You are on page 1of 8


EPA’s advance notice of proposed rulemaking
seeking comments on potential revisions to
current production regulations under FIFRA
On 04 April 2007, EPA published an Advance Notice of Proposed Rulemaking (ANPRM)1

INSIDE informing the regulated community and public that EPA is considering amendments
to the current pesticide establishment and production reporting regulations that were
promulgated pursuant to Section 7 of the Federal Insecticide, Fungicide, and Roden-
ticide Act (FIFRA),2 and, possibly, to other related FIFRA regulations. Plant-Incorpo-
rated Protectants (PIPs) are pesticidal substances intended to be produced and used
in a living plant, or the produce thereof, and the genetic material necessary for the
• IRS proposed regs on production of such a pesticidal substance.3 EPA is considering amending the Section
how post-death events 7 establishment and production reporting regulations to specifically address PIPs
impact taxable estate because it is clear that the unique characteristics of PIPS, in relation to more
conventional chemical pesticides, raise specific issues that may render the current
regulatory scheme non-ideal for these products. In the ANPRM, EPA provides a list
of the general regulatory provisions applicable to PIPs that it is considering amending
• Cloverland v. Penn. and solicits public comment on the completeness of the list and the scope of any
Milk Marketing Board potential changes to these regulations. EPA also requests the public and regulated
community to provide any information that may be of value to the Agency in
developing a proposed rule to address these issues.4 In addition, the ANPRM
• Federal Register
announced two public meetings at which the Agency accepted oral public comments.5
summary EPA has published this ANPRM to begin the process of addressing a regulatory
conundrum posed by PIPs. PIPs are substances intended to prevent, destroy, repel,
or mitigate any pest, and are produced and used in a living plant, or the produce
thereof.6 PIPs are thus distinguished from more conventional chemical pesticides in
Solicitation of articles: All AALA that these are typically produced in a facility and applied externally, e.g., through
members are invited to submit ar- spraying or dusting of the plant. Given the relatively recent provenance of PIPs, it is
ticles to the Update. Please include not surprising that EPA’s regulations implementing the FIFRA Section 7 requirements
copies of decisions and legislation Cont. on p. 2
with the article. To avoid duplica-
tion of effort, please notify the Edi-
tor of your proposed article. Approaches to zoning that support and protect
A story of growth and change on rural lands is occurring in many parts of the United
IN FUTURE ISSUES: States. In states like Ohio, traditionally rural areas are growing at a faster rate than
incorporated areas, and more people now reside in the countryside than in either cities
or villages. This trend in “exurbanization” brings changes to the rural landscape as
• Orderly marketing non-farmers move further and further from population centers and convert rural
of agricultural farmland to non-farm land uses.
products in Ontario, Communities desiring to sustain an area’s agriculture in the face of urban influences
Canada commonly look to zoning mechanisms that support agricultural land uses and
activities. “Agricultural zoning” or “agricultural protection zoning” encompasses a
variety of techniques that address the changes brought by development of agricul-
tural areas. In addition to slowing the conversion of farmland, agricultural zoning can
attend to incompatibility issues such as equipment on roadways, interferences with
surface water drainage, complaints about livestock and conflicts over pesticide or
manure application practices.
Agricultural zoning begins with the establishment of an agricultural district, but
there are different approaches to protecting or supporting agriculture within the
district. Some agricultural zoning techniques focus on limiting the land uses that are
allowed in the district, while others address factors such as lot size, physical proximity
Cont. on page 6


