farm rent verses income

[fwjone819]

I have a question about farm rents. A family that lives around my area became owners of a small acreage when their dad died. There are 4 siblings and there were beneficiary deeds making each of them 1/4 owners of the 60 acres.
They are still trying to decide what to do with the land, but for this year, they are letting a local farmer plant crops. The stipulation is the farmer will take care of all costs and the siblings will get 1/3 of whatever the crops makes at sale this winter. There is no input from the siblings and no other rents charged.
At the end of the year, would the payment they receive from the farmer be considered "rent" or "Income"?
Thanks for any input.

[mwcpa]

first, get a copy of IRS publication 225.... link...http://www.irs.gov/publications/p225/index.html

from that publication

"Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. However, if you materially participate in farming operations on the land, the rent is farm income"

"If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income"

"If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). The income is not included in self-employment income. "

further

"You materially participate if you have an arrangement with your tenant for your participation and you meet one of the following tests.
You do any three of the following.

Pay, using cash or credit, at least half the direct costs of producing the crop or livestock.

Furnish at least half the tools, equipment, and livestock used in the production activities.

Advise or consult with your tenant.

Inspect the production activities periodically.

You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise.

You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production.

You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities.

These tests may be used as general guides for determining whether you are a material participant. "

I hope this helps

[fwjone819]

MWCPA
thanks for your response. I will pass it on to them. They are not materially participating. The farmer brought all his own equipment,does all the work and made all the decisions on what when and where to plant. None of the siblings have ever had an extensive tax filing. It's always been "we made this much at work, paid in this much and still owe this much". Never had extra income, deductions or depreciation etc. So this is all new to them. I knew a few things to tell them to watch for but wasnt sure on this one.
Fwjone819