Benefits Blown Away: Farmers and Ranchers, Wind Energy Leases, and the Estate Tax

Abstract

With the ever-increasing desire to produce and use energy from renewable sources, electricity-producing wind turbines have sprung up throughout the country. Since the companies that erect these turbines rarely own the land the turbines are built upon, land must typically be leased from landowners-often farmers and ranchers that own a large amount of open, unobstructed property. These normally long-termed leases, however, may hamper the estate plans of such landowners. A court has recently ruled that the right to payments under leases where the lessor has the right to receive lease payments and right to own the property in fee after the term of the lease are includable in a decedent's gross estate. Additionally, an executed "wind lease" can interfere with a decedent's personal representative's ability to make an election under section 2032A of the Internal Revenue Code ("IRC"), as the use of leased portions of the property are not likely "qualified" and the value of the decedent's qualified real property in relation to the decedent's total estate is decreased. Additionally, if such election has been made and an heir of the decedent's estate executes a wind lease, the Internal Revenue Service ("IRS") may be able to recapture portions of the tax savings attained through section 2032A. These results are inconsistent with the United States' policy to support agriculture and section 2032A's legislative history that sought to limit or avoid taxing illiquid estates of farmers and ranchers. This Comment recommends a statutory amendment that would, in certain instances, allow the value of a wind lease and the property burdened by such lease to be specially valued, and disallow the IRS to recapture tax savings when a wind lease is executed by an heir of the estate.