Recent Tax Court Decision on Conservation Easements

Content to come.  Suffice it to say, that if your land is currently in a limited liability company and you are in discussions with a land trust on placing a conservation easement on the land, make sure that you transfer the subject parcels out of the LLC before closing on the easement.  The tax court recently laid down a decision that an LLC does not qualify for the 100% AGI deduction enjoyed by qualified farmers, because, in the court's reasoning, and entity owning land without also actively farming does not qualify.  More detail to come.


A Wave of Support and Tsunami of Land

(Here's my forward to the soon-to-publish Getting Into Farming:  A Workbook for Beginning Farmers.  This workbook is something we put together as a deliverable for the Bringing New Farmers to the Table project, lead by National Center for Appropriate Technology and funded by USDA NIFA.  It's not masters thesis, it's not a data-driven analysis, it's just what I think is going on.)


Getting into and establishing a farm is hard.  Taking the risk to start and establish any business is hard. But unlike any other business, farming captures the public’s imagination.  Farming is the most ancient of careers and the foundation for all civilizations, and produces something that makes all humanity the same. After all, society needs its food. For all that our country needs farmers. 

Seems someone recognized this because those seeking a path into farming are enjoying enormous support from publicly-funded resources. Such is the Beginning Farmer and Rancher Development Program (BFRDP), funded in 2009 to launch projects around the country with one purpose - capture the energy and strength of a new generation of Americans of all backgrounds bent on producing a real thing society can’t live without. This funding has led to an explosion of program growth in the non-profit sector, and has attracted interest from state and local governments and traditional agriculture groups. One small product is this workbook in your hands.  And while none of this creates the farm, it aggregates into a measure of attention and support no generation of landless farmers has enjoyed in over half a century.  But these programs only kick-start a cycle, not sustain it. 

Society didn’t put up all this capital just because young people wanted to farm or own land. The expected return on investment is producer participation in building food systems that are healthier for consumer and farmer alike. For all this, there is still the requirement of land, and apart from more funding for FSA beginning farmer loans, the government didn’t put up land as part of the investment package.  Instead it has put new farmers in a stronger position to capture the growing release of land title that is now unfolding across the country.

Over the past decade as director of the North Carolina Farm Transition Newtwork (NCFTN) and in private law practice, I’ve had the good fortune to observe the entry and progression of a good number of new farmers starting out without family land.  I can report that those I know who stuck with it now own land purchased with savings, jobs, loans from FSA and banks and family and friends in too many creative combinations to count.  All are serious farmers who got land with determination and patience, like the farmers there before them.

Still, though there is plenty of land available, getting it isn’t easy.  But consider that getting land to farm has always been difficult, it’s just that the challenge has changed with the settling of our continent and organization of land title systems.  In the 20th Century money more than life and limb got land for farming, but it was always expensive relative to the purchasing power of the times.  My older clients - who purchased land to start out or expand decades ago - tell me how much it cost at the time, and after all these years they are no less humbled by the risks they took for themselves and their families.  Most started small then grew it from their leaseholds.  

I think a part of the land-access challenge is a perception that supply is restricted, tied up in families determined to keep it.  Most simply won’t be able to.  From my perspective, farming will end in most families and when it does, it is a legal and financial inevitability that title will disperse in smaller pieces based on the forces of heir equality.  As the “radio generation” - those born before World War II and arguably the largest landowning bloc - passes on, heirs will break up large and unaffordable parcels into smaller tracts new farmers can better afford.  

Think of it this way: That 460 acre farm you know about today was likely built over the years by one strong generation who acquired land from the neighborhood as other farms had ended for whatever reason.  One hundred acre parcels are in abundance, the result of land divisions a generation before, and these are about to become smaller.  Land title flows through history, pools with some families, then flows on.  Farms will come apart and release smaller tracts of a size more affordable to direct-market farmers while less suitable to large-scale residential development. Land won’t be cheap, but thanks to the internet (Google Earth, county GIS, property tax listings, whatever else), the probability that you will be in the right place at the right time has increasd dramatically.  You got a push, now it is up to you to get in the market to keep the good land clear.


