, I will post the articles of 2021.
The library of content is piling up.
Cataloging the 2018 ag law and tax blog articles - it's the topic of today's post.
BANKRUPTCY
Top Ten Agricultural Law and Tax Developments of 2017 (Ten through Six)
Chapter 12 Bankruptcy – Feasibility of the Reorganization Plan
Farm Bankruptcy and the Preferential Payment Rule
Can a Bankrupt Farm Debtor Make Plan Payments Directly to Creditors?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Chapter 12 Bankruptcy and the Tools-of-the-Trade Exemption
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
BUSINESS PLANNING
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
The Spousal Qualified Joint Venture
https://lawprofessors.typepad.com/agriculturallaw/2018/02/the-spousal-qualified-joint-venture.html
The Spousal Qualified Joint Venture – Implications for Self-Employment Tax and Federal Farm Program Payment Limitations
Form a C Corporation – The New Vogue in Business Structure?
Tax Issues When Forming a C Corporation
End of Tax Preparation Season Means Tax Seminar Season is About to Begin
Converting a C Corporation to an S Corporation – The Problem of Passive Income
Valuation Discounting
https://lawprofessors.typepad.com/agriculturallaw/2018/05/valuation-discounting.html
Valuation Discounting – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2018/05/valuation-discounting-part-two.html
The Impact of the TCJA on Estates and Trusts
Buy-Sell Agreements for Family Businesses
When is an Informal Business Arrangement a Partnership?
Management Activities and the Passive Loss Rules
Expense Method Depreciation and Trusts
Qualified Business Income Deduction – Proposed Regulations
Intentionally Defective Grantor Trust – What is it and How Does it Work?
When Can a Corporate Shareholder be Held Liable for Corporate Debts and Liabilities?
Farm Wealth Transfer and Business Succession – The GRAT
Social Security Planning for Farmers
https://lawprofessors.typepad.com/agriculturallaw/2018/10/social-security-planning-for-farmers.html
Corporations Post-TCJA and Anti-Corporate Farming Laws
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
What Happens When a Partner Dies?
https://lawprofessors.typepad.com/agriculturallaw/2018/10/what-happens-when-a-partner-dies.html
What are the Tax Consequences on Sale or Exchange of a Partnership Interest?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
CIVIL LIABILITIES
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Landlord Liability for Injuries Occurring on Leased Premises
When Does a Rule of Strict Liability Apply on the Farm?
When Can I Shoot My Neighbor’s Dog?
https://lawprofessors.typepad.com/agriculturallaw/2018/05/when-can-i-shoot-my-neighbors-dog.html
Reasonable Foreseeability
https://lawprofessors.typepad.com/agriculturallaw/2018/05/reasonable-foreseeability.html
What is “Agriculture” for Purposes of Agritourism?
Negligence – Can You Prove Liability?
https://lawprofessors.typepad.com/agriculturallaw/2018/06/negligence-can-you-prove-liability.html
Wind Farm Nuisance Matter Resolved – Buy the Homeowners Out!
Torts Down on the Farm
https://lawprofessors.typepad.com/agriculturallaw/2018/08/torts-down-on-the-farm.html
Roadkill – It’s What’s for Dinner
https://lawprofessors.typepad.com/agriculturallaw/2018/09/roadkill-its-whats-for-dinner.html
What Difference Does it Make if I Post My Property “No Trespassing”?
Liability for Injuries Associated with Horses
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
CONTRACTS
Is a Farmer a Merchant? Why it Might Matter
Some Thoughts on the Importance of Leasing Farmland
Contract Rescission – When Can You Back Out of a Deal?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Disclaiming Implied Warranties
https://lawprofessors.typepad.com/agriculturallaw/2018/11/disclaiming-implied-warranties.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
COOPERATIVES
The Qualified Business Income (QBI) Deduction – What a Mess!
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
CRIMINAL LIABILITIES
Curtilage – How Much Ag Property is Protected from a Warrantless Search?
