TAXFAX
TAXFAX EDITOR George W. Benson McDermott Will & Emery LLP TAXFAX Guest Writers Daniel R. Schultz Cooperative Consulting, LLC
Limitations on Excess Losses from Farming Temporarily Replaced by Limitations on Excess Business Losses of Noncorporate Taxpayers By George W. Benson The Tax Cuts and Jobs Act of 2017 (the “TCJA”) temporarily suspended Section 461(j), a special rule limiting the use of “excess farm losses” in the case of certain wealthy individuals, and temporarily replaced it with Section 461(l), a broader limitation on the excess business losses of all sorts (including farming losses) of certain noncorporate taxpayers. The temporary suspension and replacement is for taxable years beginning after December 31, 2017 and before January 1, 2026. Section 461(j) is a rather narrow provision targeting only large farming losses of wealthy individuals receiving farm subsidies. It was originally enacted as part of the Food, Conservation and Energy Act of 2008. The Senate Finance Committee Report (S. Rep. No. 110-206, 110 Cong., 1st Sess. 2007) stated: “The Committee believes that taxpayers receiving government assistance through payment programs and loan programs should not be allowed to claim unlimited amounts of losses from farming activities.” (at 76). Section 461(j) limits the use of “excess farm losses” by certain taxpayers (other than C corporations) that receive any “applicable subsidy” for a year. For this purpose, “applicable subsidy” is defined as any direct or counter-cyclical payment under title I of the Food, Conservation, and Energy Act (or any payment elected to be received in lieu of any such payment) or any Commodity Credit 18
Christopher R. Duggan Dorsey & Whitney LLP
Corporation loan. “Excess Teresa H. Castanias, CPA farm losses” is defined as the excess of deductions for a year attributable to farming businesses over the sum of the aggregate gross income of the taxpayer for the year plus a “threshold amount.” The threshold amount is the greater of (i) $300,000 ($150,000 in the case of married individuals filing separately) or (ii) the taxpayer’s total farming gross receipts for the prior five years over deductible farm expenses for the prior five years. Losses disallowed under Section 461(j) are treated as deductions of the taxpayer attributable to farming in the subsequent year. Interestingly, Section 461(j) contains a broader than usual definition of farming. For persons engaged in farming with respect to a commodity, the definition sweeps in “any trade or business of the taxpayer of the processing of such commodity (without regard to whether the processing is incidental to the growing, raising, or harvesting of such commodity).” If the farmer is a member of a cooperative, any such trade or business of the cooperative “shall be treated as the trade or business of the taxpayer.” The Conference Committee Report (H.R. Conf. Rep. No. 110627, 110 Cong., 2d Sess. 2008) provided further explanation: “The farming activities of a cooperative are attributed to each member for purposes of this rule. Thus, a member of a cooperative who raises a commodity and sells it to the cooperative for processing is considered to Winter 2018 | The Cooperative Accountant
