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crop-share arrangement, 804 acres of farmland owned by Mesa Corp.
(Mesa), an S corporation whose shares were owned by Mrs. Foust.
Mrs. Foust obtained her shares of Mesa from petitioner without
consideration. Mesa’s Form 1120S for 1989 reported $60,000 of
rental income, expenses of $46,171, consisting primarily of
depreciation and interest, and taxable income of $13,829.
On March 6, 1986, petitioner purchased a 160-acre farm in
Lucas County, Iowa. On the same date, petitioner and Mrs. Foust
conveyed this farm to Teton Corp. (Teton), an S corporation
whose shares were beneficially owned by petitioner’s minor
children, Brian John Foust and Michael Franklin Foust. Cheyenne
began farming Teton’s land in addition to Mesa’s land. Teton’s
Form 1120S for 1989 reported the receipt of rental income of
$52,200 and taxable income of $31,754.
Mrs. Foust also owns the shares of Iowa Prairie Corp. (Iowa
Prairie), an S corporation engaged in the manufacture of small
wooden “miniatures” that were sold in craft stores. During the
year in issue, Iowa Prairie neither conducted any farming
activities nor owned or leased any farm land. There were no
written rental agreements among or between petitioner, Cheyenne,
Iowa Prairie, Teton, or Mesa. Petitioner did not engage in any
farming activities in 1989.
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