Establishing the Elements of a Cruelty to Animals Charge
What Difference Does it Make if I Post My Property “No Trespassing”?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
ENVIRONMENTAL LAW
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Top Ten Agricultural Law and Tax Developments of 2017 (Five through One)
Is a CWA Permit Needed for Pollution Discharges via Groundwater?
Non-Tax Ag Provisions and the Omnibus Bill
Wetlands and Farm Programs – Does NRCS Understand the Rules?
Regulation of Wetlands and “Ipse Dixit” Determinations
WOTUS Developments
https://lawprofessors.typepad.com/agriculturallaw/2018/08/wotus-developments.html
Does the Migratory Bird Treaty Act Apply to Farmers?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Is Groundwater a “Point Source” Pollutant?
“Waters of the United States” Means “Frozen Soil”?
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
Can an Endangered Species be Protected in Areas Where it Can’t Survive?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
ESTATE PLANNING
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
The Tax Cuts and Job Acts – How Does it Impact Estate Planning?
What’s the Charitable Deduction for Donations From a Trust?
The Spousal Qualified Joint Venture
https://lawprofessors.typepad.com/agriculturallaw/2018/02/the-spousal-qualified-joint-venture.html
Why Clarity in Will/Trust Language Matters
Some Thoughts on the Importance of Leasing Farmland
End of Tax Preparation Season Means Tax Seminar Season is About to Begin
Modifying an Irrevocable Trust – Decanting
Valuation Discounting – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2018/05/valuation-discounting-part-two.html
The Impact of the TCJA on Estates and Trusts
Impact of Post-Death Events on Valuation
Beneficiary Designations, Changed Circumstances and the Contracts Clause
Qualified Business Income Deduction – Proposed Regulations
Spousal Joint Tendencies and Income Tax Basis
Farm and Ranch Estate Planning in 2018 and Forward
The TCJA, Charitable Giving and a Donor-Advised Fund
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Unpaid Tax at Death – How Long Does IRS Have to Collect?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
INCOME TAX
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Top Ten Agricultural Law and Tax Developments of 2017 (Five through One)
The Qualified Business Income (QBI) Deduction – What a Mess!
The Tax Cuts and Jobs Act – How Does it Impact Estate Planning?
What’s the Charitable Deduction for Donations from a Trust?
Can Farmers Currently Deduct Research Expenditures?
Innovation on the Farm – Will the Research and Development Credit Apply?
What Happens When the IRS Deems an Ag Activity to Be a Hobby?
The Spousal Qualified Joint Venture – Implications for Self-Employment Tax and Federal Farm Program Payment Limitations
Livestock Sold or Destroyed Because of Disease
Form a C Corporation – The New Vogue in Business Structure?
Deductible Repairs Versus Capitalization
The Tax Treatment of Farming Net Operating Losses
Congress Modifies the Qualified Business Income Deduction
IRS Collections – The Basics
https://lawprofessors.typepad.com/agriculturallaw/2018/03/irs-collections-the-basics-.html
Tax Issues Associated with Oil and Gas Production
Refundable Fuel Credits – Following the Rules Matters
Distinguishing Between a Capital Lease and an Operating Lease
End of Tax Preparation Season Means Tax Seminar Season is About to Begin
Passive Activities and Grouping
https://lawprofessors.typepad.com/agriculturallaw/2018/04/passive-activities-and-grouping.html
Divorce and the New Tax Law – IRS Grants Some Relief
Gifts of Ag Commodities to Children and the New Tax Law
Post-Death Sale of Crops and Livestock
Is There a Downside Risk to E-Filing Your Taxes?
