New for me

[S T]

client inherited 5/32 interest in some Minnesota (Family) Farms. It has been expressed by the Farm Mgmt company that it is up to the tenant to issue the 1099 form, of which we only have 3 out of the 6 farms.

Farm mgmt has provided the t/p with summary sheets which show gross income and expenses of the farm and available income. Farm mgmt states that they will not offer tax advice, use the summary sheets. T/P's brother (also happens to be a real estate attorney) states he just reports on the 1099 forms received. I would think he would be under reporting income! (Northwestern Farm Mgmt Co)

So since t/p has not received all of the 1099 forms, how to calculate the farm rental income (I would guess reporting on form 4835) on the farms that no 1099 forms were received? Would we take the Summary sheet and divide by 32 x 5 to arrive at the income??

Or do we just report the total distributions t/p received??

Not sure if net farm rental income is different than distributions.

Any insight would be appreciated.

Thanks

Sandy

[Bees Knees]

I would think that Farm Management should be reporting all of this on Form 1065 as a partnership. It sounds like there are more than 10 owners, so the exception to the partnership reporting rule would not apply. Running everything through a partnership, even if it is not required would make life a whole lot simpler.

Assuming a partnership return is not required, using the summary sheets for each property and applying your client’s ownership interest to each appears like the way to go. The guy who says he only reports what is reported to him on a 1099 deserves to be audited.

[S T]

Bees Thank you

I was hoping you would respond to this post, thinking you were in Mn and probably knew something about this type of situation.

I concur, that there should be some type of uniform reporting such as a form 1065, but there is not! Wouldn't that be the best wishes ever for us at Tax Time! And I am getting the insight that no one for this particular group knows what is the proper way to handle and is totally clueless.

More info. These farms which are hundreds of acres in Mn, were originally owned by the Grandparents (of my tax client) When the Grandparents passed on, a percentage was passed onto their children, then when those parents passed on, more smaller shares were passed on to their children and nieces and nephews. So all parties involved are family members and have a fractional interest in the farms.

When reviewing the summary sheets from the NW Farm Mgmt, it seems like the family members not only receive rents from these various farms, but also receive a % of the crop that is produced and sold. And of course the summary sheets do show costs, mgmt fees, taxes, etc. I am surmising that is why when NW Farm Mgmt is contacted they refer us back to the summary sheets, they are the keeper of the income and expenses for both the owner and the operator of the Farms. However, they do not issue any Federal reporting documents, and state that it is up to the Farm Operator to issue the 1099 for Rents (which would not include Crop proceeds) and then Dept of Ag issues another 1099 for the monies that they distribute.

So now my question, how to report this? What form? Do I have to take each farm (I have that information) and list rents, crop proceeds, then list taxes, mgmt, fertilizer, etc? Or can I just calculate bottom line on all farms (6) , back out the 1099 forms we received for interest (goes to Sched B) and Dept of Ag, (?) and list as rents.

I am so confused, but I finally got this far in interpreting the summary sheets!

Now to convince the tax client on what monies to report!

Your insight and assistance would be so greatly appreciated.

Thanks

Sandy

[OldJack]

>>So now my question, how to report this? What form? Do I have to take each farm (I have that information) and list rents, crop proceeds, then list taxes, mgmt, fertilizer, etc? Or can I just calculate bottom line on all farms (6) , back out the 1099 forms we received for interest (goes to Sched B) and Dept of Ag, (?) and list as rents.<<

It appears to me that you have the information and do not need a 1099. Penalty for not issuing a 1099 is not your problem. I would simply report the summary sheet income and expenses for each farm activity on form 1040 Sch-E or form 4835 (Farm Rental Income and Expenses). Read the instructions to decide which form you should be using. Sch-E or form 4835 should show the income and expenses by classification such as taxes, mgmt fees, supplies, etc. I don't believe it would be appropriate to lump all farms together or only report the net since this activity is not being treated as a partnership entity.

General Instructions
Purpose of form. If you were the landowner
(or sub-lessor) and did not materially
participate in the operation or management of
the farm, use Form 4835 to report farm rental
income based on crops or livestock produced
by the tenant.
Use this form only if the activity was a
rental activity for purposes of the passive
activity loss limitations. See the Instructions
for Form 8582, Passive Activity Loss
Limitations, for the definition of “rental
activity.”
If you were a landowner (or sub-lessor) do
not use this form to report cash rent received
for pasture or farmland if the amount is based
on a flat charge. Report this income directly
on Schedule E (Form 1040).
If you have net income on line 32, your tax
may be less if you figure it using Schedule J
(Form 1040).
If you were a tenant, use Schedule F (Form
1040) to report farm income and expenses.

[S T]

I think

I think I got it finally, been days, and lots of phone calls and emails.

Thank you Old Jack and Bees. This has been a new challenge for both myself and the client.

So finally coming to some understanding, making up an excel spreadsheet, and I think we are good to go!

Sandy