The multiple entity approach to farm and ranch business planning with the land in one entity (or owned separately) and the production assets (machinery, livestock and equipment) in another entity has become more popular in recent years. The rise in popularity of multiple entity plans has coincided with the decline in concerns about recapture of investment tax credit and non-corporate lessor eligibility for investment tax credit on acquired assets leased to the production entity.

But one concern has continued to trouble some practitioners with the multiple entity approach — is the rental on the leased land subject to self-employment tax where the lessor is also employed by the corporation? Indeed, the issue has arisen in the course of several IRS audits in recent years.