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In recent years, “related party” transactions have been utilized to defer and/or avoid income tax.  Sometimes, the transactions have risen to the level of being abusive tax transactions according to the IRS.   Related parties may also be involved in I.R.C.

April 17, 2009 | Roger McEowen

The most basic principle of law involving negligent torts is that a party is liable for negligent conduct (i.e., breaches a duty owed to another party) that causes foreseeable injury to someone else’s person or property.  

In a recent news release, IRS has reversed its previous position and announced that credit or debit card convenience fees associated with the payment of federal tax are deductible as miscellaneous itemized expenses.  Only miscellaneous expenses that exceed 2 percent of a taxpayer's adjusted gross income are deductible, but IRS says that the fees charged by card processors average about 2.5 percent of the amount of the tax payment.  The announcement reverses the IRS position set forth in IRS Publication 529 in which IRS said that while taxpayers may pay tax via credit card, they can't deduct

The IRS Chief Counsel's Office has recently issued a legal memorandum in which it determined that the $1 million limitation on the deduction of mortgage interest on acquisition indebtedness under I.R.C. Sec. 163(h)(3)(B) applies on a per-mortgage basis, rather than on a per-taxpayer basis.  That means for multi-million dollar homes that are co-owned by unmarried persons, interest is deductible only on $1 million of acquisition indebtedness, not the interest attributable (at the maximum) to a single $2 million mortgage (attributed due to ownership equally between the spouses). 

March 4, 2009 | Roger McEowen, Kelvin Leibold, And Erin Herbold
February 19, 2009 | Robert E. Moore and Roger McEowen

The 2008 Farm Bill  and subsequent regulations have established new adjusted gross income (AGI) and adjusted gross farm income (AGFI) limitations for program eligibility.  The new limitations are considerably lower than the previous limitation of $2,500,000 and could have application to more producers than did the limitation under prior law. As a result, the correct computation of AGI and AGFI can be critical for ensuring that a producer remains eligible for farm program payments.

Questions abound concerning how to report disaster assistance received by clients this tax season.  Recently, IRS clarified the tax consequences of financial assistance received under the Jumpstart Iowa Housing and Small Business programs.  IRS says that any financial assistance received under these programs first reduces the amount of casualty loss allowed as a deduction on an individual’s or small business’s federal and Iowa income tax return.  That means they are to be treated similarly to the receipt of insurance proceeds.  For example, if a taxpayer receives $5,000 of Jumpstart assista

January 9, 2009 | Roger McEowen

Last fall, House Ways and Means Committee Chairman Charles Rangel (D.

January 6, 2009 | Roger McEowen and Erika Eckley
January 2, 2009 | Roger McEowen

We begin 2009 with our annual look at the most significant agricultural law developments of the previous year.  Legal issues continue to be at the forefront of developments that are shaping the present and future of American agriculture, and it is very likely that the involvement of the legal system in agriculture will continue to grow.  The following is my list of what I view as the top ten agricultural law developments of 2008 based on their impact (or potential impact) on U.S. agricultural producers and the sector as a whole.

Iowa law specifies that once a drainage district is established, additional land that is contiguous to the land in the district may be annexed into the district if the contiguous lands are benefitted by the improvement.  The question of whether land was benefitted by a drainage district and could, therefore, be annexed into the district was involved in this case.

October 16, 2008 | Roger McEowen & Erin Herbold

For purposes of Iowa sales and use tax, Iowa Code §428.20 defines a “manufacturer” as a person who purchases, receives, or holds personal property of any description for the purpose of adding to its value by a process of manufacturing. In Iowa, a “manufacturer” is exempt from sales and use tax on purchases of equipment if the equipment is “directly and primarily used in processing.” The application of the exemption to a paint company was at issue in this case.

Hundreds of economists (including Nobel Prize winners Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith) have signed a statement pointing out the shortcomings of Democrat Presidential candidate Barack Obama’s tax plan.  The economists note their concerns with his proposals to increase tax rates on labor income and investment.  They also note that Obama’s proposed dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans.

Iowa law specifies that the natural drainage of surface water cannot be diverted by one landowner to the damage of another landowner.  But, courts only grant injunctive relief in situations where it is necessary to prevent irreparable harm or afford relief where there is no other adequate remedy.  A drainage issue and injunctive relief were involved in this case.

Iowa has specific rules governing the drainage of surface water. But, is the state subject to those same rules?

