Skip to comments.New tax law to stop “cash accounting,” cost farmers big money
Posted on 03/04/2014 6:46:53 AM PST by Sharkfish
Agricultural producers forced to switch from cash-basis to accrual-basis accounting under new laws would have to pay out as much as $4.84 billion in taxes during the next four years.
Proposed changes to the tax code restricting the use of cash accounting by agricultural operations would reduce agricultures access to capital by as much as $12.1 billion over the next four years, according to Kennedy and Coe, LLC and Farmers for Tax Fairness.
The study prepared by the independent research firm, Informa Economics, revealed that U.S. agricultural producers forced to switch from cash-basis to accrual-basis accounting under new laws would have to pay out as much as $4.84 billion in taxes during the next four years. Additionally, borrowing capacity of these operations would decrease by another $7.26 billion over the same time period.
The Informa study quantifies what weve been hearing from producers across the U.S., said Jeff Wald, the CEO of Kennedy and Coe, a national agricultural accounting firm. This tax payment and subsequent loss of financial flexibility will have a major negative effect on Americas agriculture. Meeting the immediate tax burden is going to be very difficult for most of the affected operations.
According to the study, In aggregate, these farms have less than $1.4 billion in current cash on hand to pay the additional taxes. If the tax bill associated with deferred income comes in an unprofitable farm year or if the producer cannot otherwise meet the capital requirements, the farmer or livestock producer may have to downsize to survive (e.g., sell land or livestock).
The impact of these changes would extend far beyond producers and would affect their lenders, processors, and other key suppliers, said Brian Kuehl, Director of Federal Affairs for Kennedy and Coe. Producers will no longer have these funds available to buy tractors and combines, or invest in labor and other inputs. These purchases support a lot of small towns and ag-related businesses, small and large. The economic effects of these proposals are potentially staggering.
In 2013, the U.S. House Ways and Means Committee and the majority staff for the U.S. Senate Finance Committee both released discussion drafts of tax-reform proposals that would reduce the number of agricultural operations that can use cash method of accounting.
Farmers in America have used cash accounting for decades, adds Kuehl. Cash accounting is a simpler form of accounting and allows farmers to better manage volatility and risk. They are already at the mercy of external factors for input prices, commodity prices, and weather. Requiring a change to accrual-based accounting takes away the one thing they can actually control: their cash flow. It just doesnt make sense. Producers already face enough risk.
The study used U.S. Department of Agriculture data to estimate the financial impact of congressional proposals to require agricultural operations with more than $10 million in gross receipts to shift to the accrual form of accounting.
In January, 33 agricultural organizations including the American Farm Bureau, the National Cattlemens Beef Association, National Corn Growers Association and National Pork Producers Council sent a letter to the Senate Finance Committee expressing their concerns about the proposed changes to the cash-accounting rules.
From what I have seen, the Obama administration is bending over backwards to kill the family farm once and for all. The evil continues.
BTW, aren't banks STILL allowed to mark their real estate holdings at cost instead of marking them to market? That makes no sense at all unless you're propping up bank valuations artificially. Corrupt to the core methinks.
This is the 9th. or 10th. story in the past week which seems to indicate they’re working on a Stalin-style engineered famine.
Say bye bye to the family farm.
I’m on my way to pay the property taxes for the farm this morming.They’re up about 40% in the last 2 years.I’m considering taking a pass this year and not grow anything.
(Other than the hay for my horses)
Like stable married couples, family farms are an key component of the middle class.
It would be nice if we had a few GOP candidates willing to milk this real theme with as much gusto as the RAT party milks the phony "war on women."
Yes, there is a real "war on women", but it is the jackass party which is waging it.
Not really. I work in the lending function in a bank. GAAP accounting rules apply. When a property is foreclosed, it has to be appraised and booked at current market value less cost to sell. Any time there is a market factor or event affecting the value of the real estate, it should be re-appraised. It cannot be written up, but if the value is less, it must be written down.
