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Legislators Announce Deal to Rectify ‘Grain Glitch’ in Tax Law

Posted on March 14, 2018 by Stephen K. Cooper, David van den Berg

House and Senate lawmakers announced a deal March 13 to fix language in the new tax law that mistakenly gives a competitive advantage to farmers who sell to nonprofit grain suppliers.

Senate Finance Committee Chair Orrin G. Hatch, R-Utah, joined four other Republican senators in issuing a statement praising an agreement spearheaded by industry groups, saying it “restores balanced competition within the marketplace.”

The Tax Cuts and Jobs Act (P.L. 115-97gives a larger tax benefit to farmers who sell to cooperative grain suppliers than to other companies under the section 199A passthrough business income deduction.

If the proposed agreement is enacted, cooperatives could determine their section 199A deduction based on rules “substantially similar” to those that were in the prior section 199, including keeping the flexibility to retain part of the deduction to offset income at the entity level and/or pass through part or all of the deduction to their “farmer patrons,” according to a summary that accompanied the committee statement. Farmers selling products to independent buyers would continue to determine their deduction under section 199A in the recently-passed tax law. Farmers selling to cooperatives which they patronize could claim a modified deduction, provided they have taxable incomes above $157,500 for singles and $315,000 for married taxpayers filing jointly, the summary shows.

The National Council of Farmer Cooperatives and National Grain and Feed Association issued a statement supporting the proposed agreement.

Before the deal announcement, Senate Finance Committee member Pat Roberts, R-Kan., said that Senate Minority Leader Charles E. Schumer, D-N.Y., could pose an obstacle to the provision’s inclusion in the omnibus, saying he has apparently objected to this. A spokesperson for Schumer would only say that negotiations are continuing on the omnibus spending bill.

House Ways and Means Committee Chair Kevin Brady, R-Texas, declined to say what’s being offered to gain Democratic support for the grain glitch deal, only that the issue is “being viewed as part of the overall omnibus discussions” and that the first priority of lawmakers should be to find a solution that satisfies all interested parties on both sides of the aisle.

Finance Committee member John Thune, R-S.D., said that he would have preferred to address the issue “in the last legislative vehicle that moved out of here.” Lawmakers worked through a list of riders to the omnibus spending bill March 13 in hopes of releasing legislation ahead of a March 23 deadline to pass a spending bill to keep the government funded.

Several House and Senate Democrats from states with agricultural operations are “actively encouraging a good, balanced solution,” Brady said.

Finance Committee ranking minority member Ron Wyden, D-Ore., dismissed that scenario. He said Republicans have excluded Democrats rather than consulting with them about the grain glitch deal, which will need their support to pass the Senate.

“The grain glitch is a product of reckless haste in the Senate,” Wyden said, adding that neither he nor any senior Senate Democrats have knowledge of the deal taking shape. He added that it “defies not just good tax policy, but common sense, because you’re trying to build some alliances” to pass legislation.

Follow Stephen K. Cooper (@ScoopOnTaxes) and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.