Accounting Today visitors: click here for the story about the pharmacist and the painkillers.
Cash-rent of farmland not “material participation” for Iowa capital gain exclusion. Iowa has an unusual rule that exempts capital gains of business real estate from Iowa’s income tax if the seller meets two tests:
– Holding the property for at least ten years, and
– materially-participating in the business in which the property was used for at least ten years at the time of the sale.
Iowa defines “material participation” using the federal rules for passive loss material participation. A widow who sold 400 acres she held with her late husband claimed the deduction on her 2006 Iowa 1040. It didn’t work out. A recently issued protest denial letter from the Iowa Department of Revenue included these key facts:
– The land was first rented to a tenant, a Mr. Goshorn, in 1966; he cash-rented it until the 2006 sale.
– The taxpayer and her husband got full title to the 400 acres in 1990; it had been held by their family dating back to the 19th century.
– The husband died in 2005.
– The land was sold in 2006.
In the protest you also stated, “the activities of the farmer (tenant) could not have continued were it not for the involvement of the taxpayer.” No evidence was provided to support this statement. At the beginning of the period ten years prior to the sale, the tenant had been farming nearly 30 years. It does not seem reasonable that he would need the landlord to tell him how to farm. Not only did [late husband] not live in the area, he himself had not farmed for well over 30 years.
The taxpayer’s daughter stated, “My parents livelihood depended on the success or failure of the farms.” One of her parents was a biology teacher and the other an x-ray technician. The farm was not necessary for their livelihood. Additionally, her parents had guaranteed income by cash renting the land. The tenant bears the risks of weather, grain prices, etc.
So growing things in petri dishes doesn’t count, then?
In your letter dated June 29, 2012, you stated that “The situation involved risk due to the inexperience of the tenant.” No explanation was provided as to how or why Mr. Goshorn was inexperienced after thirty or forty years of farming. Also, your letter dated May 9, 2013 exaggerates the risk of the landlord. There is always a chance of default by the tenant, but it is negligible. The landlord has legal recourse against that tenant and could find a new tenant the next year.
Thirty years is “inexperienced?” Wow. That’s strict.
Cash rental of farmland is almost impossible to reconcile with material participation. If you or your spouse aren’t farming yourself, you probably won’t qualify for a capital gain deduction in Iowa on farmland you own.
Permanent Extenders? A report by Tax Analsyts today ($link) raises the possibility that some of the perpetually-expiring provisions up for renewal in the lame-duck Congress might be extended permanently:
Senate Finance Committee Chair Ron Wyden, D-Ore., also suggested that the negotiations over extenders could result in some provisions being made permanent and cited his tax reform proposal as evidence that he supports making the research credit permanent. But he pointed out that the cost of doing so would be nearly double the cost of the entire Senate Finance Committee extenders package.
I love how they reckon “cost” in Congress. They act as if extending the same tax break over and over forever for one or two years at a time is somehow cheaper than just enacting the provision once without an expiration date. If you tried to do something like that on your financial statements, you’d go to jail. In Congress, though, it’s just another day.
Ways and Means member Charles W. Boustany Jr., R-La., also told reporters that Republicans are negotiating for permanency on as many provisions as possible. “We sort of took them in order of importance in some respect,” he said, citing the research credit, section 179 expensing, bonus depreciation, the subpart F active financing exception, and the controlled foreign corporation look-through rule as “the top-level ones in my mind.”
That’s good news for fans of the $500,000 Section 179 deduction, which reverts to $25,000 for 2014 if no extension is enacted.
The article doesn’t say whether the President has softened his prior opposition to permanent extenders. If he vetoes an extender bill, a tax season that already promises to be awful could get much worse.
For my readers who have not been following this drama I should explain, that the Internal Revenue Code provides that cash housing allowances paid to “ministers of the gospel”, that are spent on housing, are excluded from taxable income. Unlike, arguably similar exclusions for the military and people working abroad. there are no dollar limits on “parsonage” allowances. Housing allowances for pastors of mega churches can run into the hundreds of thousands dollars.
I confess to some surprise at the outcome. Designating cash payment as “housing” always has seemed like a too-good-to-be-true tax break, but it lives. Staff-parish relations committees everywhere will be relieved at the outcome.
Fresh Friday Buzz is on tap at Robert D. Flach’s place! Links to discussions of extenders and same-sex marriage filings issues are part of the fun.
Jason Dinesen, My Experiences at the NAEA Leadership Academy. Jason, an Enrolled Agent, keeps up the fight:
Because there are so few of us, some would say (and some have said) to just let the group die. This cannot happen. EAs in Iowa are small in number … but that’s all the more reason for us to stick together! Most of the EAs I know are solo operators such as me, and we tend to exist in isolation in our own little silos. The number-one thing EAs in Iowa have told me they want is networking and a sense of community. Keeping the Iowa Society alive will help provide that.
The IRS attempt to create a new Registered Tax Return Preparer designation for those who take minimal CPE and pass a literacy test is a mortal threat to the Enrolled Agent brand. Enrolled Agents have to pass a rigorous exam and meet higher continuing education standards.
TaxProf, The IRS Scandal, Day 554
Howard Gleckman, How Did Medical Device MaHkers Become Poster Children for Obamacare Critics (TaxVox). Maybe because the medical device tax is such an obviously bad idea, though Mr. Gleckman seems oblivious to that issue.
Is that a code section? ‘Redskins’ cited as basis to revoke NFL’s tax-exempt status (Kay Bell)