I, VERNON W. BOEHNE, being first duly sworn do hereby declare that I am making this affidavit in support of a deduction under Section 2032A of the Internal Revenue Code for Special Use Value of certain farm property in the Estate of my father, Louis F. Boehne, who died November 11, 1977, a resident of Martin County, Minnesota. The issue involved to which this affidavit is directed relates to an issue whether or not the subject property was being used for "qualified use" at the proper times, as required by the Internal Revenue Code. There appears to be no issue as to whether proper percentages, etc. apply, but only a question of proper use at proper times.

My father owned 146.5 farm, including his farm building site which were approximately seventy years old at the time of his death, having a value of $265,000 total. The estate also included personal property of approximately $71,000, making a $336,000 total estate. My mother is deceased and my father was not survived by a surviving spouse. Besides myself, my father had two daughters, neither of whom live in Minnesota near my father's home.

Since 1950 I have worked with my father in operating the property, as well as other property of my own. Since 1965 I was renting my father's farm under a 1965 written share rent lease, under which he received one/half of all of the crops, and paid for one/half of the spraying, trucking, fertilizer, seed, and other expenses, but under which my father was not required to perform any physical labor. We carried on under that lease extended from time to time orally through the 1976 crop season, and were planning to operate the 1977 crop season that way. In October of 1976 my father paid $694.00 for his share of fertilizer applied in the fall of that year. In March of 1977 he paid another $249.00 for his share of fertilizer applied at that time. In April of 1977, he suffered from a light stroke, and was hospitalized. Four days later, while in the hospital, he suffered a severe stroke and was completely incapacitated, being unable to walk, talk, or even feed himself. In late April or early May of 1977 he no longer required hospital care, but was unable to care for himself. He was transferred from the Fairmont Community Hospital, to the east wing of the hospital, which essentially is a nursing home type of facility. Applications were made for other nursing homes as well, inasmuch as it appeared that he would require nursing care for an extended period of time, perhaps for the rest of his lifetime. When he was transferred to the nursing home, small amounts of communication were possible, he could nod

his head, for example, but he could not speak, and was unable to participate in any

business decisions.

Myself and my two sisters met and discussed my father's overall financial situation, including the need for additional cash flow to cover the additional expenses, and also the potential concern of the family' that I was the only family member at home who would have to take care of my father's affairs, but I was also the tenant with whom he was negotiating and dealing. This appears to be an inappropriate situation, and by agreement between myself and my two sisters, without ever having any conference with my father, who was unable to participate in such matters, a written farm lease on my father's farm was worked out for 1977, for $9,520 rent for the one season, being $793 payable monthly each month, starting June 1, 1977. It was further agreed that I would reimburse my father for the fall fertilizer he had previously paid for, being an amount of $943.

During the 1977 season I proceeded to operate my father's farm as in the past, paying all of the expenses myself, and paying a monthly rent as had been agreed, so cash flow was available to pay the nursing home bills. On November 11, 1977, my father died, never having been discharged from the nursing home facility. I had not ever advised him, and to the best of my knowledge no one had been able to advise him that he was no longer share renting the farm to me, but was receiving cash rent.

In calendar year 1977, according to information from my father's income tax return, he had received $10,920. from the sale of his share of corn and beans, and $4,760 from cash rent. He had paid $249 of fertilizer, for which he had not yet been reimbursed, $1,230 for taxes for the 1976 season paid in 1977, and miscellaneous other small farm expenses. He also had depreciation on his farm buildings and miscellaneous old farm equipment. As shown on the inventory of the estate, at the time of his death, my father still had 1,100 bushels of 1974 corn on hand valued at $3,491, and 1,200 bushels of 1976 beans valued at $3,276, which had been grown under the share rent lease, and also $4,400 of old farm machinery on hand. At the time of his death, the 1977 crop had been fully harvested, so that even if my father had had a share rent arrangement that year, there was no risk of production remaining at the moment of his death, his share of the production would have been in the bins, or sold, if he had been

on share rent.

