VIEWS: 6 PAGES: 42 POSTED ON: 6/25/2011
Class #35 Farm Tenancy II Final Exam. – Dec. 15 ? Farmer’s Tax Guide (See rules and example at the back.) Federal Tax Form packet. Note IRS forms are at: www.irs.ustreas.gov/prod/forms_pubs/forms.html Case Action, Issue&Facts Holding& Rule Bert -- Aaron Patten Andy Peter Olson -- Holly Smith Melissa Spaid Borders -- Adam Veld Courtney Cooprider Dwyer -- Ashley Dean-Cross Bart Evans Finley -- Jeremiah Faulk Jonathan Franks Quiz 11 1. Indiana’s farm product lien rules include a “direct 3. At common law, the notice system.” tenant owns a crop until A. True B. False harvested under a share C. False, “direct notice” is lease. a “federal option.” 4. “Chapter 12” allowed D. True, and “direct farmers in bankruptcy to notice” is a “federal escape all “secured” option.” portions of land debt. 5. Indiana has a “four 2. An oral lease for month” rule for lease Indiana farming may be termination notices. enforced in court. General Rights and Duties of Landlord and Tenant Only a reasonable use of the land for the purposes for which it is obtained is permissible. No waste. Farming in a husband-like manner. Proper tillage so as not to exhaust the soil. Repairs should be made, i.e., maintain the property the way you found it ordinary wear and tear excepted. Bert vs. Rhodes St. Louis Ct. of App. „24 Aaron Patten – Action? Damages for trespass by the landlord! Issue? May Rhodes the landowner enter to sow… ? Facts: Rhodes leased to Bert for a five year term. -- Bert, the tenant, filed suit after the landlord entered & sowed clover on 30 ac. of wheat & oats. -- Rhodes charges Bert’s plowing out of 7 acres of alfalfa without the landowner’s consent. Trial court held for the landowner, based on the local custom of sowing clover in small grain to preserve the fertility of the soil. Bert Andy Peter Holding: No, the landowner cannot come in during a lease and take over. -- Unless the lease specifies otherwise, the tenant has total control over the land. --- Tenants can do what he or she wants with it, within reason. The tenant was showing no harm done to the land and was in control of his operation. Bert Holding-- -- Rhodes felt Bert violated the lease by plowing up an alfalfa field. however the lease gave to tenant control to do what he wants with the land and all tillable acres. Rule: If a landlord wants to manage (what to grow where, and tillage practice) the farm via the lease he or she can do that, but it in writing! Note: “Farm program” rules impose conservation plans to benefit from certain govn’t payments! Olson v. Bedke S. Ct. of Idaho, „76 Holly Smith – Action? Termination of a lease Facts: Frank and Glen Olson leased to Herman & Ruby Bedke, who had allegedly failed to comply with the material terms of the lease. -- Olson's complaint charged poor farming practices by the Bedke's -- failed to irrigate, allowed erosion, and poor weed control. Olson Melissa Spaid – Holding? Thompson on Real Property -- on farm lands, the tenant is liable for waste for affirmative or negligent acts which constitute poor husbandry. Also, see Eliason v. Eliason, and Anderson v. Hammon failure of the lessee of farm land to follow good farm practices. Olson Remanded to trial court on these and other grounds Idaho's statutory provisions, gives the Olson's the right to revoke their contract with the Bedke's in case of waste, and "poor husbandry". Liability for Injuries on the Premises Generally, the landlord is not liable to the tenant or to third parties for their injuries on the premises -- because the tenant has sole possession and control of the premises. -- One exception is when the tenant or a 3rd party is injured while lawfully on the premises due to a concealed or hidden defect or hazard. If the landlord knew of the hazard, landlord is liable. Liability for Injuries on the Premises If the tenant knows or should know of defects, he is likely to be held liable for having failed to correct the condition. Landlord is not likely to be liable for acts of the tenant since nothing the tenant does can be referred to the landlord. When both tenant and landlord know of a defect in the premises leading to a third party injury, they may be jointly liable. Crop Ownership A crop belongs to the tenant until it is harvested and divided – by common law. Tenants exclusive right in the crop tends to be true even in a share lease, unless other provisions are agreed to or there is a statute that governs. Since the crop belongs to the tenant, legal rights for damage to the crop are in the tenant--even though there is a share rent. Borders V. Roseberry S. Ct. of Kansas „75 Adam Veld – Action? Damages from the landlord for “pre-existing condition at a rental house.” Issue: Is the landlord liable for the accident that resulted from this condition that existed when tenant moved in Facts- The defendant, Roseberry owns a single family residence, and leased it to Rienecker. The landlord repaired the house, including the guttering, which had not been put back on yet!! Borders Rain off the roof accumulated on the front steps of the house, and freezing made a hazardous situation! The landlord as well as the tenant new of this situation. On Jan. 9, 1971, there were ice conditions and the landlord had broken the ice off of the steps with a hammer. Borders, the plaintiff, arrived at the house as an invited guest of the tenant--a social guest The guest fell on the icy steps, and was injured. Borders Courtney Cooprider – Holding? - The Judgment for the defendant. The decision was based on the fact that the landlord was not responsible for the tenant’s social guest. -- Generally, tenant is responsible for the conditions of the premises, for pre-existing conditions, except: Borders Exceptions: 1. Undisclosed dangerous conditions known to landlord, but unknown to the tenant. 