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When Discharge Of Indebtedness Occurs In Bankruptcy, Neil Harl
When Discharge Of Indebtedness Occurs In Bankruptcy, Neil Harl
Neil E. Harl
The farm debt crisis of the 1980’s left numerous legacies, not the least of which is the continuing discharge of indebtedness from formal and informal resolutions of excessive debt. The various rules on when discharge of indebtedness occurs have created surprising and painful results for some taxpayers.
Single Class Of Stock In S Corporations, Neil Harl
Single Class Of Stock In S Corporations, Neil Harl
Neil E. Harl
Almost from the day of enactment of Subchapter S of the Internal Revenue Code in 1958, the single class of stock requirement has generated questions that have led to extensive litigation, repeated attempts to address the issues by regulation and numerous rulings in an effort to resolve the issues involved. The major area of concern has been the line between debt securities and equity interests, particularly where the debt securities represented shareholder loans.
When Discharge Of Indebtedness Occurs If The Debtor Is Not In Bankruptcy, Neil Harl
When Discharge Of Indebtedness Occurs If The Debtor Is Not In Bankruptcy, Neil Harl
Neil E. Harl
As was noted in the March 30, 1990 issue of Agricultural Law Digest, whether discharge of indebtedness occurs for debtors in bankruptcy depends upon the chapter of the Bankruptcy Code. For Chapter 12 debtors, discharge of indebtedness takes place upon completion of payments under the plan. For debtors not in bankruptcy, the rules for when discharge of indebtedness take place are different and the consequences are also quite different.
Transfer Of Residence With Continued Occupancy, Neil Harl
Transfer Of Residence With Continued Occupancy, Neil Harl
Neil E. Harl
The rule has been well established that a transfer of a residence to a spouse with occupancy by the transferring spouse until death, would not result in inclusion of the value of the residence in the transferor's gross estate under a theory of a retained life estate. The courts have consistently required proof of at least an implied agreement between the husband and wife (assuming the transferring spouse continued occupancy) before that spouse is held to have retained possession or enjoyment so as to require inclusion of the residence in the gross estate. If the transferor is to prevail, it …
Taxing Joint Tenancy Property, Neil Harl
Taxing Joint Tenancy Property, Neil Harl
Neil E. Harl
Although joint tenancy (and tenancy by the entirety in the few states where that form of co-ownership is recognized) is apparently used less frequently than three or four decades ago, joint ownership is still widely used, particularly for real property co-ownership. A recent decision has focused attention on the issue of income tax basis of joint tenancy (or tenancy by the entirety) property after the death of the first joint tenant to die.
Deferred Payment Sales: Amt Liability, Neil E. Harl
Deferred Payment Sales: Amt Liability, Neil E. Harl
Neil E. Harl
Since enactment of the Installment Sales Revision Act of 1980, which permitted the installment sale of grain and livestock, questions have been raised regarding the continuing availability of the deferred payment procedure established by cases and rulings. In recent years, the importance of the question of whether both procedures can be used has been magnified by the 1986 enactment subjecting installment sales of inventory property to potential liability for alternative minimum tax.6 A recent IRS technical advice memorandum (TAM) has provided some insight to the IRS national office position on the two issues — (1) are installment sales of inventory …
Gifts Of Grain And Other Farm Commodities, Neil E. Harl
Gifts Of Grain And Other Farm Commodities, Neil E. Harl
Neil E. Harl
The sale of assets held by the taxpayer primarily for sale to customers in the ordinary course of business (such as grain or market livestock) usually produces ordinary income. That rule has encouraged gifts of grain and other farm commodities to spouses, children, grandchildren or other family members who are not considered to be holding the gift property for sale to customers. The outcome is capital asset treatment for gains and avoidance of liability for self-employment tax.
Leasing Personal Property, Neil Harl
Leasing Personal Property, Neil Harl
Neil E. Harl
Appearance of the note on Part I of the 1992 edition of Schedule E, Form 1040, that taxpayers are to "report income and expense from the rental of personal property on Schedule C or C-EZ" has raised concerns about the proper reporting of rentals from personal property such as farm machinery rented after retirement to children or others. Several high profile audits in which examining agents have taken a relatively aggressive stance on the issue have added to the concerns.
Resale Of Land Purchased Under Installment Obligation, Neil Harl
Resale Of Land Purchased Under Installment Obligation, Neil Harl
Neil E. Harl
For decades, taxpayers have tried various strategies for selling land, qualifying the transaction for installment reporting of the gain with the land then resold to a third party for cash. Often, the initial transaction involved related parties with the resale typically made to a developer who paid cash and received title to the property. The result of the two stage transaction, if successful, was to have the initial buyer in possession of the full purchase price with the initial buyer making payments to the initial seller who reports the gain over the period of the installment obligation.