regarding pesticide establishments reg- exemptions applicable to certain PIPs; 2. Production reporting: “What produc-
istration and pesticide production report- and sets forth procedures regarding time tion reporting, by whom and in what units
ing do not adequately address the distinc- limited tolerance exemptions for emer- (e.g., volume, weight, number of seeds,
tive nature of PIPs. Given that the current gency exemptions issued under FIFRA etc.) would be appropriate? Should re-
regulations are not entirely compatible Section 18. In initially promulgating Sec- porting units be dependent on the repro-
with the unique characteristics of PIPs, tion 174, EPA acknowledged that addi- ductive methodology of the crop (e.g.,
EPA is considering amending the current tional regulatory provisions tailored to seeds, bulbs, or tubers)? Given your re-
FIFRA Section 7 regulations by promul- apply specifically to PIPs likely would be sponse to [question 1], what types of pro-
gating regulations specific to PIPs that required in the future.8 duction reporting would provide the
more closely conform to the novel regula- FIFRA Section 7 requires that produc- Agency with information valuable for com-
tory conditions that these pesticides ers of pesticides register the establish- pliance assurance purposes and for man-
present. EPA is hopeful that the public and ments where pesticides are produced and aging any potential risks associated with
regulated community will provide com- report the amount of pesticides produced. a violation?”
ments and information useful in the devel- The existing regulations at 40 CFR part 167 3. Recordkeeping and inspection: “What
opment of a proposed rule addressing do not appear to adequately provide for establishments or other locations are
these novel regulatory realities. useful reporting of such data for PIPs. For appropriate to be inspected for records
EPA has promulgated regulations spe- example, existing regulations require pes- and samples, and what records would be
cifically addressing PIPs at 40 C.F.R. Part ticide production quantities to be reported appropriate for producers of PIPs to main-
174.7 Part 174 sets forth definitions that are in terms of volume or weight (gallons or tain?”
specific and unique to PIPs; addresses pounds). These units of measurement do 4. Labeling: “Please comment on cur-
certain confidential business information not provide useful information when put in rent labeling practices for PIPs. Are cur-
(CBI) issues; exempts from FIFRA re- the context of PIPs, which are produced in rent labeling practices sufficient? For ex-
quirements PIPs derived entirely through living plants in quantities that are incom- ample, do grower agreements offer suffi-
conventional breeding of sexually com- patible with measurement in gallons or cient information and compliance assur-
patible plants; emphasizes the obligations pounds. Moreover, given that these prod- ance to ensure registered PIPs are used in
to report information regarding any ad- ucts are “produced” by living plants at a manner that protects human health and
verse effects that may have been caused different life stages, query at what time the environment? Are there circum-
by PIPs; lists tolerances and tolerance actual production should be considered to stances where labeling different from that
occur and what, as a consequence, should currently in practice for PIPs may be ap-
be considered the “producing establish- propriate?”
ment.” EPA believes that clarification of 5. Experimental Use Permits: “Are there
these issues would serve to increase the aspects of production in association with
likelihood that the Agency would receive PIP EUPs that are different from produc-
information that meets the FIFRA require- tion associated with other types of pesti-
ment and is useful to the Agency. cides used in EUPs? If there are differ-
VOL. 24, NO. 5 WHOLE NO. 282 MAY 2007 The ANPRM indicates that EPA is con- ences, how should they be addressed for
AALA Editor..........................Linda Grim McCormick
sidering amending the following existing PIP EUPs?”
2816 C.R. 163, Alvin, TX 77511 regulations related to pesticide establish- 6. Production for export: “What condi-
Phone: (281) 388-0155
ment and production to better address the tions would ensure that a PIP is intended
unique characteristics of PIPs and PIP for export only, and what would be neces-
Contributing Editors: Roger McEowen, Iowa production: 40 C.F.R. 167.20 - registration sary for such a PIP to meet the require-
StateUniversity; Peggy Kirk Hall, Ohio State University;
Keith A. Matthews, EPA Office of General Counsel; Abby of establishments where PIPs are pro- ments of FIFRA?”9
C. Foster, Penn State Dickinson School of Law; Robert P. duced; 40 C.F.R. 167.85 - reporting by reg- In addition, the ANPRM requests com-
Achenbach, Eugene, OR.
istered production establishments; 40 ments on (1) whether there are other
For AALA membership information, contact Robert C.F.R. 169.2 and 169.3 - recordkeeping and unique characteristics of PIPs, in addition
Achenbach, Executive Director, AALA, P.O. Box 2025,
Eugene, OR 97405. Phone 541-485-1090. E-mail
inspection authority; 40 C.F.R. 156.10 - la- to those described in the ANPRM, that beling on PIP containers; 40 C.F.R. Part 172 may affect the application of the existing
– setting forth regulatory requirements regulations associated with pesticide es-
Agricultural Law Update is published by the American
Agricultural Law Association, Publication office: County for EUPs for field testing of unregistered tablishments and pesticide production to
Line Printing, Inc. 6292 NE 14th Street., Des Moines, IA PIPs; and 40 C.F.R. 168.65–168.85 - produc- PIP producers; and (2) are there additional
50313. All rights reserved. First class postage paid
at Des Moines,IA 50313. tion of unregistered PIPs for export. sections of FIFRA implementing regula-
The ANPRM specifically requests com- tions related to pesticide establishment
This publication is designed to provide accurate and
authoritative information in regard to the subject matter
ment on the following topics/issues: and production regulations that should be
covered. It is sold with the understanding that the 1. Registration of establishments: modified to more effectively address the
publisher is not engaged in rendering legal, accounting, or “Given that PIPs by definition are intended unique characteristics of PIPs?
other professional service. If legal advice or other expert
assistance is required, the services of a competent to be produced and used in a living plant, EPA is hopeful that it will receive useful
professional should be sought. what activities should the Agency con- substantive comments on this topic as it
Views expressed herein are those of the individual sider to be part of ‘production’ as that term continues to seek to improve the regula-
authors and should not be interpreted as statements of is defined in FIFRA (which includes manu- tory structure applicable to plant-incorpo-
policy by the American Agricultural Law Association.
facturing, preparing, compounding, propa- rated protectants.
Letters and editorial contributions are welcome and gating, or processing any pesticide or —Keith A. Matthews, EPA Office of
should be directed to Linda Grim McCormick, Editor, 2816 packaging, repackaging, labeling, and re- General Counsel
C.R. 163, Alvin, TX 77511, 281-388-0155.
labeling the container), and what estab-
Copyright 2007 by American Agricultural Law lishments should be registered to help Plant-Incorporated Protectants; Potential
Association. No part of this newsletter may be reproduced
or transmitted in any form or by any means, electronic or EPA manage any potential risks associ- Revisions to Current Production Regulations,
mechanical, including photocopying, recording, or by any ated with PIPs? What other types of facili- 72 Fed. Reg. 16312 (April 4, 2007).
information storage or retrieval system, without permission 2
in writing from the publisher.
ties, if any (e.g., growers involved in seed 7 U.S.C. 136e.
production), involved in the development 40 C.F.R. 174.3. EPA began referring to
of PIP-containing varieties should be sub- pesticides produced and expressed in liv-
ject to these requirements?”
Cont. on p. 3

