When is Guidance Coming?
There are at least two farm specific parts of Tax Reform that we are still waiting for guidance from the IRS.
First, we need guidance for those farmers who sell to a cooperative. As part of the “grain glitch fix”, the Code provided a transition adjustment for cooperatives with fiscal years ending in 2018 (or really any cooperative that made a payment to farmers in 2018 that was included as part of their Section 199 DPAD calculation on the cooperative’s 2017 tax return).
As of yet, we have gotten no formal guidance from the IRS. There was one sentence in the Form 8903 instructions that indicated to prepare a return similar to what we did under old 199, but I would not call that guidance.
Treasury Secretary Mnuchin has indicated that there are a lot of technical issues and that Treasury is very focused on it. He indicated that Treasury hopes to get guidance out “quickly”, perhaps within weeks. This information was provided about two weeks ago and I am not sure whether quickly and “within weeks” means we will get anything before April 15.
Second, many permanent crop farmers (orchards, vineyards, etc.) had elected out of capitalizing all preproductive costs under Section 263A. This allowed them to deduct all of those costs as incurred. However, the offset was that farm assets had to be depreciated using ADS (longer lives and straight-line depreciation) and could not use bonus.
Tax reform eliminated the requirements of using Section 263A if your gross revenues were under $25 million (and not a tax shelter). Many of our farmers would like to automatically elect “back” into Section 263A and then be exempted since there revenues are under that threshold.
We just have gotten some guidance that Treasury is aware of this need and may be able to get us guidance on this issue but likely not before April 15.
The bottom line is if you are dealing with a farmers selling to cooperatives or permanent crop farmers who elected out of Section 263A and the possible extra deduction is material, it would be prudent to file an extension this year. I am guessing this will be an all-time record for extended farm tax returns this year.
Remember, even if we get the guidance by let’s say April 10, the tax software will not be ready by April 15.
We will keep you posted.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Will an extension be considered a return filed by April 15th under Notice 2019-17?