Kirschenmann

FACTS AND PROCEDURAL HISTORY

In 2004, Kirschenmann Farms, Inc. (KFI) was disassociating and selling its assets. Kirschenmann, who was a member of KFI’s Board of Directors, proposed to purchase KFI’s New Sabo Ranch and KFI agreed to the sale. At the time, Kirschenmann’s friend and business associate, Bender, wanted to purchase farm property for a tax-deferred exchange under 26 United States Code section 1031 (section 1031 exchange). Therefore, when KFI agreed to allow Kirschenmann to purchase New Sabo Ranch in the summer of 2004, Bender asked Kirschenmann to sell him the ranch. As part of the agreement, Bender asked that Sierra Farms, Inc., an entity in which Kirschenmann, his son Brian, and Bender were involved, lease New Sabo and pay rent in an amount sufficient to pay Bender’s interest expenses. Bender also agreed that “at a point in the future,” he and Kirschenmann would both take title in the ranch and would share any profits derived from its development. At the August 2004 KFI board meeting, the board approved the sale of the New Sabo property to Bender for $500,000. Bender purchased the property in October 2004 for that amount. According to Kirschenmann, in September 2004,…