EPA/Cont. from page 2
ing plants as plant-pesticides in 1994 (59
Cloverland v. Pennsylvania Milk Marketing Board
Fed. Reg. 60496); in 2001, in response to a Pennsylvania’s milk marketing structure Cloverland’s expert testified that dur-
specific request to change the name by is set up so that in-state “handlers”1 pay ing peak demand season, Cloverland
which these products are referred, EPA an “over-order” premium to dairy farms could sell milk in Pennsylvania below whole-
adopted the term plant-incorporated (producers) on milk purchased for pro- sale minimums.6 The Board’s expert stud-
protectant. Regulations Under the Federal ducing Class I, or drinkable milk. A pre- ied a full year-long period and found that
Insecticide, Fungicide, and Rodenticide Act for mium is the per unit price that a handler Cloverland was less competitive than
Plant-Incorporated Protectants (Formerly will pay to a producer for his milk. three of four sample Pennsylvania han-
Plant-Pesticides), 66 Fed. Reg. 37772, 37780 Pennsylvania’s scheme has a built-in dlers. The court found this study more
(July 19, 2001). These are now commonly “over-order” premium, which requires significant because it took into account
known as PIPs. (The regulatory definition that handlers pay producers a certain low- and high-demand seasons. 7
for PIPs at 40 C.F.R. 174.3 also includes any price in addition to the premium paid for Cloverland vigorously disputed this data,
inert ingredient contained in the plant, or drinkable milk. Out-of-state handlers are on the grounds that the Board chose
the produce thereof.) not required to pay the premium. The sample handlers with lower costs than
The ANPRM initially requested sub- over-order premium was established by Cloverland, and one of the four handlers
mission of comments on or before June 13, the Pennsylvania legislature to subsidize was not fully regulated, and therefore not
2007. The Association of American Pesti- Pennsylvania producers. subject to federal minimum floors for all
cide Control Officials and SFIREG re- Cloverland is a Maryland milk handler the milk it bottles. Cloverland, being in
quested that the comment period be ex- that buys approximately 90% of its milk Maryland, is in the Northeast FMMO and
tended thirty days. Letter from Grier from Pennsylvania producers, but does is fully regulated. Its federal Class I price
Stayton, Executive Secretary AAPCO/ not sell fluid milk in Pennsylvania. 2 may be higher than those in the regions of
SFIREG to Stephen Howie (April 12, 2007). Cloverland sued the Pennsylvania Milk Pennsylvania that are not in any FMMO or
On May 23, 2007, EPA published a notice Marketing Board (PMMB) in 1999 under are in the Mideast order. As a bottler of
extending the comment period an addi- the auspices of the dormant Commerce fluid milk, it has to pay into the Producer
tional 30 days. Plant-Incorporated Clause, alleging that Pennsylvania’s pric- Settlement Fund.
Protectants; Potential Revisions to Current ing scheme eliminates Cloverland’s com- One of the four handlers the Board
Production Regulations; Extension of Com- petitive advantage, keeping it out of the chose as a sample is located outside the
ment Period, 72 Fed. Reg. 28991 (May 23, Pennsylvania market. The District Court Northeast and Mideast orders.8 Twenty-
2007). Comments are now requested to be granted summary judgment to the Board five percent or less of its milk goes into a
received on or before July 13, 2007. and the Third Circuit affirmed in 2001 with federally regulated market, and so this
These hearings were held in Chicago, respect to the retail price floors. It re- plant is only partly regulated. Only fully
Illinois and Arlington, Virginia, on May 2, manded the issue of wholesale price floors regulated handlers have to pay into the
and 22, 2007, respectively. Plant Incorpo- because Cloverland “had evidence it could Producer Settlement Fund, so a dealer like
rated Protectants; Potential Revisions to Cur- offer prices below Pennsylvania’s mini- this sample one may have lower operat-
rent Production Regulations; Notice of Public mum wholesale floor.”3 Cloverland claims ing costs than a fully regulated dealer like
Meetings, 72 Fed. Reg. 18191 (April 11, 2007). that the Pennsylvania pricing scheme pre- Cloverland would. Cloverland argues this
As noted above, the regulatory defini- vents it from being able to break into the partially regulated sample plant is not an
tion of PIPs also includes the genetic ma- Pennsylvania market, even though as an illustrative comparison, but the court
terial necessary for the production of such out-of-state handler, Cloverland’s man- thought otherwise,9 since the partially-
substance and any inert ingredient con- datory wholesale prices are below Penn- regulated handler would have to compete
tained in the plant. sylvania bottlers’. with Cloverland on equal footing in Areas
66 Fed. Reg. 37772 (July 19, 2001). To merit heightened scrutiny, 1 and 4. The court also found it significant
Id. at 37807. (EPA noted, however, that Cloverland would have to prove it has a that Cloverland criticized the opposition’s
existing regulations would continue to cost advantage by dint of its Maryland sampling but did not bring forth any ex-
apply to PIPs, except where superseded residency that it would like to employ in amples of its own. The court concluded
by the regulations in Part 174). the Pennsylvania market, and that that:
72 Fed. Reg. 16314-315. Pennsylvania’s Milk Law eliminates the Cloverland should have established that
advantage, inoculating in-state handlers its exemption from the over-order pre-
from the risks of a competitive market- mium gave it a relevant cost advantage
Federal Register/Cont. from p. 7 place. 4 over similarly situated Pennsylvania
siveness to current grain industry needs. Numerous Cloverland offered testimony that it competitors that translated into an abil-
changes have occurred in the breeding and production buys sixty-five percent of its milk from ity to sell wholesale milk at a lower cost.
practices of soybeans as well as in the technology used independent producers in Pennsylvania, Had it done so, the Board could (of
to harvest, process, and test soybeans, and in the without having to pay an over-order pre- course) have attempted to rebut this
marketing practices of soybeans. In order to ensure that mium, and thereby saving five cents per proof by showing that Cloverland did
the standards and subsequent grading practices remain gallon. This savings, Cloverland’s general not have an actual cost advantage over
relevant, GIPSA is inviting interested persons to submit manager testified, could lower its competitors, or its cost advantage
comments and supporting information to assist in the Cloverland’s wholesale prices enough to was not related to its out-of-state status.
evaluation of current standards and grading practices for gain a meaningful competitive foothold The District Court would then have had
soybeans and in the development of any recommenda- over its Pennsylvania competitors.5 The to weigh the evidence. But Cloverland’s
tions for change. 72 Fed. Reg. 23775 (May 1, 2007). court was willing to believe Cloverland evidence did not compare its costs to
—Robert P. Achenbach, Jr., AALA Executive could sell milk under the wholesale mini- the costs of its competi-
Director mum price, but without a comparison to tors….Cloverland failed to sustain its
Pennsylvania competitors’ costs, this fact burden of proving an out-of-state com-
is not valuable. Each side brought in ex- petitive advantage vis a vis its Pennsyl-
perts to testify to the cost situation at vania competitors that is neutralized by
comparable Pennsylvania handlers, and the Commonwealth’s mandatory mini-
the court was persuaded by the Board’s mum wholesale prices. In this context,
expert over Cloverland’s. Cont. on page 7

