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Congress attempts to balance tax benefit

Photo by Ben Nuelle

House Republicans are expected to release a $1.3 trillion spending bill in the coming days, after two government shutdowns and five stopgap spending bills. The bill would fund the United States government through September 30, 2018, the end of the nation’s fiscal year.


There is supposed to be a fix for an unbalanced provision in the recent tax cut bill. However, it has political opposition that could favor farmers who sell to cooperatives. We take a look at the legal side of the economic incentive that may become a political embarrassment, in the program below.

AUDIO: Agribusiness Matters 3-21-18

Congress is trying to rectify an imbalance, in the Tax Cuts and Jobs Act, which makes selling to cooperatives much more attractive than selling to corporations. Kristine Tidgren, of the Center for Agriculture Law and Taxation at Iowa State University, says the provision had some unintended consequences.

“Producers who sold their grain to a cooperative – a 20% deduction calculated on their gross sales to the cooperative. Whereas, if they sold that same grain to an independent or ethanol plant, they would get to take the 20% deduction against their net income,” Tidgren said.

Tidgren provides an example of a farmer, a patron of a cooperative, could end up with no tax obligation. However, she says lawmakers have included a fix in the omnibus spending bill awaiting Senate consideration.

Tidgren notes that the fix would be retroactive to January 1, 2018, making potential advantages from Section 199A moot. She adds – if lawmakers don’t agree to the spending measure, or the fix is not included, groups outside agriculture could potentially take advantage of Section 199A.

“The current 199A deduction for cooperative dividends is not limited to agriculture cooperatives, so there’s a lot of room in their for playing the system. I think that’s one of the concerns and reasons why there’s a big push to get it fixed,” Tidgren said.

The proposed fix has the support of the National Council of Farm Cooperatives, National Grain and Feed Association (NGFA) and American Farm Bureau Federation (AFBF). The National Farmers Union (NFU) remains opposed to any reversal of Section 199A.

The bill must be passed by both the House and Senate and signed by President Trump before Saturday. Otherwise, there will be another partial shutdown of federal agencies.

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