Lawmakers Find Fix to Unintended “Grain Glitch” in Tax Reform Measure

Jacob Bunge reported today at The Wall Street Journal Online that, “Lawmakers and agricultural companies say they have found a fix for a provision in the new U.S. tax law that stirred controversy in the Farm Belt.

“The amendment to the tax law, which legislators aim to include in an omnibus spending bill later this month, would change a provision that provided farmers with larger tax savings if they sold crops to agricultural cooperatives. Private and investor-owned grain companies feared the provision put them at a disadvantage, potentially forcing them to pay more to secure crop supplies—or form their own cooperatives.

Agriculture trade groups on Tuesday backed a proposed change that they said would preserve tax benefits for farmers while restoring competitive balance in the industry. Farm-state senators, including Chuck Grassley (R., Iowa) and Pat Roberts (R., Kan.), said they aimed to get the proposal signed as soon as possible.”

Mr. Bunge noted that, “The ‘grain glitch,’ as some agriculture officials termed it, is one of the bigger and most glaring unintended consequences of the tax law passed in December. The law allows farmers to deduct up to 20% of their gross sales to cooperatives, versus 20% of their net income from other sales—a shift that accountants said would translate to a far larger deduction for farmers selling to cooperatives. In some cases, farmers could have wiped out their entire taxable income.

“The new proposal would allow farmers to deduct 20% of their net income from sales to cooperatives where they members, subject to certain thresholds and modifications. The new deduction would be limited to 20% of farmers’ taxable income, excluding capital gains, and would let farmers claim a pass-through deduction from agricultural cooperatives where they are members.”

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