Test for Echo

It's been a busier spring and summer than expected, and things don't appear to be letting up.  One of these days I'll again start trying to post something useful and thoughtful.  One of these days.


Wake County's Keep the Farm Draws Record Attendance

January 23, 2013, Raleigh, North Carolina

Today comes the 8th Annual Wake County Keep the Farm landowner conference.  For the eighth year I'm here, appreciative to this time host a break-out session.  Dale Threatt-Taylor, Wake County Soil & Water District Director and the event's organizing soul, has told us that registration for today will set a record at 241.  During the day I'll recognize and say hello to folks I've met at this event in previous years.  It's a whole lot of folks seeking information and assistance on making good decisions about land.  It's good for food system development.

During the years working with the group behind this event as director of the North Carolina Farm Transition Network (NCFTN), I tried to replicate this model of an annual landowner update in other counties around the state, particularly those that ring municipal foodsheds. (see hare-brained theory below).  There were pockets of modest success.  Now as a private lawyer, I'm taking some time out to come talk about how legal planning can minimize the disruption to farm production during land transfer.  My break-out session is called "Conversations about Keeping the Farm" where I offered my experience in how the farm transfer process evolves over time.

So here's the theory behind Keep the Farm as I see it:  if we agree that our food systems need land in production, we should somehow attract the attention of farmland owners who own the soils and control the water needed to grow food.  A day-long seminar covering the nuts and bolts of carrying land has proven for eight years to be a point of attraction.  The program structure is simple:  focus on the short-term concerns (keeping property taxes low, securing land boundaries against trespass, minimizing liability) and this brings landowners to the event.  Once there, landowners benefit from various demonstrations on how deliberately addressing short-term concerns can build a better foundation upon which to plan for long term concerns (land distribution, managing transfer taxes, keeping land in the family, keeping the family a family).  This is what I think I was doing.  So why does this justify the expenditure of federal, state and county staff time?  Forgive the pun, but I think its the low-lying fruit of rural economic development.  Read on please.

Metro foodsheds (aka cities and suburbs where eaters with diversified income sources concentrate) can support farm production in townships that collar the foodshed.  The folks needed to expand production in these townships that will in aggregate ensure consistent supply to open markets and support development of needed processing and distribution infrastructure, must be invariably young.  They at least need to be young enough to a) provide the physical labor and b) tolerate the high risks while continuing along a farming path.  Some of this generation are in line to receive an interest in family land.  Many aren't and will bring a new family name to a particular township.

Now, an obvious point, the folks that own the land needed for this production are older.  They are 'radio generation' owners living as couples or maybe now on their own, or 'baby boom' inheritors honoring family tradition or continuing businesses.  For the cycle to work, there has to be some transfer of these soils and water sources to the secure management of the producers entering the supply system.  On average, I'd say a full half a century of age separates those who own the land and those eager to farm it.

Developing a sustainable and wide-ranging program to bridge this gap eluded me at NCFTN, and I opted to work one farm at a time.  But it seems to me and perhaps the group that organizes Keep the Farm that if active management of working lands coupled with considered planning for their orderly transfer will increase access points for entering farmers, then Keep the Farm is a pretty cost-effective place to subtly address the issue of bridging the gap.

(As to the little corner of it all that I work in?  My base messages are 1) keep someone managing the land and/producing income from it to help fund or minimize the costs of its transfer, and b) don't allow any one parcel of productive land fall to co-tenancy when it is transferred by sale, gift or death.  I'm also there to tell of few stories of what things look like when the distrbution of land assets is left purely to chance.)

