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Those who are just beginning the farm operation or those who are slowly withdrawing from it would do well to familiarize themselves with the Internal Revenue Code § 183 "Activities Not Engaged in for Profit", occasionally referred  The "Horse Shelter" or Hobby Loss Rules.

This code section is designed to prevent tax payers from claiming business losses (and thereby reducing income available for taxation) on activities that the tax payer primarily engages in for recreation, entertainment and personal enjoyment rather than a legitimate business purpose. Specifically, horse farms and cattle operations of small sizes are eyed with greater scrutiny.

The IRS has historically found this a difficult area to litigate in, but has developed training manuals and policies to help examiners who may have no knowledge of farm operations, in order to ensure compliance with the Internal Revenue Code.  A review of the training manual shows the IRS attempts to familiarize its agents with the world of competitive show animals, but also the distinction between registered herds of cattle and commercial herds of cattle. The manual advises examiners to consider calculating the volume of feed purchased versus animals sold to ensure no under reporting of income, such as cash sales.

Animals are at the core of many, many farm operations, but even the grain farmer is likely to have a few animals or a farm dog around, and most anyone who farms is bound to encounter wild animals that impact the operation.  The rules that affect animals cover a swath of farm life as varied as the animals themselves and the activities that involve them.

A dog owner is liable for the action of his dog. Don't post "Beware of Dog" signs; believe it or not, if your dog was to injure someone, such signs might be used against you in court, as an admission that you knew you were dealing with a problem animal.  Your best advice is to control your animals.  You may kill a dog that is attacking or attempting to bite a human being. 
Every dog must have a rabies vaccination.  Any dog, cat or other animal which has bitten or attacked a person must be reported.  If rabies is suspected, animal-control officials can order the owner to confine the animal or it can be impounded by animal-control officials, who can hold the dog for ten (10) days and may then humanely destroy it.  If the dog is returned to its owner, the owner must pay fees for impoundment.

Note:  If you confine a non-livestock animal for suspected rabies (or any other reason), be aware that the Iowa Code makes it unlawful to "to fail to supply the animal during confinement with a sufficient quantity of food or water, or to fail to provide a confined animal with adequate shelter, or to torture, deprive of necessary sustenance, mutilate, beat, or kill such animal by any means which causes unjustified pain, distress or suffering."

Ag in America is not comprised of slack-jawed yokels wearing overalls and carrying pitchforks.  It is driven by satellite guided mapping, tracking, fertilizer and harvesting. Science drives innovations resulting in higher yields on fewer acres, matching seed types with soil types with a match.com like intensity.  Selling the product that is created by farmers is not a matter of hitching the team to the wagon and seeing if Widow Brown would like some eggs.  It is a market driven event that has price discovery tools available via the internet and data reporting to allow farmers in Iowa to make decision on marketing based on Chinese national policy, Brazilian rainstorms, and the fickle predilections of the European Union regulatory agency.

Iowa produces more corn than every other country in the world except 3 (the US, China, Brazil).  Agriculture as a whole makes up 10% of all exports from the US. . Iowa is a consistent leader in many ag production categories. Those exports account for over 250,000 jobs.  Bags of U.S. grown commodities delivered to other nations are powerful ambassadors of U.S. policy and far more impactful than "boots on the ground" to drive a point home.

Ag is the great villain for many organizations with an agenda.  From the MTBE backed politicians of California (Remember John Hunter, who did not even campaign in Iowa because he knew MTBE buttered his bread?), to PETA and other NIMBY (not in my back yard) organizations, all seek to grind this portion of our economy to a halt.  For instance, the Humane Society of the United States has litigated round after round against horse slaughter, preventing zoos and pet owners from obtaining reasonably priced feed options for animals in their care.

These anti Ag activities have unintended consequences.  All but four African countries, where the most population growth is expected, ban GMO organisms.  According to current census information, over half the population Kenya is under 15 years old.  How is Kenya to provide food and jobs for its people?  Historically, populations whose people are hungry and jobless tend to break things and kill people.  That is not good for growth and world order.  In total, the population of the world adds the equivalent of the Des Moines metro area to the dinner table every day and 9 BILLION people in the world is not far off.  What are they going to eat and who is going to grow it?

The resistance to Ag does not even have to be direct protest.  Fighting against energy projects like natural gas pipelines and lock and damn repairs and upgrades all serve to stymie agriculture and its growth.

Yet, our congress cannot even seem to understand how to pass legislation that provides a framework for the Ag community to grow its product, protect its soils, and stay productive in terms of research and innovation.

I recently attended a workshop for Iowa Ag lawyers and the Drake Law center as we consider the massive change in land holding that is coming for the state in the years ahead.  Between a large chunk of the acres being held by those over 65, advances in technology making less farmers required to operate the farmland(206,000 in 1950 compared to 88,647 currently in Iowa), and the intertwining emotional, family issues with business issues the task is monumental.

A couple of great thoughts came out of that workshop and I hope it is followed up with some solid training and guidance for our state’s advisers and decision makers. What was disappointing is that the large majority of farm operators have talked to NO ONE about their decision to retire (that is to withdraw all management and capital and labor) from an operation and of those that did talk to some one, only 19% mentioned it to an attorney prior to taking actions.

Monday, April 22, 2019
  • Patrick B. Dillon
  • Jill Dillon
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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.
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Jill Dillon focuses on family law, estate planning and IRS matters. Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill spent extensive time advocating for low income tax payers in front of the IRS and the State of Iowa Department of Revenue while at Drake.

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