IRS issues proposed regulations providing guidance on how post-death
events impact taxable estate value
By Roger A. McEowen

A decedent’s taxable estate is determined it is ascertainable with reasonable cer- on the basis that the pre-marital agree-
by deducting from the value of the gross tainty, and will be paid.”11 ment was an existing, valid contract. The
estate certain deductions.1 That includes court disagreed, holding that only claims
deductions for amounts paid for funeral The Supreme Court’s Ithaca Trust ruling presented to and allowed or otherwise
and administration expenses, claims In a 1929 Supreme Court case,12 the determined as valid against the estate
against the estate and unpaid mortgages.2 decedent’s trust gave the residue of his and actually paid or to be paid could be
Specifically, the Internal Revenue Code estate to his wife for life. The trust gave deducted as a claim against the estate.
(Code) provides that “the value of the her the power to use any amount of the The court specifically noted that the Su-
taxable estate shall be determined by principal necessary to “suitably maintain” preme Court’s Ithaca Trust decision did not
deducting from the value of the gross herself. But, she died six months after the mean that claims against the estate must
estate…claims against the estate.”3 As decedent with the residue then transfer- be determined solely by facts and condi-
explained in the applicable Treasury Regu- ring to certain charities. Normally the ac- tions existing on the day of the decedent’s
lation, “[o]nly claims enforceable against tuarial value of the surviving spouse’s life death. The Supreme Court ultimately de-
the decedent’s estate may be deducted” expectancy at the time of the decedent’s nied certiorari in Jacobs.14 That seemed to
from the gross estate.4 Under another death would be used to determine the lend support to the notion that the date-of-
Treasury Regulation, an item may be en- amount the charity could expect to re- death valuation rule in Ithaca Trust did not
tered on the return for deduction even ceive, but she died before the decedent’s apply to deductions for claims against an
though its exact amount is not then known, estate tax return was filed. So, was the estate.
provided it is ascertainable with reason- charitable deduction to be determined by Clearly, Ithaca Trust did not settle the
able certainty and will be paid.5 Other than using mortality tables or using the date of issue. Since Jacobs, some courts have in-
that general guidance, neither the Code death of the surviving spouse? The Court terpreted Ithaca Trust as announcing a
nor the Treasury Regulations provide any first ruled that the provision for the wife’s broad principle that a taxable estate should
guidance on whether post-death events maintenance did not make the charitable be determined by considering only infor-
are relevant in determining the value of gifts so uncertain that they could not be mation known as of the date of death.15
claims which may be deducted on an es- deducted. The Court then ruled that the Others, however, believe that Ithaca Trust
tate tax return. For almost 80 years, the amount of the deduction was to be deter- does not reach I.R.C. §2053 claims, but is
courts have reached different conclusions mined after reducing the amount of the instead limited to IRC §2055 charitable
on the matter through two different schools charitable contribution by the wife’s prob- bequests.16 The IRS does not follow Ithaca
of thought. Previously, IRS gave notice able lifespan as it existed at the time of the Trust either.17 It is the IRS position that
that it would continue to litigate the issue.6 decedent’s death. Thus, the value of the Ithaca Trust is not relevant because it in-
Now, perhaps in an attempt to end the wife’s life estate had to be estimated by volved an IRC §2055 charitable deduction,
controversy, IRS has issued proposed using the mortality tables, not by her ac- rather than an IRC §2053 claim deduction.
regulations that provide guidance regard- tual lifespan, and that value had to be In addition, the position of the IRS and
ing the extent to which post-death events deducted from the amount passing to the those courts that do not follow Ithaca Trust
may be considered in determining the charities. is that post-death events are irrelevant
value of a taxable estate.7 only when actuarial tables define fair
Two schools of thought market value.
I.R.C. §2035 The Supreme Court’s Ithaca Trust deci-
I.R.C. §2053(a) allows a deduction in sion dealt with a charitable deduction rather Recent litigation
arriving at taxable estate for funeral and than a claim against the estate. That raised Three recent circuit court opinions indi-
administrative expenses, claims, and un- a significant question – did the Court’s cate that the basis for the IRS’ insistence
paid mortgages.8 The IRS has reasoned ruling in Ithaca Trust establish a broad on using post-death events may be erod-
that because funeral and administrative principle that a taxable estate should be ing. In Estate of McMorris v. Comr.,18 the
expenses are routinely incurred after determined by considering only informa- Tenth Circuit reversed the Tax Court and
death, the statute should be construed to tion known as of the date of death, or are held that post-death events are not to be
include post-death events.9 But, as men- post-death events irrelevant only when considered in valuing a claim against an
tioned above, the statute is not clear on actuarial tables define fair market value? estate under IRC §2053. During life, the
this point, and the Regulations are not Relatedly, does Ithaca Trust only apply to decedent inherited stock. The corporation
helpful, merely stating that deductible charitable bequests and not claims against later redeemed the stock and the dece-
claims are those which represent per- the estate? dent paid taxes on the difference between
sonal obligations of the decedent existing Just months after the Supreme Court’s the redemption proceeds and the stock
at the time of death, whether or not ma- Ithaca Trust decision, the U.S. Court of value as reflected in the pre-deceased
tured.10 The Regulations go on to say that Appeals for the Eighth Circuit, in Jacobs v. husband’s estate tax return. Upon audit of
a claim is deductible even though “its Comr.,13 considered the applicability of the the estate tax return, IRS increased the
exact amount is not then known, provided date-of-death valuation rule to claims valuation on the stock by an amount that
against an estate. The case involved a was enough to eliminate the decedent’s
widow who chose to take a life estate in a income tax gain. The IRS agreed to offset
Roger A. McEowen is Leonard Dolezal Profes- trust created by her pre-deceased the decedent’s income tax refund against
sor in Agricultural Law and Director, ISU Cen- husband’s estate rather than receive a the estate tax deficiency. The issue was
ter for Agricultural Law and Taxation, Iowa fixed sum in accordance with a pre-mari- whether the income tax refund reduced
State University, Ames, Iowa. Member of the tal agreement. The husband’s estate de- the I.R.C. §2053 deduction for the income
Kansas and Nebraska Bars; honorary member of ducted the fixed amount in the pre-marital tax liability on the estate tax return. The
the Iowa Bar. agreement as a claim against the estate estate argued that the refund should not

