Sometimes, you don’t control enough of the pie to be in charge of when you eat it or when you throw it at the neighbor. This status is called a minority ownership interest. Lots of second and third generations end up with these types of interests in family operations for various reasons.
Being a minority interest holder can stink. Iowa has some really strong caselaw that pretty much says you are at the mercy of the majority, even if what the majority is doing is not what you want or what you think they are supposed to be doing. It does let you claim that your 1/16th of the pie is not worth 1/16th of the total value of the operation. Sometimes, that is exactly why minor interests are given, to give away $10,000 per acre ground and report that it is only worth $8,000 per acre in gift value because it is less than a full interest.
If you are a minority interest holder, you should look closely at what rights you have and war game the worst possible outcome of being able to exercise those rights. Yes, you can sue the majority for breaching their duties to the entity, but you are already in low ground position as you don’t have the capital the majority has in most cases. The breach needs to be pretty clear.
If you are a minority interest holder and you don’t have a written agreement, its something you should strongly look into to protect your minor share from becoming microscopic in value.
Skynet is on the way
If you are listening, you can hear the march of progress. Computer programmers have created programs using predictive text that can , among other things, prepare questions for a trial lawyer to ask a witness, a proposed order, write book, write a term paper, draw a picture based on the description provided and most recently, use an on line wallet to hire a human to overcome the security feature where you have to pic images out of a picture to prove you are not a robot. Change is coming.
This change won’t be limited to term papers, lawyers and artists. Ag will be impacted. When the program which is called ChaptGPT by the way, was asked the question, this is how it responded five seconds later (as reported by my friend Todd Janzen on his blog:
This tech has its roots in reviewing previously published materials and predicting what comes next in a logical response. It isn’t always on point, right now, it will make up caselaw citations to fictious cases because it knows a case law cite likely comes next, but it can’t do the research to confirm what case.
Other AI tech have some bugs to work out, to include some interactive programs that take on possessive, needy, stalker like responses if the human user says things to it like, we need to stop talking about this topic or you are not a friend of mine.
We don’ t have terminators, real hover boards or George Jetson cars but just give the computer some more data and who knows…
Recently, the national Farm Bureau organization executed Memorandum of Understanding with John Deere. In exchange for John Deere promising to (subject to reasonable charges), make available tools and information so farm operators can fix their own equipment, Farm Bureau will not promote right to repair legislation and encourage state level entities to do the same. The agreement calls for further meetings twice a year between the two organizations. It is being hailed as a win. Corporations have such a great track record of self-policing over the years Issue resolved right?
Farm Bureau promotes itself as representing farm operators, markets products to include insurance and estate planning services to many, many farmers of all sizes. This agreement to not advocate for right to repair legislation looks like they are forgetting the size and scope of a number of their members. Interestingly, a competition farm advocacy group, Farmer’s Union, had filed an FTC complaint against Deere. In the summer, the White house encouraged the FTC to limit equipment manufacturer’s ability to restrict DIY repairs or independent repair shops.
This agreement is between John Deere and Farm Bureau, not individual farmers. Farmers have no standing to enforce this agreement if John Deere doesn’t follow through. A farm operator’s only remedy to tell the state and national organization that you don’t agree and or the corporation isn’t following the rules. Unless a groundswell of complaints are lobbied, they will likely be duly acknowledged and filed accordingly. And if Farm Bureau does want to take it back to the legislature, they do it by executing a sudden about face on the issue and likely another legislative cycle or three will pass before anything occurs.
It is no secret that Farm Bureau has clout on the federal hill and in a large number of state houses. Side lining this organization in order to limit the government’s interactions with corporate conduct is a coup for corporate America. While big government is not great in my estimation, the fact that we have to kick around the idea of requiring corporations by rule to not withhold information on how to repair their products they sell is alarming. To see that a substantial player in the field has effectively signed a peace treaty on the matter is concerning. News reports indicate that the organization is carry the peace pipe to other equipment manufacturers in the coming days.
USDA to start tracking foreign ownership of land.
Iowa has a rule against it, and several other states do or are in the process of doing so. Now, the feds will track the foreign ownership of ag land as well. Of note, the state of Arizona currently leases farmland to a company with a head quarters in Saudi Arabia. The new AG of the state is looking to modify that relationship.
North Carolina Right to Farm law, as amended in 2018, is allowed to stand. It creates requirements for a complaining party to establish as part of the suit and limits damages. The NC courts found that the right to farm law and choosing to promote ag activities is within the police power of the estate. That’s a win for ag producers.
When I was a kid, a popular song referenced a vegemite sandwich. I had no idea what that was for a long time nor did the school dictionary help. When I finally ran into it, I learned real quick what it was and it gave me great into the land “down under’s” palate.
Ag law has its own vernacular and knowing those terms will go a long way towards a successful operation. Let’s take a look at some of the terms of art that the farm operator/ landowner is going to run into. This time we will look at taxes and real estate terms.
Warranty Deed. I own this and when I sign it over to you, I will defend the title against anybody who say otherwise.
Quit Claim Deed. I may or may not have an interest in this property, if I do, here it is. Good luck, don’ t call me when things go south.
Quick Claim Deed. Not a real term. Don’t use it.
