Omnibus Bill Includes 199A “Grain Glitch” Change

The omnibus spending bill before Congress this week does include a change to Section 199A of the President’s Tax Cuts and Jobs Act.

The hotly debated 199A provision gives farmers a financial incentive to sell to cooperatives instead of private companies.

According to Pro Farmer’s Washington Policy Analyst Jim Weisemeyer, the 199A language change would repeal the 20% deduction of gross sales to co-ops.

“This currently gives co-ops an edge over other types of businesses because farmers who sell their commodities to grain firms can deduct only 20% of their net business income,” he says. “Some farmers could write off their income entirely using the gross sales deduction.”

Under the omnibus revision, farmers selling to co-ops would be able to claim a 20% deduction on net business income, with limits set on those with high incomes or capital gains, Wiesemeyer says.

“The deduction would be reduced by the lesser of the following amounts: 9% of the farmer’s income from sales to the cooperative, or 50% of wages attributed to those sales,” he says. “Besides this tax break, a farmer would be able to claim the pass-through deduction from the co-op, if any. Farms structured as C corporations would not be eligible for the farmer-level deductions. And co-ops would be able to determine their deduction based on rules similar to the old tax law under the Domestic Production Activities Deduction.”

The National Farmers Union is not happy with the changes saying bipartisan compromises were “disregarded in favor of corporate interests.”

“Farmers Union is deeply disappointed that Congress included harmful modifications to Section 199A in this must pass legislation,” says NFU President Roger Johnson. “Reverting back to Section 199, in light of double-digit corporate tax relief, leaves farmers and their cooperatives worse off than prior to the passage of the Tax Reform and Jobs Act."