With today’s Firm to Farm blog post, I embark on my annual trek through what I believe to be the “Top 10” ag law and tax developments of the previous year. It’s always tricky to pick the ten “big ones.” I start with a much more extensive list and slowly pair it down. Some significant ones always get left on the cutting-room floor. However, I am looking to distinguish from those many developments that I believe will impact the agricultural production sector the most.
While certain developments will loom large in 2025 and new issues will surface, this coming year will be undoubtedly interesting. Here are the Top 10 most significant agricultural law and taxation developments to keep an eye on in 2025:
PRES. DONALD TRUMP’S RETURN TO THE WHITE HOUSE
There’s no doubt that the most significant development of 2024 in terms of its impact on agriculture was the election of President Donald J. Trump for a second term, along with Republican majorities in the House and Senate. The Republicans kept the House with a slight 220-215 advantage, regained the Senate with a 53-47 majority, and retook the White House. Had the Democrats swept, substantial tax increases were anticipated, like a wealth or millionaire tax. It seems assured this will not occur in the next four years. Indeed, a Trump victory suggests that it is unlikely that significant new taxes will be imposed. Since the Republicans also won the House, more tax cuts may be possible.
Perhaps even more impactful is the anticipated blow to the administrative state. Coupled with the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo (June 2024), which overturned the Chevron Doctrine and reduced the deference given to federal administrative agencies and the creation of the Department of Government Efficiency (DOGE).
CASES:
- Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)
- Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024)
ADMINISTRATIVE AGENCY DEFENSE
The broad delegation of deference to federal administrative agencies stems from Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), where the U.S. Supreme Court set forth the standard specifying that courts should defer to a federal agency’s interpretation of an ambiguous statute if the interpretation is reasonable. What is “reasonable” is a very low “hurdle” for an agency to clear for any particular regulation to be upheld. Indeed, though due process demands that every party have the opportunity to be heard in court and have their cases decided based on relevant law, under Chevron, agencies could have claims thrown out procedurally.
Chevron deference ended in 2024 with the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), which overruled its prior Chevron decision. The Court ruled that the APA requires courts to review regulations independently rather than to defer to the agency’s interpretation if it is a permissible construction of the statute. However, the Supreme Court did not overturn all deference. It only disregarded the high deference that Chevron granted. As a result of the Court’s Loper Bright decision, the deferential standard that applies to federal administrative agencies reverts to “Skidmore” deference, which uses the lower standard of granting “respect” to agency decisions. Skidmore v. Swift & Co., 323 U.S. 134 (1944). When courts use Skidmore’s lower threshold, agencies win a lower percentage of the time.
The Supreme Court decided another case in 2024 with further implications for administrative agency deference. In Securities and Exchange Commission v. Jarkesy, 603 U.S. 799 (2024), the Court affirmed a defendant’s Seventh Amendment right to a trial by jury before a federal agency can take their property. The Securities and Exchange Commission (SEC) initiated an enforcement action against Jarkesy and his firm for violating anti-fraud provisions under federal securities laws. An administrative law judge issued a final order levying a civil penalty of $300,000. Jarkesy sought judicial review, and the Fifth Circuit vacated the order because it violated the defendants’ right to a jury trial.
The Supreme Court affirmed this. The Court noted that the right to a jury trial is deeply rooted in U.S. history. British practices of evading juries through adjudications in juryless tribunals formed part of the foundation for the Declaration of Independence. The SEC penalties at issue, which involved monetary relief, were not merely designed to restore the status quo, as they were not required to be used to compensate victims. Instead, they were used to punish the defendant. As a result, the Court, agreeing with the lower appellate court, determined that the SEC penalties and associated procedures implicated Seventh Amendment rights. However, the Jarkesy majority limited the scope of its decision to penalties levied based on violations that stem from common law. Thus, a jury trial isn’t required if a fine arises from a breach that wasn’t historically handled by the judiciary. If an agency requests a penalty and cannot convince a jury that the penalty requested is reasonable, then the penalty was unreasonable for the violation. Jarkesy will impact how the SEC and other federal agencies enforce federal regulations because defendants are now less likely to face civil fines without a jury trial. This, in turn, should protect defendants from unreasonable penalties.
The Supreme Court issued yet another significant opinion in 2024 involving administrative agencies. In Corner Post, Inc. v. Board of Governors, 144 S. Ct. 2440 (2024), the Court held that the statute of limitations for regulatory challenge begins upon injury from final agency action. The plaintiff, a truck stop and convenience store, was formed in 2017 and opened its business in 2018. The plaintiff sued in 2021 under the APA to challenge regulations promulgated by the Federal Reserve Board in 2011 in response to the Dodd-Frank Act that set the maximum interchange fees for debit cards. The Federal Reserve did not directly regulate the plaintiff but paid the fees when customers used debit cards to pay for goods and services. The plaintiff sought to set aside these regulations on the ground that they set interchange fees higher than “reasonable and proportional to the cost incurred by the issuer”, as required by statute.
The trial court dismissed the case because a six-year statute of limitations barred the claim. In other words, the trial court determined that the statute of limitations began when the regulation was issued in 2011 and had expired before the plaintiff was formed. On appeal, the Eighth Circuit affirmed. The Supreme Court reversed, holding that the statute of limitations at issue does not begin to run until the plaintiff is injured by a final agency action, which, in this case, was 2018. Thus, the suit was timely.
CASES:
- Securities and Exchange Commission v. Jarkesy, 603 U.S. 799 (2024)
- Corner Post, Inc. v. Board of Governors, 144 S. Ct. 2440 (2024)
BENIFICIAL OWNERSHIP INFORMATION (BOI) REPORTING RULE
The BOI Reporting Rule is a regulation established under the Corporate Transparency Act (CTA) (which, in turn, was part of the Defense Reauthorization Act of 2020) effective January 1, 2024. The CTA aims to enhance financial transparency and prevent illicit activities such as money laundering and fraud. The rule requires certain businesses (those that must register with the state) to report their beneficial owners—individuals who ultimately own (to a certain degree) or control a company—to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. For covered entities (essentially) before 2024, the reporting was required by January 1, 2025. Reporting is required for entities created during the process within 90 days of registering with the state. For covered entities created after 2024, necessary reports must be filed within 30 days of registering with the state.
Here are the key aspects of the BOI Reporting Rule:
- Who Must Report?
- Most corporations, limited liability companies (LLCs), and similar entities created or registered in the U.S.
- Exemptions exist for certain regulated entities, such as publicly traded companies, banks, credit unions, and nonprofits.
- Who is a Beneficial Owner?
- Any individual owning 25% or more of a company’s ownership interests.
- Any individual exerting substantial control over the company (e.g., senior officers, decision-makers).
- What Information Must Be Reported?
- Full legal name
- Date of birth
- Residential address
- A unique identifying number (e.g., passport or driver’s license number)
- Filing Deadlines
- Existing entities (created before January 1, 2024) must file their initial report by January 1, 2025.
- New entities (formed on or after January 1, 2024) must file within 90 days of formation.
- Beginning January 1, 2025, new companies must report within 30 days of creation.
- Penalties for Non-Compliance (as enacted, but adjusted for inflation)
- Civil penalties of up to $500 per day for willful non-compliance.
- Criminal penalties include fines up to $10,000 and imprisonment for up to 2 years.
In 2024, numerous court cases challenged the constitutionality of the BOI reporting rules. As of the end of 2024, a nationwide injunction barred the enforcement of the rules.
THE EPA’S DRAFT STRATEGY ON HERBICIDE
The Environmental Protection Administration (EPA) released a draft strategy designed to address the agency’s “failure” to meet its obligations under the Endangered Species Act (ESA) on a pesticide-by-pesticide and species-by-species basis and prepare for an increase in future herbicide registration reviews. In particular, the draft strategy identifies species “protections” earlier in the pesticide review process concerning endangered and threatened species and sets forth mitigation procedures that farmers must utilize. The strategy focuses on conventional agricultural herbicides in the U.S. on the 264 million acres of farmland treated by such chemicals in 2022. The draft strategy results from an agreement the Center for Biological Diversity entered into with the EPA and focuses mitigation practices on the control of herbicide runoff, erosion, and spray drift. Response to Public Comments Received on the Draft Herbicide Strategy, EPA Office of Pesticide Programs, Docket No. EPA HQ-OPP-2023-0365-1138 (Aug. 2024).
The EPA’s strategy will impact many farmers. More than 90 percent of species listed as endangered or threatened have at least some habitat on private land. Further, about 70 percent of the wildlife in question live in habitats where more than half (60 percent) comprises nonfederal land. Spray drift mitigations include windbreaks and hedgerows, the use of hooded sprayers, and the reduction of the application rate depending on the level of risk. Many farm clients will have challenges with the buffer zone requirements in EPA’s strategy. Every ground spray could potentially require a 200-foot buffer, and aerial applications could require up to a 500-foot buffer. This could result in significant acreage not being treated due to the possibility of downwind spray drift. Advisors should consult with farm clients about the potential financial impact on their farming operations and plan accordingly.
WHEN IS INCOME “REALIZED?”
The petitioners owned 11 percent of the common shares of KisanKraft, a corporation located in India. KisanKraft is a controlled foreign corporation (CFC) - more than 50 percent owned by U.S. persons – that makes tools for sale to farmers in India. KisanKraft did not pay dividends and reinvested all of its earnings in its business. Before the Tax Cuts and Jobs Act of 2017, CFCs were taxable only under subpart F of the Code, which generally permitted the deferral of U.S. taxation of the active foreign business income of the company until that income was repatriated to the United States. However, the TCJA changed the international tax system into a territorial approach that taxes income only based on domestic-sourced profits. The TCJA imposes a current-year tax in 2017— a “mandatory repatriation tax” or MRT —under I.R.C. §965 on U.S. persons owning at least 10 percent of a CFC.
The MRT is based on the amount of the CFCs previously accumulated and untaxed income. The MRT ensures that the CFC’s undistributed and untaxed earnings and profits from 1986 to 2017 are effectively taxed to their owners – the U.S. shareholders like the petitioners – in 2017. If the CFC repatriates those earnings in the future, they are excluded from the taxpayer’s gross income. The MRT increased the petitioners’ 2017 tax liability by approximately $15,000 because of their pro rata share of corporate retained earnings of $508,000. They paid the tax and sued for a refund because no tax realization event existed. They lost at both the trial court and the appellate court.
The Supreme Court issued a narrow decision that was only applicable to pass-through entities, which did not address the issue of whether realization is a constitutional requirement for an income tax. The Court determined that the MRT taxed income realized by KissanKraft, which was then attributed to the shareholders. The Court noted that Congress may tax an entity or its shareholders/partners on undistributed income, and whatever route Congress chooses, it’s an income tax. The Court held that Eisner v. Macomber, 252 U.S. 189 (1920) did not address the question of attribution and was inapplicable to the present case. Still, the majority never addressed the key issue – whether the 16th Amendment includes a realization requirement.
The dissent (Justices Thomas and Gorsuch) pointed out the ridiculousness of the majority’s reasoning, noting that the “text and history of the 16th Amendment make it clear that it requires a distinction between ‘income’ and the ‘source’ from which that income is ‘derived.’ And, the only way to draw such a distinction is with a realization requirement.”
The dissent astutely pointed out: “Even as the majority admits to reasoning from fiscal consequences, it apparently believes that a generous application of dicta will guard against unconstitutional taxes in the future. The majority’s analysis begins with a list of nonexistent taxes that the Court does not today bless, including a wealth tax. And, it concludes by offering a narrow interpretation of its own holding, hinting at limiting doctrines, prejudicing future taxes, cataloging the Government’s concessions, and reserving other questions ‘for another day.’ Sensing that upholding the MRT cedes additional ground to Congress, the majority arms itself with dicta to tell Congress ‘no’ in the future. But, if the Court is not willing to uphold limitations on the taxing power in expensive cases, cheap dicta will make no difference.”
CASES:
- Eisner v. Macomber, 252 U.S. 189 (1920)
- Moore, et ux. v. United States, No. 22-800, 2024 U.S. LEXIS 2711 (U.S. Sup. Ct. Jun. 20, 2024), aff’g., 36 F.4th 930 (9th Cir. 2022).
HOBBY LOSS REGULATIONS UNDER REVIEW
In Schwarz v. Comr., T.C. Memo. 2024-55, the Tax Court held that the petitioners’ agricultural activity was a “hobby,” resulting in several million dollars of losses being disallowed. On August 7, 2024, the IRS entered its computation for entry of decision to which the Tax Court ordered the petitioners to file a response by September 11, 2024. Instead, on September 11, the petitioners objected to the computation for entry of decision to which the Tax Court ordered the IRS to respond by September 26. On September 16, the petitioners filed a motion to reconsider the Tax Court’s findings, which the Tax Court granted on September 17.
They ordered the IRS to respond by October 1, which was later changed to November 1. On September 26, the IRS filed its response to the petitioner’s objection to the computation for entry of decision. In an order entered on Nov. 5 in the Schwarz case, the Tax Court granted the taxpayers’ motion to reconsider the factual findings. The Tax Court has ordered the parties to file responses to the order arguing whether Treasury Regulations §§ 1.183-1(d)(1) and 1.183-2(b) are valid or not in light of the Supreme Court’s opinion in Loper Bright Enterprises, et al. v. Raimondo which repealed the Chevron Doctrine.
