Comments express concerns with proposed tax changes

IRS plan for more restrictive rules on family-owned enterprises leads many to cite negative impact on farmers as reason for opposition.

Several agricultural groups and farmers have written comments to the Internal Revenue Service (IRS) urging that a proposed rule change for the taxable value of assets be amended to consider family farmers and ranchers.

The IRS plan for more restrictive rules for using valuation discounts would make it more difficult for farmers and ranchers who operate family-owned partnerships, LLCs or corporations to transfer their farms and ranches to the next generation.

Reportedly, of the nearly 9,500 comments on the proposed rule, 16% cite the potential negative impact on farmers as reason for opposition.

“A majority of a farm’s value comes from real estate, which, for farmers, is not viewed as a saleable asset," National Farmers Union (NFU) president Roger Johnson said. "We are concerned that the changes within the proposed regulation would deny essential discounts to family farms and significantly increase taxes on the transfer of family farms, threatening the ability to keep the operation intact."

NFU has long advocated for an effective estate tax with reasonable limitations, Johnson explained. The concern is that “the new proposed regulation will go as far as to deny family farmers essential discounts currently afforded through lawful provisions in the tax code,” he noted.

“As most business men and women consider retirement, farm operators 65 and older make up the fastest-growing segment of the farming population. Succession planning is an important aspect of any farm business. It’s essential that our tax laws provide the necessary provisions to ensure farm families can pass on their operations to the next generation without being forced to sell valuable farm land,” Johnson added.

Estates valued in excess of $5.45 million are subject to the levy, and that doubles to $10.9 million for married couples. The U.S. Department of Agriculture estimates that only 3% of farm estates would be required to file an estate tax return, with a much smaller share of estates (about 0.8%) owing any federal estate tax. Total federal estate tax liabilities on all farm estates in 2015 were estimated at more than a half-billion dollars.

“Treating family farmers looking to responsibly transfer their operations as wealthy individuals using aggressive tax strategies to artificially lower their asset value to avoid paying higher taxes is an unfair representation of family agriculture. I hope the Department of Treasury will take responsible action and consider family farmers and ranchers in their final rule,” Johnson concluded.

Members of the House Ways & Means Committee, in a letter to Treasury Secretary Jack Lew on Thursday, requested that the proposal be scrapped. Committee chairman Rep. Kevin Brady (R., Texas) and 23 other lawmakers requested that any new rule limiting the use of valuation discounts be more clearly defined and narrowly targeted. They also expressed concern that the proposed regulation wasn’t consistent with the congressional intent.

The comment period closed Nov. 2. According to the Department of Treasury, the regulations will not take effect until public comments are carefully considered and then 30 days after the regulations are finalized.

The Protect Family Farms & Businesses Act (H.R. 6100 and S. 3436), introduced in the House by Rep. Warren Davidson (R., Ohio) and in the Senate by Sen. Marco Rubio (R., Fla.), would stop the IRS from implementing its proposed restrictive estate tax discount valuation.

in letters thanking Davidson and Rubio for introducing the bills, American Farm Bureau Federation president Zippy Duvall wrote, "Individuals, family partnerships and family corporations own over 97% of our nation's over 2 million farms and ranches. Farm Bureau believes that America values these family-owned farms and ranches because of the food, fiber and fuel they produce, the contribution that agriculture makes to job creation and the economy and the open space that farming and ranching protects."

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