In recent years the value of America's farmland has increased at a phenomenal rate. Normally, farmland is valued at its fair market value for purposes of assessing the federal estate tax. Under section 20.2031-1(b) of the treasury regulations, this means, among other things, that farm property will be valued at its highest and best use, even though the valuation cannot be justified because of the lack of profitability of the farm or small business. This valuation method, combined with the gradually progressive rate of the federal estate tax, has resulted in the heirs being faced with higher estate taxes. In many cases, the greater estate tax burden has caused the heirs to discontinue the operation of the farm because the income potential from farming was insufficient to service extended tax payments or loans obtained to pay the tax. In less extreme cases, the heirs were forced to sell part of the family farm real estate in order to pay the estate taxes. This farm valuation problem, however, did not go unnoticed or unremedied. In the Tax Reform Act of 1976, Congress enacted section 2032A of the Internal Revenue Code to remedy this problem and encourage the continual use of real property for farming purposes. Section 2032A is designed to apply to the family farm or closely held business which is largely comprised of real property used in the trade or business. Basically, it allows a personal representative to elect, under certain conditions, to value such property on the basis of its "special use as a farm or business" rather than valuing it at its "highest and best use," which would take into account the other uses for which the property could be utilized. This Comment lays out the complex operation of section 2032A in a typical family farm situation and discusses the major considerations a personal representative should evaluate in deciding whether to take advantage of this new "use" valuation provision.
Bradley D. Holtorf,
An Analysis of the "Actual Use" Valuation Procedure of Section 2032A,
56 Neb. L. Rev. 860
Available at: https://digitalcommons.unl.edu/nlr/vol56/iss4/5