January 2016

Let the Filing Season Begin!

As of January 19, we realize many of our readers are knee deep in tax returns. We want to remind you that we have a number of resources on TaxPlace designed to make this season easier. Replays such as Getting Ready for the 2016 Filing Season are designed to keep you up to date on important developments impacting the 2016 filing season.

Kristy has also begun offering more opportunities to participate in The Scoop, our free biweekly webinars designed to inform you of the latest news affecting 2015 tax returns. The next opportunities to view The Scoop are February 10 at 8:00 am and February 10 at 12:00 pm. You can register for either of these webinars here. And, because we know how busy you are this time of year, The Scoop is archived on TaxPlace for subscribers to view at their own convenience. The January 20 edition is available here.

We also want you to know that we have a large slate of webinars planned for the summer. To check out the upcoming summer tax webinar series, click here.

Alert Your Clients to Upcoming FAFSA Date Change

The Free Application for Federal Student Aid (FAFSA), is changing its application date to allow for a more streamlined application and verification process.

If at the time the tax return was submitted to the IRS, the amount owed had not been paid in full, there is generally a delay in processing. The tax return itself is accepted within a day or two of the return being electronically filed, but IRS is mandated to issue refunds as a first priority to avoid paying interest. If the return is filed on paper, an even longer acceptance and processing time can occur. Refunds issued within 45 days of the filing deadline, this year April 18, 2016, will not accrue interest. Therefore the more refunds issued within that time frame, the more interest is saved.

Balance due returns are generally delayed for processing until after the 45-day time frame has passed or even later in some situations, depending on the volume of refund returns filed later in the season. Individuals with balance due returns that have not been processed cannot utilize the IRS Data Retrieval Tool (DRT) to obtain a copy of their tax return for their college. That processing time can range from May – September depending on the year. This places and additional burden on students and families who depend on some guarantee of financial aid.

Beginning with the 2017/18 academic year, the application to begin the process of financial aid will be available as early as October 1, 2016. The applicant will be allowed to use income information from tax returns that have already been filed in an earlier year; thus, students (parents) may submit 2015 (rather than 2016) tax return information, as the new filing dates transition.

The new 2016-2017 FAFSA is available and the 2016-2017 IRS Data Retrieval Tool will be available on Feb. 7, 2016.

Des Moines Water Works Lawsuit Gets More
Complicated

This month has seen several important developments in the Des Moines Water Works (DMWW) lawsuit against drainage districts in three northwest Iowa counties. On January 11, Judge Bennett ruled that the Iowa Supreme Court should decide four questions of Iowa law implicated by the lawsuit's tort and constitutional claims. Consequently, he certified these questions to the Iowa Supreme Court. Primarily, Iowa's highest court is asked to decide whether the claims for tort damages and equitable relief can be maintained against the drainage districts or whether Iowa law grants them qualified immunity. Secondarily, the Court is asked to decide whether DMWW, as a political subdivision, can assert protections like due process and equal protection afforded under the Iowa Constitution.

Depending on how the Iowa Supreme Court rules, all claims in the lawsuit not arising under the Clean Water Act or its Iowa counterpart could be dismissed. Consequently, the drainage districts filed a motion seeking to stay the federal court proceedings pending resolution of the certified questions. DMWW resisted the motion and instead asked the court to bifurcate the proceedings, separating the Clean Water Act claims from the tort law claims and allowing the Clean Water Act claims to move forward independently.

Continue reading here.

Farm Lease Questions Often Arise This Time of Year

As March 1 approaches, many landlords will see new tenants farming their property. Others will face lingering disputes from last crop year. This is a good time to review several important rights and obligations of landlords and tenants under Iowa farm leases. While these rights and obligations are primarily determined by the terms of a written lease, general legal principles apply to all Iowa leases. This article addresses several issues that often arise this time of year. Those wondering about their specific legal rights should consult with an attorney. This article is not intended to provide legal advice.

My tenant and I signed a written lease for the 2016 crop year. The lease provides that the rent is due, up front, on March 1. It’s March 5 and my tenant hasn’t paid. I am afraid that he does not have the money, yet he is not willing to walk away. What can I do?

First, it is important to note that requiring rent up front is a good idea for landlords wishing to minimize disputes and problems associated with a tenant’s nonpayment of rent. Nonetheless, this protective approach does not always guarantee smooth sailing. Sometimes, a landlord will be forced to confront a nonpayment situation early on in the lease term. It remains true that working with an existing tenant and attempting to reach an amicable solution is often the best approach to handling conflicts. Even so, landlords concerned about their tenants’ ability to pay are better off confronting the problem early on, rather than letting the matter simmer and the problems compound.

Iowa Code §562.6 generally provides that a farm lease will automatically renew under the existing terms for another crop year unless the landlord serves the tenant with a written notice for termination on or before September 1. This is true even when the parties have a written lease that specifies a certain time for the lease to expire. Iowa’s laws are very protective of tenants and were written decades ago to ensure that landlords would not oust tenants without giving them adequate time to find new farms to lease.