Under the general rule, any taxpayer that produces or sells goods must report the income from the sale of the goods under the accrual method of accounting.  But, farmers and ranchers are allowed to use the cash method.  That’s a big deal because it allows farmers to time income and expenses through tax planning techniques which gives them a greater chance of adjusting income throughout the year to take advantage of the marginal tax brackets when it is advantageous to do so.  If farmers were limited to the accrual method, they would likely have greater annual fluctuations in income because o

September 3, 2008 | Roger McEowen

The IRS has recently released data showing that the share of the federal income tax borne by taxpayers in the highest income tax brackets has increased under the Bush Administration.  The data lays to rest the myth that the Bush tax cuts of 2001 and 2003 amounted to tax cuts for the rich.  The data reveal that the share of total federal income taxes paid by the wealthiest 1 percent of tax filers (those with adjusted gross income over $388,806) increased to 39.89 percent in 2006 (up from 37.42 percent in 2000).  In 2006, the top 5 percent accounted for 60.14 percent of all federal income tax

August 15, 2008 | Scott G. Buchanan*

Wind blows across broad stretches of northern Iowa at an average speed of 15.7 to 17.9 mph. year round, scouring the soil, swirling the leaves and chapping our lips. Those winds also light our homes, cook our food and power our computers.

It’s a well-known rule that a private landowner cannot assert a claim of adverse possession against the government.  But, can the government acquire title to private property via adverse possession?  If so, the government is able to side-step the Fifth Amendment requirement that it pay “just compensation” for the taking of private property.  The issue of the government’s assertion of ownership via adverse possession was involved in this case.    

June 23, 2008 | Roger McEowen

Crop insurance and disaster payments are normally reported as income in the year of receipt.  However, operators and share-rent landlords on the cash method of accounting may elect to defer crop insurance proceeds and federal disaster payments to the year after the year of the destruction or damage to the crops.  I.R.C.

June 2, 2008 | Roger McEowen


June 2, 2008 | Roger McEowen

November 2007

May 5, 2008 | Roger McEowen

On February 13, the President signed into law H.R. 5140, the Economic Stimulus Act (Act) of 2008. Perhaps the part of the Act that has received the most attention is provision authorizing a refundable credit against tax (known as the “recovery rebate credit”) to low and middle-income persons for 2008. However, there are several important business tax incentives contained in the Act. In any event, the Act creates numerous questions and presents administrative issues for IRS.

On February 8, 2006, the President signed into law the Deficit Reduction Act of 2005. The Act is designed to cut the federal budget deficit. Among other provisions, the Act contains fundamental changes to the Medicaid eligibility rules and long-term care coverage. The new rules will impact significantly estate plans where preservation of family business assets is a major objective. That is a common estate planning objective for farm and ranch families.

Drainage law is important to many Iowa farmers, and the issues frequently involve not only principles of Iowa water law, but also statutes and regulations involving drainage districts and County officials.  That was certainly the situation in this case.

Iowa law (Iowa Code §422.7 (21)) provides that certain capital gains can be excluded from taxable income.  For the sale of business property to be eligible, the taxpayer must have either been employed in the business or materially participated in the business for ten years and held the property for ten years.  Also, the statute defines sale of a business as the sale of “all or substantially all of the tangible personal property or service of the business.”  The statute has been modified in recent years, but the provision defining “sale of a business” has not changed. 

A local Vermont Board of Civil Authority (BCA) has ruled that a wind turbine reduced the value of adjacent property by 10 percent for real property tax purposes.  The evidence showed that the wind turbine was within 300 feet of the petitioner’s home, and the petitioner claimed that the turbine’s noise, blinking light, glare from the blades, and resulting vibrations decreased the home’s value.  Before reaching their decision, the BCA sent a committee of three persons to visit the petitioner’s property to evaluate the situation.  The committee reported back that the turbine produced constant

The USDA denied the plaintiffs’ applications for federal disaster assistance triggered by freeze damage to citrus crops.  The trial court granted summary judgment for the USDA, but that judgment was vacated on appeal because, with respect to two of the three plaintiffs, the defendant acted arbitrarily and capriciously in denying their claims for relief under the 2000 Crop Disaster Program.  Mahon v. United States Department of Agriculture, 485 F. 3d 1247 (11th Cir. 2007).

