Active participation exception for ranch operations | KPMG | US
Share with your friends

IRS nonacquiescence, active participation exception for ranch operations

Active participation exception for ranch operations

The IRS announced its nonacquiescence to a 2014 decision of the U.S. Court of Appeals for the Fifth Circuit that held that an interest held by an S corporation in a limited partnership was not a limited partner interest in a farming syndicate because the sole shareholder of the S corporation actively participated in the farming business.


Related content

Read Action on Decision 2017–01 that appears in the February 13, 2017 edition of the Internal Revenue Bulletin 2017-7 [PDF 472 KB].


The Fifth Circuit in May 2014 affirmed a federal district court judgment denying the government’s attempt to tax a ranch as a “farming syndicate” tax shelter. 

The Fifth Circuit concluded that an individual who participated in the management of farming operations for not less than five years comes within the “active participation exception” under prior section 464(c)(2)(A)—irrespective of the fact that the legal title of that person’s attributable interest was held in the name of her wholly owned S corporation, rather than in her own name. 


The case is: Burnett Ranches, Ltd. v. United States, 753 F.3d 143 (5th Cir. 2014). Read the Fifth Circuit’s decision [PDF 158 KB]

© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal