Passive income is a serious problem in estate and business planning. Too much passive income can limit or deny the use of several of the tax relief provisions otherwise available to farm and ranch operations. A cash rent lease causes the assets involved to be considered as business assets necessary for the provision to be available. Moreover, too much passive income can have negative impacts on farm and ranch operations.
Too much passive income in S corporations falls into the latter category and can lead to additional tax to be levied and possible loss of the S corporation election.
Harl, Neil E.
"S Corporations and Passive Income,"
Agricultural Law Digest: Vol. 5
, Article 1.
Available at: http://lib.dr.iastate.edu/aglawdigest/vol5/iss1/1