Legal Memorandum: Meaning of "Actively Operate"

Issue: What is the Meaning of the Term ‘Actively Operate,’ in the Context of an EscrowAgreement Regarding an Agricultural Facility?

Area of Law: Agricultural Business
Keywords: Escrow agreement; Actively operate; Agricultural facility
Jurisdiction: South Dakota, Wisconsin
Cited Cases: 2008 S.D. 85; 283 N.W. 2d 579; 283 N.W. 2d 576
Cited Statutes: None
Date: 09/01/2008

A search revealed no reported cases in which the term “actively operate” has been defined by a court in this context.  In fact, although there are numerous cases in which the term appears,*FN1 courts rarely attempt a definition or explanation of the term.  Only one case was found that provided any discussion of what it means to “operate” a farm.*FN2

In the case of McManus v. Dep’t of Revenue, 91 Wis. 2d 682, 283 N.W. 2d 576 (1979), the question before the court involved the proper characterization of income and losses for state income tax purposes.  Under Wisconsin law, owners of agricultural property were allowed to deduct from their income losses from farm operations.  The taxpayer in McManus claimed a deduction for farming losses even though the income from the property consisted almost entirely of “rental payments and federal subsidies for keeping land out of production.”  The taxpayer contended that “where he was in charge of allocating the use of the property and he personally executed contracts with the federal agencies, the payments are akin to revenue from [farming] operations . . .”  91 Wis. 2d 688, 283 N.W. 2d 579.  The Wisconsin Supreme Court held that the federal payments were not payments from farm operations, but were analogous to rent for the property, and so would not be taxed under the rules for income from farm operations.  Id.  The court in McManus was not faced with […]

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