October 2015

Entity Planning for Farmers and Ranchers: The Additional Taxes Under Obamacare and Farm Program Planning Concerns

The manner in which a farming business is organized and structured can minimize taxes and simultaneously maximize farm program payment limitations. That can be a particularly important consideration when economic conditions become challenging, which is the current situation that many agricultural operations currently find themselves in. Balancing liability concerns with tax minimization and, at the same time, finding the optimal structure for farm program payment limitation purposes is a significant focus of farm and ranch business planning. From a tax perspective, much of the concern involves minimizing two new taxes that Obamacare imposes, and self-employment tax.

Obamacare introduced many new taxes, but two of them in particular impact entity structuring for farms and ranches. In addition to the tax of 3.8% on certain passive income (the Net Investment Income Tax - NIIT). Obamacare also increased the Medicare tax rate from 2.9% to 3.8% for certain taxpayers. This additional 0.9% tax is often referred to as the “additional Medicare tax.” The additional Medicare tax is imposed on taxpayers with wages and/or SE income above the same threshold amount that applies for purposes of the NIIT - $200,000 (single filers); $250,000 (married filing jointly); $125,000 (married filing separately).

From an estate, business, and succession planning perspective, the NIIT and the additional Medicare tax have implications for trusts and may encourage many entities to adopt the pass-through tax treatment provided by partnerships, LLCs, and S corporations. Continue reading here.

Hearing on Crude Oil Pipeline Permit to Begin Next Month

We have been keeping you up to date on the status of Dakota Access, LLC's petition to obtain a permit from the Iowa Utilities Board (IUB) to construct a crude oil pipeline across Iowa. Dakota Access, a private Texas company, filed its permit application on January 20, 2015. Since that time, the company’s land agents have negotiated voluntary easement agreements with approximately two-thirds of the owners of tracts along the route of the proposed pipeline. Additionally, opponents have filed thousands of objections, supporters have filed thousands of letters in support, landowners and environmental groups have intervened, and the IUB has issued its final scheduling order. Decision day in this controversial saga is fast approaching.

Sometime after a multi-day hearing scheduled to begin in November, the IUB will determine whether Dakota Access has shown that the proposed pipeline would "promote the public convenience and necessity.” If the IUB decides that Dakota Access has made such a showing, the IUB will grant the permit and then determine the extent to which to grant Dakota Access eminent domain authority over the parcels for which it has not already acquired voluntary easements.

This article provides an overview of the updated status of this project. Continue reading here.

Iowa's Anti-Corporate Farming Laws: A General Overview

We regularly receive questions about Iowa’s anti-corporate farming laws. What are they? Whom do they affect? What are the penalties for violation? This month, we’ll provide a general overview of Iowa’s corporate farming restrictions, attempting to address these and other basic issues.

Iowa’s restrictions on corporate farming date back to 1975, when the Iowa Legislature implemented a law preventing meat processors from owning or operating feedlots for cattle or hogs. As detailed below, these so-called “vertical integration” restrictions have undergone multiple modifications and challenges since their inception, making their future unclear. The 1975 law also included a one-year moratorium preventing corporations from acquiring new agricultural land. This early restriction, which was subject to a number of exemptions, paved the way for the current Iowa law preventing certain corporate entities from acquiring or leasing “agricultural land.” Continue reading here.

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 tlkayser@iastate.edu or (515) 294-5217. You can also give online with a credit card. We thank you for your generous support.

Obama Likely To Be Forced To Veto Bill Repealing Parts of Obamacare

On October 23, the U.S. House passed H.R. 3762 on a 240-189 vote. The bill repeals the individual and employer mandates of Obamacare, the so-called “Cadillac” tax (the 40 percent tax on high-quality employer health plans) that would start in 2018. The 2.3 percent tax on medical devices, the Independent Payment Advisory Board and the Public Health Fund. The bill also repeals the employer requirement for automatic enrollment in health insurance. Because the House passed H.R. 3762 as a reconciliation bill it can pass the Senate with a simple majority vote and will not require 60 votes to avoid being filibustered. Thus, it is likely that the bill will reach the President’s deck where he will likely veto the bill. The question then remains whether the Congress will have the votes to override the President’s veto. All Iowa Representatives voted for H.R. 3762 except Congressman Loebsack.

Mark Your Calendars for a Summer Seminar!

Roger McEowen will be teaming up with Paul Neiffer of CliftonLarsonAllen to offer two farm income tax, estate, and business planning seminars this summer. The first will be held in Cullowhee, North Carolina, on June 9 and 10, 2016, and the second will be held July 28 and 29, 2016, in Anchorage, Alaska. We hope you'll make plans to attend!