WATERS OF THE UNITED STATES (WOTUS)
In this case, the Environmental Protection Agency (EPA) claimed that the defendant discharged “pollutants” into a river that passes through the defendant’s ranch — defined as a navigable Water in the United States (WOTUS) — and associated wetlands without a Clean Water Act discharge permit. The EPA and the U.S. Army Corps of Engineers (COE) notified the defendant that it would start investigating potential CWA violations. The defendant withdrew its initial consent to the investigation and filed a complaint and motion for a preliminary injunction. The case was dismissed.
The EPA then obtained an administrative warrant and inspected the ranch in 2021 and 2023 and filed a suit claiming that the ranch had violated the CWA by illegally discharging pollutants by constructing multiple road crossings in the Bruneau River (a navigable water) and associated wetlands, which impeded the flow of water and polluted the river. The EPA also claimed that the defendant “disturbed the riverbed” by mining sand and gravel from the river. The defendant’s construction of a center pivot irrigation system cleared and leveled “nearly all of the Ranch’s wetlands.” The EPA sought a permanent injunction that would bar the ranch from further discharges and would require the ranch to restore the impacted parts of the river.
The ranch moved for dismissal for failure to state a claim. The court granted the defendant’s motion and dismissed the case. The court determined that the EPA failed to sufficiently specify in its complaint that the wetlands at issue had a continuous surface connection with the Bruneau River to be considered indistinguishable from it (the requirement needed to satisfy the “adjacency test” established in Sackett v. Environmental Protection Agency, 598 U.S. 651 (2023).
It was not enough for the EPA to assert that it could clear up any confusion during discovery. The court noted that the EPA had to make sufficient allegations to entitle it to discovery at the pleading stage. As such, the EPA failed to state a claim upon which relief could be granted. However, the court allowed the EPA to amend its complaint within 30 days of its order. United States v. Ace Black Ranches, LLP, No. 1:24-cv-00113- DCN, 2024 U.S. Dist. LEXIS 156797 (D. Idaho Aug. 29, 2024).
CASES:
- United States v. Ace Black Ranches, LLP, No. 1:24-cv-00113- DCN, 2024 U.S. Dist. LEXIS 156797 (D. Idaho Aug. 29, 2024).
- Sackett v. Environmental Protection Agency, 598 U.S. 651 (2023)
“TAKINGS” CASES AT THE U.S. SUPREME COURT
In 2024, the U.S. Supreme Court decided two cases involving “takings” under the Fifth Amendment, where the implications of the Court’s decisions will be necessary to agriculture.
In the first case, the family involved in Devillier has farmed the same land for a century. There was no problem with flooding until the State renovated a highway and changed the surface water drainage. In essence, the renovation turned the highway into a dam, and when tropical storms occurred, the water no longer drained into the Gulf of Mexico. Instead, the farm was left flooded for days, destroying crops and killing cattle. The family sued the State of Texas to get paid for the Taking.
The family claimed that the Takings Clause is an exception based on its express language – “nor shall private property be taken for public use, without just compensation.” The case was moved to federal court, and the family won in the trial court. However, the appellate court dismissed the case because Congress hadn’t passed a law saying a private citizen could sue the state for a constitutional taking. In other words, the federal appellate court determined that the Fifth Amendment’s Takings Clause isn’t “self-executing.”
The U.S. Supreme Court agreed to hear the case, with the question being what the procedural vehicle a property owner uses to vindicate their right to compensation against a state. The U.S. Supreme Court unanimously reversed the lower court, although it did not hold that the Fifth Amendment is “self-executing.” Texas does provide an inverse condemnation cause of action under state law to recover lost value by a Taking. The Supreme Court noted that Texas had assured the Court that it would not oppose the amended complaint so that the case could be pursued in federal court based on Texas state law. Devillier v. Texas, 144 S. Ct. 938 (2024).
In the second case, a landowner sought to build a modest residential home and claimed that a local ordinance requiring all similarly situated developers pay a traffic impact mitigation fee posed the same threat of government extortion as those struck down in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), Dolan v. City of Tigard, 512 U.S. 374 (1995), and Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013). Those cases, taken together, hold that if the government requires a landowner to give up property in exchange for a land-use permit, the government must show that the condition is closely related and roughly proportional to the effects of the proposed land use.
In this case, the landowner claimed that the test meant that the county had to make a case-by-case determination that the $24,000 fee was necessary to offset the impact of congestion attributable to his building project - a manufactured home on a lot he owns in California. He paid the fee but then sued to challenge its constitutionality under the Fifth Amendment. The U.S. Supreme Court unanimously ruled in his favor. The Court determined that nothing in the Takings Clause indicates that it doesn’t apply to fees imposed by state legislatures. Sheetz v. El Dorado County, 144 S. Ct. 893 (2024).
CASES:
- Devillier v. Texas, 144 S. Ct. 938 (2024).
