Iowa Farmer Today
08-26-06
Elections will forestall estate-tax action
By Gene Lucht, Iowa Farmer Today
Roger McEowen is the Leonard Dolezel professor of agricultural law at
Iowa State University, where he works on a variety of issues related to the legal
side of agriculture. McEowen is a native of Indiana who graduated from Purdue
University before receiving a master’s degree in ag economics from ISU and a
law degree from Drake University. He later practiced law in Nebraska and taught
at Kansas State University. He succeeded Neil Harl at ISU.
IFT: Please fill us in on what happened with the federal estate tax this summer.
McEowen: The present law phases in an increase in the federal estate tax
exemption before repealing the tax in 2010. That makes estate planning more
difficult for some farmers and financial advisers. It has become clear there aren’t
enough votes to permanently repeal the tax, so this year the U.S. House of
Representatives passed a bill that would have raised the exemption to $5 million
for an individual and $10 million for a couple. It would have also lowered the tax
rate dramatically and kept stepped-up basis. But, to get it to pass they also tied it
to an increase in the federal minimum wage. The Senate needed 60 votes on a
procedural move to keep that alive and it fell short.
Eventually, they’ll take it up but not this year. Nothing’s going to happen this year
with an election coming up.
The proposal isn’t that different than what Professor Harl and I have been
suggesting for several years: Raise the exemption, lower the rates and keep
stepped up basis. Eventually, Congress will take it up again but for now the
downside is that it prolongs the uncertainty in estate planning.
IFT: Congress is again starting to discuss a farm bill. One topic that is always big
in farm bill talks here is the idea of a payment limit. What are your thoughts?
McEowen: Anytime you have a situation where 70 percent of the federal farm
payments go to 10 percent of the producers, you have a problem.
Congress really needs to make a policy decision what the farm program is for.
And, to be honest, I don’t see a good way of designing a payment limitation other
than tying it to a person’s Social Security number. All that said, I don’t expect a
strict payment limitation to be a part of the farm bill when the chairmen of the
House and Senate Agriculture committees are both from the South and are
opposed to the idea.
IFT: Are there any new issues related to federal taxes or farm policy?
McEowen: There is one farmers should be aware of. We’ve had an issue with
self-employment taxes on CRP land for some time. In the past, IRS has required
material participation in an associated farming operation before CRP rental
payments are subjected to self-employment tax.
But, that changed in the summer of 2003 when the IRS ruled CRP payments are
always subject to the self-employment tax. In late July, the IRS published an
audit guide for its auditors in which it states CRP payments are subject to selfemployment tax “per USDA regulations.”
The USDA has no jurisdiction in tax law. This is flat out wrong and we are
working with representatives of Sen. Tom Harkin, D-Iowa; Sen. Charles
Grassley, R-Iowa; and Rep. Earl Pomeroy, D-N.D. to try to resolve this issue.
IFT: Iowa and many other states passed eminent-domain bills this year. Is Iowa’s
a good law?
McEowen: There are many good things in the Iowa law. It does several things to
try to simplify the process. But, I am concerned about one item. The law is very
specific in not allowing the use of eminent domain for any water projects that are
for anything other than drinking water. I think that could become an issue at a
time when the state is trying to build ethanol plants because ethanol production
requires a great deal of water.
Technically, the bill also simply addresses the exercise of eminent domain for
private development. It is possible governments could try to get around that by
becoming the developer and building more public projects such as public
housing. The bigger point, though, is eminent domain does not appear to have
been a major problem in Iowa or many of the other states.
IFT: The so-called director discretion rule is taking effect now and would give the
director of the Iowa Department of Natural Resources (DNR) discretion to stop
construction of some livestock facilities even though those proposed facilities
meet state environmental regulations. Is that a good idea?
McEowen: The real problem here is not all the questions surrounding livestock
production are environmental, but we’ve tried to put them all through an
environmental regulatory process. Until we deal with issues such as local control
we’re going to have these situations. Counties have the authority to site other
types of industrial business operations but not if the industrial operation involves
agricultural production.
Remember, a business can be operated in accordance with state law and still be
sued successfully on a nuisance claim. So, the enhanced discretion by the DNR
is an attempt to minimize land-use conflicts.