Undivided Interests of Farm and Ranch Land In A Like-Kind Exchange (and for Self-Employment Tax, Also)

A 1995 private letter ruling1 held that an undivided one-sixth interest in farm real estate that was held for productive use in a trade or business or for investment which was exchanged for a 100 percent interest in other farm real estate qualified as a tax-free, likekind exchange.2 The exchange involved crop share leases. The letter ruling did not state whether it was a material participation crop share lease or a non-material participation crop share lease.3 The letter ruling recites the basic requirements for a like-kind exchange4 but did not anticipate what was to come two years later as the result of another private letter ruling5 which added another set of requirements as noted below. But looking just at the like-kind exchange requirements, a material participation crop share or livestock share lease should qualify as “. . . held for productive use in a trade or business. . . “ and a non-material participation crop share or livestock share lease or a cash rent lease should meet the requirements for being held for “investment,” as required by the like-kind exchange statute