Gerald E. Johnson and Dorothy Johnson - Page 12

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               Income so derived shall be referred to in this section                 
               as “includible farm rental income”.                                    
                    (2) Requirement that income be derived under an                   
               arrangement.  In order for rental income received by an                
               owner or tenant of land to be treated as includible                    
               farm rental income, such income must be derived pursu-                 
               ant to a sharefarming or other rental arrangement which                
               contemplates material participation by the owner or                    
               tenant in the production or management of production of                
               agricultural * * * commodities.                                        
                    (3) Nature of arrangement.  (i) The arrangement                   
               between the owner or tenant and the person referred to                 
               in subparagraph (1) of this paragraph may be either                    
               oral or written.  The arrangement must impose upon such                
               other person the obligation to produce one or more                     
               agricultural * * * commodities * * * on the land of the                
               owner or tenant.  In addition, it must be within the                   
               contemplation of the parties that the owner or tenant                  
               will participate in the production or the management of                
               the production of the agricultural * * * commodities                   
               required to be produced by the other person under such                 
               arrangement to an extent which is material with respect                
               either to the production or to the management of pro-                  
               duction of such commodities or is material with respect                
               to the production and management of production when the                
               total required participation in connection with both is                
               considered.                                                            
                  *       *       *       *       *       *       *                   
                    (4) Actual participation.  In order for the rental                
               income received by the owner or tenant of land to be                   
               treated as includible farm rental income, not only must                
               it be derived pursuant to the arrangement described in                 
               subparagraph (1) of this paragraph, but also the owner                 
               or tenant must actually participate to a material                      
               degree in the production or in the management of the                   
               production of any of the commodities required to be                    
               produced under the arrangement, or he must actually                    
               participate in both the production and the management                  
               of the production to an extent that his participation                  
               in the one when combined with his participation in the                 
               other will be considered participation to a material                   
               degree. * * *                                                          
          Sec. 1.1402(a)-4(b), Income Tax Regs.                                       





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