IRS Tax Guidance, Farm Issues

DTN writers Katie Dehlinger and Chris Clayton reported earlier this month that, “The Internal Revenue Service outlined the rules on how farmers and others with pass-through business entities can claim the new Section 199A tax deduction, and tax experts said it includes several provisions favorable for farmers.

“The new deduction allows businesses structured as sole proprietorships, partnerships, trusts and S corporations, to deduct 20% of their qualified business income. It does not apply to C corporations, which are tied to the 21% tax rate detailed in the new tax law.

“The regulations released [August 8th] encompass 184 pages, though most of the text explains why the IRS made the interpretations of how certain income will be treated. The rules also provide a 45-day comment period that would give the IRS time to make changes depending on the response.”

The DTN article noted that, “‘I thought, overall, it was fairly favorable to taxpayers on the farm side,’ said Paul Neiffer, a farm accounting expert with the firm CliftonLarsonAllen.

“Neiffer and American Farm Bureau economist Veronica Nigh agree that one of the most favorable provisions guides how multiple farm entities are treated. As Neiffer noted, most commercial farm operations these days may have multiple LLCs owning different pieces of land, an S Corporation that owns the machinery and/or another business entity that runs farming operations. The regulations allow farmers to group all of those entities together if they meet certain criteria and treat it as one entity.

“‘I think it’s a pretty clear win that farmers will be able to aggregate these entities under one business as long as they can show common ownership,’ Nigh said. Usually, farmers will need to show 50% common ownership, which Nigh doesn’t see as a big hurdle. The regulation also allows farmers to aggregate wages, a decision that could save farmers a lot of paperwork.”

The DTN writers added, “The IRS rules released [earlier this month] do not address how Section 199A will work for farmer cooperatives. The IRS stated that issue will be dealt with in a later regulatory release.”

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