2. Structural conditions dangerous to persons outside of the premises? For example ?? 3. Premises leased for admission of the public. Borders 4. Parts of land retained by landlord which the lessee is entitled to use. 5. Where lessor contracts to repair. 6. Negligence by lessor in making repairs. In this case, 1- 5 don’t apply. Perhaps #6 merits consideration. Borders Holding - But #6 applies only when the tenant lacks knowledge of the situation--ice on the sidewalk. Tenant had full knowledge! Thus, landlord is not “guilty of negligent repairs.” Rule?Generally, tenant is liable for premises … Other Rights & Duties . Sale of the land: -- generally, without other stipulations, the tenant has the same rights, & lease, with a buyer as with the landlord/seller. -- the existence of a written lease may be an issue in some states, but not in Indiana. Other Rights & Duties Sale of the Land: -- a tenant is entitled to a “proper notice” or his “term.” -- to have “full protection,” record the lease or an affidavit about the lease. Assign or Sublet: -- To assign or sublet may be forbidden by statute, (not so in Indiana) but it is best to cover it in a written lease. -- However, if there is an assignment or sublease, the new tenant has the same rights and terms ... Dwyer v. Cooksville Grain Co. App. Ct. of Ill, 4th Dist. „83 Ashley Dean-Cross -- Action? Issue? Does the landlord’s crop lien win out over the Bank’s security interest? Facts: -- Dwyer leased 300 acres to Morefield for $60,000 -- Then Morefield borrowed $24,000 from McLean County Bank -- Bank took a security interest in crops to be grown on the 300 acres and perfected by filing. Dwyer -- Morefield sold the crop to Cooksville Grain -- Cooksville issued a joint payee check to Bank and Morefield -- After landlord did not get his $60,000 rent, he filed a complaint against Morefield, Bank and Cooksville. Bank asks for an apportionment of the liability between the Bank and Cooksville, Then they both appealed the summary judgment granted Dwyer. Dwyer Bart Evans -- Holding? -- The court recognizes that the crop lien takes “precedence,” or does it? -- Does the crop lien take precedence over the security interest in the proceeds for the crop sale? -- At the time of this case, the “Illinois Landlord‟s Lien” was paramount to (ahead of) all other liens! -- and could be lost only by waiver or failing to enforce it within the allowed amount of time. Dwyer Holding: -- Bank argues that the above superior status was prior to adopting the Art. 9 of UCC. -- Art. 9 exempts both statutory and landlord’s liens -- But, the landlord’s lien remains superior to the Art. 9 lien--in Illinois. Landlord prevails!! Note--Following the recent adoption of a new UCC provisions, Illinois law was revised in Aug. 2002 to, again, place the landlord‟s lien above the UCC lien‟s. Illinois’ Superior Landlord’s Lien Every landlord shall have a lien upon the crops grown or growing upon the demised premises for the rent thereof, whether the same is payable wholly or in part in money or specific articles of property or products of the premises, … for the period of 6 months after the expiration of the term for which the premises are demised, and may be enforced … "A good faith purchaser shall, however, take such crops free of any landlord's lien unless, within 6 months prior to the purchase, the landlord provides written notice of his lien to the purchaser by registered or certified mail. Such notice shall contain the names and addresses of the landlord and tenant, and clearly identify the leased property. … Finley v. McClure S. Ct. of Kans., „77 Jeremiah Faulk --- Action? Proceeds from a crop growing on a “life tenant’s land” at her death. Issue? Is the rent share from a growing crop at death owned by 1. the life tenant’s estate, or 2. remainderman, Finley, or 3. Split between life tenant's estate and remainderman? Finley v. McClure Facts: -- Jessie Riley had a life estate until her death on 9-1-73. --- She had been leasing the land for a 1/3 share to Marcy and McCowan. -- Finley owned the remainder interest in the same farm. Riley’s stand-in tenants had sowed wheat two weeks before her death. Finley v. McClure Facts: -- The wheat crop was deposited at an elevator under the Marcy, McCowan and Finley’s names. -- Later without notice to Finley (remainderman) the wheat was sold, and 1/3 of the proceeds was paid the estate of life tenant, Jessie Riley. -- Finley objects, saying the 1/3 of the wheat proceeds belongs to him. -- Court awarded the share to the decedent’s/life tenant’s estate. Finley v. McClure Jonathan Franks -- Holding & Opinion? District court decision affirmed. Ehtel McClure, administratrix of the life tenant’s estate, was awarded the entire 1/3 proceeds share of