Study: Proposed Tax Code Changes May Slash Access Capital

February 24, 2014 09:45 AM

Proposed changes to the tax code that would limit the use of cash accounting by ag operations would cut ag's access to capital by up to $12.1 billion over the next four years, American Farm Bureau Federation (AFBF) reports, citing a study released by Kennedy and Coe, LLC and Farmers for Tax Fairness.

The study was conducted by Informa Economics in regards to the discussion drafts of tax reform proposals released by the House Ways and Means Committee and the majority staff for the Senate Finance Committee. The proposed reforms would require ag operations with more than $10 million in gross receipts to shift to from a cash-basis to an accrual form of accounting.

According to the study, U.S. farmers forced to switch to accrual-basis accounting would have to pay as much as $4.84 billion in taxes over the next four years. Another impact of the changes would be a $7.26 billion reduction in borrowing capacity for these operations over that time span.

The study explains, "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," AFBF cites Brian Kuehl, Director of Federal Affairs for Kennedy and Coe, as saying.

"Cash accounting combined with the ability to accelerate expenses and defer income gives farmers and ranchers the flexibility to manage their tax burden on an annual basis by allowing them to target an optimum level of taxable income, commensurate with long-term annual earnings," according to Bob Stallman, president of the AFBF. "Cash accounting also gives farmers and ranchers the flexibility they need to plan for major investments in their businesses and in many cases provides guaranteed availability of some agricultural inputs."

You can find a full copy of the report here.

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