Contract poultry growers sued the defendant for breach of contract.  The trial court ruled that the production contract did not require the parties' selected arbitrators to be neutral, and even if the poultry growers' chosen arbitrator exhibited evidence bias, the defendant presented no evidence of prejudice.  Winfrey v. Simmons Foods, Inc., 495 F.3d 549 (8th Cir. 2007).

January 4, 2008 | Roger McEowen

We begin 2008 with our annual look at the most significant agricultural law developments of the previous year.  Legal issues continue to be at the forefront of developments that are shaping the present and future of American agriculture, and it is very likely that the involvement of the legal system in agriculture will continue to grow.  The following is my list of what I view as the top ten agricultural law developments of 2007 based on their impact (or potential impact) on U.S. agricultural producers and the sector as a whole.

IRS has issued as a Notice a proposed revenue ruling drafted by the American Institute of Certified Public Accountants (AICPAs) that allows a 2-percent S corporation shareholder-employee to take an above-the-line deduction for accident and health insurance premiums paid (or reimbursed) by the S corporation (and included in the shareholder’s gross income) on a policy in the shareholder’s name rather than in the name of the corporation.   The Notice clarifies an issue that arose in 2006 when IRS stated that an S corporation 2-percent shareholder could not deduct medical insurance premiums exc

In a recent case, a federal district court ruled that IRS is not bound by agency-issued FSAs, and that IRS need not treat similarly situated taxpayers similarly.   In its opinion, the court pointed out the difference between an FSA and a private letter ruling, and sounded a warning to taxpayers attempting to rely on FSAs for a position taken on a return.  The case also points out that attempting to bind IRS to an FSA may be difficult, if not impossible.

The United States Court of Appeals for the Seventh Circuit has affirmed the Tax Court and denied an estate's claimed charitable deduction for a nonqualified charitable remainder trust.   In the process, the court also rejected the estate's argument that the deduction should be allowed based on substantial compliance with the tax code.

November 14, 2007 | Roger McEowen

The Senate Finance Committee held hearings on November 14, 2007, concerning the federal estate tax.  Iowa Senator Charles Grassley (R-IA) testified, as did Committee Chair Baucus (D-MT).  Also testifying were Warren Buffet and Eugene G. Sukup, Chairman of the Board of Sukup Manufacturing of Sheffield, Iowa.  Senator Baucus stated that he supports repeal, but also acknowledged that the “tale” of the tax is worse than its actual bite and that very few estates are actually subject to the tax noting that only three in one hundred small businesses end up with any estate tax liability. 

Migrant workers sued under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Workers Protection Act (MSAWPA) alleging unfair recruitment, exposure to pesticides and substandard housing accommodations, among other things.  The workers were hired to detassel and rogue corn on an Indiana farm.  The seed corn grower hired an independent contractor to find workers for the job.  The contractor told the workers that they would work 72-84 hours per week and receive free housing.  That turned out to not be true – the workers ended up working only 20 hours per week and the

A federal court has ruled that Devon Energy Corporation, a natural gas producer, cannot deduct certain costs when it calculates the amount of royalties it owes to the government under its leases to extract coalbed methane gas (gas that is trapped in underground coal seams and held in place by hydraulic pressure) on federal land.  The gas is extracted by lifting the pressure on the coal bed which causes the methane gas to escape.  The gas is captured and gathered to a central delivery point (CDP), removed of any excess carbon dioxide, and dehydrated and pressurized to render it suitable for

The Taylor Grazing Act (TGA) of 1934 regulates grazing on federal land under the control of the Bureau of Land Management (BLM). In early 1995, the Interior Department proposed new regulations. Those regulations were challenged in court by a group of cattle industry organizations as being in violation of the TGA. In 1996, the Wyoming federal district court set aside a major portion of the regulations. On appeal, the U.S. Court of Appeals for the Tenth Circuit rendered a mixed opinion - upholding part of the regulations and holding other parts invalid. The U.S. Supreme Court affirmed.

The plaintiffs were three slaughterhouses that process and sell horsemeat primarily for human consumption abroad. Two of the slaughterhouses are located in Texas and the third was in Mexico. Since 1949, Texas law has prohibited the sale, possession and transportation of horsemeat for human consumption. In 2002, the Texas attorney general issued an opinion clarifying that the law applied to slaughterhouses in Texas. The plaintiffs sued, seeking to enjoin any potential prosecution against them that might be brought by Texas attorney general.

