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Tax Reform Proposal Exempts Farmers From Accounting Method Change

Tax Reform Proposal Exempts Farmers From Accounting Method Change

House Committee's proposal exempts farm businesses from accrual accounting requirement

Farmers will be exempt from an accounting method change requirement in the latest tax reform proposal released Wednesday by the House Ways and Means Committee.

The ag accounting industry watched the process closely, as previous draft versions included a requirement for businesses with more than $10 million in gross receipts to shift to accrual accounting. Many farms currently use cash basis accounting, which allows for better management of volatility and risk.

House Committee's proposal exempts farm businesses from accrual accounting requirement

According to accounting firm Kennedy and Coe, and the coalition Farmers for Tax Fairness, the change, if realized, would have caused some owners of farm businesses to pay tax before cash is received, therefore recognizing revenue in advance of actually getting paid.

Brian Kuehl, Director of Federal Affairs for Kennedy and Coe, noted in an announcement Wednesday that the exemption for "farm businesses" in the House's proposal is just the first step.

"While this is an amazing victory, we can’t take our eye off the ball. The Senate tax reform discussion draft would still require agriculture to shift to accrual accounting. We need to use our victory in the House to ensure victory in the Senate. In the coming months, we’ll turn our attention to outreach to key Senators and to make the case that they should follow the House’s lead on this issue," he wrote.

Related: Potential Tax Changes Could Cost Ag $4 Billion

American Farm Bureau Federation President Bob Stallman praised the proposal.

"Farmers and ranchers are grateful for the long-standing willingness of (Committee Chairman Dave Camp), as well as his colleagues, to listen to our concerns on issues like cash accounting.

"We appreciate the chairman’s focus on simplifying and streamlining the tax code. Still, his proposal runs deep and wide and at a level of detail that will require careful analysis," Stallman concluded.

Infrastructure improvement
The proposed plan also dedicates $126.5 billion to the Highway Trust Fund to fully fund highway and infrastructure investment through the HTF for eight years, and adopts the inclusion of a 6 cents per gallon increase to the user fee paid by inland waterways towboat operators into the Inland Waterways Trust Fund.

The IWTF increase was first proposed in WAVE 4, the Waterways are Vital for the Economy, Energy, Efficiency, and Environment Act of 2013.

The Waterways Council, Inc., supports the fee change. "As our nation looks to increase exports, create jobs, and facilitate American competitiveness, transportation infrastructure requires investment," WCI President Michael Toohey said. "An increased user fee,  paid for and supported by the inland waterways industry, will serve to raise the level of investment in our inland waterways transportation system."

Proposal language
Aside from direct impacts on agriculture, Chairman Camp, R-Mich., said the draft Tax Reform Act of 2014 has the potential to create up to 1.8 million new private sector jobs, allow roughly 95%of filers to get the lowest possible tax rate by claiming the standard deduction (no more need to itemize and track receipts), strengthen the economy and increases Gross Domestic Product by up to $3.4 trillion.


Based on calculations using data provided by the Joint Committee on Taxation, the committee says the average middle-class family of four could have an extra $1,300 per year from the combination of lower tax rates in the plan and higher wages due to a stronger economy.

"Washington needs to … start offering concrete solutions and debating real policies that strengthen the economy and help hardworking taxpayers. Tax reform is one way we can do that," Camp said in a press statement.

"This legislation does not reflect ideas solely advanced by Democrats or ideas solely advanced by Republicans, nor is it limited to the halls of Congress," said Camp.  "Instead, this is a comprehensive plan that reflects input and ideas championed by Congress, the Administration and, most importantly, the American people," he added.

Other highlights
• New Individual and Corporate Rate Structure:  Flattens the code by reducing rates and collapsing today's brackets into two brackets of 10 and 25% for virtually all taxable income, ensuring that over 99% of all taxpayers face maximum rates of 25% or less.  The plan also reduces the corporate rate to 25%.

• Larger Standard Deduction:  Provides an inflation-adjusted standard deduction of $11,000 for individuals and $22,000 for married couples. 

• Simpler, Improved Taxation of Investment Income:  Taxes long-term capital gains and dividends as ordinary income, but exempts 40% of such income from tax – resulting in a three percentage point decrease from the maximum rates individuals pay today on such income while also achieving the lowest level of double taxation on investment income in modern history. 

• No AMT: The plan repeals the Alternative Minimum Tax for individuals, pass-through businesses and corporations. 

• Simplifies the Income Tax Code: The plan repeals over 220 sections of the tax code; cutting the size of the income tax code by 25%.

For more highlights of the proposal, visit the House Ways and Means Committee page and the House Tax page.

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