It is important to note, however, that the written termination notice requirement does not apply where “there is default in the performance of the existing rental agreement." Failing to pay rent when it is due is a default in performance that entitles the landlord to initiate termination proceedings, no matter when that default occurs. Although many leases provide that nonpayment of rent “terminates” the lease, Iowa courts have ruled that termination in such cases is not automatic, but an option the landlord can exercise. The courts have reasoned that without this interpretation, a tenant could take advantage of his own default and unilaterally terminate a lease by refusing to pay rent.

Read the entire article here.

Iowa Supreme Court Says Ag Lease Violates Iowa Constitution

In Iowa we see a large variation in the way farm leases are structured. Many are oral, one-year leases that automatically renew from year to year. Others are written, five-year leases that must be recorded. And still others have their own unique approach. The Iowa Supreme Court recently reviewed one such lease and found it constitutionally infirm.

Article I, section 24 of the Iowa Constitution states that no lease of agricultural lands “shall be valid for a longer period than twenty years.” While it is apparent that this provision would invalidate the portion of a written lease that extends beyond 20 years, it is not clear how this provision would apply to a lease that exceeds the 20-year limitation only because of a renewal provision in the lease. That was the question before the Court in Gansen v. Gansen, No. 14-2006 (Iowa January 22, 2016).

The lease in Gansen provided for an initial five-year term. It then automatically renewed for four additional five-year terms unless the tenant provided notice to the landlord “in writing not less than 180 days before the termination of the then current lease term, or within 30 days of the commencement of the new lease term.” In other words, the landlord was locked into the lease as long as the tenant wanted to farm the property (up to a period of 25 years). The lease also provided an interesting provision stating that the rent “shall be adjusted each year by the mutual agreement of the parties.” If the parties were unable to agree, the current rent was to continue. Prior litigation had questioned the validity of this phrase, and the courts had ultimately set a fair rental rate for the remaining lease term.

Read the entire article 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.

Will Iowa Allow Enhanced Section 179 Deduction for 2015?

As most readers are aware, Congress permanently extended several key tax breaks at the end of 2015. In the Protecting Americans from Tax Hikes Act of 2015, Congress permanently extended a $500,000 enhanced IRC § 179 deduction and provided for 50% bonus depreciation that would be phased out over a five-year period. Included in this extenders package was a permanent extension of a number of other other important deductions as well, including a $250 deduction for teachers who purchase supplies for their K-12 classrooms and the option to allow taxpayers to claim state and local sales tax instead of state and local income tax as an itemized deduction.

While these changes are in the books for the 2015 tax year with respect to federal tax returns, Iowa has not enacted legislation to apply these same changes to Iowa tax returns. In other words, Iowa is still only coupled with federal tax provisiions as they existed on January 1, 2015. Iowa law has not yet incorporated any changes made to federal tax law during 2015. Consequently, none of the 2015 federal tax extenders apply to Iowa tax returns as of yet. For the 2014 tax year, Iowa was coupled with federal tax law with respect to the enhanced IRC § 179 deduction and a number of other deductions. Iowa did not, however, adopt the 2014 federal bonus depreciation provisions. This was true in prior years as well.

For 2015, Governor Branstad has proposed no coupling with federal provisions. His proposals do include state coupling with some federal provisions beginning with tax year 2016. He is not proposing, however, any coupling at any time with the enhanced § 179 deduction or with the extended bonus depreciation provisions.

On January 28, HF2092 passed the House. The bill would couple with most federal PATH Act provisions for 2015, including the enhanced § 179 deduction. The bill, however, explicitly decouples with respect to bonus depreciation (as has been the case in prior years). The bill would also allow the deduction for state sales and use tax but only if "the taxpayer elected to deduct the state sales and use taxes in lieu of state income taxes under section 164 of the Internal Revenue Code. The deduction for state sales and use taxes is not allowed if the taxpayer has taken the deduction for state income taxes or claimed the standard deduction under section 63 of the Internal Revenue Code."

There is question as to whether the Senate will take up the bill, and, if they do, what the result will be. We are watching this closely, realizing that it impacts Iowa's small businesses significantly. As always, we will keep you posted!

Fence in the Wrong Place? You'd Better Speak Up!

A recent case from the Iowa Court of Appeals should again remind landowners to protect their boundaries or lose them.

The plaintiffs brought their action to establish a disputed boundary. Since at least 1992 (and possibly 1982), the parties’ properties had been separated by a fence that was approximately 33 feet from the actual survey line. The fence, which was maintained by the parties, encroached upon the plaintiffs’ land. When the defendants began to sell their property, the plaintiffs brought their action. The district court, however, ruled that a boundary by acquiescence had been established.

On appeal, the Iowa Court of Appeals agreed. Although the plaintiffs argued that their predecessors in interest did not believe the fence was the property line, the court said that was immaterial. What mattered, the court held, was whether the plaintiffs (and their predecessors in interest) had acquiesced or “mutually recognized” for a period of at least 10 years that the fence was the boundary line between them.

Acquiescence, the court ruled, can be inferred from the "silence or inaction of one party who knows of the boundary line claimed by the other and fails to dispute it for a ten-year period." The court ruled that substantial evidence supported the finding that the plaintiffs’ predecessors in interest accepted and tacitly approved the fence as a boundary line. Once the 10-year mark passed, a new boundary was established.

The case is Nafziger v. Pender, 2016 Iowa App. LEXIS 23 (Iowa Ct. App. Jan. 13, 2016).

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