FAQs

What can I do to make sure this proposal does not become law?
The most important thing you can do is to contact your U.S. Senator and U.S. Representative to let them know about your concerns.  If our elected officials aren’t hearing from agriculture, they will assume that this tax code change is not a big issue.  In addition to contacting your members of Congress, consider joining Farmers for Tax Fairness and providing financial support for our efforts to identify and contact agricultural producers who will be affected by this proposal.
Could Congress restrict the use of cash accounting by agriculture as part of tax reform?

Yes. In 2013, Representative Dave Camp, then Chairman of the U.S. House Ways and Means Committee proposed to prevent businesses with more than $10 million in gross receipts from being able to use cash accounting. Farmers for Tax Fairness was organized in response to this proposal and pulled together farmers and ranchers from across the U.S. to speak out against these proposed changes. In 2014, Chairman Camp introduced tax reform legislation that contained the cash accounting limitation but that specifically exempted agriculture from the proposed change. This was a big win for Farmers for Tax Fairness but we are not safe yet.

Congress is once again considering comprehensive tax reform. President Trump and the Republicans in the House and Senate want to lower corporate tax rates to boost our economy. In order to lower rates, however, legislation will need to offset any reductions in revenue coming in to the federal government. In the past, Congress has looked at restrictions on cash accounting as a way to generate revenue to support tax reform. The House and Senate could take up these proposals and once again jeopardize farmers’ ability to use cash accounting. It’s critical that we remain vigilant and continue to let Congress know that such changes would be a disaster for U.S. agriculture.

I currently use cash accounting.  If my business has more than $10 million in gross receipts, could I be impacted by tax reform proposal?
Yes.     Under past legislative proposal, if your business has more than $10 million in annual gross receipts (measured as an average over a three-year period), then you would be required to switch to accrual accounting for tax purposes.  This could require you to pay income tax on any deferred income you are currently carrying and would also restrict your ability to manage future tax payments by pre-purchase of seed, fertilizer, feed or other inputs.
My business has less than $10 million in gross receipts.  Could I still be affected by these changes?
Yes.  Businesses with less than $10 million in gross receipts could be affected if owners of that business also own other businesses.  Under the aggregation rules, businesses with related ownership could be pooled together for the purposes of determining gross receipts.  If multiple related businesses total $10 million, then each business would be required to use accrual accounting.
My business has just under $10 million in gross receipts.  Could I be affected in future years if commodity prices increase?
Yes.     Past proposals created a static $10 million gross receipts test.  If commodity or input prices increase, it could require agricultural operations to switch to accrual accounting in future years even if they currently have less than $10 million in gross receipts.  The Senate Finance Committee previously considered a proposal that would index to inflation the $10 million gross receipts test.  Given that commodity price increases regularly outpace inflation, these proposals would still put increasing pressure on operations that are currently below the $10 million threshold.
I have $12 million in deferred income.  Will I have to pay taxes on that income if these types of proposals become law?
Yes.  If you have deferred income from the use of cash accounting, you will have to pay tax on that income if these proposals becomes law.  Under current rules, a taxpayer who shifts from cash to accrual accounting has four years in which to pay the taxes on deferred income. If you owed $4 million in taxes on the $12 million in deferred income, then you would presumably be required to pay $1 million each year for four years after this proposal is enacted into law.
Could this proposal affect my ability to borrow money to finance operations?
Yes.  Banks usually loan money based in part on the equity that a borrower has.  If you are required to pay taxes on your deferred income, it could reduce the equity that you have available for future financing.  This could make it difficult to borrow funds or could result in a higher interest rate for funds you borrow.
If I am forced to switch to accrual accounting, can I switch back to cash accounting if my gross receipts fall below $10 million.
Unclear.  Under current law, if a producer elects to switch to accrual accounting, they lose the right to use “automatic consent” to switch back to cash accounting under for a period of five years.  Rev. Proc. 2011-14, Sec. 4.02(6).  Under the previous Senate Finance Committee proposal, operations would be prohibited from switching back to cash accounting for a period of four years even if their gross receipts fall below the $10 million threshold.  As a practical matter, it would be difficult for an operator to switch multiple times between cash and accrual accounting.
What’s the difference?  Aren’t I going to have to pay the same amount of taxes under either cash accounting or accrual accounting?
As a general rule, yes.  The shift from cash accounting to accrual accounting will affect the timing of taxes that you owe but is unlikely to affect the total amount of taxes that you owe.  Farmers use cash accounting to level out the highs and lows of their business cycle so the timing of payments is critical and that’s why this issue is so important.  It’s less about whether you pay taxes and more about when you have to pay taxes.
I sell seed and fertilizer to farmers but do not have $10 million in gross receipts.  Could this proposal affect me?
Yes.     Currently, many farmers use cash accounting to balance their income and reduce volatility.  One way that farmers do that is by buying their seed or fertilizer for the coming season at the end of their tax year.  If you are an input provider, you would see many fewer advanced sales of your products as farmers shift to accrual accounting

FAQs are included as examples only. The effects of this proposal on individual taxpayers may vary. Taxpayers should not use the information in these FAQs as tax advice and are encouraged to seek assistance from their own Certified Public Accountant or attorney prior to making specific business or tax planning decisions.


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