affect the tax liability deduction since it decedent’s death matter, and the IRS Id.
was based on a post-death audit. The IRS appears to have conceded the point.25 A 12
Ithaca Trust Co. v. United States, 279 U.S.
argued that the tax liability claim was third possible situation is where the claim 151 (1929).
contingent and thus should be adjusted to is contested. Although the appellate courts 34 F.2d 233 (8th Cir. 1929), cert. den. sub
reflect post-death events. The court generally do not consider post-death nom., Jacobs v. Lucas, 280 U.S. 603 (1929).
agreed with the estate. events, the IRS (and some courts) ap- 280 U.S. 603 (1929).
In Estate of Smith v. Comr.,19 the estate pears to make a distinction between con- 15
The U.S. Courts of Appeal for the Fifth,
was forced to repay some oil royalty pay- tested and contingent liabilities.26 Tenth, and Eleventh Circuits have ex-
ments to Exxon Corporation. Repayment pressed this view. See Estate of Smith v.
was necessary because Exxon had been Proposed regulations Comr., 198 F.3d 515 (5th Cir. 1999); Estate of
required to refund to the federal govern- The Proposed Regulations will impact McCord v. Comr., 461 F.3d 614 (5th Cir. 2006);
ment amounts that had violated pricing estates in which there are claims out- Estate of McMorris v. Comr., 243 F.3d 1254
regulations. Exxon sought reimbursement standing at the time of the decedent’s (10th Cir. 2001); Estate of O’Neal v. United
in part of $2.48 million from the decedent, death. Under the proposed regulations, States, 258 F.3d 1265 (11th Cir. 2001). But,
who died with this claim outstanding. The IRS rejects the date-of-death valuation both the Fifth and the Eleventh Circuits
$2.48 million was deducted on the approach as an inefficient use of resources have ruled that post-death events are
decedent’s estate tax return, but nine for taxpayers, the IRS and the courts. relevant when hypothetical liabilities are
months after the return was filed, the Instead, the Proposed Regulations adopt involved. See Estate of Hagmann v. Comr.,
estate settled the claim for $681,840. The rules based on the premise that an estate 492 F.2d 796 (5th Cir. 1974); Estate of O’Neal
Tax Court agreed with the IRS that the may only deduct amounts actually paid in v. United States, 258 F.3d 1265 (11th Cir.
deduction of $2.48 million was not certain settlement of claims against the estate. 2001).
at date of death, but that even if the estate Thus, post-death events are to be consid- The United States Tax Court and the
were allowed the larger deduction, it would ered when determining the amount de- U.S. Courts of Appeal for the First, Second,
still be taxed on discharge of indebted- ductible under all provisions of I.R.C. §2053, Eighth, and Ninth Circuits follow this ap-
ness income.20 The Fifth Circuit reversed, and such deductions are limited to proach. See Estate of Kyle v. Comr., 94 T.C.
refusing to value a claim based on post- amounts actually paid by the estate in 829 (1990); Comr. v. State Street Trust Co., 128
death events and holding that IRC §1341 satisfaction of deductible expenses and F.2d 618 (1st Cir. 1942); Comr. v. Estate of
does not require recognition of discharge claims.27 The Proposed Regulations also Shively, 276 F.2d 372 (2d Cir. 1960); Estate of
of indebtedness income for disputed provide that an estate may file a protec- Sachs v. Comr., 856 F.2d 1158 (8th Cir.
claims. tive claim for refund for some contested 1988)(public policy of providing certainty
Two years after the Fifth Circuit’s opin- or contingent claims that are unresolved.28 in situations involving charitable bequests
ion in Smith, the Eleventh Circuit also ruled Written or electronic comments con- exists to stimulate charitable giving, but
against using post-death events in valu- cerning the proposed regulations must be no such reason exists in valuing claims);
ing claims.21 The case involved a claim received by July 23, 2007.29 A public hear- Propstra v. United States, 680 F.2d 1248 (9th
against the estate for reimbursement of ing is scheduled for August 6, 2007. Cir. 1982)(while the court held that when
gift taxes paid by the transferees of the claims are for sums certain and are legally
gifts. The value of the gifts was in dispute enforceable as of the date of death, post-
at the date of death. Based on the IRS- I.R.C. §2051. death events are not relevant in comput-
assigned values, the claim against the See I.R.C. §2053. ing the permissible deduction; the court
estate was in excess of $9 million, but was I.R.C. §2053(a)(3). did note in dicta that post-death events
eventually reduced to less than $600,000. Treas. Reg. §20.2053-4. are relevant when computing the deduc-
The court held that the date-of-death value Treas. Reg. §20.2053-1(b)(3). See also tion to be taken for disputed or contingent
should apply in deducting the claim, and Estate of Hester v. United States, No. 5:06-cv- claims); Estate of Van Horne v. Comr., 720
remanded the case for a recalculation of 00041, 2007 U.S. Dist. LEXIS 14834 (W.D. F.2d 1114 (9th Cir. 1983), cert. den., 466 U.S.
the deduction.22 Va. Mar. 2, 2007)(no deduction allowed 980 (1984) (legally enforceable claims val-
Most recently, the Ithaca Trust rationale under I.R.C. §2053(a) because estate had ued by reference to an actuarial table
was followed by the Fifth Circuit in McCord neither an actual or expected claimant, or meet the test of certainty for estate tax
v. Comr.23 The case involved gift tax, but the a cognizable claim). The idea is that the purposes; but, court noted in dicta that
court referenced Ithaca Trust for the “well- taxable estate reflect the amount that post-death events are relevant in cases
established legal precedent” that fair actually passes to the decedent’s benefi- where the claims are potential, unma-
market value is determined on the date ciaries. tured, contingent or contested at the date
that the gifts were complete by execution AOD 2000-04 (May 9, 2000). of death).
of an assignment agreement.24 7
Guidance Under Section 2053 Regard- 17
FSA 200217022 (Jan. 17, 2002); AOD
ing Post-Death Events, 72 Fed. Reg. 20080 2000-04 (May 9, 2000)(announcing non-
Planning points (2007)(to be codified at 26 C.F.R. pt. 20)(pro- acquiescence in Estate of Smith v. Comr.,
There are basically three types of situ- posed Apr. 20, 2007). 198 F.3d 515 (5th Cir. 1999); but, it should be
ations that could arise relating to the use I.R.C. §2053(a). noted that after citing several cases for
of post-death events to value claims. One Rev. Rul. 77-274, 1977-2 C.B. 326 (where the proposition that post-death events
of those involves situations where the the right to claim an amount is not fixed by should be considered in valuing both con-
liability is fixed at the date of death, but the deadline for filing the estate tax return, tested and contingent claims, the IRS only
changes due to post-death events. In that the taxpayer can protect the right to claim mentions contested claims in the final
situation, post-death events should not the deduction by filing a protective claim statement of non-acquiescence). See also
matter – the liability is fixed as of the date on Form 843). But, no deduction is allowed Rev. Rul. 77-274, 1977-2 C.B. 326 (where the
of death. But, IRS and the courts are not for claims against the estate which have right to claim an amount is not fixed by the
clear on that point. Another situation is not been paid or will not be paid because deadline for filing the estate tax return, the
where the claim is contingent on the date the creditor waives payment, fails to file taxpayer can protect his right to claim the
of death – such as a post-death tax adjust- the claim within the prescribed time limit deduction by filing a protective claim on
ment. The courts generally agree that or otherwise fails to enforce payment. IRS Form 843).
only those facts known as of the date of the See Rev. Rul. 60-247, 1960-2 C.B. 272.
Treas. Reg. § 20.2053-4. Cont. on p. 6

