Does FSA Allow Section 179 for Corporations

About two years ago we posted that FSA was not allowing Section 179 as a deduction for S corporations and LLC/LLP/LPs.  We communicated our concerns to FSA and to others in Congress, etc. and thought that the FSA would update their interpretation to reflect Section 179 as an expense in arriving at AGI for these entities.

Someone recently brought to our attention an update to 5-PL dated February 10, 2016 (the FSA manual dealing with AGI calculations).  In the update, the FSA essentially left the calculation of AGI for all entities the same, however, in the section dealing with corporations, they added an * as follows:

“–Note: Only if reported, exclude the amount elected as depreciation under Section 179 of the tax code-“

We think that this now applies to both C and S corporations (although it is difficult to tell since there is an * that does not refer to another * in the section).  If so, this now means that C corporations will have to add back Section 179 in arriving at AGI (just like all other entities).  Let’s look at an example:

“Bean, Inc. has taxable income of $1 million before Section 179 each year from 2011-2013, however, Bean, Inc. deducted $500,000 of Section 179 in each year to arrive at net taxable income of $500,000.  Under the old guidance, Bean, Inc. would be allowed to keep all of its FSA payments since its average AGI was $500,000.  Under the new guidance, Bean Inc.’s AGI is now $1 million, therefore, no FSA payments are allowed.”

We are checking with the FSA to verify our interpretation and this will likely not apply to many C corporations, but we just wanted to warn any farmers with situations similar to this.

Paul Neiffer, CPA