Purchase and Sale Allocations to CRP Contracts
Converting a C Corporation to an S Corporation – The Problem of Passive Income
The Impact of the TCJA on Estates and Trusts
The TCJA and I.R.C. 529 Plans
https://lawprofessors.typepad.com/agriculturallaw/2018/05/the-tcja-and-irc-529-plans.html
Farmers, Self-Employment Tax, and Personal Property Leases
State Taxation of Online Sales
https://lawprofessors.typepad.com/agriculturallaw/2018/06/state-taxation-of-online-sales.html
The Depletion Deduction for Oil and Gas Operations
Charitable Giving Post-2017
https://lawprofessors.typepad.com/agriculturallaw/2018/07/charitable-giving-post-2017.html
When is an Informal Business Arrangement a Partnership?
Management Activities and the Passive Loss Rules
Tax Issues on Repossession of Farmland
Outline of Tax Proposals Released
https://lawprofessors.typepad.com/agriculturallaw/2018/07/outline-of-tax-proposals-released.html
Life Estate/Remainder Arrangements and Income Tax Basis
Expense Method Depreciation and Trusts
Qualified Business Income Deduction – Proposed Regulations
The Qualified Business Income Deduction and “W-2 Wages”
Tax Consequences on Partition and Sale of Land
Deducting Residual Soil Fertility
https://lawprofessors.typepad.com/agriculturallaw/2018/09/deducting-residual-soil-fertility.html
Social Security Planning for Farmers
https://lawprofessors.typepad.com/agriculturallaw/2018/10/social-security-planning-for-farmers.html
Eliminating Capital Gain Tax – Qualified Opportunity Zones
The TCJA, Charitable Giving and a Donor-Advised Fund
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
What is Depreciable Farm Real Property?
What is “Like-Kind” Real Estate?
https://lawprofessors.typepad.com/agriculturallaw/2018/10/what-is-like-kind-real-estate.html
Developments in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2018/11/developments-in-ag-law-and-tax.html
Trusts and Like-Kind Exchanges
https://lawprofessors.typepad.com/agriculturallaw/2018/11/trusts-and-like-kind-exchanges.html
Unpaid Tax at Death – How Long Does IRS Have to Collect?
Non-Depreciable Items on the Farm or Ranch
What are the Tax Consequences on Sale or Exchange of a Partnership Interest?
Expense Method Depreciation and Structures on the Farm
Deduction Costs Associated with Items Purchased for Resale
https://lawprofessors.typepad.com/agriculturallaw/2018/12/sale-of-items-purchased-for-resale.html
Claiming Business Deductions? – Maintain Good Records, and… Hire a Tax Preparer
https://lawprofessors.typepad.com/agriculturallaw/income-tax/page/7/
Depletion – What is it and When is it Available?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
INSURANCE
Beneficiary Designations, Changed Circumstances and the Contracts Clause
Recent Developments Involving Crop Insurance
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Farm Liability Policies – Are All Activities on the Farm Covered?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
REAL PROPERTY
In-Kind Partition and Adverse Possession – Two Important Concepts in Agriculture
Some Thoughts on the Importance of Leasing Farmland
Prescriptive Easements and Adverse Possession – Obtaining Title to Land Without Paying for It
Purchase and Sale Allocations to CRP Contracts
Tax Issues on Repossession of Farmland
The Accommodation Doctrine – Working Out Uses Between Surfaces and Subsurface Owners
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
What is “Like-Kind” Real Estate?
https://lawprofessors.typepad.com/agriculturallaw/2018/10/what-is-like-kind-real-estate.html
Negative Easements – Is There a Right to Unobstructed Light, Air, or View?
The “Almost Top Ten” Ag Law and Tax Developments of 2018
REGULATORY LAW
The “Almost Top Ten” Agricultural Law and Tax Developments of 2017
Top Ten Agricultural Law and Tax Developments of 2017 (Ten through Six)
Is There a Constitutional Way to Protect Animal Ag Facilities?
Trade Issues and Tariffs – Are Agriculture’s Concerns Legitimate?
Federal Crop Insurance – Some Recent Case Developments
Non-Tax Ag Provisions in the Omnibus Bill
Are Mandatory Assessments for Generic Advertising of Ag Commodities Constitutional?