Estate tax value/ cont. from p. 5 tion date, must be computed as a weighted claim cannot be enforced because of post-
243 F.3d 1254 (10th Cir. 2001). average of the means between the high- death events, there can be no deduction
98 F.3d 515 (5th Cir. 1999). est and lowest sales on the nearest date under I.R.C. §2053(a)(3) for that claim).
20 28
See I.R.C. §1341(a). before and the nearest date after the The proposed regulations also update
O’Neal v. Comr., 258 F.3d 1265 (11th Cir. valuation date. provisions regarding the deduction for
2001). See AOD 2000-04 (May 9, 2000). some state death taxes to reflect 2001
22 26
The remand very clearly instructed Id. statutory amendments under I.R.C.
the district court to ignore post-death See, e.g., Gottesman v. United States, No. §2053(d) and 2058.
events when determining date-of-death 05 Civ. 8212 (BSJ), 2007 U.S. Dist. LEXIS Comments are to be submitted to
value. 15043 (S.D. N.Y. Jan. 12, 2007)(estate de- CC:PA:LPD:PR (REG-143316-03), Room
461 F.3d 614 (5th Cir. 2006). nied estate tax refund claim because ex- 5203, Internal Revenue Service, P.O. Box
However, Treas. Reg. §20.2031-2(b)(1) wife had no valid claim after death of 7604, Ben Franklin Station, Washington,
states that the valuation of stocks and decedent under express terms of separa- D.C. 20044, attn., DeAnn K. Malone.
bonds, when no sale occurs on the valua- tion agreement; court reasoned that if

