One More Reason Why Tax Reform is Going After Cash Method

Published on: 18:12PM Mar 24, 2014

The IRS issues data regarding income tax information for filers every year. I ran across a posting on the net farm income and loss reported by Schedule F farmers for 2011 and 2012. During each of these years, the USDA estimated that farmers had net farm income in excess of $120 billion.

However, on schedule Fs reported by individual farmers, they showed a net loss in 2011 of about $7.11 billion and for 2012 a net loss of $5.06 billion. There were about 1.845 million schedule Fs filed for these years. Many farmers now report their farm income using a flow-through entity such as an S corporation, LLC or partnership. This income would not be reported as part of this Schedule F loss. However, based upon our history with our farmers who use flow-through entities, their bottom line income or loss is normally not all that much different from Schedule F filers (other than hobby farmers which could distort this number a bit).

Let's assume that these farmers in fact report more income leading to net farm taxable income of $20 billion. This still leaves about $100 billion of net farm income that Congress thinks they can get their hands on. Over a 10 year period assuming an average 30% tax rate, this is about $30 billion of extra taxes flowing to the IRS each year. Over 10 years this adds up to $300 billion and that is one of the reasons why Congress wants to change higher revenue farmers to the accrual method of accounting.

Although this may be a simplistic calculation and does not factor in possible extra Section 179, it is a lot of money and if tax reform goes through, this extra income may be tough for them to pass up.

We will keep you posted on their efforts.