NCBA Chairman Camp rolls out tax reform proposal

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For the past year, NCBA has been working with the staff and leaders of the House Ways & Means Committee and the Senate Finance Committee to create legislation that will bring the U.S. tax code into the twenty-first century.

Tax reform is a priority for NCBA because our membership is comprised of family-owned small businesses who want to compete in the global market place without government support or interference. Unfortunately, our current tax code is broken and does little to promote economic growth. Even worse, it looks like true tax reform will probably be unachievable until next year due to partisan quarrels and the 2014 election season.

Prior to Wednesday’s press conference by Ways & Means Chairman Dave Camp (R-Mich.), both Speaker of the House John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ken.) expressed serious doubts that any meaningful tax reform can be achieved prior to the November elections.

In spite of the disappointing news from Republican leadership, Chairman Camp decided to move forward with the unveiling of his comprehensive tax reform plan also known as the “Tax Reform Act of 2014”.

While many headlines will concentrate on the reduction of income tax rates and the elimination of the dreaded Alternative Minimum Tax, the legislative proposal itself is 979 pages, and instead of going page-by-page, I have highlighted a few areas that are of concern to NCBA.

Section 3301, Limitation on Use of Cash Method of Accounting: “Under the provision, businesses with average annual gross receipts of $10 million or less may use the cash method of accounting; whereas businesses with more than $10 million would be required to use accrual accounting.

The provision would not apply to farming businesses, which would continue to be subject to current-law accounting rules.”

NCBA’s Position: It is an understatement to say that we fought  hard to make sure that agriculture could continue operating under cash accounting rules. Moving agriculture into accrual accounting would be devastating to our industry, especially our feedyard sector.

Section 3111, Expensing Certain Depreciable Business Assets for Small Business: “Under the provision, Code section 179 expensing would be made permanent at the 2008-2009 levels. Taxpayers would be able to expense up to $250,000 of investments in new equipment and property per year, with the deduction phased out for investments exceeding $800,000 (with both amounts indexed for inflation).

The provision would also restore and make permanent rules allowing computer software and certain investments in real property to qualify for section 179 expensing...The provision would be effective for tax years beginning after 2013.” NCBA’s Position: Section 179 small business expensing provides agricultural producers with a way to maximize business purchases in years when they have positive cash flow.

While not as generous as the $1 million level in the Senate proposal, we certainly applaud Chairman Camp for including Section 179 expensing in perpetuity. Section 3133, Repeal of Like-Kind Exchanges: “Under the provision, the special rule allowing deferral of gain on like-kind exchanges would be repealed.

The provision would be effective for transfers after 2014. However, a like-kind exchange would be permitted if a written binding contract is entered into on or before December 31, 2014, and the exchange under the contract is completed before January 1, 2017.”

NCBA’s Position: By removing like-kind exchanges from the tax code you will significantly limit the ability of farmers and ranchers, of which many are asset-rich and cash poor, to use the tax code to keep their family owned assets from being swallowed up by land developers.

NCBA strongly opposes this proposal. Other Sections to Note: Section 1403, Charitable Contributions, Qualified Conservation Contributions; Section 3106, Net Operating Loss Deduction; Section 3109, Repeal of Deductions for Soil & Water Conservation Expenditures and Endangered Species Recovery Expenditures; Section 3115, Repeal of Deduction for Expenditures by Farmers for Fertilizer; Section 3220, Repeal of Agricultural Chemicals Security Credit; Section 3303, Certain Special Rules for Taxable Year of Inclusion; Section 3314, Repeal of Averaging of Farm Income. Keep in mind, this is simply a proposal and it will be difficult for these provisions to be enacted by the end of this year. In the meantime, the House Ways & Means Committee is soliciting feedback from stakeholders like NCBA. If you are an NCBA member, please read the proposal, discuss these proposed changes with your tax preparer or advisor, and contact your state affiliate and our D.C. staff to let them know what you think. If you’re not an NCBA member, this is just another reason why you should join NCBA.

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