Ag zoning/Cont. from page 1
of differing uses, or population density. cel is permitted one residence for every X between agricultural activities and uses
Below is a summary of the most common acres. Sliding scale area-based zoning that may not be compatible with those
agricultural zoning approaches and “slides” the number of permitted resi- activities, such as residential develop-
mechanisms and a brief analysis of the dences downward as the size of the parcel ment. Likewise, a disadvantage of any
different types. decreases. agricultural zoning technique that does
allow non-farm residential development
Exclusive agricultural zoning is a simple Cluster zoning promotes efficient land is that it could heighten incompatible use
and straightforward approach: the agri- uses by specifying that residences in an issues. This type of zoning district is not
cultural district is designated exclusively agricultural district be on small-sized lots entirely favorable to either farm activities
for agricultural land uses and related ac- and clustered together. Development of or residential development. Agricultural
tivities. Non-agricultural land uses are not a parcel would entail approval of a plan landowners who do not have the assur-
permitted uses. The only residences al- that clusters the proposed development ance that they are protected from conflict-
lowed in the district are for farm purposes; and minimizes impacts on agricultural ing land uses have less certainty of their
farm labor residences may be permitted. land. ability to continue agricultural activities in
Related activities that may be permitted the future. A technique such as agricul-
include home occupations, services es- Conservation development zoning is simi- tural buffer or cluster zoning could limit
sential to agriculture, or accessory uses lar to cluster zoning, but can also include incompatibility, however, by requiring
such as a farm produce stand. perpetually protected natural resource greater physical separation between dif-
features in the development plan, such as fering land uses.
Conditional use zoning limits permitted open space or agricultural land that is Equity issues can be a disadvantage of
uses to agricultural land uses, but lists permanently protected by an easement. any zoning approach that prohibits non-
certain non-agricultural uses as condi- farm development in the agricultural zon-
tional uses. Zoning officials could ap- Agricultural buffer zoning reduces the ing district. Owners of agricultural land
prove a proposed conditional use upon a amount of development allowed on a par- lose the land’s development potential.
showing that the use would not interfere cel by requiring buffers that separate The loss of equity could translate into
with agriculture in the district. Examples agricultural and non-agricultural land uses opposition to the agricultural zoning dis-
of common conditional uses include non- and protect land and water resources. trict. Conditional use zoning, which works
farm dwellings, commercial recreation, from the premise of limiting non-farm
and resource extraction. There are a number of advantages and development but does not completely
disadvantages to different agricultural close the door on development opportu-
Large lot zoning establishes a large mini- zoning techniques. Perhaps the most cited nity, can be a fair solution to the equity
mum lot size in the agricultural district. A criticism regards large lot zoning, which problem.
lot may not be developed unless it meets many argue establishes lots often too Some claim that area-based agricul-
the higher acreage requirement. The lot small to sustain a legitimate farm opera- tural zoning has the most desirable char-
size represents an acreage sufficient for tion. Although the lot size may be larger acteristics of the zoning types. The area-
operating a farm. While non-farm resi- than needed for residential use, the larger based approach can protect the land base,
dences and other non-farm land uses are size is not always a disincentive for certain permit flexibility in site planning, but allow
allowed, the larger lot size is intended to types of residential development such as control over the spatial progression of
discourage development or create very high-end “estate” developments. Some development, which may assist with in-
low density residential development. Ex- believe that large lot zoning with a mini- compatibility problems. These are also
amples of minimum lot sizes used for mum lot size of less than 40 acres creates benefits of the techniques that require
large lot zoning vary immensely, from 5 to a more open landscape—sometimes re- more site planning, such as cluster or
40 or more acres. ferred to as “rural sprawl”—but does not conservation development. By allowing
protect the agricultural land base from limited development, each of these tech-
Area-based zoning uses a population den- conversion. niques also addresses the landowner eq-
sity approach in the agricultural district. Protection of the land base and a clear uity issue.
This technique limits the number of per- separation of farm and non-farm land —Peggy Kirk Hall
mitted residences on a parcel according uses are the advantages of exclusive ag- Director, Agricultural & Resource Law
to parcel size. Fixed area-based zoning ricultural zoning. The division of land uses Program, The Ohio State University
has a fixed house-per-acres ratio—a par- should reduce the occurrence of conflicts

