Related Parties Don’t Count
In our last post we indicated that a farmer could prepay farm cash rent for the following year by writing a check on December 31 and having the landlord receive it in 2023. This would allow the landlord to report the income in 2023. A reader then sent us the following in response:
"I have a client that is the sole-shareholder in a S-Corporation that is operating a farm. After seeing this article he asked if the S-Corp CEO (himself) could mail him a check on 12-31-2022 and he not have to report the income on his 2022 Form 1040, but report it on his 2023 Form 1040? I said no, do you agree?"The short answer is that I agree. A related party, such as a sole owner of an S corporation, is not allowed to deduct an expense until the recipient picks it up as income. In this case, even though they write the check in 2022 and mail it to themselves and receive it in 2023, the deduction is only allowed in 2023.
The reader also asked is there a minimum number of miles between the tenant and landowner. Again the answer is no. Some IRS agents will argue that you could drive the check to the landlord if they are in the same town, but that is not the requirement. The US mail is there to mail checks. There is no requirement to deliver them in person.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
*S Corp owner/landlord