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So, things are different and better now that it is 2021, right? More like just different, not any better or any worse than the year prior. The sun will still set too early when you need that extra time to finish and the wind will still blow harder than you like when you are outside. Somethings, like the government present the same old problems but in new packages.

Many eyes in ag are fixated on what possible changes are coming down the pike with the new administration in the federal government. Signals indicate the COVID 19 response is going to be the center stage well before environmental changes, tax changes, or foreign policy changes take the spotlight.

Many are concerned about a tax increase. The current plans proffered by the incoming administration, which have to be adopted by a razor thin margin in both chambers of the legislative branch are focused on income earners who net more than $400,000 per year. Key tax provisions are scheduled to expire or phase out in the coming years, to include 100% bonus depreciation, the current tax brackets, the increased standard deduction, childcare credits, the limitation of itemization deductions, and the QBI deduction for non-corporate taxpayers. Additionally, the high estate exemption (Currently at 11.7 million per person) is also slated to sunset by 2025. Look for potential deals on these items in standalone legislation or in part of other legislative packages to pay for infrastructure or environmental programs. The incoming Secretary of the Treasury, former fed chief Janet Yellin, is likely to push the administration to delay any sweeping tax reforms resulting in increases until the economy has its feet back underneath it.

Environmental legislation is highly likely. The positioning of Tom Vilsack as Sec of Ag is a win for farmers as is the continuation of Debbie Stabenow as Senate Ag Committee chair. She has a reputation for fighting for farm operators, which may help farmers actually benefit from proposed carbon sequestering programs as opposed to the ever-growing list of “middleman” carbon credit traders, brokers, and aggregators that look to, as merchants time eternal have done, take a skim on the payment to make the system work. Details about mandatory or voluntary and credit for existing practices are simply not available.

The farm bill hearings for the next farm bill this year are likely to be broad, fact finding type hearings, but the real fight comes after the 2022 midterm elections before the 2023 Farm Bill. It is of note that Collin Peterson of Minnesota was defeated and a longtime ally of production ag is gone from the house Ag committee. With Biden only carrying 16 percent of counties of the US (which is useful to see that his voter base is urban and urban adjacent), a push for even more of the Farm Bill (which is 90% food related) to go to urban food priorities may be coming.

The IRS won a tax court case confirming that the executor and the beneficiary of an estate are both responsible for unpaid estate taxes

Remember that rental property idea you have has some limits. If you lose more than $25,000 on your rental project, that loss is limited. If you make over $100K but less than $150K you have a sliding scale down from that $25,000 in what your limits are and if you are over $150,000 in earnings after some technical adjustments, you cannot take a rental loss.

If you got a letter from the IRS saying you owe money, look for the Barcode on the letter. With a QR reader on a smart phone, you can use the reader to get directly to the IRS’s claims resolution website.

Is it Duck Season or Rabbit Season? Much like Elmer Fudd and Daffy Duck, Iowa’s hunters are subject to Bug Bunny rules on who can hunt and fish and when. Don’t worry, this scheme goes way back to England. When people hunted the “King’s Forrest” and were subject to the Kings rules on who could take what when. Why we don’t east swan’s (which are apparently tasty) goes back to England’s crown requiring a high fee to harvest one by buying a mark or brand to put on the Swan. Government toadies floated the waters and decide what hatched swans got what brands. In fact, today unmarked swans are still the property of the Queen. So, the critters belong to the sovereign until they let you harvest them. Remember the golden rule, those who have the gold write the rules. This ownership principle was confirmed in Iowa in 2013 when the court ruled our legislature has confirmed via is passed laws and regulations that owning land does not create the right to hunt the land largely because the State, not landowner owns the wildlife on the owner’s property. (Until it doesn’t, when it goes through your windshield, but I digress). Also, fishing is a bit different in that under Iowa law, private ponds can be fished by the owner or tenant and their minor children without license but everybody else needs to pay for privilege.

Conversely, rules are the price we pay for a civilized society. The concept of the tragedy of the commons, where everybody puts one more critter on a shared pasture show that absent rules, we tend to maximize our own benefits first before society. In animal harvesting, this can lead to zero animals to harvest for anybody due to over hunting and fishing.

All states have regulations regarding the hunting and fishing things by residents and nonresidents, big and small, fury and scaley on state-owned public land as well as privately owned land. The rules and fees favor residents, students and members of the military. Notice residency, not ownership of land dictates the treatment stats. A nonresident landowner has no secure right to hunt their own property, property for which they pay taxes to the state of Iowa. 

A resident landowner can get two free deer hunting licenses - one antlered or any sex deer hunting license and one antlerless deer and they can buy two more antlerless deer hunting licenses. “Owner” is defined as the owner of a farm unit who is a resident of Iowa. A farm unit is not an acreage with some trees, it has to have some farm qualities to it. Nonresident landowners must apply for one of the nonresident antlered deer licenses by zone. The state spreads out 6,000 of these tags over 10 zones in Iowa has just under 10,000 people apply for these licenses. If they can’t get an antler tag, they get preference for the non-antler tag.

Don’t worry, the lawyers have been involved here too. Here is a case from Iowa couple of years back and final resolved out about a year ago in court..