January 26, 2007 | Roger McEowen

In 2005, the U.S. Supreme Court upheld the beef check-off against a constitutional challenge on the basis that the check-off constituted government speech.  However, Justice Thomas, in his concurring opinion, noted that the government may not associate individuals or organizations involuntarily with speech by attributing an unwanted message to them whether or not those individuals fund the speech and whether or not the message is under the government’s control.   

January 1, 2007 | Roger McEowen

We begin 2007 with our annual look at the most significant agricultural law developments of the previous year. Legal issues continue to be at the forefront of developments that are shaping the present and future of American agriculture, and it is very likely that the involvement of the legal system in agriculture will continue to grow. The following is my list of what I view as the top ten agricultural law developments of 2006 based on their impact (or potential impact) on U.S. agricultural producers and the sector as a whole.

In early December, the IRS issued proposed guidance on the self-employment tax treatment of Conservation Reserve Program (CRP) payments. The key point of the Notice is that participating in the CRP is deemed to be a trade or business - regardless of whether the participant performs the required activities or uses a third party. The IRS has concluded that CRP rental payments are made in exchange for conducting activities that meet the commitments of a CRP contract and are not payments for the right to use or occupy real property.

A federal judge in New York has dismissed a complaint against Atkins Nutritionals and the Estate of Dr. Robert Atkins, from a man who claimed that the high-fat, no-carbohydrate Atkins Diet caused his cholesterol level to escalate in two months and triggered severe chest pains, requiring angioplasty and placement of a heart stent. The plaintiff claimed that the Atkins Diet and Atkins food products and supplements are “defective and unreasonably dangerous,” but the court granted Atkins’ motion to dismiss the case.

November 20, 2006 | Roger McEowen

The Iowa wine industry has been reborn in recent years. About a century ago, Iowa was the sixth largest grape producing state in the nation. With Prohibition, the expanding market for corn and soybeans, damage to grapevines due to chemical drift from row crops and a severe blizzard in 1940, the industry declined significantly. However, in the last few years, the industry has made a comeback. According to the Agricultural Marketing Resource Center (AgMRC) at Iowa State University, there are now more than 70 wineries in Iowa that produce more than 240,000 gallons annually.

Iowa law permits a landowner to construct open or covered drains to drain surface water in the general course of natural drainage upon the landowner’s property. However, such drainage activities cannot increase the quantity of water or change the manner of the discharge of the water onto someone else’s property. Also, Iowa law allows landowners that pay drainage district assessments to connect to lateral drains maintained by the drainage district so long as the directions of the district are followed with respect to making and maintaining the connection.

Iowa law (Iowa Code §§422.45(26) and (39)) exempts from sales tax the gross receipts from the sale or rental of farm machinery and equipment if the items are used directly and primarily in livestock or dairy production. That raises a question as to whether certain items associated with a confinement hog facility are eligible for the exemption. That was the question raised in this case.

To constitute a gift, the donor (person making the gift) must intend to make a gift, deliver the gifted property to the donee (recipient of the gifted property), and the donee must accept the gift. Also, when circumstances are uncertain, the donor’s intent controls. Here, the plaintiff received an inheritance and used some of it to purchase a tract of real estate, but placed title to the property in his girlfriend’s name because he was unsure whether a settlement of an outstanding child support obligation barred his former wife from getting a lien for the pre-settlement balance.

The plaintiff is a Minnesota corporation that removes cholesterol from beef and sells the resulting product. The plaintiff’s sole supplier was a Canadian company.  In May of 2003, the USDA closed the border to Canadian beef products due to concerns related to bovine spongiform encephalopathy (BSE – a.k.a. “Mad Cow Disease”). The border closing resulted in a shutdown of the plaintiff’s business while it secured an alternative supplier.

March 17, 2006 | Roger McEowen

In June 2005, the U.S. Supreme Court ruled that the Beef Promotion and Research Act which created the beef check-off was government speech and, as a result, the program could not be challenged constitutionally on First Amendment grounds by those opposed to mandatory program. While the Court’s opinion is highly questionable (even supporters of the check-off always referred to it as a private, self-help program), what is of greatest concern is how far the government speech doctrine could be expanded based on the Court’s opinion.

In most states, the common law bars one person from maliciously interfering with another person’s business. That’s the rule in Iowa. A person cannot act with the sole purpose to injure or financially destroy another person’s business relations. Since 1991, several states have gone further and enacted legislation designed to protect perishable food products from false and malicious statements. This case did not involve food disparagement, but it did involve a farmer’s claim that a bank intentionally interfered with his business relations.