Preferred Stock And Special Use Valuation, Neil Harl
Preferred Stock And Special Use Valuation, Neil Harl
Neil E. Harl
The special use valuation statute clearly contemplates that land held by an entity should be eligible for special use valuation. However, regulations have not been issued providing guidance on the procedure for valuing land held by a corporation, partnership or trust even though the issuance of regulations was mandated in the statute, enacted in 1976. Other than for a Tax Court case holding that a corporation could not utilize special use valuation and at the same time claim a minority discount, until the issuance of a 1992 private letter ruling, estates have been forced to rely on the general guidance …
Earnings After Retirement, Neil E. Harl
Earnings After Retirement, Neil E. Harl
Neil E. Harl
Many farmers, approaching retirement, must make important decisions on — (1) the nature of their relationship to the farm business in retirement, (2) the extent of their personal involvement in business operations, and (3) the timing and manner of disposition of their inventory of crops and livestock during the retirement years.
The Present Interest Test For Purposes Of Special Use Valuation, Neil E. Harl
The Present Interest Test For Purposes Of Special Use Valuation, Neil E. Harl
Neil E. Harl
Since publication of the initial regulations, the Internal Revenue Service has maintained that real property was eligible for special use valuation only if a qualified heir received a present interest from the decedent. Two branches of the present interest test have emerged.
Health Insurance For Employees, Neil E. Harl
Health Insurance For Employees, Neil E. Harl
Neil E. Harl
The rising cost of medical and hospital care and the cost of insurance coverage have led to increased interest in ways to make such costs fully deductible without the benefits being includible in income for the taxpayer. Through 1991 (and the first six months of 1992 if the President signs the bill extending the deduction through June 1992), a 25 percent deduction is allowed for health and accident amounts for self-employed individuals provided — (1) the taxpayer is not eligible to participate in any subsidized health plan maintained by an employer for the taxpayer or the taxpayer's spouse and (2) …
Reporting Government Farm Payment Programs, Neil E. Harl
Reporting Government Farm Payment Programs, Neil E. Harl
Neil E. Harl
As a general rule, federal (and state) agricultural program payments received as cash or in the form of services are includible in income. The time at which the amounts are received or made available is ordinarily the time the payments are to be included in income. Amounts are considered to be "made available" in the year in which program requirements have been met, regardless of whether an application had been signed to receive final payment. The fact that a farm operator does not sign the application for final payment until the following year does not defer income to the later …
Joint Tenancy Disclaimers: What Can Be Disclaimed?, Neil E. Harl
Joint Tenancy Disclaimers: What Can Be Disclaimed?, Neil E. Harl
Neil E. Harl
For years the Internal Revenue Service resisted the disclaimer of joint tenancy interests on the grounds that the disclaimer had to occur within nine months of the creation of the joint tenancy. IRS eventually came to accept the disclaimer of revocable joint tenancies within nine months after death and even more recently indicated that the Service would not resist the disclaimer of joint tenancy interests in other than revocable joint tenancies where there was a predeath right to sever the joint interests The focus on when joint tenancies could be disclaimed obscured the question of what could be disclaimed.
No Interest Deduction For Private Annuities, Neil Harl
No Interest Deduction For Private Annuities, Neil Harl
Neil E. Harl
Although a 1929 case, Commissioner v. Moore Corp., had suggested that an interest deduction could be claimed by the obligor under a private annuity arrangement, cases considering the issue since that time have held that no part of the payments made under private annuities involving the acquisition of property is deductible as interest. A 1992 decision by the U.S. Claims Court, Rye v. United States, is in accord with the view that an interest deduction may not be claimed by the obligor and the imputed interest rules likewise do not apply to private annuities.
Renting Farm Machinery At Retirement Or Otherwise, Neil E. Harl
Renting Farm Machinery At Retirement Or Otherwise, Neil E. Harl
Neil E. Harl
The 1989 Tax Court case of Carl Stevenson has raised questions as to whether self-employment tax is due on rental income where farm machinery is rented to others (usually children) after retirement or is retained at the time of incorporation and rented to the newly-formed corporate entity.
Setting Up Living Trusts, Neil E. Harl
Setting Up Living Trusts, Neil E. Harl
Neil E. Harl
The recent enthusiasm for setting up revocable living trusts is supported by two pluses — (1) a way to assure flexibility in management for property in those later years when individuals may not be in a good position to manage their assets and (2) an opportunity for some simplification in estate settlement. However, several factors of a technical or practical nature should be taken into account before the decision is made to establish a revocable living trust.
Paying Wages In Kind: Proposed Repeal Of The Provision, Neil Harl
Paying Wages In Kind: Proposed Repeal Of The Provision, Neil Harl
Neil E. Harl
Tucked away in a remote corner of the Revenue Act of 1992 lies the long-expected Congressional challenge to the practice of payment of wages in kind to agricultural labor. Barring a major lobbying effort, the provision is likely to be aboard the next major tax bill to pass the Congress.
