It’s been two years since the discovery of the “grain glitch” in the Tax Cuts and Jobs Act of 2017. A DTN report says farmer cooperatives are still asking Treasury Department officials to change provisions of Section 199A back to the way the tax deduction worked before the 2017 tax law was passed.
The tax quirk that looked like a windfall for farmers who did business with cooperatives might now increase the taxes for at least some of those farmers who are patrons of more diverse cooperatives. Accountants and grain industry leaders discovered in early 2018 that the new tax law inadvertently gave farmers a potentially large tax break for selling their crops to farmer cooperatives instead of private elevators. Major private grain companies were faced with a possible large purchasing disadvantage. The grain glitch generated enough attention that Congress passed legislation to rework the tax deduction in a federal spending bill within a few months.
Last summer, the Treasury Department began proposing that Section 199 deductions only apply to “patronage income.” That would eliminate cooperatives’ ability to combine “non-patronage income” as part of the deduction calculation. That exclusion of non-patronage income was never part of the original Section 199 regulations.