"The downturn in the farm economy has been devastating to farmers throughout the Midwest,"Grassley said. "In the last Congress, we enacted a number of measures to help farmers cope with the tough times, including income averaging. Unfortunately, the IRS has been very lax in providing rules or guidelines which farmers can use to determine what they owe."
The Taxpayer Relief Act of 1997 enacted income-averaging rules for farmers, and they were made permanent last fall. Income-averaging permits farmers to average their income over the prior three years to balance out the highs and lows they encounter from year to year. The law authorizes the IRS to issue guidelines to particular types of farmers and ranchers, so they are able to accurately calculate their tax burden.
In the letter, Grassley and Bond urge Commissioner Rossotti to issue immediate guidance to farmers who are trying to meet the tax deadline which is just 20 days away. The two senators also urged the commissioner to not assess penalties to farmers who have already given their best guess without the benefit of IRS guidelines.
"Income-averaging was enacted nearly two years ago," Grassley said. "Unfortunately, the IRS has failed to respond to the needs of farmers, thereby forcing them into a lose-lose situation where they either have to forgo income-averaging and pay higher taxes or make an educated guess and expose themselves to penalties if the IRS says they guessed wrong. The IRS should provide the same prompt, accurate information that it expects from every taxpayer."
Grassley was a member of the National Commission on Restructuring the Internal Revenue Service and a chief sponsor of reform legislation to overhaul the agency. Grassley also co-authored the Taxpayer Bill of Rights I, II and III. A copy of the letter to Commissioner Rossotti follows.