Sec. 199A “Grain Glitch” Fix Proposed
In January, we announced a change in the Tax Reform Bill that had a very large impact on the agriculture industry, with the heaviest of the impact placed on cooperatives and private grain firms. This change was Sec. 199A. A few weeks after sharing that article, while anxiously anticipating change (but preparing nonetheless) we published a “next steps” article. It was finally announced on Tuesday this week that House and Senate lawmakers have come to an agreement that a portion of Sec. 199A must undergo a revision.
The original version of Sec. 199A (the portion about the deduction based on the sale to cooperatives) was added very last-minute and lawmakers have addressed that it was an admitted mistake as it posed a severe competitive disadvantage to private grain firms over cooperatives. This disadvantage was outlined as a 20% deduction on gross sales (limited to 100% of their taxable income overall) for farmers on the sale of their crops to a cooperative over a grain firm, making it a very hot topic since the beginning of 2018. The new version of Sec. 199A is intended to restore balance in the sale of crops by farmers to either entity (private grain firms or cooperatives).
According to the National Council of Farmer Cooperatives (NCFC),
“Throughout the tax reform process that began last year, NCFC has consistently called on Congress to retain DPAD for farmer co-ops and their member-owners and this legislation largely meets that goal. The old Section 199 had a proven track record of letting farmers keep more of their hard-earned money. We expect these provisions to do the same,” said Chuck Conner, president and CEO of NCFC. “By combining the individual-level business deductions that farmers can claim and the pass-through from their co-ops, farmers selling to cooperatives have the opportunity to see benefits in excess of the 20% 199A pass-through deduction.”
When Will the Anticipated “Fix” Proposal be Passed?
The proposed changes to Sec. 199A will be included in the next omnibus appropriations bill which must be passed sometime this month. This change, if passed, will be retroactively effective beginning January 1, 2018.
We understand that changes to this bill pose a large impact for many of our clients. If you have questions relating to how this may affect you, please don’t hesitate to reach out to the experts here at Christianson. We will continue to post updates as content becomes available.