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December 2013 Newsletter
Welcome to the December 2013 issue of the Center for Agricultural Law and Taxation (CALT) newsletter. Thank you for subscribing. We hope that the information that we provide is relevant and timely for your practices and businesses. If you are a new subscriber, we welcome you to the monthly newsletter. You’ll find the most comprehensive, current and accurate database of agricultural law and taxation information and research-related materials on the CALT website. If you have a development from your own practice or experience that you think others would be helped by knowing, drop us a note so that we can share the discussion on the website. We appreciate your input because it is very helpful in making and keeping us the leading source for the most relevant and accurate information involving agricultural law and taxation.
Fall 2013 Seminars
The Farm and Urban Tax Schools are winding down. We hope to see you at one of the remaining schools either in Denison or Ames.
- On December 19, Roger McEowen and Kristy Maitre will conduct a live, 90-minute ethics webinar for lawyers that need ethics CLE. The presentation will also count as continuing education ethics for other tax professionals. To learn more and to register, click here.
Here’s the schedule for the remaining Iowa Tax Schools - To register, click here
- December 9-10: Denison - Boulders Conference Center
- December 16-17: Ames - Quality Inn & Suites
To see the topical schedule for each day and the speakers at each location, click here.
Summer 2014 Seminars
Presently, we have one of our summer seminars booked for June of 2014. That seminar will be on June 26 and June 27 at the Holiday Inn in West Yellowstone, Montana. The seminar is co-sponsored by the Idaho, Montana, Washington and Wyoming CPAs. We are presently working on a second summer seminar for a location in the eastern third of the U.S. Keep watching the website (and your e-mail) for developments.
CALT Director – November Activities
During November, the Director conducted a national on-line farm tax seminar for participants across the U.S. Also, during November, the Director conducted multiple tax seminars in Kansas, and North Dakota in addition to Iowa. In addition, during November, the Director participated in the Iowa Farm Bureau farm tax update with CALT Board Member, Charles Brown.
During November, the Director was a guest on eights radio programs and was interviewed by numerous media outlets concerning topics related to agricultural law and taxation.
CALT Staff Attorney
CALT is pleased to announce Kristine A. Tidgren as the new staff attorney. Kristine is excited to join the work of the Center as the new staff attorney. She was raised on a farm near Logan, Iowa. She received her B.A. from Iowa State University, and a J.D., with honors, from The University of Texas at Austin. During her 15 years as an attorney, she has worked as a litigation associate in Kansas City, an attorney editor for LexisNexis, and most recently as a solo practitioner in Carroll, Iowa. She has a deep appreciation for agriculture and its people and a passion for legal research and writing. She looks forward to providing you with timely information regarding important developments in agricultural law and taxation. Don’t hesitate to call Kristine at (515) 294-6365 or email her at email@example.com.
Farm Bill. With the number of days that the Congress will be in session the remainder of the year dwindling away, it is looking more likely that there won’t be a new Farm Bill. The Senate passed its bill last June (S. 954) and the House passed their bill in September (H.R. 2642). The two versions differ vastly and it just doesn’t look likely that a compromise can be reached by the end of the month. Differences remain on crop insurance, the replacement mechanism for direct payments and various other provisions. Also, a major sticking point is the Food Stamp program. Historically, Food Stamps have been included in the Farm Bill for purely political reasons – to get non-farm legislative support for its passage. But, in reality, the only true way to reform farm programs is to pull Food Stamps out of the Farm Bill and deal with it in separate legislation or make reauthorization of the Food Stamp program (if included in the Farm Bill) come up for reauthorization at a time different than that for the actual farm-related provisions. Food Stamp spending has skyrocketed in recent years, with the 2012 amount doubling the 2008 amount. Neither the Senate nor House versions of the Farm Bill make any meaningful attempt to rein in Food Stamp spending. The House bill proposes a five percent reduction (according to the Congressional Budget Office (CBO), and the Senate bill a mere one-half of one percent (according to the CBO).
Presently, recipients of Food Stamps don’t have to be working or looking for work. The House version of the Farm Bill does contain a provision that attempts to tie work requirements to receipt of Food Stamps, but the Senate version does not. Likewise, “broad-based categorical eligibility” allows Food Stamp recipients to avoid otherwise applicable asset eligibility tests. The House bill tries to bar such eligibility, but the Senate bill does not.
