Deal Reached to Fix “Grain Glitch” in New Tax Measure

Richard Rubin reported yesterday at The Wall Street Journal Online that, “U.S. lawmakers reached a last-minute deal to reverse an error in December’s tax law that was helping farm cooperatives and hurting their corporate competitors.

“The agreement to alter the so-called grain glitch is attached to a must-pass spending bill slated to become law later this week, and the details were released late Wednesday.

“Democrats, who had been wary of helping Republicans change the tax law without extracting a concession, won an expansion of the low-income housing tax credit in exchange.”

The Journal article noted that, “Under the tax law passed in December, farmers who sell grain and other products to cooperatives get a much larger deduction than if they sell to a private or investor-owned company, because they could deduct 20% of gross sales instead of 20% of net income. In some cases, farmers could wipe out their entire taxable income.

“The provision’s authors, including Sens. John Hoeven (R., N.D.) and John Thune (R., S.D.), were trying to make sure that cooperatives and their patrons benefited from the 20% deduction available to other pass-through businesses.

They said the significant advantage given to cooperatives was inadvertent, and lawmakers have been working on a potential change since January. Without a change, independent grain elevators were worried about business drying up, and companies were considering creating their own cooperatives.”

Mr. Rubin added that, “If the fix is passed as part of the spending bill, ‘it’ll be a huge relief,’ said Todd Lafferty, co-chief executive of Wheeler Brothers Grain Co. Time has been running short for the Oklahoma-based grain company, which buys wheat from farmers at locations around the state. About 90% of the millions of bushels of grain the company buys and trades each year is winter wheat, and with that crop’s harvest approaching at the beginning of June, farmers soon will begin to sell it, Mr. Lafferty said. If the new U.S. tax law continues to provide big benefits for farmers who sell their crops to cooperatives, Wheeler Brothers stands to lose out on a significant part of its annual business, Mr. Lafferty said.

“The proposal would cap farmers’ deduction at 20% of net income, excluding capital gains. Farmers could also get an additional benefit from deductions at cooperatives where they are members. The provision is generally retroactive to the beginning of 2018.”

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