wheat. The doctrine of emblements answers the question at issue. Finley v. McClure 36 The doctrine of emblements is a feature of the common law that endures today in Indiana. However, states have differed on handling the Finley Case situation. These states say the title to a growing crop is in the lessee (here a stand-in tenant), not the life tenant, (or landowner in general). Finley v. McClure Share rent is not due until harvested, and that share belongs to the owner of the land at that time. -- but, Kansas did (does) not follow the above alternative. Rule??? A tenant (including with a life tenant/landlord) whose lease is terminated, without fault, is entitled to the profits of the crop(s) growing at the termination. Death of a Life Tenant in Indiana IC 32-31-1-18 If a life tenant who has demised (rented out) any lands dies on or after the day on which rent is due and payable, the executor or administrator of the life tenant's estate may recover from the under tenant (stand-in tenant) the whole rent due. If the life tenant dies before the day on which rent is due: (1) the executor or administrator of the life tenant's estate may recover the proportion of rent that accrued before (date of death); and (2) the remainderman may recover the the proportion of rent that accrued after; the life tenant's death. Federal Income Tax By the Forms: W-2s and 1099s Form 1040 & Schedule A Schedules C, D, E, & F Schedule SE Form 4797 Form 4835 And others Tax Rules for Social Security and Estate Planning Material Participation (MP) -- status or level of involvement in the renting of land -- so the landlord is “earning” income and “qualified” to pay self-employment tax (SE tax) on the Schedule F income (“farmer” IRS form), complete a Schedule ( Self Employment Tax) SE, and -- establish credits for Social Security benefits -- note, an operating farmer, does not need the MP concept since he or she is actively involved as sort of an “independent contractor,” -- so he files with IRS on a Schedules F, and SE, to comply with the tax law and to earn Social Security benefits. Material Participation (MP) There are several ways to meet the MP test -- See them in the IRS Publ.#225 Farmer’s Tax Guide-2001—page 84, Column 3. -- In Mid-west, farmland leasing situations the MP requirement may, and has been met by the share- lease landowner who supplies some of the cost of inputs, for a share of the crop (at risk), and has authority in the production decisions throughout the year. Material Participation (MP) -- and “exercises that authority.” -- -- As point of history, an agent(manager) could stand between the landlord, and the tenant and the landowner could “materially participate,” I.e., and earn social security benefits. Why not? May a “farm manager”(agent) satisfy MP requirements for a landowner, today? Not since 1974. Congress changed the rule. Material Participation (MP) There is more to the saga. -- If you MP in the earning of your farm income (or any other type of income) that income is “active” income for Soc. Sec. Retirement purposes. Before Jan. 2000 such earnings could cause a loss of part of a Soc. Sec. retiree’s benefit! Now, that is only true for SS retirees before age 65! Material Participation (MP) Does MP requirement create a dilemma, or a point of ignorance? Many think at SS retirement, a farmer/landowner must switch to cash rent so: a. they can stop paying SE tax, and b. not have active income from their rental that may be sufficient in amount to cause a loss of part of their SS retirement income. Is (was) there a middle ground? Material Participation (MP) A landowner may share lease or and not be Materially Participating. If not, why an MP test? When they wish not to MP (i. e., retire from farming activity either as operators or as MP landlords), and They file their share of farm proceeds on a Form 4835 rather than a Schedule F – that “certifies” they are not materially participating in their share lease. Material Participation (MP) MP will is critical for saving federal estate tax, and for “time” to pay tax due on a “closely-held” business interest of a decedent. MP is required for special use valuation (SUV) of land for federal estate tax purpose. SUV allows up to $800,000 in a farmland value to be removed from a decedents estate tax estate owner’s estate ($800,000 as indexed for decedents in 2001). Special Use Valuation - IRC Section 2032A - Cash Rent - “Land” tax = “Ag Use Value”* “FLB” Interest Rate** Special valuation notes : * Both numerator and denominator are five year averages for the five years before the year of a decedent’s death, and “Cash rent minus real estate tax” is for “comparable soils in the community” ** Published annually in an IRS Revenue Ruling by Farm Credit Bank Districts -- St. Paul for Indiana The five year average interest rate for decedents in Indiana has dropped from 9.3% for 1995 estates to 8.12% for 2001 estates. Material Participation (MP) -- However, a family member may satisfy the MP requirement SUV. Likewise, -- The FOBID, allowing the deduction of $675,000 in business assets from the qualified business owner’s federal estate tax estate, requires MP by the decedent or by his or her family member.
Pages to are hidden for
"AGRICULTURAL LAW EMPHASIS INDIANA"Please download to view full document