As noted above, another sticking point is crop insurance. Crop insurance spending has also ballooned in recent years (according to the Government Accounting Office) from an average annual cost of 3.1 billion (2000-2006) to a projected $8.9 billion annually from 2013-2022 under present law. Neither the House nor Senate versions of the Farm Bill really do anything to deal with the increased subsidies that assist farmers in paying crop insurance premiums.
NIIT Final Regulations. In late November, the Treasury Dept. issued final regulations (and some proposed regulations) with respect to the Net Investment Income Tax (NIIT). The final regulations differ in material respects from the proposed regulations, and in many respects are friendlier to taxpayers. Under the final regulations, self-rentals are not passive, the grouping rules are explained and guidance is given when changes on an amended return would impact the grouping election or require a regrouping. Also, a special rule is included concerning self-charged interest. The rule is mostly favorable, but there is a unique twist to the rules when self-employment tax is involved. For a summary review of the final rules (and the new proposed rules as applied to partnerships and S corporations) see our tax school handout on the rules prepared by Paul Neiffer, click here to view.
The rules will be covered at the remaining tax schools, and were covered at the Kansas schools earlier this month.
The Parsonage Exclusion. On November 22, a federal judge in Wisconsin ruled that the cash allowance provision of I.R.C. §107(2) was unconstitutional. That’s the provision that allows a minister of the gospel to exclude from income the amount a church provides for housing costs for a home that the minister owns. The court viewed that provision as providing a benefit to ministers that other taxpayers do not have available and is not necessary to alleviate a burden on religion. However, the exclusion is still available for an allowance provided to a minister who lives in a parsonage that is owned by the church. The Treasury Department is the defendant in the case, so the Obama Administration will have to decide whether to appeal the case. The judge said that an injunction will be entered in the case on the later of 30 days after the decision (Dec. 22, 2013) or upon the finality of appeals. The case is Freedom From Religion Foundation, Inc., et al. v. Lew, et al., No. 11-cv-626-bbc, 2013 U.S. Dist. LEXIS 166076 (W.D. Wisc. Nov. 22, 2013) and appears on our annotation list.
LLC Valuation Issues in the Tax Court. The U.S. Tax Court recently issued an opinion in a case involving a family-owned LLC that involved valuation issues. The LLC’s operating agreement said that if an LLC interest was transferred outside the family, the new owner was a mere assignee that couldn’t participate in management unless all of the other owners agreed to allow such participation. When the decedent died, the LLC interest involved in the case was owned in trust as a full member interest. It was included in the decedent’s gross estate under I.R.C. §2038, but the estate valued it at less than fair market value as an assignee interest. The Tax Court disagreed with the estate’s valuation, and said it should be valued as a full member interest. But, the Tax Court also said that a willing buyer would take into account the transfer restrictions in the LLC’s operating agreement in determining the price to offer for the interest. The estate also wanted to value the interest based on the income approach (historical distributions), but the IRS valued the interest in accordance with the net asset approach (fmv – liabilities multiplied by the percentage of the LLC attributable to the LLC interest). The court largely used the IRS approach, but appears to have not eliminated a mixed valuation approach if supported by the facts. The case is also instructive to estates that try to argue a lower valuation that what was reported on Form 706. That tactic rarely works. The case is Tanenblatt v. Comr., T.C. Memo. 2013-263, and is referenced in our annotation list.
Case and Ruling Annotations - click here to view all annotations
Make sure to keep up on the annotations list. The list is updated daily with the most current cases and rulings of importance to agricultural producers and agricultural businesses. New developments are added on a daily basis. Since November 15, 59 annotations have been added to the list. This list is the most current and comprehensive listing of case and ruling developments of relevance to agricultural law that you can find anywhere. The following annotations highlight those that were added to the list since mid-November.
- U.S. Supreme Court to decide whether inherited IRAs are exempt in bankruptcy. In re Clark, 714 F.3d 559 (7th Cir. 2013), cert. granted, Clark v. Rameker, No. 13-299, 2013 U.S. LEXIS 8421 (U.S. Sup. Ct. Nov. 26, 2013).
- Debtor not a “family farmer” eligible for Chapter 12, and Disneyland not a farming operation. In re Vecchione, No. 13-42201-MSH, 2013 Bankr. LEXIS 4978 (Bankr. D. Mass. Nov. 20, 2013).
