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Full-Text Articles in Law
Revenue Reconciliation Act Of 1990, Neil E. Harl
Revenue Reconciliation Act Of 1990, Neil E. Harl
Neil E. Harl
The legislation imposes a 31 percent marginal tax rate above the 15 and 28 percent marginal tax rate brackets. The phase-outs of the benefits from the 15 percent rate and the personal exemption amounts (creating the so-called "bubble") are repealed. The new 31 percent rate begins at the same level of taxable income as the phase-out range of prior law.
Turn Over Of Assets To Creditors, Neil E. Harl
Turn Over Of Assets To Creditors, Neil E. Harl
Neil E. Harl
From 1983 to 1989, US agricultural debt dropped by about $60 billion as debts were discharged in bankruptcy, obligations were restructured with debt written off and property was deeded back to creditors. The resulting tax consequences created highly significant income tax burdens for debtors and contributed to various proposals for debtor relief from tax liability. However, except for relief from alternative minimum tax liability stemming from capital gains and a new solvent farm debtor rule for discharge of indebtedness, farm and ranch debtors were consigned to working through their debt problems within existing tax law.
Type Of Lease For An S Corporation, Neil E. Harl
Type Of Lease For An S Corporation, Neil E. Harl
Neil E. Harl
Since enactment of the S corporation concept in 1958, it has been important to give careful thought to the kind of lease entered into by S corporations as landowners. In the years since the major amendments to Subchapter S of the Internal Revenue Code in 1982, The type of lease has been less important for some S corporations but it is still a major checklist item for S corporation planning.
Tax-Free Incorporation, Neil E. Harl
Tax-Free Incorporation, Neil E. Harl
Neil E. Harl
For several years, relatively little change had been made in the rules governing the tax-free exchange of property to a corporation. The questions raised in the 1970s about how to handle basis allocation between stock and debt securities had been answered. The problems of distinguishing debt and equity securities had not been resolved but that issue seemed to be less of a burning concern with IRS than it was until the proposed regulations issued in 1980 were revoked in 1983 before becoming final.
Soil Expenditures, Neil E. Harl
Soil Expenditures, Neil E. Harl
Neil E. Harl
Historically, expenditures to improve the productivity of soil have been viewed as capital in nature and not deductible. Over the past four decades Congress has acted to make some expenditures deductible if specified conditions are met.
Tax Free Incorporation–Ii, Neil E. Harl
Tax Free Incorporation–Ii, Neil E. Harl
Neil E. Harl
In the June 8, 1990, issue of Agricultural Law Digest, we discussed a 1989 amendment specifying that, with some exceptions, for transfers after October 2, 1989, debt securities issued as part of a tax free exchange are treated as boot. Gain is recognized to the extent of boot received by the transferor.
Taxing Agricultural Program Payments, Neil E. Harl
Taxing Agricultural Program Payments, Neil E. Harl
Neil E. Harl
As a general rule agricultural program payments received in cash or in materials or services are includible in income. The time at which the amounts are received or made available under constructive receipt principles is ordinarily the time the payments are to be included in income. Amounts are "made available" in the year in which farm program payment requirements have been met, regardless of whether an application had been signed to receive final payment. Thus, if federal farm program payments are made available in one year with an option to accept payment in the following year, the amount made available …
Self-Cancelling Installment Notes, Neil E. Harl
Self-Cancelling Installment Notes, Neil E. Harl
Neil E. Harl
Until 1980, it was generally believed that an installment contract set up with remaining payments cancelled after the death of the contract seller would be treated as a transfer with a retained life estate. That was sufficient to discourage use of such a concept.
The Gross Income Test For Chapter 12 Bankruptcy Eligibility, Neil E. Harl
The Gross Income Test For Chapter 12 Bankruptcy Eligibility, Neil E. Harl
Neil E. Harl
Chapter 12, added to the Bankruptcy Code in 1986 may be initiated only voluntarily and is available only to a "family farmer" whose debts do not exceed $1,500,000. At least 80 percent of the debts (other than debts on the principal residence unless the debt arose out of a farming operation) must have arisen out of a farming operation owned or operated by the debtor or debtor and spouse. Moreover, an individual debtor or debtor and spouse must have earned more than 50 percent of their gross income from farming for the preceding taxable year. Closely held corporations and partnerships …
Proposed Regulations Issued For Estate "Freezes", Neil E. Harl
Proposed Regulations Issued For Estate "Freezes", Neil E. Harl
Neil E. Harl
The repeal of I.R.C. § 2036(c) in 1990 as part of the Revenue Reconciliation Act of 1990 was accompanied by enactment of rules shifting estate freezes away from federal estate tax and toward the federal gift tax arena. Proposed regulations have now been issued for the statute, I.R.C. § 2701-2704.
