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Full-Text Articles in Economics
Payment On Guarantees, Neil E. Harl
Payment On Guarantees, Neil E. Harl
Neil E. Harl
With the onset of financial and economic trauma in agriculture in the mid 1980s, the matter of loan guarantees assumed greater importance than at any time since the 1930s. In a typical situation, a parent has guaranteed a machinery or livestock loan; if the child is unable to pay as the primary obligor, the parent may be elevated to a position of primary liability. The question then becomes whether the parent as guarantor has a bad debt deduction if the parent makes good on the loan. If the parent does not pay, and instead manages to negotiate a discharge of …
Pledging Installment Obligations, Neil E. Harl
Pledging Installment Obligations, Neil E. Harl
Neil E. Harl
For some installment sellers, the installment obligation is viewed as an investment asset and is not pledged or assigned unless financial reverses occur. For others, an installment obligation represents economic value to be enjoyed by pledging or assigning the obligation as collateral on a loan or to secure a financial commitment otherwise. Recent legislation has imposed a far more limiting set of rules on using an installment obligation to secure a further economic advantage.
Handling Commodity Credit Corporation Loans, Neil E. Harl
Handling Commodity Credit Corporation Loans, Neil E. Harl
Neil E. Harl
In recent years, the relatively high rates of participation of farmers in federal farm programs have assured widespread utilization of Commodity Credit Corporation loan programs. CCC loans have, in the case of feed grains, wheat and some other commodities, involved nonrecourse loans as part of the price and income support feature of farm programs. Commodity loans from the Commodity Credit Corporation are nonrecourse loans to the extent the debtor may pay off the loan with a sufficient amount of an eligible commodity having a price support value equal to the outstanding value of the loan. If the loan plus interest …
Income Tax Rules For Farm Vehicles, Neil E. Harl
Income Tax Rules For Farm Vehicles, Neil E. Harl
Neil E. Harl
With enactment of the "listed property" rules in 1984, the handling of farm vehicle deductions became several notches more complex. Under those rules, automobiles and other property used as a means of transportation (under 6,000 pounds) as well as property used for entertainment, recreation and amusement and computers or peripheral equipment are subjected to additional constraints on both regular depreciation and expense method depreciation.
Paying Wages In Kind For Agricultural Labor, Neil E. Harl
Paying Wages In Kind For Agricultural Labor, Neil E. Harl
Neil E. Harl
Beginning in 1990, cash remuneration paid to an agricultural laborer is subject to mandatory income tax withholding. Prior to 1990, employers were not required to withhold federal income tax on wages paid to agricultural labor. However, agricultural employees could, if their employers agreed, choose voluntarily to have income tax withheld from wages. The enactment of mandatory income tax withholding plus the gradual increase in FICA tax (increasing from 7.51 percent of the first $48,000 of wages in 1989 to 7.65 percent of the first $51,300 of wages in 1990) have given added impetus to the payment of wages in kind.
Indebtedness In Excess Of Basis, Neil E. Harl
Indebtedness In Excess Of Basis, Neil E. Harl
Neil E. Harl
The financial trauma of the 1980s has left a legacy rarely seen in the years since the Great Depression of the 1930s — indebtedness in excess of basis on farm property. While this state may be of only modest concern so long as the property is not sold or exchanged, any event requiring a realization of the gain, poses potentially serious additional income tax liability for the taxpayer.
Federal Tax Update, Neil E. Harl
Federal Tax Update, Neil E. Harl
Neil E. Harl
Practitioners have raised a question about the handling of trades involving automobiles used for both business and personal use under the listed property rules. The IRS position is detailed in IRS Pub. 917, "Business Use of a Car" (Rev. Nov. 1988). The following examples illustrate both the IRS approach and another approach (keep in mind that examining agents are more likely to look for adherence to the IRS approach).
Handling Income Under Drought Provisions, Neil E. Harl
Handling Income Under Drought Provisions, Neil E. Harl
Neil E. Harl
The widespread drought in 1988 and the dry conditions in some areas in 1989 have focused a great deal of attention on how income should be reported under the various drought provisions.
