More Green Book Updates

  • Agribusiness
  • 3/30/2022
CasualBusinessmanListeningtoCollegue

We provide more details on the Administration Green Book detailing income tax increases and other changes.

On Monday President Biden’s administration released the Green Book detailing how it would increase taxes to pay for its budget proposal. In yesterday’s post we outlined some of the major tax increases and changes that would affect farmers.

However, we did miss a few other changes that this post will go over.

First, the corporate tax rate would increase from 21% to 28% effective January 1, 2022. The proposal does not indicate if there would be any graduated tax rates such as what the House proposed last year. We would assume so, but the proposal is silent. If enacted with no graduated rates, this would result in an overall 87% tax increase for many farm corporations from the old 15% rate on the first $50,000 of taxable income to 28%.

Second, on the mark-to-market on trust owned assets, it also applies to a partnership or any other non-corporate entity that has owned property for at least 90 years. This could affect many farmland partnerships. Let’s take a look at a quick example:

Assume ABC partnership was formed in 1940 and owned 1,000 acres of land in the California San Joaquin valley. The land was original purchased for $100 per acre and is now worth $25,000 per acre. In 2030, the partnership will be required to mark-to-market the land to the current fair market value and recognize a $24,900,000 gain. It does not matter that no one is still alive from 1940. The step-up in values in the partnership assets are likely ignored in these calculations. Will the partnership be allowed to transfer the land into an S corporation to eliminate this mark-to-market. Too soon to know, but that is certainly an option.

Third, there is a partial elimination of the step-up in basis. Currently, assets inherited by a spouse receive a full step-up upon death of the first spouse. The proposal indicates that any assets inherited by a spouse will get a carryover basis, thus no step-up. This would create potentially large tax liabilities to the inheriting spouse.

Any transfer of appreciated property to a charitable remainder trust would create taxable gain.

Our post had indicated a $5 million exemption per person, but after reading the proposal again, it appears it is only $1 million.

Persons inheriting farm assets could either elect to pay the tax over 15 years up front or elect to defer the tax until the property is sold or is no longer being farmed by the family. If you elect to defer, the tax is no longer allowed to be paid over 15 years and likely will incur an interest charge and have a lien filed on all affected property. Not such a great deal.

As expected, all farm income including self-rental income will now potentially be subject to either the 3.8% net investment income tax or 3.8% self-employed Medicare tax. This was proposed back in 2021 and they are extending it to 2022.

The increased availability of the premium tax credit would be made permanent. This would be very helpful to many farm families.

Make permanent the enhancements to the earned income tax credit. Again, this could help many younger farm families with children.

Make permanent the enhanced child and dependent care credit.

Extend the extra child tax credit through 2025 and make full refundability permanent.

It would make the excess business loss EBL rules permanent, however, it appears to still allow it as part of the net operating loss carryover instead of becoming part of the EBL.

Banks would now be required to report gross inflows and outflows with a breakdown of physical cash, transactions with a foreign account and transfers to and from another account with the same owner. Accounts under $600 would be exempted (wow that is a relief). It appears that credit card companies and similar would be required to report similar information (again exempting accounts under $600). All crypto companies would be subject to the same rules. The IRS would have broad authority to implement these rules which means get ready to reconcile all of your transaction on a new form and see your tax preparation bill triple or more. Crypto companies would be required to report sales and basis to the IRS just like stocks, bonds, mutual funds under current law.

Extend liability to shareholders who sell a C corporation that creates tax liability at the corporate level. This liability would extend to the shareholders if the corporation does not timely pay the tax.

One benefit is to change the Centralized Partnership Audit Regime to allow taxpayers to receive refunds if the deductions create a refund. Under current rules this is a non-refundable credit and thus no refund. This would be good news.

Allow less supervision of assessing penalties by the IRS. This is bad news. The IRS has lost several Tax Court cases on this issue.

Again, these are proposals and most of these will not pass this year. But, if the Senate ever hits at least 60 members who are more “progressively” minded with minimal control in the House and a President of the same party, it is likely that many of these will happen. That is in the future, but be forewarned.

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

Experience the CLA Promise


Subscribe