Wind Farm Nuisance Matter Resolved – Buy the Homeowners Out!
Regulation of Wetlands and “Ipse Dixit” Determinations
Ag Employment – Verifying the Legal Status of Employees
Roadkill – It’s What’s for Dinner
https://lawprofessors.typepad.com/agriculturallaw/2018/09/roadkill-its-whats-for-dinner.html
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
“Waters of the United States” Means “Frozen Soil”?
How Long Can a Train Block a Crossing?
https://lawprofessors.typepad.com/agriculturallaw/2018/11/how-long-can-a-train-block-a-crossing.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
SECURED TRANSACTIONS
Ag Finance – Getting the Debtor’s Name Correct on the Financing Statements
What Are “Proceeds” of Crops and Livestock?
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
The “Almost Top Ten” Ag Law and Tax Developments of 2018
SEMINARS AND CONFERENCES
Agricultural Law and Economics Conference
Summer Farm Income Tax/Estate and Business Planning Conference
Upcoming Seminars
https://lawprofessors.typepad.com/agriculturallaw/2018/08/upcoming-seminars.html
Fall Tax Seminars
https://lawprofessors.typepad.com/agriculturallaw/2018/09/fall-tax-seminars.html
Year-End Ag Tax Seminar/Webinar
https://lawprofessors.typepad.com/agriculturallaw/2018/12/year-end-ag-tax-seminarwebinar.html
WATER LAW
Top Ten Agricultural Law and Tax Developments of 2017 (Ten through Six)
Top Ten Agricultural Law and Tax Developments of 2017 (Five through One)
The Accommodation Doctrine – Working on Uses Between Surface and Subsurface Owners
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2018/10/agricultural-law-online.html
Drainage Issues – Rules for Handling Excess Surface Water
The “Almost Top Ten” Ag Law and Tax Developments of 2018
March 21, 2021 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)
Tuesday, March 2, 2021
Cross-Collateralization Clauses – Tough Lessons For Lenders
Overview
The farm economy, in general, is in better shape than it was three or fours years ago. Crop prices are stronger, land values remain firm, and interest rates (at least for the time being) remain low. But, that doesn’t mean that financial problems associated with the most recent farm economic downturn are all in the past. Indeed, the legal and financial systems often address issues long after the initial problems arose.
One of the most recent issues is a mix of those financial and legal issues. Farmers often need to borrow money to finance their operations, and lenders must decide whether making ag loans are a good idea. That means that a lender must understand clause language contained in a potential farm borrower’s existing lending documents and the associated rights and obligations of the parties.
Once of those clauses merits a close look. It’s known as a “cross collateralization” clause. If a potential lender doesn’t understand what the clause language means, the lender can end up losing the priority position that it thought it had.
A “cross-collateralization clause in a lending instrument – it’s the topic of today’s post.
Cross-Collateralization
Defined. I examined the issue of cross-collateralization in a post in late 2017 that you may read here: https://lawprofessors.typepad.com/agriculturallaw/2017/10/tough-financial-times-in-agriculture-and-lending-clauses-peril-for-the-unwary.html. There, I noted that “cross-collateralization” is a term that describes a situation when the collateral for one loan is also used as collateral for another loan. For example, if a farmer takes out multiple loans with the same lender, the security for one loan can be used as cross-collateral for all the loans.
Clause language. As noted above, clause language in lending and leasing documents should be carefully reviewed and understood for their implications. This is particularly true with respect to cross-collateralization language. For example, the following is an example of such a clause that appears to be common in John Deere Financial security agreements. Here is how the language of one particular clause reads:
“Security Interest; Missing Information. You grant us and our affiliates a security interest in the Equipment (and all proceeds thereof) to secure all of your obligations under this Contract and any other obligations which you may have to us or any of our affiliates or assignees at any time and you agree that any security interest you have granted or hereafter grant to us or any of our affiliates shall also secure your obligations under this Contract. You agree that we may act as agent for our affiliates and our affiliates may as agent for us, in order to perfect and realize on any security interest described above. Upon receipt of all amounts due and to become due under this Contract, we will release our security interest in the Equipment (but not the security interest for amounts due an affiliate), provided no event of default has occurred and is continuing. You agree to keep the Equipment free and clear of all liens and encumbrances, except those in favor of us and our affiliates as described above, and to promptly notify us if a lien or encumbrance is placed or threated against the Equipment. You irrevocably authorize us, at any time, to (a) insert or correct information on this Contract, including your correct legal name, serial numbers and Equipment descriptions; (b) submit notices and proofs of loss for any required insurance; (c) endorse your name on remittances for insurance and Equipment sale or lease proceeds; and (d) file a financing statement(s) which describes either the Equipment or all equipment currently or in the future financed by us. Notwithstanding any other election you may make, you agree that (1) we can access any information regarding the location, maintenance, operation and condition of the Equipment; (2) you irrevocably authorize anyone in possession of that information to provide all of that information to us upon our request; (3) you will not disable or otherwise interfere with any information gathering or transmission device within or attached to the Equipment; and (4) we may reactivate such device.”
So, what does that clause language mean? Several points can be made:
- The clause grants Deere Financial and its affiliates a security interest in the equipment pledged as collateral to secure the obligations owed to it as well as its affiliates.
- When all obligations (including debt on the equipment purchased under the contract and all other debts for the purchase of equipment that Deere Financial finances) to Deere under the contract are paid, Deere Financial will release its security interest in the equipment. That appears to be straightforward and unsurprising. However, the release does not release the security interest of the Deere’s affiliates. This is the cross-collateral provision.
- The clause also makes Deere Financial the agent of its affiliates, and it makes the affiliates the agent of Deere Financial for purposes of perfection. What the clause appears to mean is that if a financing statement was not filed timely, perfection by possession could be pursued.
- The clause also irrevocably authorizes John Deere to insert or correct information on the contract.
- The clause allows John Deere to access any information regarding the location, maintenance, operation and condition of the collateral.
- The clause also irrevocably authorizes anyone in possession of that information to provide it to John Deere upon request.
- Also, under the clause, the purchaser agrees not to disable or interfere with any information gathering or transmission device in or attached to the Equipment and authorizes John Deere to reactivate any device.
Example. Consider the following example of the effect of cross-collateralization by machinery sellers and financiers:
|
Assets |
Value |
|
Creditor |
Amount |
Equity by Item |
|
JD 4710 Sprayer 90' Boom |
60,000 |
JD Finance |
84,000 |
(24,000) |
|
|
JD 333E Compact Track Loader |
50,000 |
JD Finance |
35,000 |
15,000 |
|
|
JD 8410T Crawler Tractor |
70,000 |
JD Finance |
50,000 |
20,000 |
|
|
JD 612C 12 Row Corn Head |
70,000 |
JD Finance |
25,000 |
45,000 |
|
|
Farm Plan |
58,571 |
(58,571) |
|||
|
Total Value |
250,000 |
Total Liabilities |
252,571 |
(2,571) |
|
|
Equity with Cross Collateralization |
(2,571) |
||||
|
Equity without Cross Collateralization |
80,000 |
The equity in the equipment without cross-collateralization is the sum of the equity in the Compact Track Loader, the Crawler Tractor and the Row Corn Head ($80,000). With cross-collateralization, however, the equity in the equipment is $2,571.
Sellers that finance the purchase price of the item(s) sold (termed a “purchase money” lender) are using cross-collateralization provisions with some degree of frequency. As noted above, the cross-collateralization provisions of the John Deere security agreement will allow John Deere to offset its under-secured status on some machinery by using the equity in other financed collateral to make up the unsecured portion of its claims. Other machinery financiers (such as CNH and AgDirect) are utilizing similar cross-collateral provisions in their security agreements.