Leasing Farm Property, Neil E. Harl
Leasing Farm Property, Neil E. Harl
Neil E. Harl
The rules governing the leasing of farm and ranch property have gone through an enormous transformation over the past 20 years. In the 1970s, the Internal Revenue Service developed a set of guidelines for distinguishing leases from various kinds of purchase arrangements. Those authorities gave way to "safe harbor" leasing in 1981 and "farm finance" leases in 1982. Those provisions have now been repealed or have expired so that the determination of what is a lease is governed by pre-1981 law.
Deducting Interest, Neil E. Harl
Deducting Interest, Neil E. Harl
Neil E. Harl
In an effort to curb manipulations by taxpayers on the cash method of accounting, and to limit the deduction of non business interest, taxpayers in recent years have been subjected to increasingly stringent limitations on interest deductibility.
Cancellation Of Installment Obligations, Neil E. Harl
Cancellation Of Installment Obligations, Neil E. Harl
Neil E. Harl
One of the most surprising — and far reaching — provisions in the Installment Sales Revision Act of 1980 was the section dealing with the cancellation or forgiveness of principal amounts by the seller. Before enactment of that legislation, it was generally believed by taxpayers and many tax practitioners that cancellation or forgiveness of principal did not result in negative income tax consequences to the seller forgiving or cancelling payments. Indeed, it had been reported that at least two District Directors of Internal Revenue had taken that position in writing. The 1980 legislative provision was clearly aimed at sellers (usually …
A Summary Of Provisions In The Food, Agriculture, Conservation And Trade Act Of 1990, S. 2830, Neil E. Harl
A Summary Of Provisions In The Food, Agriculture, Conservation And Trade Act Of 1990, S. 2830, Neil E. Harl
Neil E. Harl
This is the first of a two-part summary of the provisions of the 1990 farm bill. The next issue will contain a summary of the tax provisions of the 1990 budget bill and the following issue will contain a summary of the remaining portions of the 1990 farm bill.
Disposition Of Installment Obligations, Neil E. Harl
Disposition Of Installment Obligations, Neil E. Harl
Neil E. Harl
With relatively heavy use of the installment contract or contract for deed in transferring farmland, the transfer or other disposition of the contract poses substantial problems for contract sellers. The privilege of income deferral by installment reporting is generally personal to the seller and, with one major exception, does not outlast the period during which the obligation is held.
Discharge Of Indebtedness: Insolvent Debtors And Debtors In Bankruptcy, Neil E. Harl
Discharge Of Indebtedness: Insolvent Debtors And Debtors In Bankruptcy, Neil E. Harl
Neil E. Harl
In the last issue, we examined the income tax consequences of transfers of property to creditors in discharge of debt. In this article, the focus is on the discharge of indebtedness for debtors in bankruptcy and those insolvent who are not in bankruptcy. In the next issue, we'll examine the discharge of debt for solvent farm debtors.
Avoiding Special Use Valuation Recapture, Neil E. Harl
Avoiding Special Use Valuation Recapture, Neil E. Harl
Neil E. Harl
Although relatively less use has been made of special use valuation of land in recent years, the heavier use of the valuation option in the late 1970s and early 1980s can still lead to recapture. For deaths before 1982, the potential recapture period is 15 years after the death of the decedent; full recapture occurs within the first ten years with a phaseout between 10 and 15 years. For deaths after 1981, the recapture period has been reduced to 10 years after the decedent's death (or 10- years after the commencement of "qualified use" under the two year grace period). …
Depreciation Of Farm Property, Neil E. Harl
Depreciation Of Farm Property, Neil E. Harl
Neil E. Harl
Depreciation rules for farm and ranch property have been on a roller coaster ride over the past decade. The long-established depreciation rules were supplanted by the Accelerated Cost Recovery System (ACRS) in 1981, then the Modified Accelerated Cost Recovery System (MACRS) in 1986 and now a slow-down beginning in 1989 for property used in a farming business.
