What happens when heirs cash rent special-use-valued farmland?

Material participation depends on the facts

Material participation is a factual determination under the regulation. Passive collection of rent or other income is insufficient. The regulation also treats merely advancing capital and reviewing plans and reports as insufficient participation. Ownership-related financial activity and review of information therefore do not, by themselves, establish material participation.

Agricultural-use valuation involves continued farming

Researchers describe section 2032A as valuing qualifying farmland at agricultural-use value when heirs continue farming or remain materially engaged. The valuation description connects the land's agricultural use with the heirs' involvement in the farming operation.

Researchers describe exceptions to the qualified heir's material participation condition for a surviving spouse or an heir who is retired or disabled. The exceptions concern the heir's participation in farming the property.

Researchers describe crop-share arrangements as having been considered material participation. The characterization concerns participation through a crop-share arrangement involving the farmland.

Cash renting carries a recapture risk

Researchers describe cash renting as a possible cessation of farming that triggers section 2032A recapture. The recapture risk concerns the end of farming associated with the rental arrangement.

Researchers describe selling the farm or ceasing family farming after the owner's death as events associated with estate-tax recapture with interest. The recapture calculation described by researchers is based on the property's market value at death.

The agreement includes liability and reporting obligations

Qualified heirs signing the section 2032A agreement consent to personal liability for additional estate tax if the property is disposed of early or its qualified use ceases early. The consent attaches personal liability to the signing qualified heirs.

The agent designated in the section 2032A agreement supplies the IRS with requested information and reports any disposition or end of qualified use of the property. The reporting obligation covers a disposition and a cessation of qualified use.