Crop Shares

[peggysioux]

If taxpayer and other family members are on deed to farm property that they lease out to farmer and taxpayer & family members received 1/3 of income less 1/3 of farm expenses, would net income flow to 1040 "other income" or schedule F. Taxpayer is not involved in the farming at all. There are several family members that are on the deed of farm and the adminstrator disburses net income to the shareholders, but no tax entity has been set up - no partnership, corporation, LLC and no K-1's. Apparently, prior to taxpayer's father death, farm was set up in trust and taxpayers step-mother had control for some time. Kids went through the legal system to take control from step-mother, but accordingly to taxpayer, farm no longer in trust. Would appreciate your insight on where income should flow.

[outwest]

Form 4835 is your puppy..

It's sorta like the Sch F but is designed for the share crop situation.
FYI, mere ownership of a property with a arrangement to share expense doesn't necessarily create a partnership. Each owner takes their share of the income and expenses to the 4835 and away they go.
Caution though: you mentioned an administrator so there is a chance a partnership could be inferred from that hiring.

[peggysioux]

Crop Shares

The administator is one of the family members on the deed. He explained that the farmer takes the crop to the Farmers Exchange and the Exchange cuts the checks - 2/3 to farmer to 1/3 to the "family farm". I asked the administrator what type of tax entity were they filing the family farm, and he said that he basically just split the income between all the family members and left it at that. So as long as the family members carry their income to form 4835, all is well??

[outwest]

I say yes..

remember that a partnership is to carry on a trade or business. Mere co-ownership of property and sharing income and expenses shouldn't rise to that level.

I would check that no Gov program payments have been paid and if so, to whom reported.

[Black Bart]

Outwest is right

...I would check that no Gov program payments have been paid and if so, to whom reported.

4835 is the form alright, but, as he says, the government program payments (if they get any -- not everybody does) can be a problem. The Farm Service Agency, a division of USDA, issues 1099s for the payments and an EIN or SSN has to be on it. When there's no partnership EIN, it usually ends up being the adminstrator's SSN and IRS will expect all that "government money" to show up on John Administrator's tax return. John can get around that by issuing a Nominee-Middleman 1099 (annually) to the others, but it's some trouble to do. To avoid that they might list everybody individually at the FSA office (if FSA would do it -- I'm not sure).

Years ago I worked for an independent grainery and they did not issue 1099s for any payments, but the last few years I've seen farm cooperatives issue 1099s for some of their crop payments (for sure on Patronage Dividends) and your Farm Exchange might be a co-op. I'd ask them if they issue any 1099s and for what.

Long-term, these family affairs get sticky because one person usually has to handle all the work for no pay and invariably there's some unreasonable SOB in the bunch who feels like that salary's just right except that they should have done a better job.