The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
The US Tax Court released today their long anticipated decision in the Frank Aragona Trust case. This case had been previously decided in favor of the IRS and then appealed to the Tax Court. The background on the case is as follows:
In the case of the Frank Aragona Trust, the Tax Court concluded exactly that. They indicated that the services provided by the three trustees (and the employees) were more than sufficient to allow the trust to deduct these real estate losses. Another factor in favor of the trust was the three trustees were employees of a LLC owned 100% by the trust. This allows all of their activities to be attributed to the trust. If these trustees had been employees of a LLC not related to the trust, the case decision may have been decided otherwise.
Many farm holdings have now been placed into trust for the benefit of children and grandchildren. This decision would allow "farming operations" with enough material participation by trustees and employees to fully deduct those losses and not have any income subject to the new 3.8% net investment income tax. However, for most farmland placed in a trust that is cash rented or crop shared, these losses would most likely still not be deductible and any income would be subject to the new 3.8% tax (once trust income exceeds about $13,000).
Although a victory for the taxpayer, it will primarily apply to those larger trusts with major farming or ranching activities.