Paying Wages In Kind, Neil Harl
Paying Wages In Kind, Neil Harl
Neil E. Harl
In general, wages paid in kind rather than in cash to agricultural labor are not subject to FICA or FUTA taxes. In addition, agricultural labor is exempt from income tax withholding except as the payment constitutes "wages." Wages paid "in any medium other than cash for agricultural labor" are exempt from the term "wages." Recent rulings (and apparent Internal Revenue Service scrutiny of the practice) have focused attention on the issue although neither the practice of paying wages in kind nor the authority for unique tax treatment of such in kind payments is new.
Income Tax Aspects Of Property Transfers, Roger A. Mceowen, Neil E. Harl
Income Tax Aspects Of Property Transfers, Roger A. Mceowen, Neil E. Harl
Neil E. Harl
Property can be transferred by sale or gift during life, or by inheritance at death. The income tax consequences of each type of transfer are different.
Repossessing Land, Neil E. Harl
Repossessing Land, Neil E. Harl
Neil E. Harl
Before enactment of I.R.C. § 1038 in 1964, repossession of real property following default under an installment sale transaction generally resulted in substantial gain or loss, usually to the extent of the difference between the fair market value of the property at the time of repossession and the income tax basis of the installment obligation. Repossession was essentially treated as a disposition of the obligation.
Revenue Act Of 1992 (Proposed) Summary Of Selected Provisions, Neil Harl
Revenue Act Of 1992 (Proposed) Summary Of Selected Provisions, Neil Harl
Neil E. Harl
The legislation would extend on a permanent basis the targeted jobs credit and would restore individuals aged 23 and 24 to the category of economically disadvantaged youth. The provision would be effective for individuals who begin work for an employer after June 30, 1992.
Making Valid Dislaimers, Neil E. Harl
Making Valid Dislaimers, Neil E. Harl
Neil E. Harl
The disclaimer is easily one of the most useful devices in the estate planner's kit. Using disclaimers artfully, the planner can sculpt a dispositive pattern after death has occurred and all variables are known including asset values, asset ownership patterns, needs of the family (at least as of the time of the decedent's death) and state of the tax system. All of these factors may be shrouded in uncertainty at the time the estate is planned before death and the instruments are drafted. Disclaimers permit a late opportunity to carry out the testator's wishes and to do so in a …
Handling Employee Expenses, Neil E. Harl
Handling Employee Expenses, Neil E. Harl
Neil E. Harl
Although farm and ranch employees may incur a range of different kinds of expenses for which reimbursement may be sought, the most common problem situation involves reimbursement for automobile expense. This article discusses the reporting of amounts paid as automobile reimbursement and amounts paid under an "accountable plan."
Interest Rates On Installment Sales, Neil E. Harl
Interest Rates On Installment Sales, Neil E. Harl
Neil E. Harl
Since 1964, a minimum interest rate has been imposed on installment sales. More precisely, a part of each principal payment under an installment sale is treated as interest rather than sales price (and the total sales price is correspondingly reduced) if interest of less than the prescribed rate is specified.
Disclaiming The Survivorship Interest In Joint Tenancy Property, Neil E. Harl
Disclaiming The Survivorship Interest In Joint Tenancy Property, Neil E. Harl
Neil E. Harl
No abstract provided.
Family Estate Trusts, Neil E. Harl
Family Estate Trusts, Neil E. Harl
Neil E. Harl
The recent attention to revocable living trusts has led to some confusion with a far less useful concept, the trust referred to variously as the "family estate" trust, "pure" trust, and "constitutional" trust. The latest version of these trusts, all of which are valued as substantially less than worthless, is the two-trust off-shore version or the foreign tax haven double trust. The trusts are mostly sold door-to-door through local contacts who tout the trusts as devices to solve all of one's estate-planning problems. The trusts are purportedly irrevocable, generally for a 25-year term.
Cash Reporting, Neil E. Harl
Cash Reporting, Neil E. Harl
Neil E. Harl
The enactment of tighter reporting rules in 1990, the issuance of amended regulations, and the issuance of temporary regulations have modified the cash reporting requirements sufficiently to affect far more firms than was the case previously. The most significant expansion in scope of the requirement — the change in definition of "cash" — applies to amounts received on or after February 3, 1992.
Handling Commodity Futures Transactions, Neil E. Harl
Handling Commodity Futures Transactions, Neil E. Harl
Neil E. Harl
In the same manner as other merchants and manufacturers, farm and ranch taxpayers buy and sell commodity futures to hedge against fluctuating prices. Likewise, farm and ranch taxpayers buy and sell commodity futures as speculators. The principal matter of concern from an income tax perspective in the farm and ranch area is the line between hedging and speculation.