Expense Method Depreciation, Neil E. Harl
Expense Method Depreciation, Neil E. Harl
Neil E. Harl
Recently published proposed regulations to the expense method depreciation rules have provided firm guidance on the position of the Department of the Treasury on several key issues involving the 1986 amendments to the expense method depreciation statute.
Eligibility For Expense Method Depreciation, Neil E. Harl
Eligibility For Expense Method Depreciation, Neil E. Harl
Neil E. Harl
The Revenue Reconciliation Act of 1990, Pub. L. No. 101-508, 104 Stat. 1388 (1990), has amended the eligibility requirements for expense method depreciation for property placed in service after 1990. Id., Sec. 11801. Before the amendment, expense method depreciation was limited to "Section 38 property," I.R.C. § 48(a), which was originally enacted for purposes of investment tax credit eligibility and which excluded horses from eligibility for investment tax credit and thus from expense method depreciation. I.R.C. § 48(a)(6).
Farm Leases And Passive Activity Losses, Neil E. Harl
Farm Leases And Passive Activity Losses, Neil E. Harl
Neil E. Harl
Enactment of the passive activity loss rules in 1986 was motivated by a desire to curb tax shelter abuses and to correct the misallocation of resources caused by tax-induced investment in agriculture and elsewhere in the economy. Thus, it is not surprising that the provisions have caused economic pain. One provision, involving the deduction of up to $25,000 for losses attributable to "rental real estate activities," has led to taxpayer confusion and uncertainty for their tax advisors.
Income In Respect Of Decedent, Neil E. Harl
Income In Respect Of Decedent, Neil E. Harl
Neil E. Harl
In general, property held until death receives a new income tax basis equal to fair market value at death, the value of property as of the alternate valuation date or special use value in the case of land where that election is made. This is particularly advantageous in farm estates because raised animals and grain with a zero income tax basis receive a higher basis and consequent elimination of gain and the basis of machinery and equipment and farmland often is adjusted upward at death. However, for some assets the basis adjustment rule has a negative effect as a potential …
Failure Of Grain Elevators, Neil E. Harl
Failure Of Grain Elevators, Neil E. Harl
Neil E. Harl
Grain elevator failures have become all too common in a number of rural communities. Whether failure is attributable to improper or unauthorized activity in futures markets, reduced levels of income from grain storage, employee defalcations or other reasons, the impact on grain depositors and on the community generally is usually decidedly adverse. Upon learning that failure has occurred or that failure is imminent, individuals affected by the failure are usually interested in knowing the probable amount and timing of any recovery.
Priority Rules: Landlord's Lien Versus Security Interests, Neil E. Harl
Priority Rules: Landlord's Lien Versus Security Interests, Neil E. Harl
Neil E. Harl
Over the past decade, the relative standing of liens and UCC security interests has been a matter of far greater importance than had been the case at any time since the development of the Uniform Commercial Code. Of particular concern has been the question of priority of liens versus UCC security interests when both apply to the same collateral. In addition, the standing of liens in bankruptcy has assumed a position of importance. Further, the rights of lien holders as against the purchasers of farm products have posed important issues.
Private Annuity: Useful Concept Or Troublemaker?, Neil E. Harl
Private Annuity: Useful Concept Or Troublemaker?, Neil E. Harl
Neil E. Harl
As an estate planning concept, the private annuity is seldom included in formal estate plans but more frequently employed by families acting without professional assistance who are seeking to assure income for so long as the parents live. The private annuity is best known for the problems inherent in its use; however, there are situations where the private annuity can be a useful part of an overall estate plan.
Forgiving Debt: Purchase Price Adjustment, Neil E. Harl
Forgiving Debt: Purchase Price Adjustment, Neil E. Harl
Neil E. Harl
In the last three issues, the discussion focused upon the discharge of indebtedness as a result of transfers of property to creditors, discharge of indebtedness for insolvent debtors and those in bankruptcy, and discharge of indebtedness for solvent farm debtors. Another possibility for handling discharged debt, and one that has been very important to many farm debtors in recent years, is purchase price adjustment.
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.