My father's will provided that I should have an option to buy out my sisters at

a price not to exceed $1,600 per acre, and this was worked out between me and my sisters

and accomplished.

When the estate tax return was originally filed, the matter of Special Use Value under Section 2032A, was considered, and an election was made to claim the special use value only on my share of the farm. My sisters did not want to claim special use value since they were disposing of their property and would have had the recapture tax, and would have had a further problem of substantially increased income taxes resulting from a lower basis if the special use value had been used on their share of the farm. Substantial delays resulted in the estate tax audit when it was first reviewed because the Internal Revenue Service was taking the position, subsequently dropped, that we, if we elected special use value, had to elect it on all of the farm property, or none of it. We only wanted to elect it on my share. In July of 1980 when the IRS dropped the issue of all or none, they raised

a new issue and stated that I did not qualify for special use value because I was cash renting from my father at date of death.

After my father's death, I reimbursed his estate $943 for 1977 fertilizer he had paid in anticipation of being a share rent landlord, and also $3,966 being the balance of the 1977 cash rent which I owed, in accordance with the agreement I had worked out between myself and my sisters, but which my father had never participated in and did not know about.

You have had several recent conversations with my partner, Fred C. Kramer, regarding Section 2032A Special Use Values. As my partner has indicated to you, the problems are not remote and isolated, but are and will continue to be occurring quite frequently here in Southern Minnesota. Enclosed is a specific example of another farm problem which my partner has not brought to your attention. My letter directed to Roger Wachter, IRS Auditor, as well as Mr. Boehne's affidavit should be fairly self explanatory. We have this issue after having gone through previous issues with the auditor of having to elect 100% or none, which they have subsequently conceded, and also with the issue of having to find specific comparable cash rent leases, including a cash rent tease which includes the farm building site if we wish that portion to qualify. That issue has become immaterial in the instant case, but again it is alot of red tape attempting to sircumvent the intent which Congress had when it passed the law.

We believe the present interpretation of the law prohibiting cash rent at date of death was not Congress' intention, and we hope that you can do something to clarify this by correcting the law.

I am also enclosing herewith a copy of Internal Revenue Service Technical Advice Memorandum dated October 31, 1980 index No. 2032.40-00, which I received from Mr. Wachter on November 20th as an indication of the Xerenue Service's position. As shown on the last page, the Revenue Service's position is that we cannot qualify for special use value if the decedent at the moment of death was cash renting to his son.

We hope that some corrected legislation can be forthcoming. In the instant case of the Boehne Estate, Mr. Wachter is under orders to get this matter completed at his level of the audit stage, by the end of December, 1980. Corrective legislation two years in the future will not do this particular family, and many other families, much good. We hope that something will be forthcoming yet this session of congress.

BAK:mpn
Enc.

Very truly yours,

KRAHMER LAW OFFICE

By:

I am writing to you to request assistance in our present problems involving Section 2032A of the Internal Revenue Code, as it relates particularly to the Louis F. Boehne family, and to other southern Minnesota farm families. I talked to you briefly about the problems of Section 2032A at Sylvania Park this summer, but did not follow up in writing with my concerns at that time because the IRS was in the process of issuing new regulations which we believed were solving the problems we were then experiencing. However, these new regulations which eliminated the problem of electing 100% of the farm or none have now created a new problem of providing that cash rent from father to son at date of death does not qualify for special use valuation.

Enclosed herewith are several items pertaining to the Louis F. Boehne Estate which I believe is a typical example of the type of problems we now have and will continue to have. I believe my partner, Fred C. Krahmer, has also contacted you with regard to similar clients, other than the one I am writing about. We would hope that some corrected legislation can be done to cure this new problem about cash renting from father to son, under this relief legislation. We do not believe that Congress intended that a farmer should be prohibited from retiring in order to take advantage of this relief legislation. That is essentially the position of the IRS. We hope that action can occur in the near future. In the Boehne Estate the statute of limitations will be running out shortly. The auditor is delaying his audit report shortly, but must complete it before the end of December, 1980.

We would appreciate any action that can be done on this, and would also appreciate any advice you may have on the probabilities of corrective legislation.