- Debtor engaged in farming, but debt test not satisfied for Chapter 12 purposes. In re Acee, No. 12-61632, 2013 Bankr. LEXIS 4789 (Bankr. N.D. N.Y. Nov. 12, 2013).
- Tax Court determines estate tax value of LLC interest. Estate of Tanenblatt, T.C. Memo. 2013-263.
- Assumption of risk doctrine bars suit for injuries incurred when caring for llama. Edwards v. Lombardi, No. 3-12-0518, 2013 Ill. App. LEXIS 806 (Ill. Ct. App. Nov. 20, 2013).
- State recreational use statute upheld to bar lawsuit against landowner; court noted that creating an exception to protect recreational users was domain of legislature and not the court and court stated, "We will not create an exception by judicial fiat." Pauley, et al. v. City of Circleville, No. 2012-1150, 2013 Ohio LEXIS 2313 (Ohio Sup. Ct. Oct. 16, 2013).
- Equine Activity Act bars volunteer’s suit for injury sustained at county fair. Einhorn v. Johnson, et al., No. 50A03-1303-CT-93, 2013 Ind. App. LEXIS 495 (Ind. Ct. App. Oct. 10, 2013).
- Failure to strictly comply with service requirements causes default judgment to be set aside in case involving contract for purchase of horse. Gilder, et al. v. Cedar Ridge Farms, Ltd., 213 Ark. App. 686 (2013).
- Farm lease case involves issue of when rent due. Central Stone Co. v. Warning, No. ED99480, 2013 Mo. App. LEXIS 1301 (Mo. Ct. App. Nov. 5, 2013).
- Potato case involves alleged breach of warranties and implied covenants. Hintz v. Jorde Certified Seed, LLC, No. 13-CV-0100-TOR, 2013 U.S. Dist. LEXIS 144905 (E.D. Wash. Oct. 4, 2013).
- State’s instream flow amended rules invalid because they were inconsistent with state laws to protect minimum instream flows for fish and other environmental values. Swinomish Indian Tribal Cmty. v. Dep't of Ecology, 178 Wash.2d 571, 311 P.3d 6 (2013).
- Court says university didn’t violate land use agreement concerning donated farm. Newell, et al. v. Johns Hopkins University, No. 1861, 2013 Md. App. LEXIS 158 (Md. Ct. App. Nov. 21, 2013).
- Tax Court addresses issues surrounding estate tax value of LLC interest. Estate of Tanenblatt v. Comr., T.C. Memo. 2013-263.
- Properties sold to trust in exchange for fixed annuity payments results in inclusion in decedent’s gross estate under I.R.C. §2036. Estate of Trombetta, T.C. Memo. 2013-234.
- Insurance claim for crop loss properly denied because notice of loss not timely made. Alma Brightleaf, Inc. v. Federal Crop Insurance Corporation, No. 13-11692, 2013 U.S. App. LEXIS 21205 (11th Cir. Oct. 21, 2013), aff’g., No. CV 511-091, 2013 U.S. Dist. LEXIS 37967 (S.D. Ga. Mar. 20, 2013).
- Again, court says that use of property determines boundary rather than survey. Voga v. Younes, No. 3-1021/13-0657, 2013 Iowa App. LEXIS 1215 (Iowa Ct. App. Nov. 20, 2013).
- Still yet another court says property usage trumps survey as to boundary. Brann, et al. v. Hulett, 2013 Ark. App. 687 (2013).
- Doctrine of marshaling not invoked in battle of lienholders over proceeds of crops. Westco Agronomy Co. v. Wollesen,et al., No. 3-652/12-2305, 2013 Iowa App. LEXIS 1131 (Oct. 23, 2013).
- No first-time homebuyer tax credit for taxpayer that didn’t obtain title to home, and LLC not an “individual” entitled to credit. Li v. Comr., T.C. Sum. Op. 2013-97.
- No first-year 50 percent bonus depreciation even though purchase contract signed, asset paid for and asset actually used in business because substantial modifications done after tax year ended to make asset suitable for use in taxpayer’s business. Brown v. Comr., T.C. Memo. 2013-275.
- Up-front bonus payment from oil and gas company is ordinary income, and no depletion deduction available because no well drilled. Dudek v. Comr., T.C. Memo. 2013-272.
- U.S. Tax Court applies I.R.C. §1239 to transfer of depreciable property between related parties. Fish v. Comr., T.C. Memo. 2013-270.
