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bear in mind the conclusions of the Court of Appeals for the
Eighth Circuit in McNamara II that
Rents that are consistent with market rates very
strongly suggest that the rental arrangement stands on
its own as an independent transaction and cannot be
said to be part of an “arrangement” for participation
in agricultural production. Although the Commissioner
is correct that, unlike other provisions in the Code,
� 1402(a)(1) contains no explicit safe-harbor provision
for fair market value transactions, we conclude that
this is the practical effect of the “derived under”
language.
13(...continued)
that, because the taxpayer-owners of the farmland in that case
materially participated within the meaning of sec. 1402(a)(1) in
the production of agricultural commodities as employees of their
wholly owned corporation and not in their individual capacities,
the analysis under sec. 1402(a)(1) should be different from the
analysis in Bot I and Hennen I, where the taxpayer-owners of the
farmland involved in those two cases materially participated
within the meaning of sec. 1402(a)(1) in the production of
agricultural commodities in their individual capacities. In
McNamara II, there is no indication that the taxpayers appealing
McNamara I advanced, and the Court of Appeals for the Eighth
Circuit did not address, any argument that the analysis under
sec. 1402(a)(1) with respect to such taxpayers should be any
different from the analysis with respect to the taxpayers appeal-
ing Bot I and Hennen I.
In the instant case, neither petitioners nor respondent
advances any argument that the analysis under sec. 1402(a)(1)
should be different from the analysis in McNamara II because
petitioners materially participated within the meaning of sec.
1402(a)(1) in the production by G.E. Johnson, Inc., of agricul-
tural commodities as employees of G.E. Johnson, Inc., and not in
their individual capacities. Indeed, petitioners rely solely on
the analysis in McNamara II to support their position in the
instant case. Consequently, we shall not address whether our
analysis would be different in the instant case because petition-
ers materially participated within the meaning of sec. 1402(a)(1)
in the production of agricultural commodities by G.E. Johnson,
Inc., as employees of G.E. Johnson, Inc., and not in their
individual capacities.
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