Impact of Cross-Collateralization on “Dragnet” Liens
The issue. Would a bank’s properly filed financing statement and perfected blanket security agreement be sufficient to defeat a cross-collateralization provision? Stated differently, would an equipment dealer’s financing of equipment via a lending document containing a cross-collateralization clause be sufficient to allow the dealer’s subsequently filed financing statement(s) to defeat the prior perfected security interest of another lender, such as a bank?
In some instances, when a purchase money security interest holder has sought to enforce a cross-collateralization clause, the purchase money security interest holder has always backed down. For example, in one recent scenario, John Deere Financial sought to enforce its cross-collateralization agreement against a Bank in a situation similar to the one set forth above. The bank properly countered that its blanket security interest in farm equipment perfected before any of the Deere Financial purchase money security interests were perfected defeated the Deere Financial cross-collateralization. Deere Financial backed down thereby allowing the bank to have all the equity in the equipment, $80,000, be paid to the bank by the auctioneer after the liquidation auction.
Recent case. In a recent bankruptcy case from Kentucky, In re Duvall, No. 19-11272(1)(12), 2021 Bankr. LEXIS 22 (Bankr. W.D. Ky. Jan. 7, 2021), a bank found out to its detriment how an equipment financier’s cross-collateralization clause works. In the late 1990s, two individuals started a farming partnership. The business arrangement lacked formality and largely involved sharing machinery and equipment. To sustain the farming operations, they obtained financing from various lenders, either individually or collaboratively, including John Deere Financial (JDF). The debtor, one of the individuals in the farming partnership, applied for a “Multi-Use Account” with JDF in late 2013. The Multi-Use Account line of credit was governed by a Credit Agreement and secured by collateral of John Deere pursuant to cross-collateralization clauses in numerous John Deere security agreements executed when John Deere financed (via purchase-money security interests (PMSIs)) various machinery and equipment purchases of the debtor. The first one of the John Deere PMSIs was in late October of 2016 for the debtor’s purchase of three tractors. That PMSI and all subsequent John Deere PMSI’s (of which there were many) contained the standard John Deere cross-collateralization clause language noted above.
After the initial John Deere PMSI, various other lenders, including a bank, loaned funds to the debtor and attempted to take security interests in the debtor’s machinery, equipment, tools and after-acquired property. Ultimately, the debtor defaulted on the Multi-Use Account which made the entire account balance of $274,000 to become due along with all of the outstanding amounts on the PMSIs. About a year later, the debtor filed Chapter 12 bankruptcy. John Deere filed a proof of claim in the bankruptcy matter and the bank filed an adversary proceeding to establish lien priority.
The bankruptcy court determined that John Deere possessed valid PMSIs in its collateral and had properly perfected them in accordance with the Kentucky Uniform Commercial Code (KUCC). As such, John Deere’s PMSIs were prior and superior to any other interest that the bank or any other lender had in the collateral. The bankruptcy court also noted that the debtor, in each of the security agreements, not only granted John Deere a security interest in the collateral that the security agreement/financing statement described, but also agreed to the John Deere cross-collateralization clause language. The bankruptcy court held that the cross-collateralization clause in each of the security agreements was valid under the KUCC. The bankruptcy court specifically noted that, “Subsection [(1)], together with subsection [(3)], also validates “cross-collateral” clauses under which collateral acquired at any time secures advances whenever made.” Comment 2 to K.R.S. §355.9-204. Thus, the amounts loaned to the debtor via the Multi-Use Account were also secured by John Deere’s collateral. The result was that John Deere had a second priority security interest in its collateral, behind only it’s valid PMSIs via the cross-collateralization clauses. The bank (and other lenders) lost.
Conclusion
If a farmer is presented with a lending transaction that involves either a cross-collateralization or a co-lessee clause, legal counsel with experience in such transactions should be consulted. Fully understanding the risks involved can pay big dividends. Failing to understand the terms of these clauses can lead to the financial failure of the farmer that signs the document. The same points apply to lenders.
March 2, 2021 in Secured Transactions | Permalink | Comments (0)
