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Abstract

The pronounced move to multiple entities in farm operations in recent years (typically one entity owning the land and the other entity carrying on the farming operation but can involve additional entities) has come under the scrutiny of the Internal Revenue Service with challenges that self-employment tax1 is due on the rents paid under the I.R.S. interpretation of the statute.2 Recent audits (and Tax Court filings) indicate that IRS has not given up in the long-running battle. A case decided in 2000 by the Eighth Circuit Court of Appeals3 was hailed as a win for taxpayers but IRS proceeded to issue a non-acquiescence to that decision in 20034 which meant that taxpayers in the Eighth Circuit Court of Appeals area had a modicum of protection but taxpayers in the other Court of Appeal areas were placed on notice that IRS was not giving up the fight to establish its view that self-employment tax would be due on rents paid if the combined effort as lessor of the land and as .partner in a partnership, employee of a corporation or member of an LLC or LLP reached the level of material participation required by the statute.

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