Farmer and grain industry representatives reached a deal Tuesday evening with GOP lawmakers to fix the so-called “grain glitch” in the new tax law that created a loophole through which some farmers would have been able to avoid taxes by selling to cooperatives.
Such a fix would be the first substantive correction to the law, signed by President Trump in December. Lawmakers expect that more problems will crop up as the tax cuts are put in place.
“The solution reached today will restore the competitive balance that has long existed in the marketplace,” said House Ways and Means Committee Chairman Kevin Brady, R-Texas, who announced that the fix had been reached along with his Republican counterparts in the Senate.
The National Council of Farmer Cooperatives and the National Grain and Feed Association also touted the deal, saying that they hoped it would be included in a broad government spending bill expected to be unveiled this week. That would depend on negotiations between Republicans and Democrats.
The grain glitch involved a problem in the new, special tax break for small businesses organized as pass-throughs. Those businesses — sole proprietorships, partnerships, and S corporations — got a special new 20 percent deduction on their income, meant to help keep them competitive with C corporations benefiting from the new 21 percent corporate tax rate.
But after the law was passed, it was revealed that farmers that sell to farm cooperatives would effectively be allowed to take the deduction from the gross amount of those sales, rather than net income.
That wrinkle threatened to give a huge competitive advantage to farmers in co-ops and cut revenues.
The deal announced Wednesday would limit the break for farmers, while still allowing them to benefit from the pass-through deduction and for cooperatives to enjoy some of the benefits they had under the old code.