Discharge Of Indebtedness: For A Solvent Farm Debtor, Neil E. Harl
Discharge Of Indebtedness: For A Solvent Farm Debtor, Neil E. Harl
Neil E. Harl
Until 1987, a procedure was available for avoiding income tax for solvent debtors generally. That procedure involved an election to reduce the income tax basis of depreciable assets for qualified business indebtedness. However, that elective procedure was repealed in 1986 effective at the end of that year. The same legislation repealing the solvent debtor rule enacted a provision for solvent farm debtors. The statute was amended substantially in 1988.
Corporate Ownership Of The Farm Residence, Neil E. Harl
Corporate Ownership Of The Farm Residence, Neil E. Harl
Neil E. Harl
For farmers and ranchers considering incorporating, one of the major questions is whether the farm or ranch residence or residences should be transferred to the newly formed corporation. From an income tax perspective, residential costs are deductible for an unincorporated taxpayer only to the extent of mortgage interest and property taxes and costs associated with business use of the residence such as an office "used regularly and on an exclusive basis" for business purposes.
A Summary Of Provision In The Food, Agriculture, Conservation And Trade Act Of 1990, S. 2830, As Amended By The Agricultural Reconciliation Act Of 1990, Neil E. Harl
Neil E. Harl
This is the second part of a two-part summary of the provisions of the 1990 farm bill. The first part appeared in Vol. 1, No. 25, Nov. 9, 1990.
Abandonment In Bankruptcy, Neil E. Harl
Abandonment In Bankruptcy, Neil E. Harl
Neil E. Harl
Bankruptcy is designed to accomplish two objectives — (1) assure fair and equitable treatment of the unsecured creditors (the secured creditors are entitled to payment up to the value of their collateral and beyond that are unsecured creditors) and (2) provide a "fresh start" to the debtor. The concept of abandonment now poses a collision of those two objectives.
Adjusting Basis For Discharged Debt, Neil E. Harl
Adjusting Basis For Discharged Debt, Neil E. Harl
Neil E. Harl
The final step in handling discharged debt involves the reduction of the basis of the debtor's property or of the debtor's depreciable property if the debtor elects to reduce basis before reducing the other tax attributes. The timing of basis reduction is the same in all instances – basis is reduced at the beginning of the year after the year of debt discharge. The major concern with basis reduction is the order in which the debtor's assets are subject to basis reduction.
Avoiding Acceleration Of Installment Payment Of Federal Estate Tax, Neil E. Harl
Avoiding Acceleration Of Installment Payment Of Federal Estate Tax, Neil E. Harl
Neil E. Harl
For those who have used installment payment of federal estate tax to defer tax payment over 177 months after death, a major concern is avoiding acceleration of the deferred tax and loss of the four percent interest rate on the first $345,800 of tax less the unified credit. For farm and ranch estates using the deferred payment option, post-death planning is needed to avoid acceleration.
"Midstream" Incorporation Considerations, Neil E. Harl
"Midstream" Incorporation Considerations, Neil E. Harl
Neil E. Harl
The basic requirements for a tax-free incorporation are relatively mechanical—(1) the transfer must be solely for stock in the corporation and (2) the transferors must be "in control" of the corporation immediately after the exchange. This requires that the transferors end up with at least 80 percent of the combined voting power of all classes of voting stock and at least 80 percent of the total number of shares of all other classes of stock.
The Structural Transformation Of The Agricultural Sector, Neil E. Harl
The Structural Transformation Of The Agricultural Sector, Neil E. Harl
Neil E. Harl
A major concern as we move into the Twenty-first Century is the structure of the agricultural sector. By structure, is meant considerations of size and scale as well as who is to manage, control and finance farming and agribusiness operations.
Policy Considerations Related To Further Intervention In The Farm Credit System, Neil E. Harl
Policy Considerations Related To Further Intervention In The Farm Credit System, Neil E. Harl
Neil E. Harl
The Farm Credit System Is a major participant in extending credit to and brokering losses from the agricultural sector during the current adjustment process. This article focuses on the problems faced by the system as a cooperative lender with relatively little diversity in its loan portfolio. Assistance to the system should be accompanied by organizational and structural changes that address the fundamental reasons for its vulnerability. Conditions suggest three basic choices: (1) preservation of the system in recognizable form, (2) decentralization to the district level, or (3) a shift toward a wholesaling function. One realistic alternative would involve a combination …