GOV. PAT QUINN’S budget preview already is sparking funding debates. Quinn is to officially unveil his budget proposal Wednesday. .......3
ILLINOIS OFFICIALS are monitoring rivers for possible flooding, while water table levels already are high in Mason County. ...............4
DESPITE LAST YEAR’S weather woes, most Illinois soybean farmers produced a much better crop than expected. ......7
Monday, March 8, 2010
Two sections Volume 38, No. 10
Ag aid included
Industry ‘waiting to use biodiesel’ pending Senate vote BY MARTIN ROSS FarmWeek
Despite a morass of proposed amendments and additions, U.S. Senate leaders were hoping this week to move a second “jobs” package that would restore confidence to the biodiesel industry and offer aid to weather-beaten producers. Debate continued Friday on a hefty projected $80 billion bill that includes several shortterm tax “extenders” and a proposed $1.5 billion in assistance for crop and livestock producers. Senate Majority Leader Harry Reid (D-Nevada) hopes to schedule a Tuesday vote on the measure, American Farm Bureau Federation policy ana-
lyst Pat Wolff reported. Retroactive extension of the recently expired $1-per-gallon biodiesel tax credit is a core element of the bill. Wolff said lawmakers last week were “not even talking about it” — a potentially positive sign, given controversy over the growing list of proposed amendments to the package. Alicia Clancy, corporate affairs coordinator with Renewable Energy Group (REG), which runs Danville’s Blackhawk Biofuels, noted “a significant drop-off in demand” following the credit’s Jan. 1 expiration. REG announced layoffs at its Washington, Iowa, and Farley, Iowa, plants in late January,
and although other REG plants continued operations, pay cuts have been necessary “across the board,” Clancy said. “It’s been a long winter in more than one way,” she lamented. “Now, we’re just waiting for the democratic process to take its course. If the biodiesel tax credit stays in the jobs bill, and the jobs bill gets passed by the Senate, we’re in really, really good shape. “Then we start notifying our customers that the tax credit is going to be back. What we have to wait for is the president to sign it, so it will actually be effective with the (Internal Revenue Service). The petroleum industry is literally just wait-
ing to use biodiesel.” Since January, REG-supplied fuel distributors have been “taking the $1-per-gallon risk on themselves,” Clancy said. However, the longer extension is delayed, the fewer the number of buyers who can afford to assume those costs “before biodiesel is no longer an option for them,” she said. Clancy credited Blackhawk’s ability to weather credit uncertainty largely to Illinois’ state tax credit for use of 11 percent biodiesel blends. Combined with higher biodiesel value under the federal renewable fuels standard, Illinois is in “a very good place” despite market disruption, she said.
Also included in the second jobs bill is a proposed $1.1 billion in supplemental direct payments for growers in disaster counties who suffer at least a 5 percent loss due to natural disaster. Supplemental payments would be equal to 90 percent of direct payments eligible producers received for the 2009 crop year and would cover quality losses. The jobs bill also proposes $150 million in aid for specialty growers, $500 million in forage and related aid for livestock producers, $75 million in emergency poultry support, and $25 million for aquaculture producers hit by higher feed costs.
Co-op deductions benefit or cost for growers?
Periodicals: Time Valued
A federal ruling allowing cooperatives to use a key tax deduction — at possible cost to some grain producers — has sparked confusion and some consternation this tax filing season. In 2004, the federal American Jobs Creation Act created the Domestic Production
Activity Deduction (DPAD), enabling companies to deduct a percentage of income derived from or wages paid for domestic production activities, including farming. DPAD was designed as a labor-based credit to replace export credits ruled illegal by the World Trade Organization. The income deduction rose from 3 percent in 2005 to 6 percent last year; it bumps to 9 percent for 2010. Producers with hired labor have been able to take the deduction since 2007; a fall Internal Revenue Service (IRS) ruling opened the door to coops that market their producerpatrons’ crops. However, if a co-op opts for DPAD, its individual members become ineligible for the deduction. Further, co-ops may take the deduction retroactively, in which case members who have used DPAD in past years would be required to file amended tax returns. The question, Illinois Farm Bureau Grassroot Issues Team Risk Management-Farm Program team member Ken Dalen-
berg argues, is whether “collectively, individual patrons have more to lose than the benefit to the cooperative.” Because it was seen as a business decision, co-ops can and largely have taken the deduction “without producer knowledge,” IFB risk-market specialist Doug Yoder said. Illinois Farm Business-Farm Management (FBFM) Association’s Jim Cullison reported roughly 40 percent of his largely mid-sized producer clients have taken the deduction, deducting anywhere from “very minimal amounts” to $3,500$4,000 in some cases. Cullison said the DPAD issue has been a “blindside” for some clients, but he blames current concerns on the timing of IRS’ ruling and inadequate coop-producer communications. “The accounting firms that work with the elevators became aware of (DPAD eligibility) this fall, and proposed it to the elevator managers,” he told FarmWeek. “Who wouldn’t want to take a (potential) $500,000 tax deduction? Communications
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just broke down along the way. You really can’t blame anybody for this — it just crept up so fast. “I’ve talked to some (FBFM) clients who are on elevator boards, and it seems like a lot of (co-op) directors were aware these deductions were going to be taken but were not aware of the impact to their clients. “One board member told me they needed to visit this issue and see what they could do to make things better for their clients.” Privately held elevators are not eligible for DPAD, and producers who deliver grain to those elevators or to co-op facilities of which they are not members need not worry about co-op deductions. Producers who are considering taking the deduction should contact their co-op. Co-ops can pass on a portion of deductions to patrons via 1099 gross grain sale tax statements — many dairy co-ops have provided such a “passthrough.” However, any remedy of that sort likely would have to wait until 2011, Cullison said.
GROWMARK has provided information on DPAD and its ramifications to its member service companies, but GROWMARK tax department director Greg Lawler noted local co-ops have the final decision on the deduction and how to direct resulting tax savings. Patron pass-through may not always be the best option for co-op or producer, Lawler held. Pass-through affects only producer income taxes — not federal self-employment tax liability. Further, Lawler said, local co-ops have an effective tax rate of about 39 percent, while producer-member rates usually are significantly less. By retaining the full deduction, co-ops may realize greater savings and reduce the co-op stock patronage members receive in lieu of cash, he said. That stock patronage is subject to both income and selfemployment taxes. Central Illinois GROWMARK member co-op Rising Farmers Grain Co. included a letter informing patrons of its See Deductions, page 4
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