Cloverland/Cont. from p. 3
we do not have facts calling for height- small dairy farmers would go out of busi- Federal Register summary
ened scrutiny.10 ness, leading to consolidation in the dairy
industry. The Board uses California as an 3/24-5/4 2007
Deciding against heightened scrutiny example, where that change in circum- BEANS. The GIPSA has issued a notice that it
brings the court to the Pike balancing test, stances occurred. Consumer dairy prices intends to revise the U.S. standards for beans to provide
which weighs putative local benefits rose sharply.19 applicants with an optional grade designation for bean
against the incidental burden on interstate As for these putative local benefits certification and to remove the requirements that the
commerce the statute imposes.11 The Court outweighing the burden on interstate percentage of high moisture and, in the case of mixed
discussed the three elements of the Pike commerce, Cloverland argued that the beans, the percentage of each class in the mixture be
test. The burden imposed on interstate minimum wholesale prices prevent it from shown on the grade line. 72 Fed. Reg. 19168 (April 17,
commerce in this case is Cloverland’s competing in the Pennsylvania market, 2007).
contention that the minimum pricing pre- and consequently the burden on inter- CROP INSURANCE. The FCIC has adopted as
vents it from entering the Pennsylvania state commerce is significant indeed. The final amendments to the common crop insurance regu-
market. The benefit of the Milk Law to local Board argued that Pennsylvania handlers lations, mint crop insurance provisions, to convert the
commerce is that “helps small, indepen- compete in other non-price ways such as mint pilot crop insurance program to a permanent
dent dairy farmers remain profitable with- by bundling services with milk, bundling insurance program for the 2008 and succeeding crop
out joining cooperatives, which fosters other beverages, or competing for better years. 72 Fed. Reg. 24523 (May 3, 2007).
market diversity and prevents a possible service reputations. Again, the District FARM LOANS. The FSA has issued proposed
future rise in retail prices.”12 Court was persuaded by the Board in the regulations which clarify and simplify the number of days’
The court did not discuss a possible face of conflicting evidence, and the Third interest that may be paid to lenders on loss claims on
alternative that would effectuate the local Circuit had no reason to believe its deci- guaranteed farm loans. The liquidation provisions cur-
benefit with less of a burden on interstate sion was clearly erroneous, so it upheld rently provides a time frame for the interest payment
commerce, the third part of the test, as the District Court and the Milk Law based upon “the date of the decision to liquidate” which
such. The court notes in its conclusion13 stands.20 can often be difficult to determine. The proposed
that the constitutionality of the Milk Law is regulations establish that the maximum number of days
unresolved. The court is unclear on whether Cloverland Today: It has been a few for interest payments on a loss claim will be 210 days
the Milk Law is necessary to maintain the months since this precedential case, which has from the loan payment due date. In addition, the proposed
industry. The court reiterates its “un- given the PMMB time to make changes al- regulations clarify the application for payment after
ease”14 that Pennsylvania is the only state though they have not made rule changes based liquidation and the guaranteed lender’s responsibility for
with this sort of mandatory price controls on the case. The case has been cited in reviews future recoveries. 72 Fed. Reg. 14244 (March 27, 2007).
to prop up a “flourishing”15 industry. It by other state attorney generals on the consti- GENETICALLY MODIFIED ORGANISMS. The
holds that Cloverland failed to prove its tutionality of proposed milk marketing pro- APHIS has issued a notice describing its policy for
case, but does not settle whether the law grams. However, PMMB is currently consider- responding to low-levels of regulated genetically engi-
is constitutional. ing a petition filed by the Governor to allow neered plant materials which may occur in commercial
Indeed, if another out-of-state plaintiff premiums on out of state milk if premiums exist seeds or grain. This notice is intended to provide
can prove it has competitive advantages in that state’s market. A decision is expected clarification for the public and developers of genetically
over actual Pennsylvania competitors in the first half of 2007 and will likely face more engineered plants of APHIS’ response to such situa-
belonging to its place of origin… and these commerce clause challenges if the petition is tions. The policy statement does not confer any rights
advantages translate into an actual ability granted. upon or create any rights for any person and does not
to sell milk for less than similarly situated operate to bind APHIS or the public, nor does it address
Pennsylvania handlers that is neutralized —Abby C. Foster, Penn State Dickinson how other federal agencies might respond to such
by the minimum wholesale prices, height- School of Law’s Agricultural Law Resource situations. 72 Fed. Reg. 14649 (March 29, 2007).
ened scrutiny would apply.16 & Reference Center GUARANTEED FARM LOANS. The FSA has
This language is seemingly an invitation adopted as final regulations which revise the Interest
to out-of-state handlers to sue the Board Handlers, or manufacturers, purchase Assistance Program as to how a guaranteed loan
again and bring persuasive evidence so and market dairy products. They are sec- borrower may obtain a subsidized interest rate on a
the court can throw out the Milk Law. ond in the chain of dairy production be- guaranteed farm loan. The changes include (1) deletion
“Cloverland lost its case because its evi- hind producers, who essentially deal di- of annual review requirements, (2) limitations on loan size
dence was insufficient, but the constitu- rectly with dairy cattle. and period of assistance, and (3) streamlining of claim
tionality of Pennsylvania’s minimum Cloverland, 462 F.3d 249, 257 (2006). submission. 72 Fed. Reg. 17353 (April 9, 2007).
wholesale prices remains unresolved.”17 3
Cloverland, 462 F.3d 249, 257-58 (2006). PACKERS AND STOCKYARDS ACT. The
The court noted that Pennsylvania han- Cloverland, 462 F.3d 249, 267 (2006). GIPSA has adopted as final regulations amending the
dlers, who would have been expected to Id. rules of practice governing proceedings under the Pack-
oppose the over-order premiums, actu- Id. ers and Stockyards Act to provide a mechanism for
ally support them. It is clear that the cost Cloverland, 462 F.3d 249, 267-68 (2006). settling cases without instituting formal proceedings. 72
of the over-order premiums that maintain Id. at 269. Fed. Reg. 19108 (April 17, 2007).
the small farmers in not borne by the Id. PEAS. The GIPSA has issued a notice that it
handlers. They pass it on to the consum- Id. at 270. intends to revise the U.S. standards for Whole Dry Peas,
ers. Id. at 270-71. Split Peas, and Lentils to provide applicants with an
Cloverland posits that the putative local Id. optional grade designation for pea and lentil certification
benefit is economic protectionism, “the Id. at 272-273 and to remove the requirement that, in the case of mixed
very evil the Commerce Clause seeks to Id. at 272 dry peas, the percentage of each class in the mixture be
prohibit.” 18 Cloverland also presented 15
Id. shown on the grade line. 72 Fed. Reg. 19169 (April 17,
evidence that eliminating the minimum Id. 2007).
wholesale prices in Pennsylvania would Cloverland, 462 F.3d 249, 272-73 (2006). SOYBEANS. The GIPSA has announced that it is
have no detrimental effect on the dairy Cloverland, 462 F.3d 249, 263 (2006), initiating a review of the United States Standards for
industry. The District Court found the App. Br. 40. Soybeans to determine their effectiveness and respon-
Board’s testimony more persuasive-- that Cloverland, 462 F.3d 249, 271 (2006).
20 Cont. on page 3
if the price floors were eliminated, the Cloverland, 462 F.3d 249, 271-72 (2006).

New AALA Fax Number
I’ve been having trouble with receiving faxes on a consistent basis and decided to change to a dedicated fax number. The
new AALA fax number is 541-302-8169 The new number will also be displayed on the AALA web site.

AALA Board Nominations
The AALA Board Nominations Committee is seeking suggestions for nomination for the 2008-2010 board and the 2008
president-elect. Please contact Don Uchtmann, e-mail: by May 1, 2007.

2007 Annual Conference.
President-elect Roger McEowen has almost completed the planning of an excellent program for the 2007 Annual Agricultural
Law Symposium at the Westin San Diego Hotel (formerly a Wyndham hotel) in sunny downtown San Diego, CA, October
19-20, 2007. The tentative program has been posted on the AALA web site with a registration form for those who want to
get the registration fee in this fiscal year’s budget. Mark your calendars and plan a trip to enjoy the sights, sounds, animals
and sunshine. Brochures will be printed and mailed as soon as the program plans are complete.

2006 Conference Handbook on CD-ROM
Didn’t attend the conference in Savannah but still want a copy of the papers? Get the entire written handbook plus the 1998-
2006 past issues of the Agricultural Law Update on CD. The files are in searchable PDF with a table of contents that is linked
to the beginning of each paper. Order for $45.00 postpaid from AALA, P.O. Box 2025, Eugene, OR 97402 or e-mail Copies of the printed version are also available for $90.00. Both items can also be ordered using
PayPal or credit card using the 2006 conference registration form on the AALA web site.

Robert P. Achenbach, Jr,, AALA Executive Director,, Ph 541-485-1090, Fax 541-302-8169