- Nollan v. California Coastal Commission, 483 U.S. 825 (1987)
- Dolan v. City of Tigard, 512 U.S. 374 (1995)
- Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013).
- Sheetz v. El Dorado County, 144 S. Ct. 893 (2024).
PUBLIC LANDS RULE
The Bureau of Land Management (BLM) published a new “Public Lands Rule” in the Federal Register on May 9, 2024. 89 Fed. Reg. 40308. The Rule is part of the Biden/Harris administration’s effort to conserve at least 30 percent of U.S. lands and waters by 2030. It is projected to apply to approximately 245 million acres of public lands – about one-tenth of the U.S. land area.
Since then, multiple lawsuits have been filed challenging the rule. In Alaska v. Haaland, No. 3:24-cv-00161 (D. Alaska, filed Jul. 24, 2024), the State of Alaska claims that the “vast majority” of the rule was not authorized by the Federal Land Policy Management Act and other federal and state laws, violated the “major questions doctrine,” and failed to comply with the National Environmental Policy Act (NEPA).
In American Farm Bureau Federation v. United States Department of the Interior, No. 2:24-cv- 00136 (D. Wyo., filed July 12, 2024), an additional claim is made that the Congressional Review Act bars the rule and that supposed “climate change” as a basis for the rule does not excuse unlawful rulemaking.
In Utah v. Haaland, No. 2:24-cv- 00438 (D. Utah, filed Jun. 18, 2024), Utah and Wyoming challenged the rule based on the BLM’s reliance on a categorical exclusion for NEPA compliance. Later in 2024, the American Farm Bureau Federation and 10 other groups filed an action in federal court challenging the Rule’s validity. Bureaus of Land Management’s (BLM) Public Lands Rule (Rule). The Rule, published at 89 Fed. Reg. 40308 (May 9, 2024) prioritizes land conservation via restoration and mitigation by restricting grazing on public lands. The Rule is being challenged as exceeding the BLM’s authority under the Federal Land Policy and Management Act in that the Rule sets aside land for conservation, which is a power the Congress has reserved for itself, and is vague in when land can or will be set aside for mitigation or restoration.
CASES:
- 89 Fed. Reg. 40308- Alaska v. Haaland, No. 3:24-cv-00161 (D. Alaska, filed Jul. 24, 2024)
- American Farm Bureau Federation et al.. v. U.S. Department of the Interior et al. No. 2:24-cv-00136 (D. Wyo. filed Jul. 12, 2024)
- Utah v. Haaland, No. 2:24-cv- 00438 (D. Utah, filed Jun. 18, 2024)
STATES’ WATER COMPACT MUST INCLUDE THE FEDERAL GOVERNMENT
Colorado, New Mexico, and Texas signed the Rio Grande Compact in 1938, and Congress approved it in 1939. The Compact apportions the waters of the Rio Grande Basin equitably. Under the Compact, Colorado committed to delivering a certain amount of water to the New Mexico state line. A minimum quality standard was also established.
When the Compact was approved in 1939, groundwater pumping was less extensive than it is today. Beginning in the 1950s, however, it increased. Because groundwater and surface water are interconnected, the increase in groundwater pumping decreased the amount of surface water in the Rio Grande Basin that flowed to Texas.
In 2014, Texas sued New Mexico for allowing the Rio Grande’s water reserves to be channeled away for use, depriving Texas of its equal share in the river’s resources. In 2018, the Supreme Court said the federal government should be a party to the case because of its treaty obligation to deliver a quantity of Rio Grande River water to Mexico and because the water is delivered via a federal reclamation project administered by the Department of the Interior which, in turn, has an obligation to Indian tribes what also have an interest in the water. To resolve the dispute, Texas and New Mexico entered a proposed consent decree that introduced some additional metrics to account for changed circumstances in the Basin since 1939.
The federal government objected that the settlement was inconsistent with the original compact and undermined the Compact’s plain language, which the states cannot do without congressional approval. The court agreed, sending the case back to a Special Master on the basis that Article I, Section 10, Clause 3 which states: “No State shall, without the Consent of Congress,… enter into any Agreement or Compact with another State”…. Thus, when the federal government has an interest in a water agreement among states, it must be a party to the agreement. That’s a key point. The Supreme Court did not rule that the Constitution requires Congress to be involved in every state water law compact; it was just that the facts of this case involved congressional involvement. The case was sent back to the special master assigned to the matter (a person, in this instance a senior appellate judge from the U.S. Court of Appeals for the Eighth Circuit) who acts as a one-person jury.
CASE:
Texas v. New Mexico, 602 U.S. 943 (2024).
