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A FARM BILL FULL OF MOONSHINE CREDITS

October 04, 2007

SEE UPDATE AT BOTTOM

The Senate Finance Committee is drafting a new farm tax bill. If you were expecting a measure to simplify taxes and limit government meddling in the farm economy, you haven't been paying attention.

The bill creates or extends at least 16 farm-related tax breaks. Brand new farm subsidies would include:

- A new credit for "endangered species recovery expenditures."
- A new tax credit for CRP farmland.
- A new tax credit for conservation easements.

The bill also extends existing moonshine and pork ethanol and biodiesel tax credits, even in the face of high corn prices and an ethanol glut. It also exempts farmers receiving conservation reserve payments from self-employment tax, reversing a controversial proposed revenue ruling issued last year.

To pay for these, the bill adds some complication to the tax law.

- It limits deductions for farm losses to $200,000 for taxpayers receiving farm subsidies.
- It blocks Section 1031 "like-kind" exchanges for ground for which the owner is receiving ag program payments or CCC loans if the property is exchanged for improved real estate, unless the property is permanently retired from farm program payments.

It seems like it would make a lot more sense to not subsidize prosperous farmers through ag program payments at all, rather than nibbling at the subsidies through obscure and complicated tax provisions. Then again, I'm just a city boy, so maybe I'm missing something.

UPDATE: It looks as though the Senate is going to use this bill to codify the "economic substance doctrine." This is a rule applied in the courts against transactions that follow the tax code superficially, but subvert it in reality. The Wall Street Journal covers this angle.

Tags: ethanol.tax policy.tax shelters.

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