Treasury Rule Could Affect “Grain Glitch” Fix

DTN Ag Policy Editor Chris Clayton reported today that, “Two years after discovering the ‘grain glitch’ in the Tax Cuts and Jobs Act of 2017, leaders at farmer cooperatives are still trying to get Treasury officials to reinstate provisions of Section 199A to the way the tax deduction worked before the 2017 tax law passed.

“A tax quirk two years ago looked like a windfall for farmers who did business with cooperatives. Now, new rules might actually increase the taxes for at least some farmers who are patrons of more diversified cooperatives.

“‘This is the issue that does seem to have a difficult time for us going away,’ said Chuck Conner, president and CEO of the National Council of Farmer Cooperatives.”

Mr. Clayton noted that, “The fix restored a deduction equal to 9% of a cooperative’s income, limited to 50% of wages. The tax deduction can be retained or passed through to patron farmers. The farmer-patron of the cooperative could claim a Section 199A deduction equal to 20% of all net farm income, as well as any deduction passed on from the cooperative with a formula used to avoid double counting.

All of that was fine until the Treasury Department began proposing rules last summer on how the deduction would work. Treasury officials proposed that the Section 199 deductions apply only to ‘patronage income,’ which would eliminate cooperatives’ ability to combine ‘non-patronage income’ as part of the deduction calculation. That exclusion of non-patronage income was never part of the original Section 199 regulations.”

The DTN article stated that, “Excluding non-patronage income wouldn’t affect every cooperative, but diverse co-ops that have multiple businesses could lose that share of the tax break. That would then lower the potential tax break co-ops could return to their members.”

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