Abstract: A history of the property showing ownership, current liens, easements and other items impacting little. Usually updated by the seller of property (or the borrower if refinancing) and then examined by an attorney to establish title and what defects, if any, need to be addressed. The updates don’t last forever, and the abstract must be updated before examination.
Title Opinion. An attorney’s written findings of the examination of the abstract.
Contract Sale. An installment sale where the owner serves as the bank -essentially. The Buyer is in possession as long as they make the payments and if they don’t, they can be removed from title and forfeit all payments. When they complete the payments, they received a deed.
Rent to own: Not a concept. Either you are buying on contract sale or buying with a lump sum of cash (sometimes provided by a bank). While you can enter into agreements that say I am renting for X and if I buy the property then Y out of my X rent payments will reduce the purchase price, those agreements are not suitable for residential purchases and must be carefully crafted.
CSR/CSR2: Corn Suitability Rating. This is based on soil type and is a factor in Iowa land valuation for many. The higher the CSR, the more desirable the ground is for row crop production.
Amortization: a schedule of showing how payments are applied over time.
Appraisal: The value established by a 3rd party professional based on market review and other factors.
Assessment: The value of the property established by the government or its contractors for taxation.
Land Basis. The cost of real estate. Established by how much you paid for it, how much it was worth when you inherited it, or how much the purchaser paid for it before they gave it to you.
Gift. A complete transfer of control and ownership of an asset to another. Taxes are owed by the gift giver if it exceeds certain thresholds. Gifts are not income.
Capital Gain/Loss . Gain- The positive difference between Basis (minus depreciation taken) and sale price of capital assets (land, stock, etc.) . This is subject to federal and state tax based on a scale regarding your other income and your use of the property. If you hold property less than a year it is short term capital gain and that is generally taxed at a higher rate (to discourage churn in the marketplace) than long term capital gains. If you lose money, that is a Capital Loss. Capital Loss is limited as a deduction to $3,000 per year or up to the amount of any capital gain in that tax year. Same rules regarding short term and long-term capital loss.
Depreciation. A tax declaration of a reduction in the basis of a business property to account for its consumption in the course of doing business. This reduces your taxable income to reflect an expense of your operation. If you sell an item that you have depreciated for more than what remains in its value, you can be taxed on the difference as “recapture” as the expense you previously took has been recovered and is now considered income. Different types of assets have different depreciation life spans. Some items can have accelerated or “bonus” depreciation allowing them to be taken as an expense faster than is otherwise normally allowed under the tax code (aka 179 or Bonus). Land does not depreciate.
Deduction: An expense the offsets income. If the expense is made in the pursuit of generation of income, it may be deductible. Expenses incurred as part of everyday living are generally not deductions. Certain categories of living expenses (health care, real estate taxes, charitable giving) may be deduction in some cases.
Itemization. A tax technique where you report your certain items of living expenses to off set income. These itemized deductions are subject to a percentage reduction based off your total income and must generally beat a “standard deduction” that the government allocates to taxpayers to avoid having to review everyone’s itemized deductions.
Recapture. Tax imposed when you depreciate an item and then sell it for more than what the depreciated value is. Example, I have a$5,000 truck that has $3,000 depreciated against it. I sell it for $5,000. I pay recapture on the $3,000. If I had sold it for $2,000. I would have no recapture.
The ESG is environmental, social and governance reporting. This is a concept adopted by large corporations to set standards for how they operate so their end consumers feel good about doing business with them. This can take lots of different forms, from requiring its vendors to avoid excess printing of documents, adopting diversity and inclusion programs, to commitments to stated goals on energy reduction and consumption of more “green” sources.
The idea is to make great soundbites, build brand loyalties and build a better company. The concerns come in when those goals are not made. Were they even attempted? Or was it all a smoke show? Can a consumer sue for the company not living up to its stated ESG goals or policies? For traded companies, the SEC is going to make rules.
How does it impact ag? Ag provides carbon capture, renewable energy, biofuels and conservation practices that corporate America would love to latch on to and say they were involved with it. Farmers already use production data and soil regeneration techniques that can be quantified and laid in spreadsheets in boardrooms and in talking points.
ESG might frame who these companies deal with. The tell if you will. The end purchase of your product or services telling your operation that we are not going to do business with you unless you have an aligned ESG program. Sounds a lot like quality assurance programs farmers are already doing. Here is another example, at least one large ag lender has a policy regarding paper use reduction and waste. That will prevent a large litigation firm who notoriously requires paper copies of all documents and pleadings (to increase litigation costs) from ever doing business together. Pay is the other end from tell. Companies may pay producers who adopt ESG polices a premium to ensure a line of products that meet their ESG goals. Really it is no different than a niche marketing premium like organic, waxy corn, or food grade soybeans.
While I don’t think its coming in 2023, farm operations can plan now on the eventual ask or incentive from the companies where its end product lands. A forward-looking ag operation in northeast Iowa is going to pay attention to Quaker Oats, Tyson, Hormell Cargill and ADM adopt as ESG policies. It probably wouldn’t hurt those same operations to look at the ESG policies of the companies that they do business with. Are green painted tractors made by a company that shares your views, Are blue planters governed by a corporate mission statement that you agree with?
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