AICPA Ag Conference – Day 1
Monday kicked off the first day of the AICPA Ag Conference in Las Vegas. Five of us did play a round of golf on Sunday and I can tell you it was hot and my game was not.
We started off with a three hour refresher session on farm income taxes. Most of the session dealt with several of the recent Tax Court cases that have directly affected farm taxes and we have posted on these in the past.
However, there was also a Nebraska case dealing with what rights that minority shareholder have or don’t have.
In the case, mom and dad started a corporation about forty years ago. It was an S corporation and then became a regular C corporation. Over time two of their sons were gifted shares and the corporation crop shared their land on a 50/50 basis to two corporations; one owned by each son..
The corporation also paid commodity wages to sons; no cash wages were paid; and wages went up and down based on income, not work performed by the sons.
Mother finally passed away and all of her stock went equally to the two sons and their two sisters. Dad finally passes away and now one sister would like to sell her stock based upon the value shown on mom’s estate tax return which was in excess of $200,000. However, the company’s documents indicated that the purchase would be based on book value of the corporation which was less than $50,000.
As you can guess, sister was not happy about this and sued her brothers claiming that she was oppressed since no dividends were ever paid and book value should not rule. The court finally ruled in favor of the brothers. Essentially, most minority shareholders in a closely held business have very limited rights. There is never a requirement to pay dividends and even though book value was about 20% of “fair market value”, that is still allowed.
Our first session was by Jim Wiesemeyer who updated us on farm policy and the possible new farm bill. The Senate version of the farm bill appears to be less favorable to farmers, whereas the House version opens up ownership to additional family members and allows limited entities to not have any AGI limitation. However, it is likely that no farm bill will be passed before the election.
John Blanchfield, who used to be the head of the American Bankers Association Ag Section, gave a very informative talk on the farm economy and how this is affecting the banking system. Although many say that the farm sector is still in good shape since their debt to asset ratio is still very good, he warned that if rates increase and income stay low, this cushion could evaporate very rapidly.
Last, we had Andrew Prior from PWC give us a discussion on the background of how the new Tax Cuts and Jobs Act was created. The 1986 tax law took 53 weeks to get drafted, while this law took less than 53 days and we can tell from the “grain glitch” and other issues with the law, that they should have taken longer to get it done.
However, the law is the law and we will need to deal with it. It appears that we should be getting guidance from the IRS on Section 199A by July 31 (I hope that means 2018 and not 2019). 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.
Comments are closed.