Ag Policy Blog

Senate Bill Would Provide Tax Relief for Bankrupt Farmers

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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From DTN's Washington Insider column

Tax relief for family farmers in bankruptcy is the subject of bipartisan legislation introduced in the Senate, a proposal described as a “game changer” for those kinds of cases.

The Family Farmer Bankruptcy Clarification Act of 2017 (S. 1237) aims to “correct” a 2012 Supreme Court ruling on Chapter 12, said Sen. Chuck Grassley, R-Iowa, introduced the measure in the Senate May 25 with Sen. Al Franken, D-Minn.

Chapter 12 of the Bankruptcy Code is designed to protect family farmers and family fishermen with a regular income. The debtors are afforded protection from creditors while they make payments under a plan to repay all or a portion of their debts over a three- to five-year period.

Specifically, the proposed bill would help farmers sell a portion of their land to help fund their reorganization and stay in business despite being levied with a large capital gains bill. The act would change how those capital gains taxes are treated. Instead of being a priority claim that would have to be satisfied in full before unsecured creditors receive payments, the capital gains would be treated as another general unsecured claim.

The measure would vastly alter the landscape of small farm bankruptcy cases, according to lawyers. “In many cases, those capital gains taxes would force the debtors to quit farming altogether,” Carol Dunbar told Bloomberg BNA in a June 5 email about the law in its current state. Dunbar has been a Chapter 12 trustee in Iowa since the chapter's inception in 1986.

Still, the bill doesn't seem to touch on the debt limit issues with Chapter 12 that have caused more farmers to no longer qualify under the chapter. The debt limit allowed for Chapter 12 caps total debts on the farm at $4,031,150.

While heartening to farmers, the bill's prospects are unclear as standalone legislation. Similar bills introduced in the Senate over the past few years have died in committee. Still, the Senate Judiciary Committee plans hearings -- Grassley is the panel chairman.

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