If it weren't just me expressing these thoughts, I'd call all that above a school of thought.  I sometimes wonder if there's another school that prefers and prescribes the chaos Keep the Farm seeks to minimize.  We can agree that all family farms have been built from other families' farms when the farming terminus of a particular land-owning family (say after three or four generations) requires a distribution of land to non-farm oriented owners.  These non-farm owners readily release most of the land to the marketplace as a big or smaller parcels to be taken over by neighboring concerns still very much in active management.  Whether these parcels are brought to the market under stress, or are exploded into smaller pieces by a successful partition mediation or commission decision, they arguably go at a price and size more accessable by individuals funded by capital patient enough to accept agricultural returns.  Whether the family that owned the land remains a family, that isn't much of a concern to chaos theory. 

(When I ran this "one's loss is another's gain" theory past a friend of mine the other week, adding with confidence that "All farming depends on it," he reminded me that all farming - particularly the kind required to supply local food systems - depends on a functioning community, and the dynamic of consolidation of management drains rural areas of the human capital required to sustain it.  You may be asking where's the data to back this up, and I answer this is just a blog, not a rural economics dissertation)

I suppose the traditional worry with the chaos school is that lands succumbing to co-tenancy disagreements will get brought to open market and set aside for residential developments.  I think this will get more concern when the wave of impatient capital returns to fuel residential development.  Perhaps this will boost public investment in an evolving "farmland preservation" movement, and we'll then bring those additional resources to bear on the farm-to-foodshed equation.  (our recents bouts with austerity in Washington, DC have left many programs in doubt)

It all sounds a little pie in the sky, but its logic works for me, and that gives me confidence to keep coming to Keep the Farm to participate in the system from my own little corner.  In law practice I work mostly with people who want to develop definite goals for the use and distribution of their land.  At Keep the Farm I get a a sense of what the broader landowning public is interested in, and what younger farmers are up against when it comes to gaining tenure on tracts of the size suitable to this whole local foods metro-foodshed thing.

At the end of it I think updating folks on laws and programs keeps the landowner dialed in to long term transfer issues that will minimize chaos to farms and the families and communities surrounding them.  Likewise an opportunity to interact and perhaps develop relationships with the professionals who administer these laws and programs promises to sustain continued engagement in supporting good management decisions.  I'm confident Keep the Farm is a pretty solid piece in the vast equation of food systems development.

- Andrew Branan




Orange County 2013 Landowner Update - Schley Grange January 29th at 6:00pm

A collaboration of farm and landowner service providers are joining to host a short landowner update education session on January 29, 2013 at the Schley Grange. 

I'm gratified this group has come forward to address Orange County land resource use and conservation issues by directly engaging landowners, and I'm privileged to have been invited to help out.  My recollection is the Eno River Association came up with the idea and started the discussion.

Here are the latest the agenda items:

Farm and Forest Use Taxation

Forest Management & Stewardship

Healthy Forests Project / Conservation Easement Options

Technical and Financial Assistance for Farmland Conservation

2013 Estate Tax and Planning Update

The program is an opportunity to engage with the folks who administer the programs and start relationships that over time will help you make financially beneficial decisions regarding how your land is used and transfered.

For my brief part, I'm hoping to alert landowners and operators that Congress has settled the volatile estate and gift tax planning issue, so now we can focus on more important distribution and management issues.

Teresa Moore from the Orange County Tax office will be on hand to discuss and take questions about Present Use Value (some call it "ag use" or "forest use") property tax program.  This can be a challenging program to understand, and it touches on so many elements of land transfer and planning.

Other participating agencies will be Orange County Soil & Water Conservation District, Farm Service Agency, Eno River Association, Triangle Land Conservancy, and NC Forest Service.

Dinner is going to be catered by Gillis's Bar-B-Que, and sponsored by the Healthy Forests Project

We didn't set up a complicated RSVP system, so if you read this and plan to come, please call or text me at 919 619 8479 or email me at  Contract me and I'll pass your name on to whoever is counting attendance for the food.

- Andrew