The omnibus appropriations bill that Congress is expected to approve ahead of a Friday deadline to avoid a government shutdown includes extra funding for the Internal Revenue Service to implement the Tax Cuts and Jobs Act, while changing a provision in the new tax law that advantaged farm cooperatives over other types of grain companies.
Under the spending bill, the IRS would receive $11.43 billion, approximately $196 million more than it got for fiscal year 2017, according to The Hill. The funding includes $320 million more to implement the tax reform law until Sept. 30, 2019, though the IRS commissioner would first need to provide a spending plan to Congress's appropriations committees. The $320 million appropriation was somewhat lower that the Trump administration's funding request. The administration had asked for $400 million in extra spending for administering the new tax law, including money for updating the IRS’s aging computer systems, some of which date back to the Kennedy administration.
The bill also includes a fix to the so-called “grain glitch” to change a provision in the Tax Cuts and Jobs Act that had given a preference to farm co-ops over other agribusinesses. Section 199A of the tax law that Congress passed last December gave an advantage to farm cooperatives over corporate-owned feed producers such as Archer Daniels Midland, allowing farmers who sell their crops to agricultural co-ops to take advantage of the deduction for pass-through businesses so they can deduct 20 percent of their gross sales. However, if the farmers sell to another type of business, they can only deduct 20 percent of their net income, incentivizing them to bypass the corporations in favor of the co-ops. ADM and other corporate agribusinesses have lobbied for the so-called “grain glitch” to be fixed.
Two trade groups representing farmer cooperatives and grain and feed producers reached an agreement last week to resolve the issue with the support of Republican lawmakers from agricultural states and include the fix in the appropriations bill (see Deal reached on fixing ‘grain glitch’ in new tax law). The question was whether Democrats would allow the deal to go through without something in exchange. In return, they won a provision that would strengthen low-income housing tax credits. The bill increases allocations for the tax credit 12.5 percent annually for four years, from 2018 to 2021, the first increase in over 10 years, according to Sen. Maria Cantwell, D-Wash., who pushed for the provision. It also permits an average income test that should allow more developments to qualify for the credits.
The omnibus appropriations legislation modifies the new 20 percent pass-through deduction for business income in the Tax Cuts and Jobs Act to ensure that farmers and ranchers receive the benefit like other business owners and to retain the tax benefits that had been available to agricultural cooperatives and their farmer patrons under prior law.
“I am pleased with the inclusion of our bicameral solution to address the treatment of the agriculture sector under the pass-through business income provision in the Tax Cuts and Jobs Act,” said House Ways and Means Committee chairman Kevin Brady, R-Texas, in a statement Wednesday. “This provision allows our farmers and ranchers to reap the benefits of our new tax law while restoring the competitive balance that has long existed in the agricultural markets.”
The National Council of Farmer Cooperatives released a statement Wednesday supporting the new Section 199A provisions. “I would like to commend congressional leadership for inclusion of provisions to address the marketplace impacts of Section 199A of the Tax Cuts and Jobs Act in the omnibus government funding package unveiled today,” said NCFC president Chuck Conner. “These provisions will accomplish the goal that NCFC and our member co-ops set out at the beginning of the tax reform debate last fall—preventing a tax increase on farmers and their co-ops by keeping the Domestic Production Activities Deduction, or DPAD. DPAD will largely be recreated in this bill, which also preserves the competitive position of co-ops in the marketplace. In fact, by combining the individual-level business deductions that farmers can claim and the recreated DPAD pass-through from their co-ops, farmers selling to cooperatives have the opportunity to see more of a tax deduction than farmers selling to non-cooperatives.”
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