There is a huge divide in the banking industry between the giants like Citi, Wells Fargo, JP Morgan Chase and the community banks, which is where I am. The big banks caused the lion’s share of the problems that was exacerbated in the 2008 bank liquidity crises, which I think was purposefully triggered right before the 2008 election. The big boys were propped up, but Dodd-Frank did NOTHING to break up the huge banks in order to reduce huge economic risk from concentration of assets. . . the big ones got even bigger with the collapse of Lehman, WAMU, Wachovia, et al.
They used it as an excuse to put ridiculously heavy regulation (it was bad before) on banks. Most of these regs did nothing to truly help the consumer, it pretty much added big dollars to the cost of doing business with a bank and subjected banks to more government imposed regulatory risk.
Big banks can deal with the regulation much easier than community banks. They can afford the staffing and legal help to cope. Community banks are struggling to cope and it is forcing further consolidation of the banking industry, forcing many smaller banks out of business. I personally believe that the government is forcing change in accounting rules on the accounting industry in an attempt to damage small banks and businesses in general. The big banks are playing footsie with the Feds. Occasonal fines are chump change to them and are for show. Corzine probably stole a $ billion and is walking around a free man.
Government and the accounting industry has teamed up to create a very costly and risky business environment for small businesses and small banks alike. Joe Six-Pack on the street doesn’t have a clue that this is happening, but it will cost him the most. Access to credit for the little guy is getting harder to obtain and more costly when he gets it.
I promise you. Our government is waging war on its citizens in every way imaginable.
Oh, come on, let’s just seat down to a nice steak dinner and talk about it. Wow. That’s a lot for a steak. Those farmers must be making a fortune.
The American Holodomor.
We went from acquiring 1 or 2 small independent pharmacies per year before Medicare part D to 2 or 3 per month after it was enacted. Nationwide, 7% of small independent pharmacies went out of business in the first year after it was enacted. From what the staff at the pharmacies told me, the government was forcing them to accept much less $ for the drugs that were covered by the program and the reimbursement would take up to 6 months. They simply didn't have the cash flow to float that much money. They said that there was also a huge increase in paperwork that came along with it.
There is no doubt in my mind that there is a concerted effort by both Republicans and Democrats in Washington to destroy small business, independence, liberty and the traditional American way of life.
Every farmer is a producer. Washington DC parasites produce nothing useful these days but they do need to eat. So they steal billions in taxes each year. Farmers are their latest target
The problem we have is that regular folks who get a paycheck will never understand just how they are being stolen from and how they are losing freedom and their ability to make life choices.
I have a sick feeling in my gut every day that I wake up because I can see it unfolding day by day. I hold a visceral contempt for most all Washington politicians these days. But I will say that my Senator Jeff Sessions seems to be one of the very few truly good guys.
There must be a huge, powerful association of accountants that is laughing their heads off.
Puts money in their pockets. The list of required disclosures to financial statements has grown ridiculously long. Rules for loan loss accounting, past due, nonaccrual and troubled debt restructure are an absolute maze. Additionally, the amount and depth of audit procedures mandated by the regulators, and mostly performed by CPAs,pretty much keeps auditors or examiners, even in small banks, a large percentage of the time. Audit does not come cheap either.
For most of my career regulators did not require banks to adopt GAAP for loan loss purposes. They abruptly changed that stance when the SHTF in 2008 . . . the worst possible time. Now they are changing the rules again. And forget about the fact that we are starting to defer to international accounting standards. Before that, the regulators sold the American banks out to Basel Accord capital standards, ostensibly for large banks only. Guess what? Those international capital standards are now being applied to community banks.
I firmly believe that they are getting things in place to wreck our economy and banking system. My opinions are from observations of 9 years as a banker and 25 years as a state regulator. I am not an insider, but what I am observing is deeply troubling.
If their numbers hold true, this will continue to kill the velocity of money.
Another piece of history government schoolchildren never learn.
They drove small FFLs out of the gun business the same way under Clinton. Ridiculous inspections and paperwork with the threat of federal time.