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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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