Minding Ag's Business

Cash Accounting Not in the Clear

Ask a room of 200 agricultural CPAs if Congress will tackle tax reform after the election and only one or two brave souls raise their hands. Revolutionary style tax laws see daylight only once every 30 years or so, if the 1954 and 1986 laws establish a pattern. But for the past few years, timid House and Senate tax committee leaders have outlined comprehensive drafts of what they'd like to include, then promptly retired before they faced the political fallout.

What's most likely to happen after the election is that Congress addresses "chunks" of tax reform and attaches them to other major bills moving through the legislature, Diane Deem, director of congressional and political affairs for the American Institute of CPAs, told the AICPA ag conference in Denver last week.

Topping concern for agriculture, CPAs, engineers and architects is the continued use of cash accounting. Ending that provision alone could raise $23.6 billion over a decade, she said, a sizable down payment to reduce the deficit or fund other priorities.

"They tell us ending accrual accounting isn't likely," a skeptical Deem said. "But the size of the provision means it could easily get picked up to pay for something else."

A proposed rule change first recommended by Senate Finance Committee staffers in 2013 would limit cash accounting only to those businesses with less than $10 million in gross receipts. By forcing larger operations to use accrual accounting and pay taxes up front, ag businesses would limit their ability to weather price and income variability, other ag CPAs have warned. Under this proposal, farmers--as well as accountants, engineers and other professionals--could be required to pay taxes on products or projects for which they have not yet received payment. In other words, a cashflow crunch.

KCoe Isom has estimated this proposal could affect feed yards responsible for 73% of U.S. beef production and dairies producing about 30% of the U.S. milk supply, reflecting just how capital intensive animal agriculture has become.

"What happens in 2017 will all come down to whether members have the will to tackle comprehensive reform or not," Deem said. But given the potential for damage from partial tax reform, she believes it's worth monitoring legislation closely.

Follow Marcia Taylor on Twitter @MarciaZTaylor

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cgilroy187185535
6/16/2016 | 3:27 AM CDT
The difference between cash and accrual accounting is important to understand, whether you plan to handle your own financial statements...http://trustedaccountants.com.au/
RSimpkins1489533924
6/2/2016 | 12:11 PM CDT
Well unknown afraid to use your name!! They are not solely owned and are not a family run business. Most are backed by foreign money and don't pay many taxes at all.
Unknown
5/31/2016 | 9:38 PM CDT
Mr. Simpkins, why should it be legal for you to hide money to avoid taxes and not the big Corps?
RSimpkins1489533924
5/24/2016 | 10:35 AM CDT
One's making more than 10 million should be taxed differently, they are big corps hiding money to avoid taxes. The 23 billions saved over a decade will not put a dent in the national debt because it will have grown that much in less time than that. What percent of farmers would that effect anyway?