Pub. 12 2017-2018 Issue 4

NEBRASKA BANKERS ASSOCIATION 23 F INANCIALLY STRAPPED FARMERS and their lenders finally get some much-needed bankruptcy tax relief. Normally, pre-bankruptcy income and capital gains tax claims have a priority and non-dischargeable status in bankruptcy—and the same taxes, when arising during bankruptcy, add an admin- istrative claim status. Some FarmHistory Such normal rules had a devastat- ing impact on farmers and their lenders during the farm crisis of the 1980s. Here is some farm history that might help explain why. • The number of U.S. farms reached a peak of 6.8 million in 1935 (ac- cording to USDA statistics at http://bit.ly/USDAfarm ). That was, of course, in the midst of the Great Depression. Farmers were among the many who suf- fered in those days, with added disadvantages of drought, grass- hopper plagues, and dust storms that destroyed crops and crippled farming in the Midwest. • Then, the number of farms began a four-decades-long decline to around 2.5 million in the mid- 1970s. I remember as a youngster (back in the ’60s and early ’70s) riding with my grandpa on Sun- day afternoon drives around our rural Nebraska countryside, as he pointed to abandoned homesteads dotting the land and told stories of families who lived and farmed at each place. These people made their living fromthe land—fewhad other sources of income. • Then, the 1980s become a re- enactment of the 1930s’ debacle for farmers. Only this time the culprits driving farmers off the land were high interest rates (i.e., 18 percent per annum) and plum- meting prices for farm products and land. Today, I could do with my grandchildren the same Sun- day afternoon drives that I had with my Grandpa and point to abandoned farmsteads that were occupied and active in the days of my youth. • What’s happened since the 1980s is this: career farmers are tilling many, many more acres than be- fore; lots of people farmas a hobby or avocation; and the number of people making their living on a farm continues to shrink. To illus- trate, lookwhat’s happened to high schools in farming communities: class sizes of 40 students in the ’70s, for example, might now be in the teens or less and consolidated with another school. • Farming in the 1900s focused heavily on labor, with machinery playing a limited but increasingly important role over time; imagine, for example, plowing an entire quarter section of ground with a Farmall M tractor and a three- bottom plow and then planting the same area with a two-row or four-row lister. Today’s farming is the opposite, preferring large equipment and technology over labor; e.g., envision a huge tractor pulling a planter making swaths 25 yards wide with GPS precision. • Today’s large farming operations are often referred to as “corporate farming,” when a common reality is that these are the same family farms of decades past—they’re just farming more land. During the farm crisis of the 1980s, many farm families were ready and will- ing to leave the farm and pursue a differ- ent occupation—but they couldn’t. Here’s why: if they sold out (either voluntarily or by foreclosure), the income and capital gains tax bill would be huge—something they could never hope to repay. So, many tried to hold on by bankruptcy filings and other means, but often to no avail—they ended up incurring the tax anyway. This created huge problems for farmers and their lenders! Congress Addresses the Problem In a better-late-than-never mode, Con- gress finally addressed the problem—in Family Farmer — continued on page 24 Donald L. Swanson, Koley Jessen FAMILY FARMER BANKRUPTCY CLARIFICATION ACT OF 2017 ENACTED INTO LAW