According to the National Council of Farmers ‘Cooperatives, the Trump administration is unlikely to make any necessary adjustments to the tax rules for farmers’ cooperatives, putting many producers at risk of higher tax burdens.
NCFC is already contacting representatives of the new Biden administration to resolve the problem, NCFC President Chuck Conner told Agri-Pulse on Tuesday.
These are regulations drawn up by the Internal Revenue Service to implement Section 199A withholding tax. This issue became known as “Grain Disruption” after the deduction was rewritten under the Tax Act 2017. The IRS is expected to finalize regulations soon that will limit the deduction to either patronage or cooperative income. This does not apply to income from non-members.
“By reducing this overall deduction by excluding non-patronage (income), we will give less back to the farmer. That means more taxes for the farmer,” said Conner.
Conner said applying the deduction to members only income would be particularly difficult for members of cooperatives who are more reliant on buying goods from non-members to maintain operational stability. For example, dairy cooperatives buy from non-member farmers to ensure they have a constant supply of milk.
Nationwide, about 20% of cooperative business is not patronized, but the proportion varies between cooperatives, according to the NCFC. By law, 51% of NCFC’s business must be done with members.
Chuck Conner, NCFC
Arkansas-based Riceland Foods estimates the deduction would be worth $ 50,000 less per farmer in 2020 if non-patronage income is excluded.
According to the previous tax law, the deduction applied to both members and non-members. The deduction will be passed on to members so the net effect of the upcoming IRS regulations will be to increase taxes for some members. It is not yet known when the regulations would take effect.
NCFC officials had a 30-minute meeting with the White House’s Office of Information and Regulatory Affairs on Dec. 30, but Conner was not optimistic that it would lead to a change in IRS rules.
“We are amazed that something that will lead to higher taxes for farmers is even being taken seriously by this team on the way to the door,” said Conner, referring to the Trump administration.
You can find more news at www.Agri-Pulse.com.