The plaintiff owned ground in Iowa but didn’t live here. He was successful in getting a buck tag 4 out of six years and had to settle for a doe tag the other years and he shelled out the out of state license fees to do so, even though he pays taxes on that Iowa land. He filed a lawsuit asking the court to establish him filed an instate "owner" under for purposes of Iowa deer hunting laws.  He claimed that not treating him as an “owner” violated his inalienable rights and his equal protection rights under the Iowa Constitution. The state did not respond within 60 days and the action was treated as having been denied. Court held that the state has every right to treat out of stater’s differently, regardless of land ownership as a legitimate government interest in wildlife management and called it reasonable, not arbitrary, and appropriate use of the police power.   

Yes, really. You should be contemplating tax consequences right now for the year. You have six weeks left to get your income and expenses, capital purchases and sales tallied and contemplated.

Here are some factors to consider.

ARC/PLC, MFP, CFAP, EIDL Grants, Syngenta payments, Iowa Livestock Producer Relief Fund and the Beginning Farmer Debt Relief Fund payments are all income. Include these payments in gross income (subject to self-employment tax) when compiling income and expenses.

Crop insurance proceeds and federal disaster programs in gross income for the tax year during which they receive the payments. Unless a one-year deferral is triggered for provision for insurance proceeds and disaster payments received for “destruction or damage to crops.” This is to acknowledge those operations that sell the year following harvest. If farm operators are planning to play games by avoiding income this year it may be tricky to “right the ship” in the following years if they lose sight of the plan.

What to do:

Farmers have a number of tools available to help manage their tax liability. Sometimes to many tools and to vigorous use of tax avoidance means pain on the backside when the farmer tries to exit the field for good and finds out the social security benefit is a low number and they owe tax on depreciated items when later sold is a harder thing to plan around than they would like.

Avoiding income spikes and dips prevents overall income from being taxed at unnecessarily high tax rates. Some common techniques are income averaging, prepaying expenses, making contributions to retirement accounts, gifting grain to a charity, carefully timing the purchase or sale of assets, entering into or electing out of deferred payment contracts, and properly managing depreciation and expensing decisions. Farm operators can defer income from the sale of crops or livestock in the year of the sale by deferring receipt of payment until the following year through a deferred payment contract. If when filing tax returns for the 2020 year it would benefit the farmer to recognize income from the deferred price contract in 2020, the farmer can elect to report constructive receipt of the income in 2020, the year of the sale. The danger is that the check won’t be good in 2021 when the operator goes to collect.

Insurance is a form of legalized gambling. You pay a company in case something bad happens (the covered loss)  and the company, based on their analysis of you and the environment you operate in sets the rate to cover the potential loss based on the likelihood of the loss, what you are actually covered for in terms of loss, and their expected ability to use your funds to make money while waiting for the loss to happen.  Life Insurance or property insurance it doesn’t matter the same basic concept applies.

Motorcycle insurance is high, in part, because at least one study showed that the likelihood of a claim or accident on an insured motorcycle in 7 years is 100%. If you are objecting saying you have gone longer, congrats, but that likely means somebody else has had two in the same time period.  Dealing with insurance in the farm operation is important.

The next time on Netflix you see “The Umbrella Academy” or on Disney “Mary Poppins”, or “Singing in the Rain” on a DVD, think of your insurance coverage and if  you have or need to have an umbrella policy.

Umbrella policy protection for farm business remain one of the few bright spots in the necessary evil that is business insurance. They generally provide greater protection for all assets under the umbrella for reasonable price.

Since you are thinking about your insurance, also think about these issues that relate to how effective your insurance is.

  1. Are all the named insureds really named. Do you have everybody associated with the business identified? Are all the actual operators of the vehicles in the company listed on the policy? Are the LLCs that you made for estate planning listed or is the insurance still held under the old sole proprietorship before you saw the estate planning attorney?
  2. Is your policy for actual cash value or replacement cost? One is cheaper and more painful when you have a loss while the other is painful to pay but far more delightful when you have a loss.
  3. Are your buildings and equipment over or under valued? Take a look and think. That farrowing house addition in 2000 is likely not worth the same as it was when it was first placed into service. On grain bins, does your policy require them to be listed or can you get a gran handling facility endorsement that covers it all?
  4. Do you have duplications? Is your farm trailer listed multiple places?
  5. Does your policy cover extra expenses? If you had a fire and had to rent another facility to store grain, milk or conduct repairs, is that covered?
  6. What is your pollution coverage? Pollution isn’t just for giant multinational corporations to worry about, spray drift is pollution. Chemicals that fall out of your moving truck could be pollution and your auto policy might not cover that. Does your farm policy cover transport of chemicals gone wrong?
  7. Are you pound wise and penny foolish? State minimums call for $25,000 coverage on an auto. $25,000 barely covers a cheap foreign import car and an ambulance ride. If a helicopter is involved, you are looking at $50,000 easy. Do you have enough policy coverage?  How much damage can a low boy hauling a large piece of equipment do if the breaks fail on a Clayton County road?

When was the last time you and your insurance agent actually went over your policy? What does it actually cover? If you have a fire and lose stored grain is it covered? If your employee diverts a load of corn to another grain elevator and sells it in her name, is that inventory theft covered?  What would it look like if the next tornado, derecho, fire, flood or hail event focused on your operation.

Friday, September 30, 2022
  • Patrick B. Dillon
  • Jill Dillon
Dillon Law PC
Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
Dillon Law PC
Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill is the assistant Fayette County Prosecutor and a certified family law mediator. Jill still has ties to her family farm operation which includes a dairy herd. Jill Dillon focuses on bankruptcy, adoptions, and mediations.

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