Grassley Seeks Fair Tax Treatment for Farmers


Iowa Senator Wins Support for Bill from 54 Senators


Jill Kozeny

202/224-1308


Seeking to hold accountable the federal government's tax collecting agency and put back in place an important tax management tool for farmers, Sen. Chuck Grassley of Iowa today introduced legislation to restore for family farmers the tax benefit provided from use of the cash accounting method and from installment sales for deferred payment commodities contracts.

Grassley has secured strong bi-partisan support for the legislation, with 54 senators signing on today as original co-sponsors. The initiative responds directly to a decision made last October by the Internal Revenue Service (IRS). At that time, the IRS took a position that payments made under a deferred payment contract may be subject to the alternative minimum tax (AMT). In effect, this could repeal the ability of some farmers to use deferred payment contracts to move tax liability into future years.

"The IRS pulled the rug out from under tens of thousands of family farmers in Iowa, and equal numbers in states across the country," Grassley said. "It will result in farmers being hit with huge tax bills they were not expecting. The effect is harsh and unfair treatment for America's farmers."

Grassley charged that the IRS disregarded important realities in making this determination. He said:

  1. Farmers have little, or no, control over the price of their crops and livestock.
  2. They have no control over weather conditions.
  3. Use of deferred contracts helps farmers average their income from year to year.
  4. Deferring the resulting tax liability for legitimate business reasons is essential.
  5. Family farmers are by statute permitted to manage their businesses on a cash basis. And amounts received under deferred payment contracts may be properly deferred under this method without AMT liability.

The legislation introduced today would amend the Internal Revenue Code of 1986 to provide that installment sales of certain farmers not be treated as a preference item for the purposes of the alternative minimum tax.

"This bill reaffirms Congressional intent. It states clearly that family farmers may continue to receive the tax benefit provided from the use of the cash method of accounting and from installment sales for their deferred payment commodities contracts," Grassley said. "Simply put, it's the right thing to do."

Sens. Byron Dorgan of North Dakota, Slade Gorton of Washington, and Max Baucus of Montana joined Grassley to introduce the "Family Farm Alternative Minimum Tax Relief Act of 1997." A companion measure was introduced in the House of Representatives by Rep. George Nethercutt of Washington. Grassley serves as a senior member of the tax-writing Senate Finance Committee.

Grassley said many Iowa farmers have contacted him regarding the unexpected financial hardship created by the October IRS directive. He has advised Iowans to consult their tax preparers to determine potential liability. Grassley also said that while Congress is not likely to act in time to relieve farmers before this year's tax filing deadline, the relief measure if approved would apply retroactively.

Grassley met repeatedly with IRS Commissioner Margaret Milner Richardson to urge a reversal of the IRS position. The administration said it would not act but indicated that it would support a legislative remedy.