Cash rental triggers special-use recapture

Article Abstract:

Heirs to specially valued property are liable for additional special-use valuation estate tax if the conditions set forth in Section 2032A(b)(1) are not satisfied. In the Williamson case, the Ninth Circuit ruled in favor of the IRS which argued for the recapture of the tax since the taxpayer has ceased to use the property for its qualified use, farming, and was merely renting the land to a relative for a fixed amount of cash. Renting was deemed to be a passive activity and cannot be characterized as a qualified use. The taxpayer could have evaded the recapture tax if the cash rent was not fixed but was adjustable and was dependent on production to such an extent that the taxpayer himself was exposed to the same financial risks of farming as the leasee.

Farms, Transfer taxes, Rents (Property)

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Self-employment tax not reduced by tax-motivated "gift." (Compensation and Qualified Plans)

Article Abstract:

TAM 9210004 involved the case of a self-employed farmer who transferred crops to his wife as a gift. The IRS, interpreting Rev Rul 55-531, ruled that the transfer of crops was not a valid gift since it was not done out of disinterested generosity, but was instead planned as a way to avoid taxes. According to the IRS ruling, the tax-motivated gift could not be used to reduce the farmer's self-employment tax as it lacked economic substance.

Self-employed persons, Self employed persons, Gift tax

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