Strangeness in New Tax Law for Farmers

The interesting thing about the new tax law that got rammed through is that no one really seems to have known what was in it, not even the people who wrote it. This law was literally written in secret, behind closed doors, with only a very few people being allowed to know what was actually in it. Special clauses were inserted for no other reason than to get support from members of congress who threatened to vote against it. And often the people writing it had no idea what they were actually putting into the law. Except for a few high profile items and talking points, none of it was allowed to be made public until it came to the floor for a vote. And finally it was passed in such a rush that the people voting on it didn’t know what they were actually voting for or against.

Apparently even the people who actually had specific items inserted into the law didn’t know what the clauses that they themselves had put in would actually do. Part of the new law, IRC Section 199A that applies to earned income from pass through business activities is one of the items that even it’s authors didn’t really understand.  And one section of the 199A deduction could have a huge impact on farmers and how they sell the commodities they produce. I ran across this over at WallacesFarmer and it gives a brief rundown on how it works. But if you don’t have time to go read it yourself, here is how it would work.

The law includes a deduction for income from cooperatives for members of co-ops that is calculated differently from other sources of income. Basically income derived from selling your crops to a co-op you belong to is treated entirely differently from income from selling your products to a non-co-op.

The whole thing is a bit complex. What it essentially does for farmers is that in certain situations it carves out a huge deduction for selling your commodities to your co-op instead of to a commercial grain dealer. In the example they give in the article over at Wallaces, a farmer who sells his grain to a non-co-op business like an ethanol facility and ends up with a $50K profit, will end up owing about $4K in taxes on the profits from the sale.

If he sells it to a co-op, however, the farmer will end up owing zero taxes on the net income from the sale.

The really scary part is that the senators who inserted this into the tax bill, apparently had absolutely no idea this would be the result of the clauses they put into it. Two senators, Hoeven of ND and Thune of SD seem to have been largely responsible for shoving this into the bill just hours before it passed, and both claim that they did not intend to favor co-ops over any other business, despite the fact that is exactly what this does.

And this is just one clause in a law that is hundreds of pages long. No one knows yet what kind of traps, loopholes, give aways or other little surprises are lurking in this thing, and it could be months before we really know. And you can be sure that a lot of this is going to end up going through the courts before it all gets settled.

 

Author: grouchyfarmer

Yes, I'm a former farmer. Sort of. I'm also an amateur radio operator, amateur astronomer, gardener, maker of furniture, photographer, wanna-be artist, owner of cats, motorcyclist, cook, and I'm trying to learn Japanese for the heck of it.

2 thoughts on “Strangeness in New Tax Law for Farmers”

    1. That seems to increasingly be the way they handle things, do it behind closed doors, in secret, and not even tell members of their own party what is actually in it, and then demand a vote on it before anyone can actually find out what’s in it. Making law this way ought to be illegal. Every part of the lawmaking process should be completely open. Then the proposed law should be made public with a minimum 30 -60 day waiting period so we can figure out what the heck they’re actually up to. I should point out that I am not just engaging in republican bashing here. The dems have done the same thing when they were in control of both houses, and any time there is any kind of secrecy in the lawmaking process, you can be darned sure that someone will try to take advantage of it.

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