The Personal Jurisdiction Issue: Being Sued in Another State
Walters v. Lima Elevator Co., 84 N.E.3d 1218 (Ind. Ct. App. 2017)
If you engage in a business transaction involving your farm or ranch in another state, and a lawsuit is filed based on that transaction, does that state’s legal system have jurisdiction over you? In 1945, the U.S. Supreme Court said that a party (particularly a corporation or a business) could be sued in a state if the party had “minimum contacts” with that state. International Shoe Company v. State of Washington, 326 U.S. 310 (1945).
Over time, many courts have wrestled with the meaning of “minimum contacts.” Still, it basically comes down to whether the party is deriving the benefit of doing business with that particular state or is sufficiently using the resources of that state. That’s oversimplifying the application of the Court’s reasoning, but I think you get the point.
In terms of applying the “minimum contacts” theory to farm businesses, a recent case provides a good illustration. In this case, a Michigan farmer ordered seed from an Indiana elevator about 20 miles away. It was the third time he had done this. He bought the seed on credit, and when it was ready, he went to the elevator to pick it up. When he didn’t pay for the seed, the elevator sued him in the local court in Indiana. He sought to dismiss the case on the basis that the Indiana court didn’t have jurisdiction over him. He claimed he lacked sufficient minimum contacts with Indiana to be sued there. The court disagreed.
The Michigan farmer had “purposely availed” himself of the privilege of conducting business in Indiana. Because of that, the court reasoned, he could have reasonably anticipated being subject to the Indiana judicial system if he didn’t pay his bill. His due process rights were also not violated – his farm was less than 20 miles from the Indiana elevator.
If you intentionally conduct business in a state and are sued due to your contacts and actions with that state, that state’s courts will likely have personal jurisdiction over you.
Social Security Planning for Farmers
Part of retirement planning for a farmer includes Social Security benefits. Relatedly, if you are nearing retirement age you might be asking yourself when you should start drawing Social Security benefits. The answer is, “it depends.” But there are a few principles to keep in mind.
The first point to keep in mind is that maximum Social Security benefits can be received if you don’t withdraw benefits until you reach full retirement age – that’s presently between ages 66 and 67. Additional benefits can be achieved for each year of postponement until you reach age 70. Another point is that some Social Security benefits are reduced once certain income thresholds are reached. For 2024, if you haven’t reached full retirement age and earn more than $22,320, benefits get reduced by $1 for every $2 above the limit. The year you reach full retirement age, the earnings limit is $59,520, with a $1 reduction for every $3 dollars over the limit. Once you hit full retirement age, the limit on earning drops off.
In-kind wages count toward the earnings limitation test, but employer-provided health insurance benefits don’t. Also, federal farm program payments are not earnings for years other than the first year you apply for Social Security benefits.
So, when should you start drawing benefits? It depends on your particular situation and your retirement plan. The Social Security Administration has some useful online calculators that can help.
For more information, visit ssa.gov.
When is a Partnership Formed?
Carson v. Comr., 2024 U.S. Tax Ct. LEXIS 1624 (U.S. Tax Ct. May 18, 2023
Farmers and ranchers often do business informally. That informality can raise questions about whether the business arrangement has created a partnership. Numerous legal issues might be created if that is determined to be the case.
A big potential issue is unlimited liability. Partners are jointly and severally liable for the partnership debts arising from the partnership business. Also, a partnership files its taxes differently than individuals, and assets deemed partnership assets could pass differently upon the death of someone deemed to be a partner.
So, how do you know if your informal arrangement is a partnership? From a tax standpoint, if you’re splitting net income from the activity rather than gross, the IRS could claim the activity is a partnership. While simply jointly owning assets is not enough, by itself, to constitute a partnership, if you refer to you and your co-worker as “partners” or create a partnership bank account or fill out FSA documents as a “partnership,” a court could conclude the activity is a partnership. Most crop-share or livestock-share leases are not partnerships, but you must be careful. It’s best to execute a written lease and clearly state that no partnership is intended if you don’t want questions to come up.
The IRS missed asserting that a mother and her daughter had created an informal partnership arrangement in a Tax Court case involving an Oklahoma ranch last year and also lost on a hobby loss argument. Carson v. Comr., 2024 U.S. Tax Ct. LEXIS 1624 (U.S. Tax Ct. May 18, 2023). Don’t count on the IRS missing the same arguments in your situation.
Conclusion
There will be more issues to discuss next time. Until then, find more premier legal advice on Roger’s personal blog:
