July 2013 – Significant Developments
Economic woes and corporate taxes. During July, the economy continued to struggle. That merits attention on behalf of your clients and continues to put an emphasis on what might be done from a tax planning standpoint to make sure that no more taxes than necessary are being paid. That includes an analysis of how the business is organized to minimize the impact of self-employment and the new net investment income tax. If you haven’t yet considered it, a manager-managed LLC may be the organizational vehicle of choice for many clients.
In late July, the President pitched a lowering of the corporate tax rate. Or, at least on the surface, it was a pitch to lower the corporate tax rate to 28 percent. But, the lower rate is combined with a minimum tax on foreign earnings to pay for (again) more “stimulus” spending. Even with a reduction in the stated rate to 28 percent, the U.S. would still rank fourth highest among OECD countries – and those that would be higher than the U.S. are proposing to significantly cut their rates. The minimum tax on foreign earnings would be anti-competitive for U.S. companies. Most countries exempt foreign earnings. The bottom line is that under the President’s proposal the U.S. still wouldn’t be competitive with the developed world. The chances for the President’s proposal to make it through the Congress are slim, but keep an eye on it.
Crop insurance. We have received numerous calls and e-mails on the issue of crop insurance. The Congress still hasn’t passed a Farm Bill (the current one was extended and runs out at the end of September), so we don’t know yet what crop insurance will look like in the future. As for the deferability of crop insurance proceeds for tax purposes, prevented planting proceeds are deferrable. Of course, the usual rules for deferring crop insurance proceeds must be satisfied. If the proceeds are paid because price dropped from the time of planting to the time of harvest, deferability is not available. However, if the policy proceeds were received because there was a crop yield loss, the proceeds can be deferred if the rules are satisfied.
Indiana Nuisance Case. In July, the U.S. Circuit Court of Appeals for the Seventh Circuit construed the Indiana Right-To-Farm statute to hold that a row-crop operation that changed to a large-scale hog confinement operation was protected from a nuisance suit. Both types of usage involved agriculture, and the plaintiff couldn’t prove that the hog confinement operation was operated in a negligent manner.
Manure could be “solid waste” subject to RCRA. In late June, a federal court in Washington state determined that manure from cattle at various dairy operations was potentially subject to regulation under the Resource Conservation and Recovery Act primarily because of over-application to land and seepage from storage lagoons.
IRA beneficiary had transferee liability for estate tax. A Florida federal district court has held that an IRA beneficiary is liable for estate tax 12 years after the estate tax return was filed. The beneficiary’s liability was derivative of the estate’s liability for unpaid estate tax as a transferee. Liability was for the full amount of the IRA assets that the beneficiary inherited. That’s a questionable result, but it’s an issue that clients may need to be aware of.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.