- Cash allowance provision of I.R.C. §107(2) for parsonage ruled unconstitutional, but church can still own parsonage and provide housing allowance to minister. Freedom From Religion Foundation, Inc., et al. v. Lew, et al., No. 11-cv-626-bbc, 2013 U.S. Dist. LEXIS 166076 (W.D. Wisc. Nov. 22, 2013).
- IRS messes up penalty calculation when refundable credit involved. Rand, et al. v. Comr., 141 T.C. 12 (2013).
- Tax court says taxpayer not in trade or business of trading securities even though $24-$33 million involved. Nelson v. Comr., T.C. Memo. 2013-259.
- Regulatory taking occurred when water usage so limited that landowners couldn’t adequately irrigate crops. The Edwards Aquifer Authority v. Bragg, No. 04-11-00018-CV, 2013 Tex. App. LEXIS 13854 (Tex. Ct. App. Nov. 13, 2013).
Donate to CALT
As you know, our work at the Center is dependent on the fees generated by seminar registrations and gifts. If you would like to donate to further the Center's efforts, please contact our Program Administrator, Tiffany Kayser at firstname.lastname@example.org or (515) 294-5217. We thank you for your generous support.
Keep checking the website daily for new developments and contact us at the Center with any questions you may have.
Have a very Merry Christmas and a Happy New Year!
Roger A. McEowen, Director (email@example.com or 515-294-4076)
Kristine A. Tidgren, Staff Attorney (firstname.lastname@example.org or 515-294-6365)
Tiffany L. Kayser, Program Administrator (email@example.com or 515-294-5217)
CALT Interns: Lindsey and Jeannette
2013-2014 CALT Sponsors
Current Events and Announcements
2013 Tax Schools
To register: http://www.extension.iastate.edu/registration/events/conferences/taxschools/
To learn more: http://www.calt.iastate.edu/taxschool2013.html
Ames - December 16-17
- Taxation Legal Ethics Webinar: December 19 at Noon - 1:30 pm (for attorneys only)
Co-sponsored with the Iowa State Bar Association
- 1.5 hour of credit for Iowa and Kansas CLEs (90 minutes)
- Registration is now available: click here
News and Updates
Iowa Supreme Court Shoots Down Hunting Rights
December 9, 2013 - In a recent opinion, the Iowa Supreme Court ruled that landownership rights do not include the right to hunt beyond the extent the state allows by statute and regulations. The case involved three Iowa landowners that were deemed to be nonresidents and treated differently than residents under the Iowa hunting rules and regulations. Read our article on the matter here.
Failure to Comply With DNR Consent Order Results in Large Fine
December 5, 2013 - An Iowa salvage yard owner repeatedly failed to comply with a DNR consent order and renew an NPDES permit and earned a large civil fine. Read our summary of the case here.
Wind Energy Company Nailed For Violations of Federal Law At Wyoming Wind Power Station
November 28, 2013 - A major U.S. energy company has entered into a settlement with the federal government for criminal violations of the Migratory Bird Treaty Act for killing protected species of birds at its wind power station near Casper, Wyoming. Under the settlement, Duke Energy Corporation has agreed to pay $1 million for killing the protected birds, including 14 eagles, without a federal permit. You can read the news story, click here
Court Says Pollution-Exclusion Clause Does Not Bar Hog Odor Suit
November 21, 2013 - The Illinois Court of Appeals has held that an insurer's standard "pollution exclusion" clause in an insurance policy does not apply to hog odor. As a result, insurers may have a greater obligation to defend farmers against lawsuits involving hog (or similar) odors. Or, insurance companies may make attempts to change the exclusion language.
Social Security Administration Provides Inflation-Adjusted Figures for 2014
November 5, 2013 - The Social Security Administration has released the 2014 inflation adjusted numbers for numerous items of importance including the COLA adjustment, tax rate, maximum taxable earnings and exempt amounts for the retirement earnings test, among other things. You can access the SSA Fact Sheet at this URL: http://www.ssa.gov/pressoffice/factsheets/colafacts2014.pdf
Inflation Adjusted Amounts for 2014
November 1, 2013 - The IRS has released the inflation adjusted amounts for various tax items for calendar year 2014. Included are the new numbers for the tax rate schedules, standard deduction, limitation on itemized deductions, limits for various credits and other important information. You can access the new numbers here (IRS Notice 2013-35).
Tax Bytes and Other Tax Information
December 2013 AFRs: http://www.calt.iastate.edu/irs.html#nov