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PIGS GET FAT, BUT HOGS…

March 18, 2002

It’s a maxim in the tax world, even though city folk at Roth & Company don’t really understand where it comes from: “pigs get fat, but hogs get slaughtered.” The point is that you should be aggressive on your taxes, but if you go too far, you will get in trouble. The idea behind the saying is sound, even though we’re pretty sure that in the barnyard (or finishing facility) pigs and hogs eventually meet the same fate.

Fortunately, some taxpayers are willing to push the envelope, saving the rest of us from the nicks and scrapes that result from close encounters with the tax enforcement system. The folks at Highway Farms, Inc. in Boone County, Iowa recently tried to expand the use of a quaint relic of our rural past. The tax law allows the payment of some agricultural wages made “in-kind” – with produce of livestock – to escape FICA tax.

The officers of Highway Farms, Inc. arranged to take title to a few hogs shortly before the hogs went to market. The court noted that “The officer employees who received the (hogs) did not market their hogs separately from other Highway Farms hogs. Rather, the transferred hogs and the Highway Farms hogs were loaded on to the same truck and sold to the same buyer on the same terms. Because the hogs were market-ready at the time of transfer, there was little risk that they could not almost immediately be converted into cash.” Apparently the court requires a more traditional relationship with the livestock to avoid FICA taxes: “The hog bonuses were disguised cash transfers whose sole purpose was tax avoidance. The bonuses were the equivalent of cash bonuses, subject to FICA taxes.”

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